A Close Call for Unions and the Employees they Represent at the U.S. Supreme Court

Public-sector unions will live to fight another day after the U.S. Supreme Court issued a 4-4 split decision in Friedrichs v. California Teachers Association on Tuesday. The ruling—which comprised of a single sentence and has no precedential value outside the Ninth Circuit—is most notable for what it did not do: that is, provide a means to gut unions for both public- and private-sector employees nationwide.

Friedrichs challenged a long-standing rule, first applied to public-sector unions in the 1977 Supreme Court case Abood v. Detroit Board of Education, 431 U.S. 209, 235-36. In Abood, the Court determined that public sector unions could require non-members to pay an agency fee (also known as a “fair share fee”)  to support the union’s collective-bargaining and-grievance adjustment activities from which all employees would benefit regardless of their union membership. Id. at 225-31. The Court distinguished these expenditures from a union’s political spending, for which a non-member could not be compelled to contribute to the union under the First Amendment. Id. at 232-36. The Abood decision in turn relied on earlier decisions by the high court which affirmed the right of private-sector unions to require all employees within a bargaining unit to contribute to non-political union expenditures. See Machinists v. Street, 367 U.S. 740 (1961); Railway Employees’ Department v. Hanson, 351 U.S. 225 (1956).

As a practical matter, a union’s ability to ensure that all employees pay their fair share of collective bargaining expenses is essential to its survival. A union bargains on behalf of all employees, regardless of whether those employees are members. Without the ability to require fair share fees, a union faces a collective action problem: why would an individual employee pay union dues when that employee can reap all of the benefits of the union’s collective bargaining efforts for free?

The necessity of fair share fees to the survival of unions has made them an enticing target for conservative efforts to attack unions and worker protections generally. The Roberts Court (or rather, its five most conservative members) signaled its eagerness to overturn the nearly forty-year old Abood precedent in its 2014 decision Harris v. Quinn, in which Justice Alito’s majority opinion criticized Abood extensively and declined to extend its holding to home health care workers paid by the state of Illinois. See Harris v. Quinn, 134 S.Ct. 2618 (2014). After Harris, the conservative advocacy group the Center for Individual Rights took the bait and brought the Friedrichs case with the goal of eliminating fair share fees from public-sector unions. Then, after the oral argument in Friedrichs this January, those same five justices from the Harris majority appeared primed to overrule Abood, notwithstanding the consequences for unions nationwide and the millions of workers they represent. 

Thus, little doubt exists that were Justice Scalia still on the Court, Friedrichs would have crippled public-sector unions and provided a blueprint to apply the same reasoning to target private-sector unions as well. That decision would have paralyzed the collective bargaining rights of teachers, firefighters, healthcare workers, and countless other public employees in the 23 states that allow fair share fees.

Unions and workers had a good day on Tuesday, but the fight continues. The Center for Individual Rights has already announced its intent to file a petition for rehearing of Friedrichs in light of the split decision. The future of public-sector employee unions thus rests in the hands of the Supreme Court’s next member. 

High Court Affirms Workers’ Right to Prove Mass Wage Theft Cases With Statistical Evidence

Today, the United States Supreme Court affirmed a basic principal underlying lawsuits challenging mass wage theft – if employers fail to keep records of employees’ work, then employees get to use their best estimate to prove their employer’s wage theft, including estimates based on statistical and representative evidence. The Court also confirmed that representative evidence may be used beyond the wage and hour context.

As we wrote here, the Court seemed unpersuaded at oral argument last fall that it should overrule seventy years of precedent, first established in Anderson v. Mt. Clemens Pottery Co., that employees may use a “representative sample to fill an evidentiary gap created by the employer’s failure to keep adequate records.” Tyson Foods, Inc. v. Bouaphakeo, No. 14-1146, 2016 WL 1092414, at *9 (Mar. 22, 2016). Writing for a 6-2 majority, Justice Kennedy affirmed this long-standing and critical rule of law.

Importantly, the Court went beyond the lenient standard of proof established in Mt. Clemens, which is unique to the Fair Labor Standards Act context, and thereby confirmed that representative evidence can be used as common proof of classwide liability and damages in other legal contexts. In particular, the Court clarified that Wal-Mart Stores, Inc., v. Dukes, the infamous decision that struck down a nationwide gender discrimination class action and has been the cause of much consternation for worker and consumer advocates, “does not stand for the broad proposition that a representative sample is an impermissible means of establishing classwide liability.” Id. at *10. Instead, the Court correctly recognized that representative evidence, like any evidence, can be persuasive or unpersuasive to a jury depending “on the purpose for which the sample is being introduced and on the underlying cause of action.” Id. at *8. In cases where “each class member could have relied on that sample to establish liability if he or she had brought an individual action,” representative evidence is more appropriate in contrast to cases where affected individuals are not sufficiently “similarly situated.” Id. at *8, *11. Thus, any doubt about the propriety of representative evidence to prove classwide liability in the wake of Wal-Mart and Comcast Corp. v. Behrend has been dispelled. The new battleground appears to be not if, but when representative evidence can be deployed to establish an element of a cause of action on a classwide basis. Id. at *8.

Interestingly, the Court observed that the district court would have erred in denying class certification if its sole basis for denying class certification were the lower court’s perception of the expert report as unpersuasive. Id. at *11. Only if the lower court “concluded that no reasonable juror could have believed that the employees spent roughly equal time donning and doffing” would denying class certification have been proper. Id. See also Amgen Inc. v. Connecticut Ret. Plans & Trust Funds, 133 S. Ct. 1184, 1194-95 (2013) (“Rule 23 grants courts no license to engage in free-ranging merits inquiries at the certification stage.”) The takeaway appears to be that the Court will require aggrieved plaintiffs seeking to use representative evidence to first establish that they were “similarly situated” such that the defendant’s harmful conduct affected them “roughly” in the same way. Id. However, once this threshold is met, the representative evidence may be used to establish classwide liability if it is otherwise admissible – no “Trial by Formula” concerns in sight.

Also, as anticipated by comments at oral argument, the Court declined to consider the important question of whether the possibility of uninjured class members prevents a district court from certifying a class action because Defendants abandoned the issue. The district court will have to address this issue in the first instance on remand. If not addressed in this case, the issue of possibly uninjured class members likely will continue to be raised by employers seeking to avoid accountability for their wrongdoing by arguing that if they didn’t steal from each of its employees, then its victims cannot stand together because unaffected employees might possibly receive a windfall. Thus, the employer should be let off the hook, or so the defense bar’s argument goes. A patently ridiculous argument, but one that will be resolved another day. 

            Lastly, the Court cautions that any representative evidence that relies upon expert witnesses, sampling, and similar evidence remains subject to a Daubert challenge, and thus, must be methodologically sound. This is in line with California Supreme Court jurisprudence that a class action may be certified using representative evidence, but the methodology behind the representative evidence must be credible and free of defects such as sampling errors. See Duran v. U.S. Bank Nat. Assn., 59 Cal. 4th 1, 13, 50-8 (2014) (Liu, J., concurring). See also here and here for discussion of the holding in Duran, and issues relating to the use of representative proof to advance the cause of workers.

            Thus, Tyson Foods, far from spelling the end of representative evidence in class actions, has breathed new life into class actions used to protect the interests of consumers, workers, and the general public. 

District Courts in Ninth Circuit Increase Scrutiny of Reversions After Allen v. Bedolla (9th Cir. 2015)

Last year, this blog covered the Ninth Circuit’s opinion in Allen v. Bedolla, vacating a class action settlement for, among other reasons, the parties’ agreement to a reversionary settlement. 787 F.3d 1218 (9th Cir. 2015). Since Bedolla was handed down from on high, district courts throughout the Ninth Circuit have applied the teachings in Bedolla by increasing their scrutiny of class action settlements containing reversions.

In a variation on the common pairing of a claims-made, reversionary settlement, the parties in Banks v. Nissan North America, Inc., a consumer class action related to faulty car brakes, agreed to a reversion of any reduction in attorney’s fees ordered by the court. No. 11-CV-2022-PJH, 2015 WL 7710297, at *13 (N.D. Cal. Nov. 30, 2015). The district court denied plaintiffs’ motion for final approval of class action settlement because, not only did class counsel attempt to receive twelve times the amount paid to class members, class counsel agreed to revert to defendant any “reduction of the attorneys’ fee award.” Id. at *12. Put more plainly, if the court found that class counsel was asking for too much money from the class, then defendant would have received a windfall instead of the class benefiting from the savings. Id. at *13. While there were additional reasons given by the court for its denial of final approval, the presence of a reversion was an important indication that the proposed settlement was not “fair, reasonable, and adequate.” Fed. R. Civ. Proc. 23(e).

Bedolla has also been invoked to strike down a proposed class settlement where any funds not claimed by the class would have been used to pay defendants’ employer taxes instead of the class or cy pres. The court in Sanchez v. Frito-Lay, Inc. rightfully wondered “why it would be fair to the putative class members to satisfy Defendant's employer payroll tax obligation out of the residual settlement amount” instead of directing those funds to the cy pres.  No. 1:14-CV-00797 AWI, 2015 WL 4662636, at *11 (E.D. Cal. Aug. 5, 2015) report and recommendation adopted, No. 1:14-CV-797-AWI-MJS, 2015 WL 5138101 (E.D. Cal. Aug. 26, 2015); see also Millan v. Cascade Water Servs., Inc., 310 F.R.D. 593, 612 (E.D. Cal. 2015) (also citing to Bedolla, denying proposed class settlement, and noting that “[i]f unclaimed funds are to revert to a defendant the parties should explain why those funds should revert to Defendant.”)

Furthermore, the court pointed out that “[t]o the extent that the parties contend that this does not act as a reversion, as the money is not directly returned to Defendant, the net effect is the same” because “there is no indication that class members benefit from that provision of the settlement.” Id. Just like calling a clerical employee a “manager” does not make him so, parties cannot fix the inherent problems with reversions in class settlements by sending the class’s money to the IRS on behalf of the defendant instead of directly returning the money to the defendant. Accordingly, the court kiboshed plaintiffs’ motion for class and conditional certification.

Even where a proposed settlement is eventually approved, a court is given pause by the presence of a reversionary settlement, especially when attorney’s fees are pegged to the nominal common fund instead of the percentage of the fund actually claimed by the class. For example, the court in Tait v. BSH Home Appliances Corporation was “concerned” about the presence of all three factors laid out in Bedolla that indicate “class counsel have allowed pursuit of their own self-interests … to infect negotiations”:

(1) ‘when counsel receive a disproportionate distribution of the settlement;’

(2) ‘when the parties negotiate a “clear sailing” arrangement’ (i.e., an arrangement where defendant will not object to a certain fee request by class counsel); and

(3) when the parties create a reverter that returns unclaimed fees to the defendant.

No. SACV100711DOCANX, 2015 WL 4537463, at *5 (C.D. Cal. July 27, 2015), appeal dismissed (Jan. 13, 2016) (internal citations omitted) (emphasis added). Predictably, the court’s reluctance to grant final approval was due, in part, to the caution in Bedolla “that proportionality should be determined with reference to the actual amount paid to the class” rather than the nominal value of the settlement without taking into account the unclaimed funds that would revert to the defendant. Id. at *6.

Importantly, the “problematic incentives inherent” in reversionary settlements caused the court to discount the views of counsel regarding the quality of the settlement despite acknowledging that “[c]ounsel on both sides of this case are experienced litigators” and that “[c]lass counsel competently investigated and litigated the factual and legal issues raised in this action….” Id. at *8. Thus, a court might take a dim view of class counsel, even exceptionally qualified and diligent class counsel, if they support a reversionary settlement on behalf of the class.

            In sharp contrast to the cases discussed above, the court in Aichele v. City of Los Angeles – a class action brought on behalf of peaceful protestors whose constitutional rights were violated by Los Angeles police officers – granted plaintiffs’ motion for attorney’s fees because “none of the warning signs for a settlement that may be influenced by improper favorable treatment of class counsel exists here.” No. CV1210863DMGFFMX, 2015 WL 5286028, at *6 (C.D. Cal. Sept. 9, 2015). The court supported its decision, in part, by reference to the fact that none of the “class fund revert to Defendants, and [do not] result in a highly disproportionate fee in relation to the actual (as opposed to theoretical) monetary recovery of the class.” Id.; see also In re High-Tech Employee Antitrust Litig., No. 11-CV-02509-LHK, 2015 WL 5158730, at *14 (N.D. Cal. Sept. 2, 2015) (approving ~$40m in attorney’s fees for class counsel in part because “Class Counsel [did not] agree that any portion of the $415 million common fund could revert back to Defendants.”)

            At best, reversionary settlement agreements result in heightened judicial scrutiny of your proposed class settlement and a judicial stink eye that may affect your reputation with the court in the future. At worst, including a reversion will cause a court to strike down what you have worked tirelessly to secure. With district courts vigorously applying Bedolla and its forbearers to class settlements, why risk including a reversion in your hard-fought settlement? 

Business Owners, Beware: Comply, or Pay Big

Bryan Schwartz Law Announces Jury Verdict for Minimum Wage Class Action Plaintiff Wrongfully Terminated from Server Job

She Lost only $3,000 in Wages but Recovers over $375,000 in Damages

Oakland, CA – Today, employment and civil rights attorney Bryan Schwartz announced a jury verdict won in Orange County Superior Court, complex division (Hon. William D. Claster), on behalf of a lead class plaintiff, Amanda Quiles, in her suit alleging unpaid minimum wages. Just a few weeks after filing her class action, the company, Koji’s Japan, Inc., and its owner, Arthur J. Parent, Jr., fired Quiles.

Quiles brought her case against the small sushi restaurant chain in November 2010 as a class action alleging wage violations, which is still pending. Quiles, who was still employed there as a server, was promptly fired. Though the jury found her wage loss damages from being fired were very limited (she worked for minimum wage plus tips, and got a new job within a couple months), she asserted a retaliation claim under the federal Fair Labor Standards Act, 29 USC 215(a)(3).

“We have to protect our clients who are brave enough to step forward and assert class claims,” said Schwartz, celebrating the victory.

Years after filing suit, Quiles and her attorneys learned that the company's owner, Parent, told his subordinate managers to "get rid of her," and "leave a paper trail." 

Parent closed his restaurants in 2012, hoping the suit would vanish, but it did not. The plaintiff and Schwartz’s firm redoubled their efforts to hold Parent personally responsible. He filed personal and corporate bankruptcy the first day of trial in January 2015, but Quiles’s attorneys obtained a stay from the Chapter 7 action as to the restaurants, and his Chapter 13 individual bankruptcy was dismissed. In May 2015, Parent was sanctioned over $50,000 to pay Quiles’s attorneys’ fees and costs for dealing with the bankruptcy, by the United States District Court for the Central District of California, for his frivolous, strategic bankruptcy filing.

After a bench trial over the course of several weeks last year, the court found that Parent was a joint employer under the FLSA because he had "absolute control" over the restaurant chain and had the "ability if not the inclination" to enforce the wage laws. 

Plaintiff offered to settle the case for $20,000 plus her fees and costs in fall 2015, but Parent ignored the offer. In October and December 2015, Quiles and her counsel arrived to try the case, but it was delayed until February 2016. In October 2015, however, the trial court permitted the addition of a punitive damages claim, which ultimately proved very substantial.

The jury’s verdict on March 2 and 3, 2016 was for $3,000 in lost wages, plus $27,500 in compensatory damages, plus $350,000 in punitive damages - with liquidated damages (and attorneys’ fees and costs) still to be determined by the court.

During the trial, Parent was impeached as to his whereabouts when the lawsuit was served. He claimed that he had not seen the lawsuit before Quiles was fired, in early December 2010. Plaintiff’s counsel first attempted service on November 24, 2010 - the day before Thanksgiving. Parent was then shown an email which was forwarded from his account, later that same day, mentioning the lawsuit in the subject line.

Parent then invented a story that he was in Hawaii that day, and might have been "on a cruise," and did not have email access, so it must have been one of his subordinates who sent the email from his account. However, evidence of his postings on his public Facebook page showed that he did go to Hawaii, but on November 25th. The title of his picture posted on Facebook was "At the Airport, LAX, Thanksgiving Day." He was not on a cruise, but rather, sitting in first class on a plane. Another image from Facebook showed him standing on the beach at Waikiki at sunset on Thanksgiving.

In the punitive damages phase of trial, the jury heard about Parent's 103-foot yacht, and plaintiff’s counsel used a long tape measure to show how big the yacht was (more than twice the length of the courtroom) that Parent was riding around on, while Quiles was fighting to get her minimum wages paid.

“I am so grateful to the jury, and to my attorneys, for finally bringing me justice,” said Quiles, who still works as a server. “Maybe someday I will open my own restaurant with this money – but I will pay my workers properly and give back to my community!”

The case is Amanda Quiles, et al. v. Koji’s Japan, Inc., and Arthur J. Parent, Jr., case number 30-2010-00425532-CU-OE-CXC, in the Superior Court for the County of Orange.

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About Bryan Schwartz Law

The firm's principal, Bryan Schwartz, opened the practice in January 2009. Bryan Schwartz Law is dedicated to continuing the struggle for civil rights and equality of employment opportunity and helping Americans from every background to achieve their highest career potential. The firm focuses on individual, class, and collective actions involving discrimination and retaliation, harassment, denied disability accommodations, whistleblower reprisal, wage and hour violations, federal employees' rights, and severance negotiations.

Bryan Schwartz Law is located at 1330 Broadway, Suite 1630, Oakland, CA 94612. The telephone number is (510) 444-9300. For more information, please click on www.BryanSchwartzLaw.com