Wednesday, September 17, 2014

Important New Joint Employer Decision: Corporate Parents Responsible for Employment Violations by Wholly-Owned, Controlled Subsidiaries



Can a parent company avoid liability for unlawful employment policies at its wholly-owned subsidiaries? This week, a California Court of Appeal issued an important decision on that question, holding that a corporate parent could be found liable for its subsidiary’s failure to pay overtime and minimum wages. The opinion, Castaneda v. Ensign Group, Inc., B249119 (Cal. App. 2d Dist. Sept. 15, 2014), is available here.

The case was filed on behalf of a class of certified nursing assistants asserting wage claims. They brought suit against The Ensign Company (“Ensign”), which is a parent company that owns a “cluster” or “portfolio” of companies providing nursing care, including the entity at which the named Plaintiff worked, Cabrillo Rehabilitation and Care Center (“Cabrillo”). Ensign argued that because Cabrillo was registered as an independent entity, and because it allegedly hired and paid Plaintiff and set his schedule, only Cabrillo could be held liable for wage violations as Plaintiff’s “employer.” The lower court agreed, and granted a motion for summary judgment dismissing Ensign from the case. 

The Court of Appeal reversed, ruling that a jury could conclude that Ensign was Plaintiff’s “joint employer” under California law. Building on the Supreme Court’s Martinez v. Combs case, as well as recent Court of Appeal decision Guerrero v. Superior Court (both of which we have blogged about, here, here, and here), the Court explained that an “entity that controls the business enterprise may be an employer even if it did not ‘directly hire, fire or supervise’ the employees” (quoting Guerrero). Quoting Martinez, the Court emphasized:  “The basis of liability is the owner’s failure to perform the duty of seeing to it that the prohibited condition does not exist” (italics added by Castaneda Court). The Court found plenty of evidence that Ensign “controlled” its various affiliates, including Cabrillo, and that Ensign had the power to ensure that its subsidiaries complied with the wage laws.

For example: Ensign was the sole shareholder of Cabrillo, as well as other Ensign subsidiaries that performed corporate functions for Cabrillo; Ensign was involved in recruiting Cabrillo employees; Cabrillo’s management reported up to individuals at other wholly-owned Ensign affiliates; Ensign uses a “services center approach,” in which it performs centralized IT, human resources, legal, risk management, and other key services to its affiliates; there was a flow of corporate officers between Ensign and its affiliates; Ensign required Cabrillo employees to use its forms and templates; Ensign implemented expectations that Cabrillo employees increase revenues, and offered cash bonuses to Cabrillo if it maximized profits; and Ensign controlled the manner in which employees tracked their time (i.e., circumstances closely related to the policy the Plaintiffs sought to challenge as unlawful).

Although Ensign had attempted to create a paper trail stating that “the members of the facility staff [at Cabrillo] are Cabrillo’s ‘own’ employees,” the Court noted that such labels will be ignored when “the evidence of [the entities'] actual conduct establishes that a different relationship exists.” The Court also took into account the fact that Ensign’s logo  was posted at Cabrillo, employees at Cabrillo viewed themselves as Ensign employees and had Ensign email addresses, and Ensign controlled their pension plan and provided an “Ensign Benefits Call Center” for them to contact with questions.

The Court’s decision is the right one:  The facts suggested that the parent had the ability to correct the allegedly unlawful policy in effect at its wholly-owned subsidiary. Dismissing parents simply because they have separately incorporated their facilities would allow them to avoid enforcement of the wage laws by pinning the blame on their individually incorporated affiliates, even when the parent is responsible for the policy or practice being challenged.

Friday, September 12, 2014

Federal Courts: Cosmetology Student-Workers May Pursue Unpaid Wages

Aspiring barbers and cosmetologists enroll in beauty schools for a chance at a promising career in cosmetology. Cosmetology students pay upwards of $15,000 tuition to enroll in beauty schools such as Milan Institute of Cosmetology, Marinello Schools of Beauty, and Paul Mitchell The School and, upon completion, hopefully obtain a cosmetology license.

To graduate from these beauty schools, while enrolled, students are required to work in beauty school salons serving paying customers. The students perform services requested by customers whether or not it furthers the training needed to become licensed cosmetologists. Students are also assigned duties that do not assist them in obtaining a cosmetology license, such as janitorial and laundry services, as well as selling beauty products on behalf of the beauty schools. Students receive no compensation, no overtime pay, no premium pay for missed meal and rest breaks, and are not reimbursed for supplies and equipment purchased for use on the beauty school salon customers. Through this scheme, the beauty schools profit from free labor in their salons.

In the cases pending against them, the beauty schools filed motions to dismiss California and Nevada wage law claims, arguing that under Hutchison v. Clark, 67 Cal.App.2d 155 (1944), publications of the California Division of Labor Standards Enforcement (DLSE), and provisions of the Nevada state cosmetology laws and regulations, cosmetology school students cannot be employees of the schools. The student-workers argue that they are employees pursuant to state and federal labor laws, and that developments in the law render obsolete the 70 year-old Hutchison decision and the DLSE guidance relying upon it. In Martinez v. Combs (2010) 49 Cal.4th 35, the California Supreme Court established a more modern “employer” definition that does not categorically exclude student-workers from compensation.

On July 30, the United States District Court for the Central District of California, Hon. Phillip S. Gutierrez, determined that cosmetology students performing work on paying customers in cosmetology school salons may be deemed employees in the context of state law. They may be entitled to minimum wages, overtime, and other benefits of the Labor Code. The decision is available here. Judge Gutierrez held that “[a]fter Martinez, Hutchison is no longer good law.” Applying the Ninth Circuit Court of Appeals’ standard for evaluating claims under state law where the California Supreme Court has not yet addressed the issue, the court held:
Based on Martinez, the Court concludes that the California Supreme Court would hold that [Defendants’] students may be properly classified as its employees, if they are within the definition of “employment” established by the IWC. 

The court further concluded that the California Barbering and Cosmetology Act is silent regarding whether cosmetology students must be paid for work they perform within their beauty school. The cosmetology students may be covered by California’s wage and hour laws and Wage Order No. 2, holding that “the employment status of cosmetology students is left to be determined by California employment law.” The court also gave the student-workers a fix to amend their complaint to add more allegations against the individual owner of the cosmetology school. The federal court in San Francisco followed suit, refusing to dismiss California and Nevada wage law claims, and allowing an opportunity to amend to add claims against the individual owners. The San Francisco court also asked the Labor Commissioner of California to weigh in on whether cosmetology students can also be school employees.

After these victories, there is no categorical exemption from pay for beauty school students in vocational programs who perform services on paying customers. The law requires an analysis of whether an employment relationship exists and, if proven, vocational schools must abide by wage and hour laws. The analysis is similar to that for wage claims by other interns, apprentices, and trainees in the economy. The most important factor is whether the students’ salon work provides an immediate benefit to the schools (which it does), and some other factors to consider are whether the training provided is largely not for the benefit of students, whether the students’ salon work is closely supervised, and whether regular employees are displaced by the use of the students’ labor.

Bryan Schwartz Law and co-counsel Rudy, Exelrod, Zieff & Lowe LLP and the Law Office of Leon Greenberg represent Plaintiffs and putative classes of current and former cosmetology students at Milan and Marinello. Bryan Schwartz Law along with the Law Office of Leon Greenberg represent Plaintiffs and putative classes of current and former Paul Mitchell cosmetology students. The complaint against Milan, Maria Ford v. Gary Yasuda, et al., Case No. 13-1961, pending in federal court in the Central District of California (in Los Angeles), is available here. The complaint against Marinello, Jaqueline Benjamin v. B&H Education, Inc. et al., Case No. 13-cv-04993, pending in federal court in the Northern District of California (in San Francisco), is available here. The complaint against Paul Mitchell, Jessica Morales et al v. Von Curtis, Inc. et al., Case No. 14-06540, pending in federal court in the Central District of California (in Los Angeles), is available here

For more information about these cases, please contact Adetunji Olude at Adetunji@BryanSchwartzLaw.com.

Wednesday, August 27, 2014

Ninth Circuit Rejects FedEx Effort to Portray Drivers as Independent Contractors



Today, the Ninth Circuit Court of Appeals held, under California law, that FedEx drivers are employees, not independent contractors. As a result, Fed Ex, which had required the 2300 California drivers included in the case to pay for their own trucks, equipment and expenses, and work 9.5 to 11 hour days, is liable for violating the Labor Code. The case is Alexander v. FedEx, 12-17458, __F.3d__ (9th Cir. Aug. 27, 2014).

The contract that the FedEx drivers were required to sign appears to have been drafted in an effort to persuade a reviewing court that the drivers are independent contractors – it refers to the drivers as “contractors,” and says that no FedEx officer or employee would “have the authority to direct [the driver] as to the manner or means employed … [or] have the authority to prescribe hours of work … or other details of performance.” The problem for FedEx, however, was that, in the contract and elsewhere, FedEx did tell the drivers in great detail how, when and where to do their work. As Judge Trott wrote in his concurring opinion, in a quote (reportedly) attributable to Abraham Lincoln: “If you call a dog’s leg a tail, how many legs does a dog have? …. Four. Calling a dog’s tail a leg does not make it a leg.”

In applying the principal factor of California’s “right-to-control” test, the Ninth Circuit observed that FedEx’s detailed control over drivers included: control over the appearance of the drivers, from their mandatory uniforms to the color of their shoes and socks and the appearance of their hair; the specific shade of white paint to be used on their trucks, the mandatory use of FedEx logos on trucks, mandatory truck dimensions, and interior shelves in the truck of particular materials and dimensions; and the structuring of work-loads such that drivers had to work 9.5 to 11 hours per day, with requirements that they not leave the FedEx terminal in the morning until all of their packages were available, and return to the terminals no later than a specified time.

FedEx argued that drivers had some flexibility in the order in which they made their deliveries, and that they were permitted to be “entrepreneurial” by hiring helpers to allow them to handle multiple routes, but the Court, observing that FedEx maintained close control over the assignment of work and the right to reject proposed helpers, concluded that even if drivers had control over some aspects of the job, FedEx maintained “all necessary control.” Other relevant factors included the fact that the drivers worked for FedEx under long (one- to three-year contracts), which suggested that they were really employees, and that they were assisting the Company by carrying out its core business function – the delivery of packages.

The case was procedurally interesting in that it was filed in California but then consolidated into multi-district litigation in the District Court for Northern District of Indiana. The Indiana court, applying California law, granted summary judgment to FedEx. The Ninth Circuit Court of Appeals not only disagreed that FedEx was entitled to summary judgment, but held that the drivers were entitled to summary judgment.

The case stands for the proposition that if an employer’s workforce is doing the work of employees, the employer cannot avoid complying with the Labor Code’s employee protections by artful contract language: calling a dog’s tail a leg does not mean a dog has five legs.

The Court’s order is available here. If you have questions about your employment rights or about class actions seeking wages, please contact Bryan Schwartz Law.



Friday, August 1, 2014

PAGA: A Decade of Victories




This summer marks the ten-year anniversary of California’s Private Attorneys General Act of 2004, an essential weapon in an employee rights advocate’s arsenal. Under PAGA an aggrieved employee can recover civil penalties on behalf of the State’s Labor Workforce Development Agency (LWDA) for all current and former employees for Labor Code violations. §2699(a). Originally enacted to attack California’s underground economy – businesses unlawfully operating outside of the state’s tax and licensing requirements – and enhance revenues (California Bill Analysis, S.B. 796 Sen., 4/29/2003), PAGA gives workers’ rights advocates an ability to vindicate the State’s interest in obtaining redress for flagrant wage violations statewide.

I. PAGA Representative Actions Do Not Need to Meet Class Action Requirements.
In Arias v. Superior Court (2009) 46 Cal.4th 969, the plaintiff brought a representative PAGA claim for wage and hour violations, among other claims. Id. at 976. The trial court granted defendant’s motion to strike the PAGA claim and other causes of action, for failure to comply with the pleading requirements for a class action. Id. Subsequently, the Court of Appeal issued a peremptory writ of mandate directing the trial court to strike other causes of action, but not the PAGA claim. Id. The California Supreme Court agreed with the Court of Appeal – holding that a plaintiff suing under PAGA did not need to comply with California’s class action requirements.  Id. at 988.

Arias addressed and dismissed three arguments posed by defendants: (1) the Court of Appeal’s construction of PAGA would lead to absurd results because one subdivision in the statute allows for class actions, while another subdivision does not, (2) the legislative history indicates the legislature intended actions under the act to be brought as class actions, and (3) the act violates due process rights of defendants. Id. at 982-84.  Rejecting these positions, the Court held that a PAGA plaintiff sues as the “proxy or agent” of the state's labor law enforcement agencies. Id. at 986.  As such, a PAGA plaintiff represents the same legal rights and interests as state labor law enforcement agencies. Id. Ultimately, the PAGA claim is an enforcement action, not a class action brought for recovery of civil penalties, so it need not comply with class action pleading requirements.

Most federal courts have likewise held that a PAGA claim need not be certified under Rule 23. See, e.g., Cardenas v. McLane Foodservices, Inc. (C.D. Cal., Jan. 31, 2011) SACV 10-473 DOC FFMX, 2011 WL 379413, *3 (a PAGA claim neither purports to be a class action nor intends to accomplish the goals of a class action); Sample v. Big Lots Stores, Inc. (N.D. Cal., Nov. 30, 2010) C 10-03276 SBA,  2010 WL 4939992, *3  (the Class Action Fairness Act (CAFA) “applies only to state statutes or procedural rules that are  similar  to a federal class action brought under Rule 23” – but PAGA claims are distinct from class actions).  But see Fields v. QSP, Inc. (C.D. Cal., June 4, 2012) CV 12-1238 CAS PJWX, 2012, WL 2049528, *5 (plaintiff must meet requirements of Rule 23 because PAGA is a procedural mechanism).

II. PAGA Claims Cannot be Forced to Individual Arbitration.
As the Nation’s High Court shows increasing animus towards class actions – reimagining the Federal Arbitration Act of 1925 (FAA) to diminish Federal Rule of Civil Procedure 23’s efficacy as a method through which employees and consumers can vindicate their rights – the State of California, through private counsel, can still pursue relief for workers through PAGA representative actions.

In AT&T Mobility LLC v. Concepcion (2011) 131 S.Ct. 1740, the U.S. Supreme Court relied on the FAA to abrogate Discover Bank v. Superior Court (2005) 36 Cal.4th 148, which had held that the party with superior bargaining power unconscionably carried out a scheme to cheat large numbers of consumers out of individually small sums of money, using an arbitration agreement with a class action waiver to prevent class action and meaningful relief.  This blog has discussed Concepcion previously on several occasions: here, here, and here.

Yet, while Concepcion stunted class action litigation, it did not address PAGA representative actions brought on behalf of the LWDA. Brown v. Ralphs Grocery Co. (2011) 197 Cal.App.4th 489, review denied (Oct. 19, 2011), cert. denied, 132 S.Ct. 1910 (Apr. 16, 2012), held that PAGA claims are not subject to individual arbitration agreements. In Brown, the plaintiff brought both a class action claim and a PAGA claim against her employers for various labor code violations. Id. at 494. The employers moved to compel individual arbitration based on a provision in the employment contract, which they argued prohibited both class actions and representative PAGA claims. Id. at 495. While the class claim fell to arbitration, the PAGA claim averted arbitration. The Brown court concluded Concepcion did not address – and thus could not be binding on – PAGA, which is an enforcement action in which employees and their counsel act as an “agent or proxy” of the state. Id. at 503. See also Reyes v. Macy's, Inc. (2011) 202 Cal.App.4th 1119, 1124 (PAGA is not within the scope of individual arbitration because a PAGA claim is not an individual claim). Other courts disagreed with Brown and Reyes, including Iskanian v. CLS Transp. Los Angeles, LLC (Cal. Ct. App. 2012) 142 Cal.Rptr.3d 372. In Iskanian, the Court of Appeal declined to follow Brown and Reyes in a case brought by drivers, who brought a PAGA representative action but had signed an employment contract with an individual arbitration agreement. Id. at 375, 384.

Reversing, the California Supreme Court held that a PAGA claim could not be subject to an individual arbitration provision in an employment contract. Iskanian v. CLS Transp. Los Angeles, LLC (2014) 59 Cal.4th 348, 384. Bryan Schwartz Law’s blog post on Iskanian is available here.

The Court reasoned that a PAGA action was a type of qui tam action (Id. at 382) – whereby a plaintiff brings an action on behalf of the State. However, unlike a pure qui tam case, where the relator collects a “bounty,” the 25% goes to all the aggrieved employees - not just the plaintiff. Id. PAGA is not and has never been intended as a "bounty hunter" statute.

The Court also reaffirmed Arias’ holding that a plaintiff bringing a PAGA claim acts as an “agent or proxy” of the state’s labor law enforcement agencies. Id. at 380-381. The Court also drew from the Supreme Court’s decision in EEOC v. Waffle House, Inc. (2002) 534 U.S. 279, which held that an employment arbitration agreement governed by the FAA did not prevent the Equal Employment Opportunity Commission (EEOC) from suing an employer on behalf of an employee bound by that agreement for victim-specific relief, because the EEOC was not a party to the arbitration agreement and could bring an enforcement action regardless of the private agreement. Iskanian, 59 Cal.4th at 386. Similarly, a PAGA claim lies outside the FAA's coverage because it is not a dispute between an employer and an employee arising out of their contractual relationship. It is a dispute between an employer and the state. Id.

III. PAGA Creates An Unwaivable Public Policy Right.
Iskanian reminds us that a PAGA creates an unwaivable public policy right: any agreement by employees to waive their right to bring a PAGA claim serves to disable one of the primary mechanisms for enforcing the Labor Code. Id. at 383. Because such an agreement has the “object, … indirectly, to exempt [the employer] from responsibility for [its] own…violation of the law,” (Civ. Code §1668) it is against public policy and unenforceable as a matter of law. Further, a court must review and approve any proposed settlements that attempt to release PAGA claims. See Lab. Code, § 2699(l).

In Amalgamated Transit Union, Local 1756, AFL-CIO v. Superior Court (2009) 46 Cal. 4th 993, 1003, the Court held that PAGA did not create a transferable property right, such that a  union did not have standing to bring a PAGA claim on behalf of aggrieved employees. Because of the “simply procedural” language posited in Amalgamated, federal courts have been mixed on the question of the type of right created by PAGA, leading some federal courts to interpret PAGA as a “simply procedural” statute that can be preempted by Rule 23’s class certification requirements. Compare Cunningham v. Leslie's Poolmart, Inc. (C.D. Cal., June 25, 2013) CV 13-2122 CAS CWX, 2013 WL 3233211, *7  (held that a PAGA claim is a type of qui tam action and thus, substantive in nature); Moua v. International Business Machines Corp. (N.D. Cal., Jan. 31, 2012) 5:10-CV-01070 EJD, 2012 WL 370570, *3  (PAGA transcends the definition of what is simply procedural); and Mendez v. Tween Brands, Inc. (E.D. Cal., July 1, 2010) 2:10-CV-00072-MCE, 2010 WL 2650571, *3  (to find that PAGA creates a wholly procedural right, and that Rule 23 therefore applies, would be to ignore the intent of the legislature in passing the statute); with Fields, 2012 WL 2049528 (PAGA “is simply a procedural statute”) (citing Amalgamated, 46 Cal.4th at 1003); Halliwell v. A-T Solutions (S.D. Cal. 2013) 983 F.Supp.2d 1179, 1183-84 (Federal Rule of Civil Procedure 23 governs all representative claims brought in federal court, even if the underlying individual claims arise under state law)(citing Fields at *5). With Iskanian reaffirming PAGA’s unwaivable public policy right and likening the statute to a qui tam action, which according to Cunningham is substantive in nature, federal courts should think twice before interpreting PAGA as a simply a procedural state statute that can be preempted by federal procedural rules.

IV. PAGA and Fee Shifting
PAGA allows workers their day in court when the cost of litigation would otherwise impede access to justice. In Kirby v. Immoos Fire Protection, Inc. (2012) 53 Cal.4th 1244, plaintiffs brought an unsuccessful class action for violation of wage and hour laws and unfair competition laws. The employer sought to recover fees for the defeated meal and rest period claims under Labor Code §226.7, invoking §218.5’s two-way fee-shifting provision. The court concluded that §218.5 did not apply to meal/rest claims and that neither party could recover attorneys’ fees for an action brought under §226.7. Id. at 1248. While the Kirby ruling shielded plaintiffs from having to pay an employer’s attorneys’ fees when they are unsuccessful in vindicating claims for denied meal and rest breaks, it also would have left workers in most cases without representation in bringing such claims.

PAGA to the rescue. Under §2699(g)(1), a plaintiff who brings a PAGA claim to recover payment for missed meal and rest breaks can recover attorneys’ fees. PAGA may also be used to seek attorneys’ fees for other statutory provisions which vindicate public policy but do not contain separate fee provisions, such as waiting time penalty claims under Labor Code §203, and whistleblower claims under Labor Code §1102.5.The fee-shifting provision levels the playing field, especially for low-income workers going up against employers that would otherwise drown the workers’ claims in insurmountable litigation costs.

V.  PAGA Penalties
In Thurman v. Bayshore Transit Management, Inc., (2012) 203 Cal.App.4th 1112, a case in which a bus driver brought a PAGA claim, the Court of Appeal discussed the issue of PAGA penalties. The Court first held that Thurman could recover civil penalties under Labor Code section 558 which provides in relevant part: “(a) Any employer or other person acting on behalf of an employer who violates, or causes to be violated, a section of this chapter or any provision regulating hours and days of work in any order of the [IWC] shall be subject to a civil penalty. Id. at1130.

The provision allowing recovery of penalties under PAGA did not extend so far as to allow plaintiff to recover civil penalties under both PAGA and Wage Order 9 (which contained its own civil penalties provision) because doing so would “allow an impermissible double recovery for the same act.” Id. at 1131.

Further, Thurman could recover unpaid wages as part of the civil penalty under PAGA. The Court held that the civil penalty under Labor Code section 558 consisted of both the monetary penalty amount and the 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 seventy-five percent to the Labor and Workforce Development Agency (LWDA) and twenty-five percent to the aggrieved employees. Id. at 1145.

Aggrieved employees can also recover penalties for missed meal and rest breaks under PAGA as the civil penalty under section 558 applies to “any provision regulating hours and days of work in any order" of the IWC, including the rest period requirement. Id. at 1153.

Additionally, in Sarkisov v. StoneMor Partners, L.P. (N.D. Cal., Apr. 3, 2014) C 13-04834 WHA, 2014 WL 1340762, *5, the Northern District of California held that a PAGA plaintiff can sue for PAGA penalties applicable to his own individual action – that is, for the injuries done just to him—without having to prove all PAGA penalties for everyone else in the same workplace.

VI. PAGA and Joint Employers
PAGA allows employees to hold joint employers accountable for Labor Code violations. In Reynolds v. Bement (2005) 36 Cal. 4th 1075, 1094, overruled on other grounds by Martinez v. Combs (2010) 49 Cal.4th 35, Justice Moreno, in his concurrence, raised the possibility that the then-new PAGA statute would permit individual liability for corporate officials, saying, “the Private Attorneys General Act… authorizes civil penalties for violations of the wage laws that include unpaid wages from ’any employer or other person acting on behalf of an employer,’ a phrase conceivably broad enough to include corporate officers and agents in some cases.” Thurman reaffirms Justice Moreno’s concurrence. Thurman 203 Cal.App.4th at 1144. Federal courts have also held joint employers liable based upon PAGA. In McDonald v. Ricardo's on the Beach, Inc. (C.D. Cal., Jan. 15, 2013) CV 11-9366 PSG MRWX, 2013 WL 153860, *1 the plaintiff brought a PAGA claim for wage and hour violations, and the defendant moved for summary judgment alleging he could not be held liable under PAGA because he was an absentee owner. Id. The court first made clear that PAGA encompasses “any provision” of the Labor Code. Id. at *3. The Court also said Labor Code § 558 – individually actionable through PAGA - makes clear that an individual defendant can be subject to the penalties of Labor Code § 510 if he is “acting on behalf of an employer who violates, or causes to be violated” Labor Code § 510. (citing Ontiveros v. Zamora (E.D. Cal., Feb. 20, 2009) CIV S-08-567LKK/DAD, 2009 WL 425962). In denying defendant’s summary judgment motion, finding that the owner could be a liable “employer” based upon PAGA, the Court relied on evidence that defendant’s company prepared paychecks, and that defendant signed paychecks, sometimes brought them to be distributed, and made policy decisions pertaining to the company. Id. at *4-5.

VII. Removal to Federal Court
A PAGA action is not easily removed to federal court. Aggrieved employee penalty amounts cannot be aggregated to satisfy amount-in-controversy requirements for purposes of diversity jurisdiction. See Urbino v. Orkin Services of California Inc. (9th Cir. 2013) 726 F.3d 1118. Further, while Pagel v. Dairy Farmers of America, Inc. (C.D. Cal.  2013) 986 F.Supp.2d 1151, 1157, sought to limit Urbino to non-CAFA cases, the holding has been undermined by Baumann v. Chase Inc. Services Corp. (9th Cir. 2014) 747 F.3d 1117. Baumann held that PAGA actions are not sufficiently similar to Rule 23 class actions to trigger CAFA jurisdiction, reaffirming Urbino’s holding that potential PAGA penalties against an employer may not be aggregated to meet the amount in controversy requirement, and holding that CAFA provides no basis for federal jurisdiction over a PAGA action.

VIII. Looking Ahead
There are still some lingering questions pertaining to PAGA. For example, it is still unclear what protections PAGA affords public sector employees and whether the U.S. Supreme Court will choose to foray into uniquely California law once again to force down the Chamber of Commerce-sponsored agenda and squelch California’s PAGA enforcement actions. Despite these uncertainties, with a growing list of favorable jurisprudence, PAGA is becoming an unmatched weapon in the fight for workers’ rights.

Tuesday, July 22, 2014

Celebrating the 50th Anniversary of the Civil Rights Act of 1964

This article, co-authored by Bryan Schwartz Law's principal and legendary civil rights leader Eva Jefferson Paterson, along with Danielle Tizol Fong, is reprinted with the permission of the State Bar of California.


Civil Rights at 50 
The Civil Rights Act of 1964 was enacted fifty years ago this month. The three authors of this article come from different backgrounds, but this historic legislation has been equally momentous in each of our lives.  Although only one of us was born when Plessy v. Ferguson was the law, none of us take civil rights for granted.

The authors are from communities that experienced invidious job discrimination. Our Black, Jewish, Puerto Rican, and Chinese families suffered in America because of immutable characteristics. The women in our families also were held back in their careers because of stereotypes. Title VII of the Act was designed to abolish employment discrimination, and has provided us, along with millions of other Americans, a vehicle for redress and redemption unlike any other.

To understand the significance of Title VII, it is important to remember what America was like before the enactment of the Civil Rights Act, and how Title VII has become both a powerful sword and shield for all Americans.

White Supremacy Governed Pre-1964
Fifty years ago, when President Lyndon Baines Johnson, from the Deep South state of Texas, signed the Civil Rights Act into law, America was a far different place than it is today.

The Civil Rights Act of 1964 was born from our nation’s original sin: white supremacy. Under the cloak of white supremacy, we took land from Native Americans, kidnapped and enslaved Africans, took Mexico from Mexicans, passed the Chinese Exclusion Act, and subjected Japanese-Americans to internment camps during WWII, to name several examples.

Resistance has gone hand in hand with oppression, from slave revolts to present day struggles for racial equality. The chapter of resistance that led to the signing of the Civil Rights Act of 1964 can be traced directly to Alabama.

In Montgomery, Alabama, in December 1955, activist Rosa Parks refused to give up her seat to accommodate white passengers, kicking off a year-long boycott of Montgomery buses led in part by Dr. Martin Luther King, Jr.[1] In December 1956, the Supreme Court ordered the buses desegregated. In 1963, Rev. Fred Shuttlesworth invited Dr. King to help organize a campaign targeting business owners in Birmingham, Alabama. On April 3, 1963, demonstrators began sit-ins at lunch counters protesting inequality. Over the next nine days, police arrested nearly two hundred demonstrators, including Dr. King who, while in custody, famously penned his “Letter from a Birmingham Jail.”

The demonstrators were not deterred. On May 2, 1963, they began the “children’s marches.”  Over several days, Birmingham police attacked and arrested thousands of children who marched peacefully.  Police blasted the children with water cannons that broke ribs, tore the clothes from their backs, and lifted them off their feet. Police dogs attacked the children, requiring three of them to be hospitalized.

After Birmingham, Dr. King barnstormed the country fundraising for the movement. He was shocked to be welcomed at various airports by multi-racial throngs who were both sickened and energized by the images of snarling police dogs and children being assaulted by fire hoses.

Bayard Rustin and A. Phillip Randolph had long been calling for a March on Washington for Jobs and Freedom.  The national reaction to Birmingham provided energy for the March.  One of the key demands of the more than 200,000 people who marched was passage of an omnibus civil rights act, which eventually became the Civil Rights Act of 1964.

During the second week of June 1963, Alabama Governor George Wallace stood in the schoolhouse door at the University of Alabama, in bold defiance of a federal court order desegregating that institution.  Later that week, President John F. Kennedy delivered his “Civil Rights Announcement”—one of the first times since Abraham Lincoln that an American president addressed race relations as a moral issue. Invoking the tragedy in Birmingham, President Kennedy recognized that “the rights of every man are diminished when the rights of one man are threatened.”[2]  Later that night, hate-mongers gunned down NAACP Field Organizer Medger Evers in his driveway in Jackson, Mississippi, for his temerity in helping blacks register to vote, adding an exclamation point to the President’s address.

In September 1963, white supremacist terrorists bombed the 16th Street Baptist Church in Birmingham, Alabama, blowing up black children in Sunday school.  It was time for the government to take decisive action on equality.

The Kennedys had been reluctant to push for this legislation because they feared alienating racist Southern Democrats, but the President ultimately stood up for one of the most loyal parts of his Democratic coalition. It would take more than a year, the assassination of Kennedy, the ascension of President Johnson and thousands of Americans of all backgrounds, working together, to secure  passage of the Civil Rights Act of 1964. [3]

Title VII Becomes a Sword and Shield Against Discrimination
On June 19, 1964, one year to the day since Kennedy’s bill had first gone to the House, nearly seven months into Johnson’s presidency, and exactly 101 years since the Emancipation Proclamation, the Senate passed the Act with bipartisan support, with a vote of 73-27.  On July 2, 1964, the House finally passed the amended version of the Civil Rights Act by a wide margin among both Republicans and Democrats: 289 to 126.

As originally enacted, Title VII banned employment discrimination on racial, religious, and national origin grounds, and on the basis of sex, providing remedies against private companies.  It further fueled other important laws to broaden equality for all Americans.  A few years later, the Age Discrimination in Employment Act added protections for workers 40 and older.  In 1972, public entities came within both statutes’ reach, and pregnancy discrimination was outlawed in 1978. People with disabilities gained protections in the 1973 Rehabilitation Act and the 1990 Americans with Disabilities Act.  (We are still looking forward to national protections based upon sexual orientation.)
The Civil Rights Act breathed life into a country’s vision that Americans of all backgrounds would live and work together in equality. No one knew what type of growing pains America would experience, nor how many more battles would still need to be waged to ensure that equality became embedded in American society.

As President Kennedy noted in his seminal Civil Rights Announcement, before the Act, black children born in the United States, compared to white children, had one-third the chance of becoming a professional, twice as much chance of being unemployed, and one-seventh as much chance of earning a good living (defined as $10,000 per year or more in 1963).  Blacks being born at the time of the Act generally were expected to earn only half as much as whites.

Dr. King’s leadership of the civil rights protests, the March, and the legislation that grew out of it did not change these disadvantages overnight.  Some of them persist today.  But, they helped lessen inequality and the sense of terror experienced by many people of color and women. After the Act’s passage, people of color and women no longer had to accept biased treatment silently. They could sue someone. They could apply for a job, sit at the lunch counter, and participate equally in society without regard for their skin color, gender, or other now-protected characteristics. There were now laws to protect them if these rights were violated.

The bill as enacted, however, included amendments that slowed the implementation of Title VII’s prohibition on job discrimination and weakened government enforcement. Until 1972, though the Civil Rights Division of the Department of Justice made strides, especially toward integrating police and fire departments, the U.S. Equal Employment Opportunity Commission could not prosecute Title VII suits.[4]  But amendments favoring court rulings over public enforcement actions spurred vigorous action by “private attorneys general.”[5]

Because the Act reduced blatant job discrimination—outlawing vacancies announcing that “No Jews or Blacks Need Apply”—the law evolved mechanisms for proving discrimination by inference. Chief Justice Warren Burger’s court sharpened the edges of the Title VII sword to cut down discrimination, with its unanimous decisions announcing the disparate impact theory in Griggs v. Duke Power[6] and creating the disparate treatment model of proof in McDonnell Douglas v. Green.[7]

The 1971 Griggs decision rejected requirements for a high school diploma and IQ test for power plant positions in North Carolina. Before the Act, the company explicitly relegated blacks to the lowest-paying positions, but after its passage, the company had to eliminate the expressly discriminatory restriction.  The day the Act became effective—July 2, 1965—however, the company escalated its “academic” requirements, where whites registered much higher than blacks.  In the 1960 census, less than 7% of nonwhite males in North Carolina had graduated high school—just over one-third the rate of white males.[8]

The Burger Court in Griggs recognized the long history of inferior education in segregated schools provided to North Carolina blacks, stating, “The Act proscribes not only overt discrimination but also practices that are fair in form, but discriminatory in operation.  The touchstone is business necessity.”[9]  After Griggs, if an employment practice operates to exclude protected groups, and cannot be shown to be related to job performance, the practice is prohibited. Unlike a constitutional violation, a prima facie “disparate impact” case under Title VII may be established without any proof of intentional discrimination.[10]  In Griggs, the Court concluded that neither the high school completion requirement nor the general intelligence test “bore a demonstrable relationship to successful performance of the jobs” for which they were used.[11]

The 1973 McDonnell Douglas decision arose from events soon after the Act’s passage.  In 1965, Green—a laid off McDonnell Douglas mechanic and technician— organized as part of a civil rights protest a “stall-in” to have cars block the roads used to access the St. Louis-based aerospace manufacturing plant during morning rush hour.  Police arrested him.  The civil rights protesters also staged a “lock-in” during a picketing demonstration to prevent employees from entering or leaving the company’s offices.  Three weeks later, McDonnell Douglas was hiring mechanics, and Green applied.  The company refused to rehire him because of his role in the “stall-in” and “lock-in.”

McDonnell Douglas built upon Griggs “to state the applicable rules as to burden of proof and how this shifts upon the making of a prima facie case.”[12]  A prima facie showing under the anti-discrimination statutes, following McDonnell Douglas, includes: articulating a protected basis, such as race or sex; showing that an individual (in the non-selection context) applied for a job vacancy but was not selected (i.e., an adverse action); and that the employer continued to seek applicants with similar qualifications (i.e., others similarly situated, not in the protected class, were treated differently).  The burden then shifts to the employer to articulate some legitimate, nondiscriminatory reason for the employee’s rejection. Assuming the employer articulates one (e.g., in Green’s case participating in disruptive protests,), McDonnell Douglas shifts the burden to the complainant to prove the employer’s asserted reason is false, and further gives a roadmap for doing so.

The Court explained: “While Title VII does not, without more, compel rehiring of [Green], neither does it permit [McDonnell Douglas] to use [Green]’s conduct as a pretext” for prohibited discrimination.[13]  The Court remanded to allow Green to prove pretext with evidence, such as:

“that white employees involved in acts against [the company] of comparable seriousness to the ‘stall-in’ were nevertheless retained or rehired;” “as to [the company’s] treatment of [Green] during his prior term of employment; the company’s reaction, if any, to [Green’s] legitimate civil rights activities; and [of the company’s] general policy and practice with respect to minority employment. On the latter point, statistics as to [the company’s] employment policy and practice may be helpful to a determination of whether [its] refusal to rehire [Green] in this case conformed to a general pattern of discrimination against blacks.”[14]

As a measure of its impact, Westlaw reflects nearly 137,000 citing references to the McDonnell Douglas decision.

It took a while longer, but in 1986, a unanimous Burger Court, with the first female Justice, Sandra Day O’Connor, participating, fashioned Title VII into a shield against sexual harassment, in Meritor Savings Bank v. Vinson.[15]  The Court in that decision embraced the “hostile working environment” theory.  The Bank’s Vice President constantly propositioned Vinson for sex—and, out of fear of losing her job, she eventually agreed. The Court built its decision on the Equal Employment Opportunity Commission's Guidelines on Discrimination Because of Sex,[16] which outlined two types of sexual harassment—economic quid pro quo, and hostile working environment

The Court noted that “[t]he prohibition against discrimination based on sex was added to Title VII at the last minute on the floor of the House of Representatives”[17]—and therefore, little legislative history explained what was intended in the ban on sex discrimination.[18]  The Bank argued that “in prohibiting discrimination with respect to ‘compensation, terms, conditions, or privileges’ of employment, Congress was concerned with . . . ‘tangible loss’ of ‘an economic character,’ not ‘purely psychological aspects of the workplace environment.’”[19] The Supreme Court rejected this view, holding that Title VII was not “limited to ‘economic’ or ‘tangible’ discrimination. The phrase ‘terms, conditions, or privileges of employment’ evinces a congressional intent ‘to strike at the entire spectrum of disparate treatment of men and women’ in employment.”[20]

The conservative Supreme Court majorities since the Burger Court have continued to expand Title VII’s protection from retaliation against those who engage in protected activity by complaining of discrimination. For example, in Burlington N. & Santa Fe Ry. Co. v. White,[21] the Court held that the anti-retaliation provision of the Act proscribes not only employment-related adverse actions, but any action that might deter someone from opposing discrimination.

For almost three decades since the Burger Court’s landmark decisions, advocates have also used Title VII class actions to make greater strides in the war against discrimination.  The 2011 Wal-Mart Stores v. Dukes decision appeared as a major setback, making it more difficult to certify a class action alleging an unwritten policy limiting promotion of women to management roles.[22]

Major anti-discrimination class action victories since Dukes demonstrate that anti-discrimination forces remain committed to the pursuit of equality.  For example, in McReynolds v. Merrill Lynch, black financial advisors for Merrill Lynch struck a major victory against a policy of “teaming” up between brokers, resulting in major disparities between the income of blacks and whites.[23]  As Judge Richard Posner of the Seventh Circuit noted, the teams were effectively “little fraternities,” “and as in fraternities the brokers choose as team members people who are like themselves,” leading white brokers to team with other whites.[24] In 2014, the class will divide a $160 million settlement, and receive injunctive relief designed to end the unlawful policy and increase opportunities for African-American financial advisors and trainees.[25]

Title VII—the Next 50 Years
Just blocks from where slave ships once docked, Rosa Parks boarded that Montgomery, Alabama bus in 1955 across the street from a pre-Civil War sign still hanging, which read, “Slaves and Livestock Sold Here.”  People thought they could go to Africa, kidnap black people and put them in ships, bring them here, and work them without pay, without consequences.  That is the subtext of Title VII of the Civil Rights Act.

In 2014, America is a better place.  We elected the first Black President.  But we are not yet free of discrimination, especially in the workplace.  There is still much work to be done by each of us, especially those of us who practice employment law.

Educational attainment to enable workforce participation is up from 1963, when President Kennedy’s address profiled the crisis in the African-American community.  Now, 80% of blacks have high school diplomas (slightly less than non-blacks), and 19% have at least a bachelor’s degree.[26]  One-third of employed black women have management or professional occupations, and almost two-thirds of black women have “white collar” occupations.[27]

But, blacks graduate four-year colleges 10% less than the national average.[28]  Blacks continue to have the lowest labor force participation rate of any major race or ethnic group.[29] Although African-Americans are more likely than other populations to have government jobs, in 2014, blacks still have an unemployment rate almost double that of the overall population.[30]  Blacks are much less likely than other ethnic groups to own their own businesses.[31]  In 2012, the U.S. Census Bureau reported that blacks were still approximately twice as likely as other races to live in poverty.[32]  Apart from these economic indicators, studies show that many Americans harbor a latent fear that blacks will be as terrible to the rest of the country as the rest of the country was to blacks.[33]

Not only blacks, but women of all races continue to suffer a wage gap, earning 77 cents for each dollar earned by men, more than 50 years after the original implementation of the Equal Pay Act.[34]

Through Title VII, we can advance as much in the next fifty years as we have in the last fifty, if we continue to work together toward equality in a variety of settings.  As corporate counsel, we can fight on the inside—advising employers to take strong actions to combat discrimination in all its forms. We fight externally, as advocates and litigators, by bringing meaningful cases against wrongdoers. No matter where we are in the labor and employment bar, we can make a difference. Remember, Thurgood Marshall was just a law student when he became part of the team that overturned Plessy v. Ferguson.
  
The late Maya Angelou’s poem, “And Still I Rise,” says, “I am the dream and the hope of the slave.” The message rings true not just for blacks, and not just for plaintiffs’ lawyers. Someone in the Middle Passage, or living through the Holocaust, or any of the other great human indignities, never could never have imagined such a diverse group determined to ensure workplace fairness for black people, all people of color, men and women, Jews, Christians, and Muslims, gays and lesbians. We are all the dream and the hope of the slave.

ENDNOTES

[1] The historical notes in this essay are provided with help from David Benjamin Oppenheimer, Kennedy, King, Shuttlesworth and Walker: The Events Leading to the Introduction of the Civil Rights Act of 1964, 29 U.S.F. L. Rev. 645 (1994-95) and Todd S. Purdum, An Idea Whose Time Has Come: Two Presidents, Two Parties, and the Battle for the Civil Rights Act of 1964 (Henry Holt and Co. 2014).

[2] President John F. Kennedy, Civil Rights Announcement (June 11, 1963)  (transcript available at: http://www.Pbs.Org/Wgbh/Americanexperience/Features/Primary-Resources/Jfk-Civilrights/).

[3] Two recent books highlighting the critical intervention of the National Council of Churches and other conservative, religious activists in aligning bipartisan support and achieving the Act’s passage are Purdum, supra n.1, and Clay Risen, The Bill of the Century: The Epic Battle for the Civil Rights Act (Bloomsbury Press 2014).

[4] The Federal Civil Rights Enforcement Effort—1977, A Report of the United States Commission on Civil Rights (December 1977), p. 225, n.41.

[5] Bowe v. Colgate-Palmolive Co., 416 F.2d 711, 715 (7th Cir. 1969); Jenkins v. United Gas Corp., 400 F.2d 28, 32, 33 n.10 (5th Cir. 1968); Oatis v. Crown Zellerbach Corp., 398 F.2d 496, 499 (5th Cir. 1968).

[6] 401 U.S. 424 (1971).

[7] 411 U.S. 792 (1973).

[8] U.S. Census Bureau, 1960 Census, Vol. 1, “Characteristics of the Population,” pt. 35, Table 47.

[9] Griggs, 401 U.S. at 431.

[10] Gay v. Waiters' & Dairy Lunchmen's Union, Local No. 30, 694 F.2d 531, 537 (9th Cir. 1982).

[11] Griggs, 401 U.S. at 431.

[12] McDonnell Douglas, 411 U.S. at 801.

[13] Id. at 804.

[14] Id. at 804-5.

[15] Meritor Sav. Bank v. Vinson, 477 U.S. 57 (1986).

[16] 29 CFR § 1604.11(a) (1985).

[17] Citing 110 Cong. Rec. 2577–84 (1964).

[18] Meritor, 477 U.S. at 63-4.

[19] Id. at 64.

[20] Id.

[21] 548 U.S. 53, 64 (2006).

[22] 131 S. Ct. 2541 (2011).

[23] 672 F.3d 482 (7th Cir. 2012) cert. denied, 133 S. Ct. 338 (2012).

[24] Id. at 489.

[25] Merrill Class Action Disparate Impact Race Discrimination Class Action Home Page, http://www.merrillclassaction.com/settlementnotice.html (last visited May 6, 2014).

[26] Black Demographics Poverty Page, http://blackdemographics.com/education-2/education/ (last visited May 6, 2014) and U.S Census Bureau, 2009-11 3-Year American Community Survey, http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ACS_11_3YR_S0201&prodType=table (last visited May 6, 2014).

[27] Bureau of Labor Statistics, The Editor’s Desk, http://www.bls.gov/opub/ted/2011/ted_20110914.htm (last visited May 6, 2014) and Black Demographics, Employment Page, http://blackdemographics.com/economics/employment/ (last visited May 6, 2014).

[28] Black Demographics, Education Page, http://blackdemographics.com/education-2/education/ (last visited May 6, 2014) and U.S. Census Bureau, 2009-2011 3-Year American Community Survey, http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ACS_11_3YR_S0201&prodType=table (last visited May 6, 2014).

[29] Bureau of Labor Statistics, Labor Force Statistics by Race and Ethnicity, 2010,  http://www.bls.gov/cps/cpsrace2010.pdf (last visited May 6, 2014) and Black Demographics, Employment Page, http://blackdemographics.com/economics/employment/ (last visited May 6, 2014).

[30] Black Demographics, Employment Page, http://blackdemographics.com/economics/employment/ (last visited May 6, 2014) and Bureau of Labor Statistics, Charting the Labor Market Data from the Current Population Survey (CPS), http://www.bls.gov/web/empsit/cps_charts.pdf (last visited May 6, 2014).

[31] Black Demographics, Black Owned Businesses Page, http://blackdemographics.com/economics/black-owned-businesses/ (last visited May 6, 2014) and U.S. Census Bureau, Survey of Business Owners, http://www.census.gov/econ/sbo/getsof.html?07black (last visited May 6, 2014).

[32]Black Demographics, Poverty Page, http://blackdemographics.com/households/poverty/ (last visited May 6, 2014) and U.S Census Bureau, 2012 1-Year American Community Survey,    http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ACS_12_1YR_S1703&prodType=table (last visited May 6, 2014).

[33] See, Charles Lawrence, The Id, Ego and Equal Protection: Reckoning with Unconscious Racism, 39 Stan. L. Rev. 317 (1987) and Mahazarin R. Banaji and Anthony G. Greenwald, Blind Spot: Hidden Biases of Good People (Delacorte Press 2013).

[34] National Partnership for Women and Families Study, http://go.nationalpartnership.org/site/DocServer/Wage_Gap_National.pdf?docID=12421 (last visited June 3, 2014), citing  U.S. Census Bureau. (2012). Current Population Survey, Annual Social and Economic (ASEC) Supplement: Table PINC-05. Work Experience in 2011.

Monday, June 30, 2014

In Ayala v. Antelope Valley Newspapers, California Supreme Court Holds that Questions Defining "Employers" Liable for Wage Violations are Appropriate for Class Certification



Today, the United States Supreme Court sharply divided along partisan lines in decisions where the right-wing majority bent over backward to further empower corporations at the expense of ordinary Americans, validating companies that strip women's health coverage protections, and acting to eviscerate the power of unions to bargain for workers' rights. What fewer will report is that, today, the California Supreme Court unanimously affirmed a Court of Appeal decision reversing a denial of class certification in an independent contractor misclassification case, Ayala v. Antelope Valley Newspapers, S206874. Yet, Ayala (available here) will have a far-reaching impact for workers in California.

Justice Werdegar, writing for a five-justice majority, with concurring opinions by Justices Baxter and Chin, held in Ayala that the Court of Appeal correctly reversed a trial court decision denying certification of a case brought by newspaper delivery workers against a daily newspaper, which classified them as independent contractors. As independent contractors, the workers were denied minimum wages, overtime, meal and rest period premiums, employer contributions to Social Security, etc.

Though the trial court held that too many individual inquiries were necessary into the way that different newspaper delivery workers operated, to be able to have their claims handled as a class action, the Supreme Court explained that the trial court had missed the crux of the inquiry: whether a common law employer-employee relationship exists turns foremost on the degree of a hirer's right to control how the end result is achieved. See S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, 350 (Borello). As the Supreme Court explained: "[A]lthough evidence of variation in how carriers performed their work might support Antelope Valley‘s position that it did not control the carriers' work, such evidence would not convert the critical question—how much right does Antelope Valley have to control what its carriers do?—from a common one capable of answer on a classwide basis to an individual one requiring mini-trials." Ayala, Slip Op. at 4.

Because of the preeminence of the right to control test under Borello, as reinforced by Ayala, common proof - in the form of governing contracts - will often answer the independent contractor versus employee inquiry. As the Court explained, "At the certification stage, the importance of a form contract is not in what it says, but that the degree of control it spells out is uniform across the class." Slip Op. at 11. 

For countless California workers who are misclassified as independent contractors when their employers retain the right to control their working conditions, and who want to join with fellow workers to raise common misclassification claims, Ayala is now the most important authority that empowers them to raise their wage claims.

The decision is significant, too, outside the independent contractor misclassification context. Any worker asserting claims against joint employers - where one of the parties denies he or she or it is liable as an employer - will find critical support in Ayala. Ayala is addressed only to a common law theory of recovery - i.e., that the asserted party is an agent who/which engenders liability for the employer. The opinion explicitly elects not to consider how the Borello factors interact, if at all, with joint employer claims under the Labor Code, as defined in Martinez v. Combs (2010) 49 Cal.4th 35. Ayala, Slip Op. at 6.

Still, much of the language regarding class certification and the common, predominant question of whether an entity is liable as an "employer" would be equally applicable in the common law context and the Labor Code context. As the Court explained: "The trial court and Court of Appeal correctly recognized as the central legal issue whether putative class members are employees for purposes of the provisions under which they sue. If they are employees, Antelope Valley owes them various duties that it may not have fulfilled; if they are not, no liability can attach." Slip Op. at 5. Accordingly, unless the "central issue" will be resolved differently for different workers, a case presenting a touchstone question of whether a party may be an employer liable for wage violations is a perfect candidate for a class challenge.

The Court explained that what matters is whether the hirer of the workers retains control over the operations - "[t]he fact that a certain amount of freedom of action is inherent in the nature of the work does not change the character of the employment where the employer has general supervision and control over it....Perhaps the strongest evidence of the right to control is whether the hirer can discharge the worker without cause, because ―[t]he power of the principal to terminate the services of the agent gives him the means of controlling the agent's activities." Slip Op. at 6-7. If an asserted "employer" has the right to hire and fire all of the workers at issue - regardless of whether or not he/she/it exercised that right as to any particular workers - then it is likely a common, predominant question exists on whether the party can be an "employer" liable for wage violations. See also Slip Op. at 8 ("[W]hat matters under the common law is not how much control a hirer exercises, but how much control the hirer retains the right to exercise."); 12 ("That a hirer chooses not to wield power does not prove it lacks power."). 

Even on the other Borello factors, beyond the right of control, the Court narrowed which "secondary" factors are most significant, and clarified the meaning of these additional factors in helpful ways for workers. For example, one secondary Borello factor is the "place of work" - but the issue is "who provides the place of work, the hirer or hiree," and not the fact that there may be different physical locations where different workers are stationed. Slip Op. at 16-17. In an independent contractor case, the right to hire and fire at will is a factor of "inordinate importance," along with the "basic level of skill called for by the job," while "ownership of the instrumentalities and tools of the job" is a much less significant factor. Slip Op. at 17-18.

Critically, Ayala helped clarify the world post-Duran v. US Bank (2014) 59 Cal.4th 1 (see blog post on Duran here), by clarifying how manageability of a potential class action affects class certification. "Individual issues do not render class certification inappropriate so long as such issues may effectively be managed." Slip Op. at 17-18 (citing Duran, 59 Cal. 4th at 29; Sav-On Drug Stores, Inc. v. Superior Court, (2004) 34 Cal.4th 319, 334). Far from setting forth an absolute standard for which cases are manageable and which not, the Supreme Court reiterated that courts must engage in "weighing costs and benefits" to decide if the advantages of class litigation to resolve a common predominant question outweigh the disadvantages created by individualized issues. Slip Op. at 17.

After Ayala, more cases involving definitional questions - like, Who is the "employer" of these workers? - will proceed as class actions in California, giving more people a fair chance at recovering unpaid compensation. Misclassified independent contractors are more empowered than ever to seek relief.

If you have questions about a case in which you were classified wrongly as an independent contractor, or in which there is a question of which "employer" owes you wages, contact Bryan Schwartz Law today.

Disclaimer: This article is of general interest and not intended to be legal advice about any particular employment situation. Bryan Schwartz Law does not represent you until you have a signed representation agreement with the firm.



Thursday, June 26, 2014

California Supreme Court in Salas v. Sierra Chemical Holds that Undocumented Workers Are Not Barred from Relief for Claims Brought Under California’s Employment and Labor Laws


Today, in Salas v. Sierra Chemical Co., the California Supreme Court addressed a longstanding question regarding undocumented workers’ rights. The opinion is available here. The ruling settles the question of whether or not the doctrines of unclean hands and after-acquired evidence, which focus on employee misconduct to limit relief, stand as a complete bar to relief for undocumented workers who bring claims under California’s employment and labor laws. 

The plaintiff, Vicente Salas, was a seasonal worker in defendant’s company. Slip Op. at 3. He was injured while stacking crates in defendant’s production line and had to be taken to the hospital on two separate occasions. Slip op. at 4. After filing a Worker’s Compensation claim, he was laid off and not re-hired because of his disability, in violation of the Fair Employment and Housing Act (FEHA). Slip Op. at 5. After Mr. Salas brought claims for failure to accommodate and retaliation, the defendant moved for summary judgment. Slip Op. at 6.  The trial court denied summary judgment, but it was later granted by the Court of Appeal, reasoning that plaintiff’s undocumented status barred him from relief under the doctrines of unclean hands and after-acquired evidence. Slip Op. at 6.
The history and applicability of the unclean hands and after-acquired evidence doctrines in California date back to a Supreme Court ruling in McKennon v. Nashville Banner Publishing Co. (1995) 513 U.S. 352 (the unclean hands doctrine does not apply where a private suit serves important private purposes, but after-acquired evidence doctrine provides a partial defense for backpay). A subsequent California Court of Appeal decision misapplied the McKcennon rule. See Camp v. Jeffer, Mangels, Butler & Marmaro (1995) 35 Cal. App. 4th 620 (unclean hands and after-acquired evidence doctrines are a complete defense). The California Legislature stepped in, in 2002, by enacting Senate Bill 1818, which extended employment and labor protections to all workers regardless of immigration status. For more on the history surrounding the unclean hands and after-acquired evidence doctrine, see the article co-authored by Bryan Schwartz Law’s principal, available here.

Today, the court held that Senate Bill 1818, which extends state law protections and remedies to all workers “regardless of immigration status,” is not preempted by the Federal Immigration Reform and Control Act of 1986 (8 U.S.C. §1101 et seq.) (IRCA), except to the extent it authorizes an award of lost pay damages for any period after the employer discovers the employee’s inability to work in the U.S. Slip Op. at 2. Further, the court held that the unclean hands and after-acquired evidence doctrines are not complete defenses to a worker’s claims under the FEHA, though they do affect the availability of remedies. Id.

I.             IRCA Does Not Completely Preempt the FEHA’s Back Pay Remedial Scheme or SB 1818

Justice Kennard, writing for a majority including Justices Cantil-Sakauye, Werdegar, Corrigan, and Liu, held that IRCA did not preempt state law, rejecting the contention that federal immigration regulation imposed by IRCA had become so pervasive so as to leave no room for state employment laws that extend antidiscrimination protections to undocumented workers. Slip Op. at 14. The court reasoned that a conclusion that congress had “occupied the field” of employment and labor laws would dramatically inhibit critical state laws regulating workers compensation, minimum wage, working hour limits, and worker safety. Id.

The court also held that o the extent FEHA allows recovery of back pay for the period after the employer discovers a former employees’ undocumented status, that portion of California’s law conflicts with the IRCA’s provision against continuing to employ workers whom the employer knows to be undocumented, and thus is preempted by federal law. Slip Op. at 15. However, IRCA does not prohibit an employer from paying, or an employee from receiving wages already earned, so allowing recovery of lost wages in the period before the employer discovers the worker’s undocumented status does not produce an “inevitable collusion between the two schemes of regulation.” Id. Thus, undocumented workers are entitled to lost pay award under the FEHA in the period before the employer’s discovery of the worker’s immigration status (including the post-termination period before discovery of immigration status). Id. 

Significantly, the court’s preemption analysis is limited to employers who discover a plaintiff employee’s unauthorized status after the employee has been discharged or not re-hired. Slip Op. at 15, n.3. In situations where an employer knowingly hires or continues to employ an unauthorized worker, federal law does not preempt lost wages remedies for violations of state laws like the FEHA. Id. Presumably then, in these situations, the plaintiff employee is entitled to the same wage remedies as any other documented worker. This was the situation in Mr. Salas’ case. His employer received notice of Mr. Salas’ undocumented status far before taking adverse employment action, and yet continued to employ Mr. Salas. Slip Op. at 3-4.

Finally, California’s Senate Bill 1818 does not frustrate the purpose of the IRCA, and is thus not preempted. Slip Op. at 19. Employers would be immunized from liability for violations of important worker protections if undocumented workers were denied state remedies for unlawful discharge, including pre-discovery period lost wages. Slip Op. at 18. The resulting lower employment costs would encourage employers to hire undocumented workers, contrary to IRCA's purpose of eliminating employers’ economic incentive to hire undocumented workers. Slip Op. at 19. Thus, to the extent that the SB 1818 grants undocumented workers employment and labor law protections in the period before the employer discovers a worker’s undocumented status, the law is not preempted by federal law. Id.  

II.            After-Acquired Evidence and Unclean Hands  Doctrines Are Not A Complete Bar To Relief

The after-acquired evidence doctrine cannot be a complete defense to claims brought under the FEHA because if it were, it would impair the act’s antidiscrimination goal. Slip Op. at 24. In reaching this conclusion, the court adopted the Supreme Court's reasoning in McKennon 513 U.S. at 358-59 (held the after-acquired evidence doctrine does to bar all relief under the federal ADEA because  allowing it to do so would be inconsistent with the federal statutory scheme and would impair the efficiency of the ADEA, although some bars to relief apply ). Slip Op. at 25.  However, in an attempt to fashion equitable relief for both parties, remedial relief should compensate an employee from the dates of wrongful discharge or refusal to hire to the date the employer acquired information about the employee’s wrongdoing or ineligibility for work. Id.  This bars the employer from violating the FEHA with impunity and the employee from obtaining lost wages compensation for a period which he or she may not have been employed. Slip Op. at 26.

With respect to the unclean hands doctrine, while the doctrine stands as a complete defense to legal as well as equitable causes of action, it may not be used to wholly defeat a claim based on public policy expressed by the legislature in statue. Slip Op. at 27. However, the courts should use equitable considerations in fashioning relief in cases involving a legislatively expressed public policy. Id.

Today’s decision, while not affording complete relief to California’s undocumented workforce, is a step in the right direction. The decision will slow down employers fishing for employee misconduct after a wrongful termination, to get off the hook for an improper action, which can make discovery costly and ineffective. Further, and more importantly, it gives undocumented workers the courage to step forward and speak of workplace violations that are contrary to public policy.