Tuesday, December 9, 2014

Integrity Staffing Solutions v. Busk: Why shouldn’t people get paid for their time when it is controlled by the employer?

Today, the Supreme Court overturned a decision from the Court of Appeals for the Ninth Circuit and held that warehouse workers who were required to stay after normal hours on the job to undergo security screenings were not entitled to pay while they wait for and go through the screenings. The decision in Integrity Staffing Solutions v. Busk is available here. The workers – who retrieved products from warehouse shelves and packaged them for shipment to Amazon customers – spent roughly 25 minutes each day to undergo the screenings, which were conducted to prevent employee theft. 

Plaintiffs had argued, and the Ninth Circuit had held, that under the Fair Labor Standards Act of 1938 (FLSA), postshift activities that would ordinarily be classified as noncompensable are nevertheless compensable if the postshift activities are necessary to the principal work and performed for the employer’s benefit.  The Ninth Circuit explained that the screenings were “necessary” to the employee’s primary work, since the warehouse employees were required to undergo the screenings, and waited in security lines many hours a year for the employer’s benefit. 

Overturning the Ninth Circuit, in an opinion by Justice Thomas, the Supreme Court ruled that the security screenings were noncompensable. To support this conclusion, the Court explained that: (1) the warehouse workers were hired to retrieve products from warehouse shelves and package them for shipment, not to undergo security screenings; and (2) the security screenings were not “integral and indispensable” to the employees’ duties, as the employer could have “eliminated the screenings altogether without impairing the employees’ ability to complete their work.” The Court faulted the Ninth Circuit for focusing on whether an “employer required a particular activity” and not on whether an employer is performing work that the employee is “employed to perform.”

It should not matter that the employer could have eliminated the screenings, or that the employees were not hired to undergo security screenings. Apparently, the employer felt that maintenance of the security of the warehouse was an integral and indispensable part of the employees’ jobs – the employer required the workers to undergo a long security check, every single day. The Ninth Circuit had taken a fairer approach, which comports with our basic understanding of what deserves compensation. You should be paid for the time you spend doing whatever the employer requires you to perform, while you are under the employer’s control, and acting for the benefit of the employer. It should not matter whether certain job responsibilities the employer has given you could be altogether eliminated by the employer, because in fact, the required activities prevent you from going home and doing the things you want to be doing.

Employees are not entitled to get paid for their ordinary commute time: they could detour to take a child to school, stop for a drink with a friend after work, pick up dinner or drycleaning – or do whatever might interest them. This time is not under an employer’s control. California’s Labor Code takes the right approach – and California wage claims are unaffected by Integrity Staffing Solutions. As discussed in a previous blog post, under California law, an employer must compensate employees when an employee is “subject to the control of an employer” with no personal freedom to “use the time effectively for their own purposes.” For example, an employer must compensate employees for travel time if the employees are required to travel in a company-provided transportation, or if the employer subjects employees to restrictions during their commute via company vehicles, such as not permitting personal stops, forbidding them from picking up passengers, and forbidding the use of a cell phone except to answer calls from company headquarters.  

Once a worker submits to his or her employer’s control, foreclosed from doing activities in which he or she might otherwise engage, the time should be compensated. Why shouldn't people get paid to work, if their time is encumbered by their employers?  

Friday, November 14, 2014

California Court of Appeal: Overtime Misclassification Cases Are Best Suited for Class Action, Even Where Employer Raises Exemption Defense Based On Individualized Questions

This week, in a decision synthesizing a line of recent California Supreme Court decisions, including Duran v. U.S. Bank and Ayala v. Antelope Valley Newspapers, Inc., a California Court of Appeal reaffirmed the longstanding principle that “classwide relief remains the preferred method of resolving wage and hour claims, even those in which the facts appear to present difficult issues of proof.” The opinion, Martinez v. Joe’s Crab Shack Holdings, B242807 (Cal. App. 2d Dist. November 10, 2014), 2014 WL 5804110, is available here.

The case was filed on behalf of salaried employees of Joe’s Crab Shack (“JCS”) restaurants, on claims that they had been misclassified as exempt employees and were entitled to unpaid overtime pay. They alleged that they spent the majority of their time performing “utility” functions, filling in where needed as cooks, servers, bussers, hosts, stockers, bartenders, or kitchen staff. As a result, they worked extended time in positions ordinarily occupied by hourly employees, but had received no overtime compensation for those tasks. Defendants contended that these employees served in “executive capacities” and were therefore exempt from overtime requirement.

The trial court initially denied class certification, concluding, “The variability among individual members of the putative class would require adjudication of the affirmative defense of exemption for each class member, a time- and resource-consuming process.” The court relied on (1) plaintiffs’ inability to estimate the number of hours spent on individual exempt and nonexempt tasks; and (2) “individual disputed issues of fact relating to the amount of time spent by individual class members on particular tasks.”

The Court of Appeal reversed, and Supreme Court granted review and deferred further action pending the outcome of Duran v. U.S. Bank. Following the Duran decision in July 2014 (59 Cal.4th 1), the Supreme Court remanded the case to the Court of Appeal for reconsideration.

On reconsideration, the Court of Appeal affirmed its prior reversal of the trial court’s order and clarified several guiding principles for the certification analysis when confronted with the “myriad individual facts” asserted by employers in support of their exemption defense to a wage claim.

First, the court explained that “individual inquires” do not “necessarily overwhelm common issues when a case involves exemptions premised on how employees spend the work day.”  The court provided, “Where standardized job duties or other policies result in employees uniformly spending most of their time on nonexempt work, class treatment may be appropriate even if the case involves an exemption that typically entails fact-specific inquiries.” (quoting Duran, 59 Cal.4th at 31). The proper focus should be on “the policies – formal or informal – in force in the work place,” rather than on “the inevitable variation inherent in tracing the actions of individuals.” (quoting Ayala, 59 Cal.4th at 535). The court concluded that that plaintiffs’ theory of liability – that JCS classified all managerial employees as exempt while the common policies across JCS restaurants dictated that they perform hourly functions – is “by nature a common question eminently suited for class treatment.”   

The court also explained, in examining the employer’s actual policies, that the proper inquiry is on “the employer’s realistic expectations and classification of tasks,” not employees’ retrospective recollection of when they were engaged in exempt or nonexempt tasks. The analysis of employer’s realistic expectations, the court noted, was “likely to prove susceptible of common proof.” In Martinez v. JCS, common proof showed that salaried employees of JCS functioned consistently as utility workers, cross trained in all tasks, who could be assigned to fill in where needed without affecting the labor budget or requiring overtime compensation.  

Finally, the court acknowledged the difficulties presented by potential individual questions and the need to examine how individual employees actually spent their time. For this, the court encouraged use of statistical sampling to identify the realistic demands of the job and to determine whether the typical employee was able to meet those expectations, so long as the method affords an employer an opportunity to prove its affirmative defenses.   

Martinez v. JCS thoroughly rejected the analytic framework which would have created “a requirement that courts assess an employer’s affirmative exemption defense against every class member’s claim before certifying an overtime class action.” It makes crystal clear that the certification rules never envisioned such a requirement. When faced with overtime claims with exemption defenses, the Martinez v. JCS decision now affirms, courts should focus their analysis on the “policies and practices of the employer and the effect those policies and practices have on the putative class,” consider the employer’s realistic expectations of the job, and utilize the analytic tools available in class action suits, such as statistical sampling, even where facts appear to present difficult issues of proof.

Monday, October 20, 2014

New “Sharing Economy” and Delivery Service Apps Raise Interesting New Employment Law Questions

Northern California is the heart of app-based innovation. We are a testing ground for new business models and services that have only recently been made possible by the sudden prevalence of smartphones. Online businesses that are “disrupting” traditional marketplaces have been struggling to comply with (or change, or escape the application of) long-established legal regimes – think of AirBnB and hotel regulations, or Uber and taxi and limousine regulations. The area of employment law will be fertile ground for uncertainty and conflict as new business models come up against employment laws.

Many apps are geared toward making goods or services available whenever and wherever the consumer wants them:  Uber, Lyft, Summon, SideCar, and Flywheel make it easy to request a nearby car to pick you up wherever you happen to be; Sprig and Spoonrocket will deliver a hot meal to your door in a matter of minutes; Instacart will do your grocery shopping and deliver your bags within a one-hour window; and TaskRabbit will send someone to help you do just about anything.

On the other side of the equation – the production side – apps sometimes aim to make it easy for people to provide services for money. The “Taskers” who perform tasks via TaskRabbit can bid on the jobs they want to perform, and TaskRabbit advertises itself as helping enterprising business-people reach customers more easily. According to “UberX” drivers who have driven me around town, they can choose when and where to work, and they simply use their own personal vehicles when performing work for Uber. Prior to the existence of this technology, the barriers to finding someone who wanted to pay you for giving them a ride, washing their windows, packing up their moving boxes, or simply running their errands would have been mostly insurmountable.

How do the apps make money? Some portray themselves as “platforms” that merely bring buyers and sellers together and take a slice of the transaction as a middleman. TaskRabbit charges “a 20% service fee on each task so we can provide 24/7 Member Services support, full insurance on every task and our satisfaction guarantee,” according to their website. Others seem more like traditional delivery services, like the Pizza Huts or Little Caesars of the pre-internet era. And others may not be making any money at all – a common piece of wisdom in NorCal is that it doesn’t matter whether a new app makes money, what matters is how many users it can attract.

In order to gain users, however, an app has to provide a reliable service. If you decide to order an Uber, but you open your app and see that there are no available cars nearby, you’ll use a competitor (or you might even hail a cab!). Likewise, if you decide to test out Sprig or Spoonrocket for dinner (or one of the 5 new liquor delivery apps servicing Los Angeles) but you’re told that the wait-time will be an hour, you might give up on the app altogether. So the app has to be sure there’s a willing fleet of drivers, dinner deliverers, Taskers, or what-have-you to ensure that the promise of near-instant service is kept.

So who are the workers who are providing these services? And how are they getting paid? One predictable dispute is whether certain workers are employees or independent contractors – such cases are pending against Uber and Lyft. See Cotter v. Lyft, Inc., 13-cv-4065-VC (N.D. Cal.); O’Connor v. Uber Technologies, Inc., 13-cv-3826-EMC.

Lawsuits have been filed challenging the manner in which tips, or “delivery charges,” are passed on to the workers. In the Uber case just mentioned, the Court left the door open for a claim that Uber failed to pass along the full gratuity advertised as part of the fare. See O’Connor, 13-cv-3826-EMC, 2014 WL 4382889 (Sept. 4, 2014). First, the Court rejected a couple of theories offered by the Plaintiffs – that there was an “implied in fact” contract for payment of the full gratuity to the drivers, and that Uber was engaged in “tortious interference with prospective economic advantage.” 

However, the Court held that the Plaintiffs could attempt to prove a violation of the California Labor Code section on gratuities (§ 351), which can be enforced by a private plaintiff as the basis for a violation of the Unfair Competition Law.

In another recent tipping case against Domino’s Pizza, which uses an app to allow customers to place orders, a group of pizza delivery drivers brought a proposed class action, arguing that the manner in which Domino’s charges its $2.50 delivery charge per order violates the Massachusetts Tips Act. See Carpaneda v. Domino’s Pizza, Inc., 991 F. Supp. 2d 270 (D. Mass. 2014). In app orders (as well as online orders), the price charged to the customer is displayed as including: (i) the food and beverage price; (ii) a $2.50 delivery charge; and (iii) taxes. The drivers, who receive only $3/hour aside from tips, argued that the $2.50 delivery charge should be passed on to them, given that reasonable customers would assume that the delivery charge was a tip, and would not, therefore, provide any additional tip. The app did include a disclaimer stating that the delivery charge is not a gratuity, but the Court denied Domino’s motion to dismiss the case, ruling that a jury could find that a reasonable customer would assume the delivery charge was a tip.

The services provided by the new apps are amazing, and they may provide a much-needed new source of employment, but vigilance will be necessary to ensure that as apps dizzily expand, they comply with the wage laws that protect workers.

If you have a concern about your work with one of these new services, contact Bryan Schwartz Law for more information.

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.