Wednesday, March 28, 2012

Northern District Certifies Overtime Class Based on Failure to Incorporate Bonus Pay Into Hourly Overtime Rate: Chavez v. Lumber Liquidators

On March 26, 2012, United States District Court Judge, Samuel Conti, granted class certification against Lumber Liquidators, in part, on the theory that the defendant had failed to take bonus pay into account in calculating the overtime rate for California non-exempt employees.  See Chavez v. Lumber Liquidators, 2012 U.S. Dist. LEXIS 40984 (N.D. Cal. Mar. 26, 2012).  As reasoned by the Court, class-wide adjudication of the plaintiff's overtime claim was appropriate based solely on evidence that the defendant utilized a standardized calculation methodology that did not consider sales related bonus pay:
Zaldivar's claims are typical of the 130 non-exempt employees' claims because all were subject to the common pay practices of LLI. Zaldivar has stated that he regularly worked more than forty hours per week and that he received $12,282.87 in sales bonuses that were not incorporated in his regular rate of pay for the purposes of calculating his overtime rate. Zaldivar Decl. ¶¶ 4-5. LLI objects that Zaldivar has failed to prove that his overtime was ever calculated incorrectly. Opp'n at 25. Plaintiffs respond that LLI has failed to produce adequately detailed records and LLI's argument is not relevant to whether class certification is appropriate. Reply at 10. The Court concludes that the evidence presented by Plaintiffs is sufficient for the purposes of class certification. At this stage, it is enough that Plaintiffs have shown that LLI had a uniform practice for calculating overtime pay, that LLI's uniform practice did not account for bonuses and other non-discretionary pay, and that Zaldivar received $12,282.87 in bonuses and claims to have worked more than forty hours per week on several occasions. "In determining the propriety of a class action, the question is not whether the plaintiff[s] . . . have stated a cause of action or will prevail on the merits, but rather whether the requirements of Rule 23 are met[.]" United Steel, Paper & Forestry, Rubber, Mfg. Energy, Allied Indus. & Serv. Workers Int'l Union v. ConocoPhillips Co., 593 F.3d 802, 808 (9th Cir. 2010) (quoting Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177-78 (1974)).
See Chavez, 2012 U.S. Dist. LEXIS 40984, at 18-19.

Monday, March 26, 2012

California Supreme Court To Review Concepcion's Impact On The Armendariz Balancing Test: Sanchez v. Valencia Holding Co. LLC

On March 21, 2012, the California Supreme Court granted review of the Second District’s decision in Sanchez v. Valencia Holding Co., LLC, 201 Cal. App. 4th 74 (2011) – previously discussed here – which upheld a denial of a motion to compel arbitration in a proposed CLRA class action.   Although the trial court had denied the defendant’s motion on the grounds that the class action waiver was unenforceable because it violated statutory rights under the CLRA, the Court of Appeal did not affirm the trial court’s order on these grounds, finding instead that the arbitration agreement as a whole was unconscionable under the Armendariz balancing test (which the Court concluded continues to survive notwithstanding Concepcion).  The California Supreme Court appears to be poised to evaluate this proposition, stating the issue on review is as follows:
Petition for review after the Court of Appeal affirmed an order denying a petition to compel arbitration. This case includes the following issue: Does the Federal Arbitration Act (9 U.S.C. § 2), as interpreted in AT&T Mobility LLC v. Concepcion (2011) 563 U. S. __, 131 S.Ct. 1740, preempt state law rules invalidating mandatory arbitration provisions in a consumer contract as procedurally and substantively unconscionable?

Monday, March 12, 2012

Southern District Declines to Enforce Class Action Waiver Secured After Filing of Lawsuit: Balasanyan v. Nordstrom, Inc.

On March 8, 2012, Southern District Court Judge, Jeffrey T. Miller, denied an employer’s motion to compel individual arbitration based on an arbitration agreement that was amended to include a class action waiver provision two months after the proposed class action complaint was filed.  See Balasanyan v. Nordstrom, Inc., 2012 U.S. Dist. LEXIS 30809 (S.D. Cal. Mar. 8, 2012).  In denying the motion, the Court reasoned that the employer’s efforts to revise the agreement – post filing of the lawsuit – was an improper communication with the class because it improperly sought to dissuade participation in a pending action:
While Wang dealt with improper attempts to persuade employees to opt out of a class action suit, the district court's power also extends to other communications that would affect participation in the lawsuit, such as the arbitration agreement at issue here. One case, for example, invalidated an arbitration agreement in part because institution of the agreement after the case had been filed constituted an improper communication with putative class members. In re Currency Conversion Fee Antitrust Litigation, 361 F.Supp.2d 237 (S.D.N.Y. 2005) (amended on other grounds). The plaintiffs in that case were Visa and MasterCard cardholders who sued various banks for alleged illegal charges based on foreign currency exchanges. Several of the banks mailed letters to their cardholders purporting to add an arbitration clause to the cardholder agreements after the litigation had begun, but did not inform the cardholders about the litigation in the notices. The court first noted that trial courts have authority over defendants' communications with class members under Fed. R. Civ. P. 23(d), id. at 252, and emphasized that a court must protect the interest of putative class members by preventing misleading communications, perhaps even disallowing communications if they attempt to "undermine Rule 23 by encouraging class members not to join the suit." Id. (citation omitted). The court found that because this type of communication had the potential for coercion, given that the cardholders had no other source of information concerning the litigation and they depended on defendants for their credit needs, the actions were improper. In conclusion, the court held "that [the arbitration clauses in question] may not be enforced because Chase and Citibank added them, without notice, after this litigation commenced." Id. at 254. See also Williams v. Securitas, 2011 U.S. Dist. LEXIS 75502 (E.D. Pa. 2011) (invalidating arbitration agreement imposed on defendant's employees during pendency of litigation because it was likely to confuse putative class members about whether agreement required them to opt out).
See Balasanyan, 2012 U.S. Dist. LEXIS 30809, at 7-9.

Significantly, the Court rejected the employer’s efforts to couch the communication as constituting an “employment communication” (as opposed to a “class communication”), and refused to find an exemption to the forgoing authorities based on the fact the lawsuit was not even mentioned in the communication with the class.  The Court found that the employer’s failure to mention the pending lawsuit when soliciting the revised agreement only served to enhance the deceptive/coercive nature of the communication:
Nordstrom states that "the August DRA cannot possibly constitute a misleading communication about the litigation" because the lawsuit was never mentioned in the agreement. Def. Reply at 10. Of course, by advocating a bright line rule that would focus on whether a communication specifically mentions the lawsuit, Nordstrom misses the point. One purpose of the court's control over class communication is to prevent improper contacts that could jeopardize the rights of the class members—abdicating that responsibility simply because a defendant does not specifically mention the litigation would defy common sense, as exemplified in In re Currency Conversion, 361 F.Supp.3d 237. n2 To allow defendants to induce putative class members into forfeiting their rights by making them an offer and failing to disclose the existence of litigation would create an incentive to engage in misleading behavior.
See Balasanyan, 2012 U.S. Dist. LEXIS 30809, at 9-10.

Thursday, March 1, 2012

Fourth District Concludes Unpaid Wages Are A Component of PAGA Penalties Under Section 558: Thurman v. Bayshore Traffic

On February 27, 2012, the Fourth District (Division 1) issued an opinion in Thurman v. Bayshore Traffic etc., __ Ca.App.4th __ (2012) concluding that “unpaid wages” were a proper component of the PAGA penalty provided for under Labor Code Section 558.  That statute expressly states that the $50/$100 liquidated penalty amount is “in addition to an amount sufficient to recover underpaid wages” [Cal. Lab. Code § 558(a)(1)-(2)], and proscribes that the “[w]ages recovered pursuant to this section shall be paid to the affected employee.”  See Cal. Lab. Code § 558(a)(3).  The Court’s holding on this point was as follows:
We disagree that section 558 provides for a civil penalty of $50 or $100 only, and that it clearly excludes underpaid wages from the civil penalty. In our view, the language of section 558, subdivision (a), is more reasonably construed as providing a civil penalty that consists of both the $50 or $100 penalty amount and any underpaid wages, with the underpaid wages going entirely to the affected employee or employees as an express exception to the general rule that civil penalties recovered in a PAGA action are distributed 75 percent to the Labor and Workforce Development Agency (LWDA) and 25 percent to the aggrieved employees (§ 2699, subd. (i)).
See Slip Opinion, at 42-44 (emphasis in original).

In addition to the forgoing, the Court’s opinion also has some interesting discussion relating to the construction of the Wage Orders.

First, the Court concluded that the Wage Orders do not provide a “direct” private right of action, but rather, require an “enabling statute” that provides a right of action for violation of a Wage Order:
Only the Legislature, through enactment of a statute, can create a private right of action to directly enforce an administrative regulation, such as a wage order. (See e.g., 47 U.S.C. § 227(b)(3)(A) of the Telephone Consumer Protection Act [specifically authorizing a private right of action "based on a violation of this subsection or the regulations prescribed under this subsection . . . ."].) The IWC has not created, and has no power to create, a private right of action for violation of a wage order, and we are aware of no statute that creates a private right of action for a violation of an IWC wage order when the violation at issue is not also a violation of the Labor Code. Absent statutory authorization, there is no right of action under the PAGA to enforce an IWC wage order.
See Slip Opinion, at 23-24.

In support of this construction, the Court noted that the California Supreme Court concluded in Martinez v. Combs, 49 Cal. 4th 35 (2010) that “...‘an employee who sues to recover unpaid minimum wages under section 1194 actually sues to enforce the applicable wage order.’”  See Slip Opinion, at 27 fn. 20 (citing Martinez, 49 Cal. 4th at 62).

Second, the Court rejected the proposition that such enabling provisions are to be narrowly interpreted, noting that “[s]tatutes governing conditions of employment are to be construed broadly in favor of protecting employees.”  See id., at 56.  Here, the defendants had claimed that the plaintiff was not entitled to collect PAGA penalties relating to rest periods under Section 558 – which by its terms applies to violations of “a section of this chapter or any provision regulating hours and days of work in any order of the Industrial Welfare Commission” – because (1) sections 500 through 558 of the Labor Code do not include a statute that requires an employer to provide rest periods, and (2) Section 12 of the Wage Order purportedly is not an order “regulating hours and days of work.”  See Slip Opinion, at 56.  In rejecting this argument, the Court reasoned that “defendants attribute undue significance to the headings used in the IWC work orders” [See id., at 56], and disregard the broad language of section 558 which “indicates that the Legislature did not intend to limit the application of the civil penalty under section 558 to provisions in IWC order sections entitled ‘Hours and Days of Work’; rather, the language suggests that the penalties were intended to apply to any provision in any order that regulates work hours.”  See id. (emphasis in original).

Both of the above points provide important foundational insight into the operation our wage and hour laws, and likely will be addressed by the California Supreme Court in relatively short order when it decides whether Section 1194 or section 218.5 applies to a cause of action alleging meal and rest period violations in awarding attorney's fees (Kirby v. Immoos Fire Protection (Case No. S185827)).