Emerging Trends in Wage-Hour Class Actions 2014

Bryan Schwartz Law's principal spoke at the California Employment Lawyers Association's annual advanced wage and hour seminar last week, joining a panel with Senator Bill Monning and Scot Bernstein regarding legislative and case law developments in the last year. He presented a paper detailing emerging trends in wage-hour class actions, available here: Bryan Schwartz - Emerging Trends in Wage-Hour Class Actions 2014

Using a stock market analogy, Mr. Schwartz identified that class certification and joint employer claims are trending up, discussing extensive California and federal court precedents. He argued that the application of Wal-Mart v. Dukes to the detriment of wage/hour class actions is down, and that "drowning in arbitration" is down. Mr. Schwartz predicted that Duran v. US Bank would be the blockbuster, game-changing decision of the year. Finally, continuing the stock market theme, he identified sleeper picks, including seating cases and piece-rate cases, along with cases alleging misclassification in different industries - e.g., NFL cheerleaders.

Pre-Employment Medical Screening - a Class Action Opportunity

Bryan Schwartz Law's principal presented this week at the ABA's 4th National Conference on Employment and Education Law Impacting Persons with Disabilities, in Los Angeles, on a panel entitled, "Are Your Selection Criteria Screening Out Persons with Disabilities?"

His paper for the conference entitled “Pre-Employment Medical Screening: a Class Action Opportunity,” available by clicking here, discusses how pre-employment medical screening violations readily lend themselves to class action claims by job applicants under Fed.R.Civ.P. 23(b)(2), 23(b)(3), and 23(c)(4).

The paper highlights three areas ripe for class litigation: if the employer routinely reviews medical records too early in the process, before a bona fide offer; if the employer conducts medical testing too early in the process, i.e., before all other pre-employment steps have been taken; and if the employer fails to provide individualized consideration concerning reasonable accommodations as part of its medical qualification process.

If your rights have been violated by improper pre-employment medical screening, contact Bryan Schwartz Law today.

California Supreme Court Hears Iskanian and Ayala Oral Arguments - Many Workers' Rights Hang in the Balance

Today, the California Supreme Court heard oral argument in two cases that will help shape employment law and litigation in the state for many years - Iskanian v. CLS Transportation of Los Angeles, S204032, and Ayala v. Antelope Valley Newspapers, S206874.

Iskanian will decide whether Gentry v. Superior Court (2007) 42 Cal.4th 443, discussing the unconscionability of mandatory, pre-dispute arbitration agreements with class action waivers, in the labor and employment context, where there are unwaivable statutory rights, survived AT&T Mobility LLC v. Concepcion (2011) 131 S. Ct. 1740, which overruled California's Discover Bank rule in the consumer context. For a further discussion of Concepcion, click here.

Equally importantly, Iskanian will decide whether Concepcion trumps the California statutory right to bring representative claims under the Labor Code Private Attorneys General Act of 2004 (Lab. Code, § 2698 et seq.) (PAGA), discussed in Arias v. Superior Court (2009) 46 Cal.4th 969.

Furthermore, the Supreme Court in Iskanian will determine under what circumstances a defendant has waived its right to compel arbitration, after it has taken advantage of judicial process.

Insiders report that plaintiffs' counsel and Michael Rubin, of Altshuler Berzon, who argued on behalf of amici (including the California Employment Lawyers Association, CELA) for the workers, impressed upon the Court the need to maintain the integrity of PAGA as a vital California enforcement scheme which does not discriminate in any way against arbitration, but promotes enforcement through representative actions of numerous Labor Code penalty provisions. Justice Liu grappled with, and appeared to grasp, the significance of the National Labor Relations Board's decision in In Re D. R. Horton, Inc. (2012) 357 NLRB No. 184, which held that the National Labor Relations Act (Section 8(a)(1)) does not permit employers to outlaw joint, class, or collective employment-related claims in any forum, arbitral or judicial, because such interferes with employees' Section 7 right to engage in “concerted activities for the purpose of collective bargaining or other mutual aid or protection.” Plaintiffs' counsel further argued that the California Supreme Court got it right in Sonic Calabasas v. Moreno (2013) 57 Cal.4th 1109 (Sonic II) after Concepcion (read about Sonic II here), and should not backtrack from its strong position upholding California's unconscionability doctrine in the context of wage claims.

In Ayala, the Supreme Court heard the most important independent contractor misclassification case since S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, and appeared to focus on how Martinez v. Combs (2010) 49 Cal.4th 35, may have reshaped Borello, with its new definition of "employer" under the Labor Code. For more on Martinez v. Combs, read here and here.

Borello determines when an entity's control over a worker is sufficient to render an independent contractor an employee, and Martinez v. Combs defines an employer as (among other possibilities) one who controls the wages, hours and working conditions of the workers. Though discussing the interrelationship between these seminal cases may lead to additional guidance on the critical question of joint employer status in California, insiders note that such is not the question regarding which the Supreme Court originally granted review, namely:

"This case presents questions concerning the determination of whether common issues predominate in a proposed class action relating to claims that turn on whether members of the putative class are independent contractors or employees."

Regardless of the outcome of the "employer" definition, as argued by counsel for amici (including CELA and the Legal Aid Society - Employment Law Center), Aaron Kaufmann, of Leonard Carder, the determination of this definition and whether the workers meet the test predominates over all other questions in an independent contractor misclassification case, and as such, the Ayala trial court's decision denying class certification should be reversed. See Brinker Rest. Corp. v. Superior Court (2012) 53 Cal. 4th 1004, 1021 ("The 'ultimate question' the element of predominance presents is whether 'the issues which may be jointly tried, when compared with those requiring separate adjudication, are so numerous or substantial that the maintenance of a class action would be advantageous to the judicial process and to the litigants.' [Citations.]....The answer hinges on 'whether the theory of recovery advanced by the proponents of certification is, as an analytical matter, likely to prove amenable to class treatment.'”) (citing Sav–On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 326-327).

If the Supreme Court in Ayala actually answers the question accepted for review - regarding the class certification standard - it should be a boost for workers with independent contractor misclassification claims. Such a decision would reinforce Bradley v. Networkers Int’l, LLC (2012) 211 Cal.App.4th 1129, regarding which review was denied only last March, in which the Court of Appeal (on remand after Brinker) certified a class alleging misclassification of independent contractors. Read about Bradley by clicking here.

A win for the plaintiffs in Ayala, reinforcing Bradley, would also weaken Sotelo v. MediaNews Grp., Inc. (2012) 207 Cal. App. 4th 639, 659 (regarding which review was denied in 2012), a factually similar case to Ayala in some respects, but where predominance was missing because different contractor relationships existed between the company and individual class members.

While smart insiders are too cautious to predict the outcome of Iskanian and Ayala, today's cases present a major opportunity to reinforce California's best-in-the-nation worker protections. I hope the Court takes it.

Supreme Court Decision Extends Protections Against Whistleblower Retaliation to Employees of Private Companies Providing Services to Public Companies

The United States Supreme Court issued a landmark decision today in Lawson, et al. v. FMR, LLC, et.al., expanding whistleblower protections under the Sarbanes-Oxley Act of 2002 (SOX) to employees of private companies who are subcontractors or contractors for public companies. The eight-to-one decision, with a majority opinion delivered by Justice Ginsburg, is the first describing the scope of protection from retaliation for securities-fraud whistleblowers. In its decision, the Court highlighted that employees of contractors and subcontractors for public companies, including lawyers, mutual fund managers, and accountants, have often been exposed to retaliatory measures such as discharge and demotion for engaging in whistleblower activities, due to gaps in federal whistleblower protections. No more.

The Court granted certiorari to address the specific question of whistleblower protections in SOX applied to employees of privately-held companies working as contractors and subcontractors for public companies. SOX was enacted to safeguard investors in public companies and restore trust in financial markets. The specific provision of the Act, § 1514A, states that “no [public] company…, or any officer, employee, contractor, subcontractor, or agent of such company, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of [whistleblowing or other protected activity].” The case arose on the heels of Senate reports and investigations of the Enron scandal showing widespread retaliation against investment bankers, brokers, and accounting firm professionals who raised concerns of potential securities fraud. As the Court explained, "The Sarbanes-Oxley Act contains numerous provisions aimed at controlling the conduct of accountants, auditors, and lawyers who work with public companies. [Citations] Given Congress’ concern about contractor conduct of the kind that contributed to Enron’s collapse, we regard with suspicion construction of §1514A to protect whistleblowers only when they are employed by a public company, and not when they work for the public company’s contractor." Slip Op. at 3.

Plaintiffs, Julie Lawson and Jonathan Zang, are former employees of different FMR, LLC, subsidiaries. FMR is a private company that contracts to advise and manage the Fidelity family of mutual funds. While the mutual funds are public companies, as is common in the mutual fund industry, the funds have no employees themselves who would otherwise act as gatekeepers to detect or deter fraud. Lawson alleged that she suffered adverse actions culminating in constructive discharge as a result of raising concerns that her employer overstated expenses associated with operating mutual funds. Zang also alleged that his employment was terminated after reporting inaccuracies concerning certain funds managed by the company in a statement intended for the SEC.

The Supreme Court decision today reverses the First Circuit Court of Appeals’ split decision holding that the term "employee" in § 1514A whistleblower protections refers only to employees of public companies and does not cover a contractor’s own employees. The decision paves the way not only to prevent future fraud on investors in public companies, but also provide meaningful remedies to whistleblowers subjected to retaliatory measures by their employers - whether such are publicly-held companies or not.

Employees of privately-held contractors and subcontractors exposing securities fraud in public companies may now seek remedies such as reinstatement or backpay for retaliation resulting from protected whistleblower activity. If you have experienced retaliation as a result of whistleblowing activity at your employer that contracts or subcontracts for a public company, contact Adetunji Olude.

Justice Liu Leads the Questioning as California's Supreme Court Hears Oral Argument in Duran v. US Bank

Hundreds waited in line and packed into the California Supreme Court today to hear oral argument on Duran v. US Bank, the most important case on the manner of proving a class action yet to be heard in California. The sitting judges of Alameda County’s Complex division were barely able to squeeze into the Court after waiting in line with non-profit advocacy organization leaders, plaintiffs’ and defense practitioners, and classes full of high school and law students. The crowd was dwarfed, however, by the millions around the state who will be impacted by the Court’s anticipated decisions on whether: in a wage and hour misclassification class action, the defendant has a due process right to assert its affirmative defense against every class member; whether a plaintiff can ever make class claims if a defendant has such a due process right; and whether statistical sampling, surveys and other forms of representative evidence can prove classwide liability in such a case. At stake in Duran is no less – if the Supreme Court decides the questions presented – than whether the class action is a viable mechanism in California for proving violations of law by a company or agency against a large group of people. Whether or not all of the justices were prepared to address this monumental question, Justice Goodwin Liu appeared ready.

In Duran, the plaintiffs alleged that Business Banking Officers (BBOs) at US Bank were misclassified as exempt from overtime and other California wage requirements based on the notion that they are outside salespeople, when, in fact, they were expected to, and did, spend the bulk of their time selling from inside the bank branches. After long and contentious litigation, the plaintiffs prevailed at trial before Judge Robert Freedman of the Alameda County Superior Court’s complex division, winning close to $15 million for over 200 BBOs. The trial court heard testimony from a survey of 19 randomly selected BBOs, plus the two named plaintiffs, plus about 17 defense witnesses, and received thousands of documents. US Bank refused to agree to any trial plan where the trial court would determine liability based on a selection of witnesses in the class action, but insisted that they had a constitutional right to call every class member individually to be heard on liability.

Experts determined that the sampling methodology used would have a 13% margin of error in determining liability based upon the 21 class members’ testimony, but, the trial court weighed the evidence and determined that, with the case as presented, the “point estimate” was that 100% of the class was misclassified as exempt. In other words, as between US Bank being liable to 87% and 100% of the class, the proof supported a conclusion that 100% of the class was misclassified.

Justice Liu immediately keyed in on the key issue, asking Edward Wynne, plaintiffs’ counsel, whether it was acceptable that up to 13% of the liability could be erroneous, based upon the margin of error. Wynne and Michael Rubin, who argued for the plaintiffs and amici (including the Impact Fund and the California Employment Lawyers Association), respectively, emphasized the 100% point estimate, based upon not only the experts, but upon the numerous other sources of common evidence of liability – corporate documents, the sample testimony of BBOs, adverse inferences from missing documents, and the testimony of US Bank’s own officials.

Importantly, Wynne and Rubin argued that even if some of the class members were not misclassified (as some had testified in declarations that the court rejected as lacking credibility and as lacking any representative character – i.e., being of no evidentiary value), the Court in Sav-On v. Superior Court (2004) 34 Cal.4th 319, and in denying review to Bell v. Farmers Ins. Exch. (2004) 115 Cal.App.4th 715 (2004) (Bell III), implicitly recognized that some degree of error is accepted – in Bell III, it was 9% - and urged that there are numerous mechanisms that courts can use to ensure due process, so that defendants’ aggregate liability is not greater than appropriate. Rubin reiterated Sav-On’s holding that classwide liability can be found where the challenged practice is “widespread but not uniform.” Where a common factor accounts for the (for example) 10% of the class to whom liability is not owed, that group can be segregated out of the class – e.g., a particular job title, or particular dates of employment. A second phase/bifurcated trial of damages, involving claim forms and surveys, could help assure that the correct overall extent of liability is paid by a corporate defendant.

Justice Liu questioned US Bank’s attorney as to whether the company was taking the position that courts could never find liability through statistical extrapolation. US Bank’s attorney indicated that the company was not making such an argument, and assured the justices that Sav-On (involving what he called “task misclassification”) would not be undermined by embracing the company’s position, which the company argued only applied when liability arose from individualized circumstances. Justice Liu noted that – notwithstanding US Bank’s protestations – the company was taking a “very categorical” position that in this kind of case (a misclassification involving outside sales) reliance on statistical evidence for a liability finding would violate the company’s due process.

Justice Liu addressed what he called the “overhang of uncertainty” that the company was arguing could not be dispelled by statistics, but only by unlimited live testimony. He pointedly asked defense counsel, “None of those inferences [created by statistics and other forms of common proof] can dispel any uncertainty, except to hear testimony straight from a person’s mouth?” Justice Liu then addressed the fallacy that an employee’s recollections – in a situation where neither he nor the company kept precise records – would necessarily be superior to other forms of class action proof. “Employees themselves are making estimates. These things are very imperfect,” he presciently observed. Justice Liu asked the defense counsel and his listening colleagues, "Why would we privilege that information – live testimony – which is all relying on inference and gap-filling – over evidence concerning policies and company expectations?”

Ultimately, as Wynne argued, defendants are entitled to due process, but not absolute process. Class actions are superior in many employment, consumer, and other matters where small individual damages or the threat of retaliation would tend to prevent wronged individuals from stepping forward to assert their rights, and where judicial economy would best be served by deciding a disputed legal question once: here, whether the BBO position was primarily an inside (non-exempt) or outside sales job. Though plaintiffs did not ultimately oppose a remand for a damages proceeding (the first damages finding was based upon data with a 43% margin of error), the Supreme Court should uphold class certification and the classwide liability finding in Duran, giving the trier of fact’s findings and the trial court’s handling of the proceedings over many years the due deference they deserve.

I hope the whole Court was listening to Justice Liu's questions and their answers from counsel. If he authors the final opinion, I am optimistic that it will be a fair result, for not only companies, but for workers and consumers around California.

Class Action Settlement Principles to Take With You into the Next Mediation

The following paper is being presented today to an audience of workers' and consumer class action advocates at the Impact Fund's 12th Annual Class Action Conference by Bryan Schwartz, the principal of Bryan Schwartz Law.

It is the day we are all waiting for. Game Day. Today is the day all of your client-building, discovery-grinding, certification-motion-filing efforts have precipitated: mediation.

Your firm has spent 1,246.7 hours on the case so far, but everything will happen in these 12 hours. By the end of the day, you are so emotionally exhausted from the mediator pounding on you, and so happy to have the mediator come in with a number that you can tolerate, that you walk out with a pending mediator’s proposal that only says the gross dollar value of the global settlement. Perhaps you leave the mediation with a handshake agreement but without nailing down the details of the Memorandum of Understanding.

Oops. The devil was in those particular details. It turns out the $5M they wanted to pay was really $5M reversionary, so they really expect to pay closer to $2.5M. It turns out that as part of that $2.5M they expect your clients and the class to pay the employer’s payroll taxes on the back wages owed. So now it is more like $2.3M. It appears now that they expect the class definition to encompass about twice the number of people you thought were in the class, so the people you thought you were representing are only getting $1.15M. Turns out they expect for that $1.15M to have your clients execute a general release (in California, a Civil Code §1542 waiver) that might impact other valuable claims you have not even contemplated in your lawsuit – further devaluing what is actually being paid regarding the claims you actually brought. For them, each of these terms is “non-negotiable.” Suddenly, you have a settlement that is unsettled. Back to the drawing board.

Everyone who has negotiated a class action settlement has probably had some term he or she forgot to address at mediation, or in the MOU, that returned in drafting the “final” agreement as a big headache and put the deal at risk. I have. I have thought, at many class action mediations, “I wish I had a checklist so I would remember all the key terms.” Here it is.

1. Non-Reversionary Settlement
Whether or not your class action settlement needs a claims process (e.g., if it is a federal Fair Labor Standards Act (FLSA) case that requires plaintiffs to opt-in under 29 U.S.C. §216(b)), you need to know how much the employer really plans to pay. A common defendant pitch during a class action mediation is for a “reversionary” settlement, where the defendant will recoup any amount not claimed during a claims process. Among other disadvantages, this puts the parties’ interests during the settlement administration process in conflict –instead of aligning them, with all parties hoping for maximum participation (or, as defendants would see it – the maximum number of releases). We want the class to participate fully and recover as much as possible. Defendants will want the same sweeping release of the class members’ claims, with as much of the settlement fund as possible unclaimed and thus reverting to the defendants. It is intuitive – they want to pay less, for more. Do not let them.

The judiciary is attuned to the pitfalls of the reversionary settlement. The Federal Judicial Center publishes “Managing Class Action Litigation: A Pocket Guide for Judges” (available online), which explains:
“A reversion clause creates perverse incentives for a defendant to impose restrictive eligibility conditions and for class counsel and defendants to use the artificially inflated settlement amount as a basis for attorney fees.”

In this vein, California and federal courts have been articulating a distaste for reversionary settlements for years, especially where the attorneys try to claim fees as a percentage of the whole fund, rather than the actual pay-out, and where all the class members’ claims are released, whether they get paid or not. See, e.g., Kakani v. Oracle Corp., 2007 WL 1793774 (N.D.Cal. June 19, 2007) (Alsup, J.). Cf. Glass v. UBS Financial Services, Inc. (9th Cir. 2009) 331 Fed.Appx. 452, 456 (reversionary settlements generally “problematic”). Some courts have unequivocally rejected all reversionary settlements, as a matter of policy. See, e.g., the Alameda County Superior Court Complex Division’s former Guidelines for Preliminary Approval of Class Action Settlements (“The Court will not approve a settlement that contains a reversion to a defendant.”). Courts evaluate, at a minimum, the real cash value of a settlement to class members and how much the case was discounted for settlement purposes – which is difficult to do at preliminary approval, when an unknown portion of the settlement fund will revert to defendants. See Kullar v. Foot Locker Retail, Inc. (2008) 168 Cal.App.4th 116.

Instead of reversion to defendants, the Federal Judicial Center proposes that the unclaimed funds be allocated pro rata to those participating, based upon their initial allocations, i.e., someone getting $1,000 in the initial allocation will receive $2 of the unclaimed funds for every $1 received by a class member whose initial allocation was $500. This can be done in a second payment, or (more cost-effectively) by increasing the allocations before the initial distribution. Unclaimed funds may also go to a suitable cy pres recipient.

In 2009, I wrote an article called “Death to the Reversionary, Claims Made Settlement”, and I have made this issue regarding reversion the first debate I have in every class action mediation since that time. Simply put, though opposing counsel and the mediators almost always try to push the reversionary settlement, I say up front: I will not agree to one. Defendants may object (particularly in the FLSA context) that they should not have to pay the same amount regardless of the number of settlement participants. They may object that the lack of a reversion will provide a “windfall” to the participants. But, it turns out, companies principally care what they will have to pay ultimately for the release of the claims alleged in the suit. As to the windfall, there is none. You are compromising from full relief in agreeing to your settlement, and the pro rata increase to allocations only gets the participating class members a little closer to the claimed full relief.

Mediators will usually admonish you that they cannot get you the same amount in a non-reversionary, “all-in” settlement – and my response is to say that I understand the number may be lower – but, it will be a real value to the class, and, perhaps most importantly, defendants and plaintiffs’ counsel will be aligned in trying to achieve maximum participation in the settlement. Once defendants have agreed to pay the full amount with no possibility of reversion, they will have no motivation at all to discourage participation, and will not be lukewarm or neutral about participation, either. On the contrary, defendants will cooperate enthusiastically in encouraging everyone to participate for the same $2M they are paying, since the money is all spent and none is reverting to them. They may send communications to the class – apart from the notice – urging everyone to participate in the fair settlement you have negotiated, reassuring absent class members that no retaliation will befall anyone who does. They will provide phone numbers and emails for follow-up by the administrator and class counsel. I have averaged over 80% affirmative opt-in rates in non-reversionary settlements – and have achieved up to 94% participation.

This term – “all-in” or “non-reversionary” – needs to be part of any mediator’s proposal or MOU because, more than any other (other than the gross dollar value of the settlement), it is a term that cannot be left to negotiate later.

2. Employer’s Share of Payroll Taxes
If your settlement involves back wages, then it involves payroll taxes. Do not be surprised that the employer’s vision of a “global” settlement includes the notion that your clients will pay the employer’s taxes. Yet, an employer is required to withhold taxes from wages pursuant to 26 U.S.C. §§ 3102(a) and 3402(a), and to pay an employer’s share of FICA pursuant to § 3111. The same is true under FUTA, 26 U.S.C. §§ 3301, et seq. The Internal Revenue Service website advises employers that they must “withhold part of Social Security and Medicare taxes from your employees' wages and . . . pay a matching amount yourself.” The guidance further states that employers must pay the federal unemployment tax (FUTA) “only from [their] own funds” and that “[e]mployees do not pay this tax or have it withheld from their pay.” See here.

Do not let your defendants shift their duty to your clients. Ultimately, the employers’ attorneys’ are principally or only interested in the bottom line – how much will the client have to write a check for – and you should be clear that the check includes the employer’s own share of its taxes separate from and in addition to the class relief – e.g., the $500,000 settlement is really for $517,255.56, since one third of the class members’ payments were W2 wages, regarding which the employer must pay federal and state unemployment taxes (FUTA and SUTA), Social Security and Medicare taxes, and FICA. Courts note favorably where the employer covers its share. See, e.g., Rosenburg v. International Business Machines Corp., 2007 WL 2043855, at *3 (N.D. Cal. July 12, 2007). Being clear on this term at every step of the process will put a lot more money in your clients’ and the class members’ pockets – anywhere from 5-15% more.

A final note on point – particularly important if defendants have any solvency issues: make sure the full amount to cover the employer’s share is deposited in trust or secured by a letter of credit at the same time as the overall settlement amount, because the settlement administrator will not mail any checks until the amount is there, and – irrespective of your agreement – if the employer has not put forward its share of the taxes, it will come out of the class members’ settlement (or your fees, or be deducted from the cy pres remainder) when it comes time for disbursement.

3. Scope of Class and Release
Make sure it is clear what you are, and are not, negotiating. While it is commonplace for representative plaintiffs receiving enhancements to sign a broad release of claims – and indeed, such provides some justification for their enhanced payments – the class members’ release should be narrowly drafted to impact only the claims raised in the suit or, at a maximum, those which could have been raised in a suit premised on the same facts pled. If it is a wage/hour settlement, there is no reason your class members should be releasing, e.g., their disability discrimination claims, to get their back wages with penalties and interest. The Kakani decision and a host of federal and state authorities (in California, see Trotsky v. Los Angeles Fed. Sav. & Loan Assn. (1975) 48 Cal.App.3d 134, and cases following it) reaffirm the basic principle that class members should be compensated based upon the claims they are releasing.

In the same vein, make sure the class period (in California, four years before the complaint was filed, and through preliminary approval, frequently) and job titles encompassed in the settlement are mutually understood – yours would not be the first case in which defendants tried to sweep additional class members into an all-in settlement who you never contemplated sharing in the relief. Do not permit defendants to water down the settlement payments by doubling the size of your class – those encompassed in your complaint should be those benefiting from the settlement, or, defendants should pay more to compensate the additional class members.

4. Timing of Payment
Particularly with a financially-shaky employer (or any company, especially a closely-held one, where bankruptcy is a ready option), make sure the money (including, as noted above, the employer’s share of any payroll taxes) is in the bank. In circumstances involving a small or otherwise potentially insolvent employer make the timing of the deposit into a Qualified Settlement Fund – where it becomes unreachable by the defendant, even perhaps in the event of a bankruptcy claw-back – a core condition of a MOU, or request that it be part of a mediator’s proposal. Having the money in the bank also helps avoid delay in negotiating additional settlement documents like the final settlement agreement and class notice/claim form, any joint motions, etc. If the money has been paid, the employer has no reason to drag its feet (i.e, it is no longer accruing interest on the money in its bank after the settlement amount has been fully paid). If the employer does not have the wherewithal to put all the money in the external trust account immediately, find out when it will be there (within ten days of the signing of the MOU? within five days of preliminary approval? 30 days before the final approval hearing?), and/or require the employer to provide a letter of credit from a viable financial institution, guaranteeing that all the money will be there when it is required.

Also, generally, your clients and the class members want to get paid as soon as possible, so there is no justification for a settlement term that conditions the disbursement of payments on the expiration of time for appeals, if no one properly objected or even expressly opted-out of the agreement. Such only drags out an already long process for your class members.

5. Failure of Settlement
You have not even consummated the settlement but you should nonetheless contemplate it failing. Namely, what number or percentage of opt-outs will “blow up” the settlement? Choosing too small a number or percentage is highly risky – 10% is appropriate. Moreover, insist on a provision that the employer will own any administration costs incurred before the settlement failed – another good reason to have the settlement fund amount deposited early.

6. Nature of the Payments
Will the payments to class members be considered all wages (subject to a W2), half wages-half interest/penalties (subject to a 1099), or one-third each for wages, penalties, and interest. This is one area where your view and the defendants’ may converge: they do not want to pay more wages (leading to a larger employer payroll tax burden), and your client would rather not have deductions taken. Settlement administrators, however, are becoming more attuned to this issue, and no one wants an IRS or state tax audit. Moreover, some argue that in the long term it is better for clients to be paid wages because they ultimately (perhaps on retirement) will receive the benefit of the employer’s payroll tax contributions. Regardless of your strategy, this issue should be addressed at mediation.

7. Injunctive Relief
Though it goes beyond the scope of this short paper to describe all of the possible forms of injunctive relief that could be part of your settlement, such should be outlined in the MOU or mediator’s proposal explicitly – do not assume that defendants paying a settlement regarding a wage/hour misclassification class action will reclassify the position at issue (though, they should!) unless it is explicitly provided by your agreement. When the injunctive relief is agreed upon, ensure that defendants are prepared to assist in quantifying the value of that relief, so you can use the information in describing to the court at preliminary and final approval, and in seeking your fees, the real value of your settlement. Also, seek to specify a timeline for compliance and a monitoring mechanism, if needed, from the outset.

8. Attorneys’ Fees – Costs – Enhancements
Once a settlement becomes “all-in,” and defendants are paying the entire amount regardless of the level of participation by the class, they will have little incentive to oppose the fees, costs, and enhancements you think are appropriate. Still, it is important to agree in advance what amounts defendants will not oppose as to each, with a further agreement that any amounts not approved by the court go to the class, and do not revert to defendants. Bring your lodestar and documentation of all fees-costs to the mediation to assist in the negotiations.

9. California PAGA Allocation
If you have a Labor Code case in California, and you have not exhausted or pled PAGA, defendants may yet want a PAGA release – which will necessitate you exhausting PAGA and agreeing to amend the complaint to include PAGA, by stipulation. I see no reason to oppose adding and releasing PAGA claims, if you are settling the underlying wage claims – certainly from defendants’ perspective, it is reasonable that they would be expecting to buy peace and not want to have to address a separate suit alleging PAGA claims arising from the same underlying violations after your settlement is done. If they raise a PAGA amendment and waiver, you must determine how much of the class members’ portion of the common fund to allocate to PAGA – knowing that 75% of this amount will have to be sent to the Labor Workforce Development Agency. Most attorneys are allocating only a small amount to PAGA claims in their settlements, but this should be agreed upon, since some defendants will want a more substantial allocation to avoid any protest from the court or LWDA. I believe the latter is extremely uncommon, and as yet, I believe there to be no published case law establishing the need for a large PAGA allocation in a settlement.

10. Settlement Administration Process and Cy Pres
Try to agree on a settlement administrator (assuming you decide to use one) or that defendants will allow you to establish and maintain all relationship with the administrator. Seek payment of the administration costs separately from the common fund amount. Agree on such concepts as: the length of time to opt-into the agreement – again, all parties will favor a longer (e.g., 90 days) opt-in period if the settlement is non-reversionary, to ensure maximum opportunity for participation; the means of finding and following up with the class (reminder postcard, National Change of Address database search, distribution to email addresses, reminder phone calls); a process for disputing allocations by class members, which requires defendants’ full cooperation (since they tend to own the relevant information for resolving the dispute); opt-out/objection procedures; a website about the settlement (do not tell class members they can go to the courthouse to seek relevant case documents if they want more information); and the means of communication of the settlement to the public (press release vrs. limited confidentiality). On the subject of confidentiality, do not let defendants assume that confidentiality is part of your deal (especially for non-profits, this can be a deal-breaker), or that keeping your deal quiet has no price.

Defendants should delegate to plaintiffs’ counsel the task of discerning an appropriate settlement allocation formula among class members – and probably will be indifferent, assuming it is an all-in settlement.

Finally, reach agreement with defendants on the appropriate cy pres designee if, after the settlement checks are distributed (with initially unclaimed funds being added pro rata to the checks of those filing claims), any funds remain undisbursed (i.e., if checks are uncashed after a discrete period of time, e.g., 60 days). Defendants may allow you to choose unilaterally, but regardless, keep in mind recent jurisprudence requiring cy pres designees to relate to the purpose of the underlying suit. See, e.g., Dennis v. Kellogg Co., 697 F.3d 858, 865 (9th Cir. 2013). Funds in an employment suit should go to the Impact Fund, Legal Aid Society-Employment Law Center, NELA Institute, FAIR, or some other organization dedicated to workers’ rights, and not to the metropolitan opera (unless you are representing opera singers!).

Disclaimer: Everything in this article is intended to be commentary of general interest and not meant to provide legal guidance on a particular case or establish any attorney-client relationship with the reader. For more information about representation by or co-counseling with Bryan Schwartz Law, contact the author.

Real Estate Appraisers and Review Appraisers Should Be Paid Overtime, According to Conditionally Certified Collective Action

Appraisers are not exempt "administrators" or "learned professionals" – they are production employees entitled to overtime pay, according to a class and collective action lawsuit against Bank of America brought by Bryan Schwartz Law. On December 11, the United States District Court for the Central District of California, Hon. David O. Carter, ruled in favor of Plaintiff residential appraisers Terry Boyd and others by granting Plaintiffs’ motion for conditional class certification under the federal Fair Labor Standards Act ("FLSA"). The case is Boyd, et al. v. Bank of America Corp., LandSafe, Inc., et al. (No. 13-CV-561-DOC), and the Court's order is available here.

Bryan Schwartz Law, along with co-counsel Schonbrun DeSimoneSeplow Harris & Hoffman LLP, represents the Plaintiffs, who are current and former residential appraisers and review appraisers for Bank of America / LandSafe ("BofA"). They claim that BofA misclassified them as "exempt" from the overtime requirements of federal law – the FLSA – and California state law (see our earlier posts regarding this and a similar case brought by Bryan Schwartz Law, here and here).

Residential appraisers inspect properties (usually single-family homes) day in and day out, churning out appraisal reports that provide an estimated value of the property as a necessary step in issuance of mortgages or other financial products sold by BofA. BofA appraisers are compensated under a plan that is designed to incentivize their increased production of appraisal reports, and appraisers are evaluated and paid based on their productivity. Review appraisers apply established criteria in making sure appraisal reports comply with regulatory and company requirements. Many BofA appraisers and review appraisers often work upwards of 60 hours per week, including weekends and holidays, without receiving overtime pay.

The Court’s ruling in December considered whether BofA appraisers and review appraisers across the United States are sufficiently "similarly situated" that they should be conditionally certified as a "collective action" under the FLSA, so that over 1,000 appraisers nationwide should receive a Court-approved Notice of the case, giving them an opportunity to join the suit. In concluding that BofA appraisers were entitled to certification, the Court relied on declarations from appraisers across the country demonstrating that their compensation plans and their duties are extremely similar, if not identical, throughout the company.

As the lawsuit progresses, the dispute will likely focus on whether appraisers fall within the exemptions to the federal overtime laws for "administrative" or "professional" employees. Plaintiffs maintain that the "administrative" exemption is not intended to cover employees like appraisers, but is meant to apply to personnel who are determining the strategic decisions of the company, who advise the company's top managers directly, who act in a supervisory or managerial role, or who bind the company to major financial or policy decisions. BofA appraisers do not supervise anyone. They do not have the power to bind the company. They do not set policy or advise management.

In addition, federal regulations state that in order to fall within the administrative exemption, an employee must exercise "discretion and independent judgment with respect to matters of significance." Although appraisers are legally required to have some level of independence from the Bank's underwriting department when arriving at the valuation of a home, their discretion is closely restricted by BofA and regulatory requirements about the manner in which appraisal reports must be completed. In addition, each appraisal that an appraiser conducts relates only to an appraisal report costing several hundred dollars, for a single mortgage transaction, not to "matters of significance" to the "administration" of the Company -- as contrasted, for example, with the policy-makers who decide on BofA/LandSafe's appraisal practices generally.

Likewise, the "learned professional" exemption under California and federal law is meant to apply to individuals -- like lawyers, doctors, certified public accountants, and teachers -- who undergo a prolonged course of specialized instruction (typically, a year or longer) necessary to performing their job duties. Although appraisers undoubtedly acquire a lot of training in their years working in the field, the sort of apprenticeship and on-the-job learning they do, paired with just several weeks of classroom instruction, does not entitle BofA to deprive appraisers of overtime pay. In fact, many appraisers have a high school diploma -- not an advanced post-graduate degree -- and becoming an appraiser requires no specialized degree.

Because Plaintiffs believe these exemptions do not apply, they expect to prove that BofA misclassified them as exempt, and owes them back-wages for unpaid overtime work.

For more information about this case, or if you are interested generally in class actions seeking wages, please contact Bryan Schwartz at Bryan@BryanSchwartzLaw.com.