In Iskanian v. CLS Transportation, California Supreme Court Holds PAGA is a Qui Tam Statute, Not Preempted by the Federal Arbitration Act

The Private Attorneys General Act of 2004, Labor Code §2698, et seq. (PAGA), allows an aggrieved employee to bring representative claims on behalf of the State of California, and all aggrieved employees, to recover civil penalties for Labor Code violations. This morning's California Supreme Court decision in Iskanian v. CLS Transportation Los Angeles, LLC, available here, labels a PAGA action a qui tam action, and as such, one that cannot be eliminated by a class/collective/representative action waiver in an arbitration agreement. The decision has tremendous consequences for California workers with wage claims - it means that there is still viable recourse for such claims, through PAGA, and that they cannot be erased almost entirely by the existence of a pre-dispute arbitration agreement. Where an employee has PAGA claims, these claims cannot be compelled to arbitration, and representative PAGA claims cannot be stripped because of an arbitration class waiver.

Citing Arias v. Superior Court (2009) 46 Cal.4th 969, 980-81, Justice Liu, writing for the majority (including Justices Corrigan, Kennard, and Chief Justice Cantil-Sakauye), emphasized that an employee bringing a representative claim under PAGA as the “proxy or agent of the state’s labor law enforcement agencies” has “the same legal right and interest” as the state agency. Slip Op. at 31. The Supreme Court held, unequivocally, that "a PAGA representative action is therefore a type of qui tam action" (Slip Op. at 33), in which a statutory penalty is paid largely to the state, with a portion paid to the relator, or informer, who brought the claim to light. Like the right to bring a qui tam action, an employee's right to bring a PAGA action is unwaivable. See Slip Op. at 34, discussing Civil Code section 1668 and Civil Code section 3513.

Among other reasons for prohibiting an arbitration agreement from waiving a PAGA representative action, allowing such a PAGA waiver would violate Civil Code Section 3513’s injunction which says that “a law established for a public reason cannot be contravened by a private agreement.” Slip. Op. at 35. Allowing the waiver would harm the State's interest in enforcing the Labor Code and receiving the proceeds of civil penalties used to deter violations. Id. PAGA was meant to augment the State Labor Workforce Development Agency’s (LWDA's) limited enforcement capacity by empowering employees to enforce the Labor Code as representatives of the LWDA, so any agreement that waives an employee’s ability to bring a PAGA representative action serves to disable one of the State's primary mechanisms for enforcing the Labor Code. Slip Op. at 35. Citing Arias, the Court held that enforced individual arbitration does not serve the purpose of PAGA. Slip Op. at 36.

Most significantly, the Court held that the 1925 Federal Arbitration Act (FAA), given an expansive new meaning by AT&T Mobility LLC. v. Concepcion (2011) 131 S.Ct. 1740 (Concepcion) and other recent U.S. Supreme Court jurisprudence, does not preempt PAGA. Examining the FAA's plain language, legislative history, and Supreme Court jurisprudence, the Court held that although “the FAA aims to ensure an efficient forum for the resolution of private disputes, [a] PAGA action is a dispute between an employer and the LWDA." Slip Op. at 37.

First, in examining the plain language of the statute, the court noted that the FAA's coverage of “a controversy thereafter arising out of such a contract or transaction” related to an arbitration agreement is most naturally read to mean a dispute about the rights and obligations of parties in a contractual relationship. Slip Op. at 37. The statute was meant to govern private disputes.

Second, the legislative history of the FAA indicates the FAA was meant to govern ordinary commercial disputes. There is “no indication that the FAA was intended to govern disputes between the government in its law enforcement capacity and private individuals.” Slip Op. at 37. When the FAA was enacted, qui tam actions were well established and “there was no mention of such actions in the [FAA's] legislative history, and no indication that the FAA was concerned with limiting their scope.” Slip Op. at 38.

Third, the Supreme Court’s FAA jurisprudence “consists entirely of disputes involving the parties’ own rights and obligations, not the rights of a public enforcement agency.” Slip Op. at 38.

The only case that has dealt with the enforcement of an arbitration agreement against the government is EEOC v. Wafflehouse, Inc. (2002) 534 U.S. 279, in which the U.S. Supreme Court held that the arbitration agreement did not prevent the Equal Employment Opportunity Commission (EEOC) from suing the employer on behalf of the employee. Slip Op. at 39. As with a discrimination claim prosecuted by the EEOC in Wafflehouse, a PAGA claim is a “dispute between the employer and the state.” Slip Op. at 40. “[N]othing in the text or legislative history of the FAA nor in the Supreme Court’s construction of the statute suggests that the FAA was intended to limit the ability of the states to enhance their public enforcement capacities by enlisting willing employees in qui tam actions.” Slip Op. at 41.

The state’s “public policy prohibiting waiver of PAGA claims, whose sole purpose is to vindicate the [LWDA’s] interest in enforcing the Labor Code, does not interfere with the FAA’s goals of promoting arbitration as a forum for private disputes.” Slip Op. at 43.

In his concurring opinion, Justice Chin (joined by Justice Baxter) agreed with the majority’s conclusion that a total PAGA waiver was unenforceable. Slip op., Chin conc. op’n. at 5. However, discussing Concepcion and American Express Co. v. Italian Colors Restaurant (2013) 133 S.Ct. 2304, inter alia, Justice Chin disagreed with the majority’s PAGA analysis, insofar as it held PAGA to be beyond the reach of the FAA. Slip op., Chin conc. op’n. at 5-8. Without stating what precise limits he believes an arbitration agreement can impose on PAGA claims, Justice Chin ominously professed that the FAA may limit “the ability of a state…to enhance its public enforcement capabilities by authorizing employees who have contractually agreed to arbitrate their statutory PAGA claims to ignore that agreement and pursue those claims in court as the state‘s representatives.” Id. at 8.

The court also considered whether the Supreme Court’s ruling in Concepcion abrogated the rule in Gentry v. Superior Court (2007) 42 Cal.4th 443, rejecting some class action waivers in employment contracts. In Concepcion, invoking the FAA, the Supreme Court invalidated Discover Bank v. Superior Court (2005) 36 Cal.4th 148, a California precedent holding class arbitration waivers presumptively unconscionable and unenforceable in a standard consumer contract. Slip Op. at 5. Concepcion reasoned that the Discover Bank rule interfered with a fundamental attribute of arbitration - apparently, as this blog has suggested before, that companies have a recent, U.S. Supreme Court-created right to force workers and consumers to fight for their rights alone, instead of on a level playing field, coming together with other victims of wrongdoing. See prior articles here and here.

In Iskanian, the Court held that the fact that the Gentry rule (about forced arbitration in the employment setting, where there is a fear of retaliation and career suicide), despite being narrower than the Discover Bank rule, could not survive Concepcion's notion of FAA preemption. Slip Op. at 7.

The court also rejected the argument that the class arbitration waiver was invalid under the National Labor Relations Act (NLRA) of 1935, which protects workers' rights to organize. Although Iskanian cited D.R. Horton Inc., & Cuda (2012) 357 NLRB No. 184 [2012 WL 36274] (Horton I) (NLRA prohibits contracts that compel employees to waive their right to participate in class proceedings), the Court sided with the Fifth Circuit’s conflicting opinion in D.R. Horton Inc., NLRB (5th Cir. 2013) 737 F.3d 344 (Horton II), which held that the NLRA was trumped by the earlier statute, the FAA. This view of the FAA was notwithstanding the FAA's "savings clause" (in 9 U.S.C. § 2) expressly holding that arbitration agreements are not to be enforced upon such grounds as exist at law or in equity for the revocation of any contract. Slip Op. at 11, 19.

Justice Werdegar concurred in the majority’s PAGA ruling but powerfully dissented to the majority’s abrogation of Gentry and rejection of Horton I. Justice Werdegar drew upon extensive Supreme Court jurisprudence pre-dating the Roberts Court, as well as the Norris-La Guardia Act (which outlawed “yellow dog” contracts, prohibiting employers from forcing workers to contract away their collective bargaining rights) and the NLRA (protecting workers’ rights to engage in concerted action). She called today’s class action waivers the “descendants of last century’s yellow dog contracts.” Slip Op., Werdegar dissent at 7. Justice Werdegar noted the absurd result that workers are protected if they engage in collective protest through strikes or walkouts, but precluded from resolving grievances through peaceable collective action in litigation. Id. at 10. She rejected CLS Transportation’s assertion that Concepcion edifies the class waiver against the NLRA and Norris-LaGuardia Act worker protections, making the FAA a “super-statute.” Id. at 13. Justice Werdegar poignantly cited Shakespeare (Julius Caesar): “[M]en may construe things after their fashion/Clean from the purpose of the things themselves.” Slip Op. at 13. The “right of collective action […] need not yield,” based upon the FAA, if the statute were being construed as it was intended. Id. at 14.

Werdergar’s dissent speaks truthfully about the improper recent elevation of the FAA over many decades of legislative and judicial protections for the right to collective action. Today's California Supreme Court holdings on Gentry and Horton disappoint workers' advocates, who hold out hope for this Court as the last bastion of a rational and balanced jurisprudence governing workplaces in America. Ultimately, though, today's decision on these precedents surprises no one - see a post on the Iskanian oral argument here.

Hopefully, the decision will avoid the inevitability of a U.S. Supreme Court grant of certiorari if California took a position narrowing Concepcion to the consumer context, or rejecting the Fifth Circuit Horton II precedent. The states-rights-friendly U.S. Supreme Court majority has no legitimate, vested interest in a California court's interpretation of a California-only statute, PAGA, which does not discriminate in any way against arbitration, but merely strengthens the State's qui tam protections.

U.S. Equal Employment Opportunity Commission Affirms Class Action to Open State Department to Disabled Foreign Service Officers

Class Agent was bypassed for Foreign Service solely because of her disability

June 12, 2014, Oakland – The United States Equal Employment Opportunity Commission (EEOC) affirmed a judge’s September 2010 decision certifying a class action brought on behalf of all disabled Foreign Service applicants against the U.S. State Department by San Francisco Bay Area attorney Bryan Schwartz (www.bryanschwartzlaw.com) along with Passman & Kaplan (www.passmanandkaplan.com) of Washington, DC. The action challenges the State Department’s so-called “worldwide availability” policy, under which an applicant cannot ordinarily be hired to America’s Foreign Service with any disability that could require ongoing medical care, since such might make him or her unavailable to work at any one of the hundreds of Department posts worldwide.

The EEOC decision found that the Class Agent in the matter, Doering Meyer, has had multiple sclerosis (MS) in remission for over a decade, without need for treatment, but was initially rejected outright for State Department employment anywhere in the world because the Department’s Office of Medical Services perceived that her MS might cause her problems in “a tropical environment.” This was notwithstanding a Board Certified Neurologist’s report approving her to work overseas without limitation.

“The EEOC’s decision rejecting the agency’s appeal reaffirms that government agencies are not immune from the laws protecting disabled workers, and must provide individualized consideration and reasonable accommodations,” explained Schwartz. “We are thrilled that this case can now finally move forward, to obtain relief for Ms. Meyer and many others subject to the policy, which has injured or destroyed careers for many years based upon insidious stereotyping of people with disabilities and records of disabilities.”

Meyer added, “It feels good to know standing up against unjust and discriminatory policies can achieve positive results.  I hope this decision empowers others to do the same.”

The Department challenged the judge’s initial certification decision because, among other reasons, Meyer eventually received a rare “waiver” of the worldwide availability requirement, with her attorney’s assistance, and obtained a Foreign Service post. She is now a tenured Foreign Service Officer, having served most recently in Croatia, and being posted to Lithuania.. Meyer’s attorney argued to the EEOC that she was still delayed in her career growth by the initial denial in 2006, and missed several posting opportunities over the course of an extended period, losing substantial income and seniority. The EEOC agreed with Meyer – modifying the class definition slightly to include not only those denied Foreign Service Posts, but those “whose employment was delayed pending application for and receipt of a waiver, because the State Department deemed them not ‘worldwide available’ due to their disability.”

Schwartz indicated that the case may ultimately have major implications not only for Foreign Service applicants, and not only in the State Department, but for all employees of the federal government abroad who have disabilities, records of disabilities, and perceived disabilities, and who must receive medical clearance through the Department’s Office of Medical Services. He noted that he has already filed other alleged class cases, also pending at the EEOC - one on behalf of applicants for limited term appointments (who need “post-specific” clearance, but are also denied individualized consideration), and another on behalf of employees associated with people with disabilities, who are denied the opportunity to be hired because of their family members who might need reasonable accommodations (or be perceived as disabled).

“I am sorry that the EEOC took years to finally move the case forward, but today’s decision means that justice delayed need not necessarily be justice denied,” Schwartz said.

For more information about this case, Meyer, et al. v. Kerry (Department of State), please contact Bryan Schwartz: Bryan@BryanSchwartzLaw.com.

California Workers' Rights Survive Duran v. US Bank

This morning, the California Supreme Court upheld a Court of Appeal decision reversing a multi-million dollar plaintiffs' verdict in a wage/hour class action against US Bank, in Duran v. US Bank. On March 4, 2014, the Court heard oral argument, which I discussed in this blog in detail here, including a background on the case and what was at stake. In a 51-page majority opinion by Justice Corrigan, with a lengthy concurrence by Justice Liu, the Court detailed how trial courts hearing would-be class claims must determine whether the claims are manageable on a class-wide basis.

Duran's Key Holdings

Though the Duran decision is not an outright victory for workers - or for the plaintiffs in that case - the decision also does not foreclose wage/hour class actions, and most significantly, recognizes that "statistical sampling may provide an appropriate means of proving liability and damages in some wage and hour class actions." Slip Op. at 2. Because the reason for a class action in  this context is to create a more efficient means of proving a commonly held wage claim, class actions would not survive without the possibility of using common proof of liability and damages. If each person had to prove his or her own case entirely separately, there would be no reason for a class action. Duran, while remanding for a new trial, did not kill the plaintiffs' class claims in that case, as had the Court of Appeal, and the plaintiffs may yet prove class-wide liability, following the decision's guidance, and particularly that of the concurrence.

The Supreme Court stopped short of holding that a defendant has a due process right to litigate an affirmative defense as to each individual class member. Slip Op. at 35. However, if "trial proceeds with a statistical model of proof, a defendant accused of misclassification [as in the Duran case] must be given a chance to impeach that model or otherwise show that its liability is reduced because some plaintiffs were properly classified as exempt." Id.

The issue in Duran was whether a group of employees, Business Banking Officers (BBOs), were improperly classified as exempt from overtime based upon the notion that they were outside salespeople. Plaintiffs proved at trial that they predominantly worked inside bank branches - not outside. However, the Supreme Court criticized the trial court's refusal to allow defendant's "sworn declarations from 75 class members stating that they worked more than half their time outside the office" - which would negate any claims by these individuals. Slip Op. at 31. The trial court also refused to admit or allow experts to consider as part of their statistical sampling "live testimony from witnesses about their work outside the office as BBOs." Id. "Instead, extrapolating findings from its small sample [21 BBOs out of 260] and ignoring all evidence proffered to impeach these findings, the court found that the entire class was misclassified. The injustice of this result is manifest." Id.

As such, the trial plan in Duran, rejected by the Supreme Court, will be readily distinguishable by workers and their advocates when seeking to certify a class action and to propose a trial plan. If individuals disclaim any entitlement to unpaid wages, and defendants want to put forth such evidence limiting their liability, they must be able to do so. As the Supreme Court explained, "While representative testimony and sampling may sometimes be appropriate tools for managing individual issues in a class action, these statistical methods cannot so completely undermine a defendant's right to present relevant evidence." Slip Op. at 31-32.

Importantly, Duran also did not categorically reject common forms of class proof of liability or damages, like surveys and statistics. Slip Op. at 38. "Procedural innovation" is encouraged, but "must conform to the substantive rights of the parties." Slip Op. at 29, 38. Neither did the Supreme Court categorically reject the ability to prove misclassification on a classwide basis, where an employer has a "consistently applied policy or uniform job requirements and expectations contrary to a Labor Code exemption, or if it knowingly encouraged a uniform de facto practice inconsistent with the exemption." Slip Op. at 34-35.

Duran Reinforced Sav-On, Bell, and the Brinker Concurrence

Repeatedly in the decision, Duran reinforced Sav-On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, and Bell v. Farmers Ins. Exchange (2004) 115 Cal.App.4th 715.  Sav-On and Bell have provided - and will continue to provide, along with Duran - a roadmap to all workers' advocates in how to certify a wage and hour class action and prove class claims. Notably, the Court seemed to encourage what happened in Bell - summary judgment on liability, followed by a damages trial involving sampling - as a means for adjudicating wage/hour class actions. "Once the issue of liability had been decided, both sides benefited from a fair, cost-effective approach to determining damages. By agreeing on a sampling approach, both sides could expedite resolution while preserving their competing interests in calculating damages." Slip Op. at 37 n. 34.

Similarly, Duran's repeated invocation of Justice Werdegar's concurrence in Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1054 (see, e.g., Duran slip op. at 23, 25) reaffirms that individualized liability and damages questions do not bar use of the class action mechanism or class-wide relief - but rather, that trial courts must act carefully in such situations, when fashioning a "procedurally innovative" and efficient trial plan, to ensure fairness. Slip Op. at 29; Slip Op., conc. at 2 (citing Sav-On and City of San Jose v. Superior Court (1974) 12 Cal.3d 447, 459). Before Duran, advocates on both sides were uncertain as to what weight to accord the Brinker concurrence - authored by the same justice as the majority opinion - but now, the answer is clear: a great deal of weight.

Justice Liu's Concurrence Shows the Way

Justice Liu's concurrence illuminates the path forward for employee advocates confronting unlawful misclassification of groups of employees as exempt from overtime and meal/rest period requirements. Building on Ramirez v. Yosemite Water Co. (1999) 20 Cal.4th 785, the concurrence explains that the relevant consideration in deciding on a misclassification allegation is whether the employer's realistic requirements of the job would lead to more exempt, or more non-exempt work, being performed. Slip Op., conc. at 4-5. Thus, "it is not difficult to contemplate that employees in a given job classification will often be either wholly exempt or wholly nonexempt, since a job classification often entails a common set of employer expectations or requirements for performance of the job." Slip Op., conc. at 5. Both before and after Duran, an employer cannot evade liability based solely on a seemingly exempt job description; conversely, certification of a misclassification claim will not be appropriate based solely on a seemingly non-exempt job description. "How employees actually spend their time obviously matters." Id. But, as the Supreme Court discussed in Sav-On, "[v]ariability in such hours does not necessarily prove that the employer's realistic expectations or the realistic requirements of the job were not the same for all employees in a given job classification." Id.

As Justice Liu explained, providing guidance to the trial court on remand in Duran, employer-side declarations cannot be ignored, and "must be assessed for [their] weight and credibility together with all other evidence bearing on the ultimate issue." Slip Op., conc. at 8. But "the need to manage individual issues does not foreclose the use of sampling, representative testimony, or other statistical methods to obtain relevant evidence in a class action trial on employee misclassification." Id. A valid sampling plan will "capture heterogeneity within the class" - and a defendant may "raise individual issues that challenge the results of the plan as implemented." Id. Ultimately, a court (and the court in the Duran v. US Bank case) "might find that the individualized evidence lacks credibility and that the sampling evidence is reliably probative of the employer's realistic expecations" or that "the individualized evidence, while credible, does not show variability in the class but rather provides strong, consistent evidence of the employer's realistic expectations for the job at issue." Slip Op., conc. at 9. Both individualized and aggregate forms of proof as to the realistic requirements of the job must be weighed and considered along with the job description, company policies, industry customs, and the testimony of those who set expectations for the employees in the class. Slip Op., conc. at 10.

The Take-Away from Duran

While the defense bar sought a total victory in Duran, to undermine all possibility of wage/hour class action certification and trial, they did not get it. Though some language in Duran will undoubtedly be canonized by employer advocates seeking to erect major roadblocks to class actions, the overall impact of the decision is not to dismantle class litigation. Rather, Duran stands for the proposition that all of us who litigate wage/hour class claims must work carefully to craft trial plans that will be fair to both sides - apparently, unlike what occurred in that case. When we are able to do so, proceeding with a class action will be appropriate.

Veteran practitioners of wage/hour law will recall that the employers' spin doctors' original take on Brinker in 2012 was that it was a major victory for employers and would doom meal and rest period class actions. Though several of the grant-and-hold decisions, on remand, had this knee-jerk response, they were ultimately depublished. See Hernandez v. Chipotle Mexican Grill, 146 Cal.Rptr.3d 424 (2012) (depublished 12/12/2012); Lamps Plus Overtime Cases, 146 Cal.Rptr.3d 691 (2012) (depublished 12/12/2012); and Tien v. Tenet Healthcare Corp., 147 Cal.Rptr.3d 620 (2012) (depublished 1/16/2013). Instead, the test of time has shown that Brinker set the stage for a major advance by workers' rights advocates seeking to certify wage/hour class actions, employing the Brinker guidance. See, e.g., Bradley v. Networkers Int’l, LLC, 211 Cal.App.4th 1129 (2012) (review denied 3/20/13); Faulkinbury v. Boyd & Assoc., Inc., 216 Cal.App.4th 220 (2013) (review denied 7/24/13); Benton v. Telecom Network Specialists, Inc., 220 Cal. App. 4th 701 (2013) (review denied 1/29/14); Bluford v. Safeway Stores, Inc., 216 Cal.App.4th 864, 871 (2013) (review denied 8/28/13); Jones v. Farmers Insurance Exchange, 221 Cal.App.4th 986 (2013) (review denied 3/12/14); Williams v. Superior Court (Allstate Ins. Co.), 221 Cal.App.4th 1353 (2013) (review denied 3/19/14); Hall v. Rite Aid Corp. (Cal.App. May 2, 2014) 2014 WL 1989384.

Duran may prove likewise to be an aid to employees seeking class certification.

It is a good thing Duran did not kill class actions. Without the ability to prove wage/hour violations by employers using class actions, workers would have little recourse for addressing wage theft by employers. Wage practices tend not to be individualized, but tend to be pursuant to employers' policies - and employers engaged in Labor Code violations will receive a massive windfall if they can force workers to prosecute wage theft individually. Few will have the courage to do so, and even fewer will have any viable representation, because the economics of wage claims do not support individual wage actions. If 1,000 low-wage workers were cheated of $20,000 each in wages, the employer stole $20 million from workers. But attorneys will not undertake representation of each $20,000 claim for wages, when trying such a case to verdict would accrue hundreds of thousands of dollars in fees and costs. Class action is often the only means of rectifying wrongdoing by Labor Code violators- and will remain so, after today's decision in Duran.

Defining Who is an "Employer" Under California and Federal Wage Laws

Bryan Schwartz Law's principal recently spoke at the State Bar of California's 2014 Annual Meeting on the subject of defining a liable "employer" under California and federal wage laws. His paper presented at the conference is available here.

Mr. Schwartz's perspective, articulated in previous articles on this blog (see, e.g., this July 2013 post), is that the 2010 Martinez v. Combs decision in the California Supreme Court redefined the definition of an "employer" under California law, for overtime, minimum wage,  meal/rest period, and other claims arising from the Wage Orders. The new, broader standard rejects the prior Reynolds v. Bement decision's narrower "employer" definition, articulating that an "employer" is one who 1) controls the wages, hours, or working conditions of an employee, or 2) suffers/permits him/her to work, or 3) "engaged" the employee to work, as defined by the common law. Under this broader standard, individual owners who meet any part of the three-prong test, and a variety of companies and agencies exercising control, can be "employers" liable for labor code violations. 

The Private Attorneys General Act of 2004 (PAGA), Labor Code section 2698, et seq., makes any individual liable for penalties under Labor Code section 558 for violations of numerous Labor Code provisions, and for the employees' attorneys' fees and costs. 

Under Business and Professions Code section 17200, employers benefiting from stealing wages may also be liable for restitution - the Code implicates any party unjustly enriched by a practice.

Under Labor Code section 2802 - involving failure to reimburse workers - the relevant test appears to be California's four-prong "integrated enterprise" test. A well-reasoned, recent decision by the United States District Court for the Northern District of California by Judge Lucy Koh, Trosper v. Stryker, 2014 WL 1619052 (N.D. Cal. April 22, 2014)  adopts this test, invoking the California Court of Appeal decision in Laird v. Capital Cities/ABC, Inc., 69 Cal.App.4th 727 (1998) (overruled on other grounds by Reid v. Google, 50 Cal.4th 512 (2010)). The test considers: 1) centralized control of labor relations; 2) interrelation of operations; 3) common management; and 4) common ownership or financial control.

When the question is whether someone is an employee or independent contractor, the common law test is defined in S.G. Borello & Sons, Inc. v. Dept. of Industrial Relns., 48 Cal.3d 341 (1989) - which would only seem to affect the third prong of the Martinez v. Combs analysis - i.e. traditional agency principles. However, how Martinez v. Combs affected the definition of an "employer" where the employer is claiming the worker was an independent contractor may be answered in the Supreme Court's impending decision in Ayala v. Antelope Valley Newspapers (see our discussion of Ayala here).

The definition of an "employer" under federal wage laws has always been broad - and recent case law only reaffirms Lambert v. Ackerley, 180 F.3d 997 (9th Cir. 1999) and other jurisprudence discussing the expansive interpretation given to the Fair Labor Standards Act (FLSA) definition of "employer." What is new are authorities indicating that California's definition of a covered "employer" is now broader than the federal protection. See, e.g., Carrillo v. Schneider Logistics Trans-Loading & Distribution, 2014 WL 183956 (C.D. Cal. Jan. 14, 2014) (citing Guerrero v. Sup. Ct., 213 Cal.App.4th 912, 945 (rev. denied June 12, 2013)).

Stay tuned to see whether California will continue its trend to embrace the nation's strongest worker protections in Ayala....

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.