Wednesday, July 20, 2011

California Supreme Court Grants Review in In Re Lamps Plus Overtime Cases

On July 20, 2011, the California Supreme Court granted review of the Second District (Division 8) opinion upholding denial of certification of meal break claims in In Re Lamps Plus Overtime Cases, 195 Cal. App. 4th 389 (2011). This comes on the heels of the Court taking the same action with regard Division 8’s identical opinions in Hernandez v. Chipotle Mexican Grill, Inc., Case No. S188755, and Tien v. Tenet Healthcare, Case No. S191756.

Per the Court's website, briefing in Lamps Plus is stayed pending the Court’s decision in Brinker:
The petition for review is granted. Further action is this matter is deferred pending consideration and disposition of a related issue in Brinker Restaurant v. Superior Court, S166350 (see Cal. rules of Court, rule 8.524 (c)), or pending further order of the court. Submission of additional briefing, pursuant to California Rules of Court, rule 8.528, is deferred pending further order of the court. Votes: Cantil-Sakauye, C.J., Kennard, Baxter, Werdegar, Chin, Corrigan, JJ.

Tuesday, July 12, 2011

Second District Finds PAGA Claims Not Subject to FAA Preemption Under Concepcion: Brown v. Ralphs Grocery

On July 12, 2011, the Second District (Division Five) held that the U.S. Supreme Court’s preemption analysis in AT&T Mobility LLC v. Concepcion does not apply to PAGA claims. See Brown v. Ralphs Grocery, __Cal.App.4th __ (2011).  The Court remanded the action for further consideration as to “whether the provision in the arbitration agreement waiving plaintiff’s right to pursue a representative action under the PAGA can be severed or whether the presence of that one invalid provision in the arbitration agreement renders the entire agreement or portions thereof unenforceable.”  The ultimate holding on this question may provide a basis to exclude labor class actions from the scope of FAA preemption under Concepcion whenever a PAGA claim is alleged.  More on this decision later.

Friday, July 1, 2011

California Supreme Court Holds California Overtime Provisions Apply to Colorado / Arizona Residents Working in California, But that the UCL Does Not Permit Enforcement of FLSA Overtime Claims For Work Performed By Nonresidents In Other States: Sullivan v. Oracle Corp.

On June 30, 2011, the California Supreme Court issued an opinion in Sullivan v. Oracle Corp., __ Cal. 4th __ (2011) resolving the set of questions pertaining to the scope of California’s Overtime and UCL provisions certified by the Ninth Circuit in Sullivan v. Oracle Corp., 557 F.3d 979 (9th Cir. Cal. 2009). These questions, and the Court’s response thereto, is as follows:

First, the Court was asked to determine whether the California Labor Code's overtime provisions apply to work performed in California by nonresidents. In ruling on this question, the Court acknowledged that it could not provide a sweeping response applicable to the residents of all 50 States, as a response to this question was not simply dependent on whether the applicable provisions of the California Labor Code covered non-residents working in California, but also turned on “whether conflict-of-laws principles direct us to apply California law in the event another state also purports to regulate work performed here.” See Sullivan, 2011 Cal. LEXIS 6537, at 7-8.

With regard to the first component, the Court concluded that California overtime provisions expressly applied to “any work” and “any employee” [see id., at 8 (citing Labor Code §510(a) and 1194(a))], and that the “preambular section of the wage law [] confirms that our employment laws apply to ‘all individuals’ employed in this state[.]” See id. (citing (Lab. Code § 1171(a)). Moreover, the Court reasoned that a construction of these provisions as governing work performed by non-residents not only fell squarely within the State’s police powers to regulate activity with California’s borders, but was actually necessary to ensure that the objectives of California’s overtime provisions were given full effect:
That California would choose to regulate all nonexempt overtime work within its borders without regard to the employee's residence is neither improper nor capricious. As a matter of federal constitutional law, "[s]tates possess broad authority under their police powers to regulate the employment relationship to protect workers within the State. Child labor laws, minimum and other wage laws, laws affecting occupational health and safety, and workmen's compensation laws are only a few examples." (De Canas v. Bica (1976) 424 U.S. 351, 356.) Furthermore, the overtime laws serve important public policy goals, such as protecting the health and safety of workers and the general public, protecting employees in a relatively weak bargaining position from the evils associated with overwork, and expanding the job market by giving employers an economic incentive to spread employment throughout the workforce. (Gentry v. Superior Court (2007) 42 Cal.4th 443, 456.) The Legislature has considered these purposes sufficiently important to make the right to overtime compensation unwaivable (Lab. Code, § 1194) and the failure to pay overtime a crime (id., § 1199; see Gentry, at p. 456). To exclude nonresidents from the overtime laws' protection would tend to defeat their purpose by encouraging employers to import unprotected workers from other states. Nothing in the language or history of the relevant statutes suggests the Legislature ever contemplated such a result. A contrary conclusion would be difficult, if not impossible, to reconcile with the Legislature's express declaration that "[a]ll protections, rights, and remedies available under state law . . . are available to all individuals . . . who are or who have been employed, in this state." (Lab. Code, § 1171.5, subd. (a).)
See Sullivan, 2011 Cal. LEXIS 6537, at 10-12.

With regard to the second component, the Court made clear that whether California overtime provisions applied to the residents of any given State turned (in part) on whether such application would create a conflict with the resident's home state law. The Court’s analysis here – which was limited to the laws of Colorado and Arizona – determined that no arguable conflict could exist because Arizona has no overtime laws and Colorado's overtime law only governs work performed within the boundaries of Colorado:
Whether a true conflict exists under the circumstances of this case is doubtful, at best. California has, and has unambiguously asserted, a strong interest in applying its overtime law to all nonexempt workers, and all work performed, within its borders. (See Lab. Code, § 1171.5, subd. (a) ["All protections, rights, and remedies available under state law . . . are available to all individuals . . . employed, in this state."]; see also id., §§ 510, subd. (a) ["[a]ny work"], 1194, subd. (a) ["any employee"], 1199 [criminal sanctions]; see also discussion ante, at p. 6 et seq.) California's interests, as this court has identified them, are in protecting health and safety, expanding the labor market, and preventing the evils associated with overwork. (Gentry v. Superior Court, supra, 42 Cal.4th 443, 456.) Similar interests underlie the FLSA's overtime provisions (Barrentine v. Arkansas-Best Freight System (1981) 450 U.S. 728, 739) and, we may assume, Colorado law as well. Neither Arizona nor Colorado, however, has asserted an interest in regulating overtime work performed in other states. Arizona, as mentioned, has no overtime law at all, and Colorado's overtime law purports to govern only "work performed within the boundaries of the state of Colorado . . ." (7 Colo. Code Regs. § 1103-1(1) (2011)). These circumstances reveal no genuine basis for concluding a true conflict exists.
See Sullivan, 2011 Cal. LEXIS 6537, at 24-25.

Based on these two findings, the Court concluded that “[t]he California Labor Code does apply to overtime work performed in California for a California-based employer by out-of-state plaintiffs in the circumstances of this case….” See id., at 30.

Second, the Court was asked to determine whether the violation of the overtime provisions in Question 1 also constituted a violation under the UCL. The Court answered this in the affirmative:
We have already decided that the failure to pay legally required overtime compensation falls within the UCL's definition of an "unlawful . . . business act or practice" (Bus. & Prof. Code, § 17200; see Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 177 [UCL authorizes, as restitution, order for payment of unlawfully withheld wages]), and the parties offer no argument on the point.
Sullivan, 2011 Cal. LEXIS 6537, 32 (Cal. June 30, 2011)

Third, the Court was asked to determine whether the UCL applies to a FLSA overtime claim for work performed by nonresidents in other States, which here, was predicated on the fact the decision to classify such workers as exempt was made at the company’s corporate headquarters in California. The Court held it did not. The Court’s reasoning was based on the fact that an erroneous classification determination is not what is prohibited under the FLSA; rather, the prohibited activity is the failure to pay overtime compensation:
The Ninth Circuit has asked us to decide whether the UCL applies to plaintiffs' FLSA claims "in the circumstances of this case" (Sullivan III, supra, 557 F.3d 979, 983), which we understand to mean in accordance with the same stipulated facts on which the federal courts have based their decisions. Those stipulated facts identify only a single instance of relevant conduct occurring in California: "The decision-making process to classify Instructors as exempt from the requirement to be paid overtime wages under the FLSA occurred primarily from within the headquarters offices of Oracle Corporation located in Redwood Shores, California." Certainly the UCL reaches any unlawful business act or practice committed in California. (See Bus. & Prof. Code, § 17200 ["As used in this chapter, unfair competition shall mean and include any unlawful, unfair or fraudulent business act or practice . . . ."].) But for an employer to adopt an erroneous classification policy is not unlawful in the abstract. (Cf. Walsh v. IKON Office Solutions, Inc. (2007) 148 Cal.App.4th 1440, 1462 [addressing California wage law].) What is unlawful, and what creates liability under the FLSA, is the failure to pay overtime when due. (See 29 U.S.C. § 207(a)(1) ["no employer shall employ any of his employees . . . for a workweek longer than forty hours unless such employee receives [overtime] compensa tion"].) Accordingly, that Oracle's decision to classify its Instructors as exempt was made in California does not, standing alone, justify applying the UCL to the nonresident plaintiffs' FLSA claims for overtime worked in other states. n10 Nor does any other basis for applying the UCL to those claims appear in the stipulated facts.
See Sullivan, 2011 Cal. LEXIS 6537, at 34-35.

Importantly, the court reasoned that “the UCL might conceivably apply to plaintiffs' claims if their wages were paid (or underpaid) in California,” but explained that this issue was not before the Court as “the stipulated facts do not speak to the location of payment.” See Sullivan, 2011 Cal. LEXIS 6537, at 36.

Central District Certifies Paystub Claim Against FedEx: McKenzie v. Fed. Express Corp.

On June 16, 2011, Central District court Judge Gary Allen Feess ordered certification of a Labor Code section 226(e) paystub claim against FedEx in McKenzie v. Fed. Express Corp., 2011 U.S. Dist. LEXIS 65278 (C.D. Cal. June 16, 2011). Plaintiff's alleged that Fedex violated Cal Lab Code § 226(a) by (1) failing to provide a separate category calculating the total hours worked, (2) including an overtime rate that only identified the amount above the regular rate, rather than expressly identifying an all-inclusive, precise overtime rate, and (3) failing to provide an end-date for the pay-period.

The case is somewhat noteworthy as it really underscores the fact that the threshold burden necessary to certify a paystub claim is very low. Due to the systemic nature which pay-stubs are created, the only defense an employer generally has is to focus on the element of injury. However, as the Court’s predominance analysis makes clear, how each class member was injured does not require an individualized inquiry under section 226(e). See McKenzie, 2011 U.S. Dist. LEXIS 65278, at 25.

First, citing to the prior decision in Jaimez v. DAIOHS USA, Inc., 181 Cal. App. 4th 1286 (2010), the Court concluded that an alleged practice of failing to adhere to the requirements of Section 226 itself – not the alleged injury – is the basis on which certification of a paystub claim must rest. As explained by the Court, Jaimez made clear that certification was required “even though there was no evidence in the record of the plaintiff's injury resulting from the inaccurate paystubs….” See McKenzie, 2011 U.S. Dist. LEXIS 65278, at 25-26. As further noted by the Court on this point:
[E]ven if there was no evidence in the record that McKenzie suffered an injury from the wage statements issued by FedEx, and some individualized proof of damages may be necessary in this case, the holding in Jaimez also supports McKenzie's position that common issues nevertheless predominate in the present action. See 105 Cal. Rptr. 3d at 460 (holding that "[t]he fact that individualized proof of damages may ultimately be necessary does not mean . . . that [the plaintiff's] theory of recovery is not amenable to class treatment. A common legal issue predominates the claim, and it makes no sense to resolve it in a piecemeal fashion.")
See McKenzie, 2011 U.S. Dist. LEXIS 65278, at 30 fn. 3.

Second, citing to the decision in Ortega v. J.B. Hunt Transp., Inc., 258 F.R.D. 361 (C.D. Cal. 2009), the Court reasoned that an inherent injury necessarily accompanies a violation of a section 226(e) that will be common to the class. Specifically, “the court in Ortega explained that the plaintiff's ‘statement that he could usually do the math in [his] head and figure out approximately what [he] was going to get gross is consistent with the type of injury that has been found sufficient to support a claim for violation of Section 226.’” See McKenzie, 2011 U.S. Dist. LEXIS 65278, at 26-27. Moreover, the Court reasoned that “this lawsuit, and the difficulty and expense incurred by McKenzie and the proposed class in reconstructing time and pay records is sufficient evidence that they suffered a common injury.” See id., at 29-30.

Thus, based on the forgoing analysis, it is fairly clear that the threshold burden necessary to certify a paystub claim under Section 226 is very low. Essentially all that is required is evidence that the alleged violation was standardized among the employees which comprise the class.