Bryan Schwartz Publishes Article With Settlement Guidance for Class Action Attorneys

Bryan Schwartz, along with collaborator Randall Crane, published: “How to win court approval for your class-action settlement – Learn to avoid delays that occur if the court rejects or requires modification of your settlement,” in Plaintiff magazine, the April 2010 edition, at pages 16-21.

Click on the following link to view the article:

Plantiff's Magazine

Court Approves Approximately $1 Million in Relief for Dozens of Misclassified Samsonite Store Managers in Bryan Schwartz Law’s Class Action Settlement

Wage/Hour Class and Collective Action Settlement Provides Back Wages, Penalties, and Interest

The U.S. District Court for the Northern District of California, Hon. Jeffrey S. White, granted final approval of a settlement agreement negotiated by Bryan Schwartz Law, in which more than 80 current and former Samsonite Store Managers collected approximately $1 million, pocketing on average nearly $8,300 each in back wages, interest, and penalties.

The case, Pearson, et al., v. Samsonite Company Stores, Inc., et al., Civ. No. 09-1263, was first filed just over a year ago, alleging that Samsonite’s retail and outlet stores in the United States improperly employed Store Managers without paying them overtime and other compensation to which they were due under federal law (the Fair Labor Standards Act), as well as the laws of California and New York. The suit contended that the employees were improperly classified as “exempt” from overtime based on being “executives,” but that they did not meet the tests for establishing this exemption under the federal and state laws.

During the course of the litigation of the case, the lead Defendant, Samsonite Company Stores, Inc., declared bankruptcy. Discovery also revealed that, although Samsonite continued to deny liability, many of the Store Managers were paid varying sums previously in a company settlement with the Bush Administration’s Department of Labor, or were paid amounts in company attempts to pursue waivers from individual members of the class before it was certified by the Court. Samsonite also reclassified all of its Store Managers as non-exempt and started paying them overtime. Moreover, the Ninth Circuit Court of Appeals, which oversees the United States District Court for the Northern District of California, along with at least one judge in the Northern District, recently issued decisions making class certification in wage/hour, misclassification cases much more difficult.

“Though we had a lot of obstacles, we were able to obtain an exceptional result for the class – after the Bush Administration investigated the matter but basically let the company off the hook,” said Bryan Schwartz, Plaintiffs’ class counsel, following the Court’s approval of the settlement. “The proof is in the pudding,” he continued, pointing out that a very high percentage, almost 90%, of the class members affirmatively filed claim forms, opting to accept the settlement, with “not a single class member rejecting the deal.”

Schwartz explained that, as a result of the case, the company has paid or will pay Store Managers $966,251.08, plus the employer’s share of payroll taxes on the back wages, minus appropriate attorneys’ fees and costs. “And, all Store Managers are now and will hereafter be paid overtime at Samsonite – something of which we are very proud.”

Rosalie “Lee” Pearson (a former Samsonite Store Manager in San Francisco) was one of two representative plaintiffs in the matter, who first brought the case to Schwartz’s attention. She reacted emotionally to the Court’s approval of the settlement, saying, “I am pleased that, because we stepped forward, no one else at this company will suffer like I did.” She concluded, “It just goes to show that sometimes our system of justice works – if you have the right attorneys on your side!”

Attorneys' Fees in Your Wage/Hour Class Action - Lawyers: You'd Better Be Ready to Justify Them!

You are an attorney and have just settled your wage/hour class action. Get ready to justify your fees, and make sure they are proportional both to the work expended and the benefits obtained for class members.

You should not assume that your court will agree that you are entitled to fees reflecting 40%, a third, or even 25% of the common fund in your wage/hour class action settlement. Of course, we believe that because we take the risk in wage/hour class litigation, we deserve a fair reward. This sometimes, particularly when there is an early resolution, would mean collecting a percentage of the common fund which results in a fee award many times larger than our lodestar fees tracked on a case. These big wins make up for cases where we have less success – working many hours for only a slim payout, no payout, or owing costs to a defendant at the end of the case. Yet, even in common fund cases, courts are looking critically at lodestar fees to determine the appropriateness of the multiplier that would result from using the common fund method, judged against the actual payout to the class members. Be ready!

The Ninth Circuit has long placed in its district courts’ discretion whether to use the common fund or lodestar method for calculating reasonable attorneys’ fees. See, e.g., Vizcaino v. Microsoft Corp., 290 F.3d 1043, 1047 (9th Cir. 2002). Regardless, the Ninth Circuit recommends checking the value of fees as a percentage of the common fund against what fees would be using the lodestar method, to ensure that the fees awarded are based on an appropriate (i.e., not too high) multiplier. Id. at 1047, 1050-1051; Glass v. UBS Financial Services, Inc., 331 Fed.Appx. 452, 456-457 (9th Cir. 2009). While the district courts are entitled to weigh results achieved for the class and favorable settlement timing in giving a large multiplier (id. at 457; see also generally Lealao v. Beneficial California, Inc. (2000) 82 Cal.App.4th 19, 26), after many years of seeing large wage/hour settlements, courts are becoming more reluctant to do so – i.e., having seen it all, they are less likely to be as impressed by your wage/hour settlement result than you might wish.

For example, in Tarlecki v. Bebe Stores, Inc., 2009 WL 1364340, **3-4 (N.D.Cal. May 14, 2009) (Patel, J.), Judge Patel reduced attorneys’ fees from the desired $290,000 award (a modest 21.3% of the common fund, and less than the attorneys’ lodestar of billed fees, of nearly $310,000) to $200,000, noting that the $290,000 sought would equal approximately 86.2% of the total actually recovered by the class in the claims-made settlement. 2009 WL 3720872, at *2. Judge Patel weighed the low response rate, the weak merits of the underlying case, and the rapidity with which the settlement was obtained in making a downward departure from the Ninth Circuit’s 25% benchmark for attorneys’ fees in a wage/hour class action, common fund case. Id. at *5. Judge Patel’s award was based on a finding regarding the “work that was actually done,” and a decision that “work in the amount of $200,000 is, or should have been, sufficient to accomplish what plaintiffs' counsel accomplished.” Id. at *5.

Judge Patel is not the only judge, when determining fee awards, willing to take a hard look at the work performed by plaintiffs’ counsel. Building upon (among others) the oft-cited decision in Lealao, 82 Cal.App.4th at 26, by Presiding Justice J. Anthony Kline of San Francisco’s 1st District Court of Appeal, California decisions (not necessarily in the wage/hour context) have suggested that your common fund fee award may be measured against the lodestar fees proven – and your lodestar award (in a case where there is no common fund established) may be measured against what it might be in a common fund case, i.e., as a reasonable percentage of the class recovery. See, e.g., In re Sutter Health Uninsured Pricing Cases (2009) 171 Cal.App.4th 495, 512 (trial court properly cross-checked the common fund attorneys’ fees against lodestar fees and determined whether the common fund percentage sought was reasonable based upon the fairness of the would-be lodestar multiplier); Lealao, 82 Cal.App.4th at 45 (common fund method may be used to cross-check the lodestar against the value of the class recovery); Chavez v. Netflix, Inc. (2008) 162 Cal.App.4th 43, 65 (same). See also generally, some examples of class cases in which the fees sought were substantially reduced, Chavez, 162 Cal.App.4th at 63-64 ($393,000 reduction in fees because document reviews by partners could have been done by associates or paralegals, excess time was spent responding to discovery, and court appearances did not need to be billed by two attorneys); EnPalm, LLC v. Teitler (2008) 162 Cal.App.4th 770 (permissible to reduce $50,000 fee to $5,000 because action could have been resolved earlier, in court’s opinion).

Thus, though it is true that detailed time sheets are not required of class counsel to support fee awards in class action cases in California (e.g., Wershba v. Apple Computer, Inc. (2001) 91 Cal.App.4th 224, 254-255), as a plaintiffs' wage/hour class action lawyer, you will have much smoother sailing on fees if you are able to show that your lodestar is close to or exceeds what you hope to reap from attorneys fees in a common fund settlement. See, e.g., McPhail v. First Command Financial Planning, Inc., 2009 WL 839841, *8 (S.D. Cal. March 30, 2009) (“the proposed attorneys' fee award [in a common fund class action settlement] is less than Class Counsel's lodestar calculation, buttressing the Court's finding of reasonableness.”). In sum, be on notice: rather than rubber stamping your proposed fee award, the Court is likely to take seriously its obligation to “ensure that the fee awarded is within the range of fees freely negotiated in the legal marketplace in comparable litigation.” Lealao, 82 Cal.App.4th at 49-50.

State of the Union at Bryan Schwartz Law

A year ago today, I announced the opening of Bryan Schwartz Law. I directed people to my new website, www.BryanSchwartzLaw.com, and asked them to send their friends in need of employment advice my way. I asked my friends who are employment attorneys to send me any cases they were not going to handle, and to think of me if they had matters in which they needed co-counsel.

I am pleased and proud to say that Bryan Schwartz Law has been a great success though its first year in operation. Of approximately 350 potential cases that I have received, I have accepted about 35 of them, including several class and multi-plaintiff actions. I have settled or otherwise resolved favorably 11 cases, including a class action, resulting in well over $1.5 million in recovery for employees around the country. I have helped employees save their jobs, be compensated unpaid wages, obtain relief for discrimination they have suffered, and negotiate beneficial severance arrangements.

Some other highlights of Bryan Schwartz Law’s first year have included:

filing and settling a Federal District Court wage/hour class and collective action against Samsonite, resulting in nearly $1 million in relief for approximately 90 misclassified Store Managers across the country – an agreement which received the Court’s preliminary approval in December 2009, when the class was certified;

filing suit in California state court on behalf of a class of hundreds of parking attendants and other employees of Certified Parking Attendants, LLC, which engaged in flagrant violations of a host of state and federal wage and hour laws, utterly depriving its employees of overtime, meal/rest period premiums, and other compensation to which they were entitled;

filing suit in Federal District Court in Washington, DC, on behalf of 20 former executives of IndyMac Bank, who were not only laid off and deprived of all of the severance and bonus compensation to which they were entitled by their employment agreements, but from whom IndyMac Resources, Inc. (an IndyMac Bank subsidiary) is now trying to claw back compensation already paid;

defeating summary judgment in an individual age discrimination case in California state court after oral argument, at which I persuaded the court to reverse its tentative ruling granting partial summary judgment striking punitive damages claims;

appearing as amicus curiae (a friend of the Court) in the California Supreme Court on behalf of the California Employment Lawyers’ Association in the matter of Brinker v. Superior Court, S166350, one of the most significant employment cases pending in California, which will define the standard for meal/rest period compliance for all employers of hourly workers in the state;

hiring my first employees – Hillary Baker, an associate, who recently graduated from Hastings College of the Law and passed the California Bar, after working for several top plaintiffs’ employment law firms; Leslie Gordon, an intern for summer 2009, of the University of North Carolina; and Eric Barba, of the University of California Los Angeles law school, who will be a law clerk for summer 2010, who is a recipient of the California Employment Lawyers’ Association’s Diversity Fellowship;

being appointed to a prestigious post on the California Bar’s Labor and Employment Law Section Executive Committee, and to the Board of Directors of FAIR, the California Employment Lawyers Association’s non-profit foundation;

speaking at the State Bar Labor and Employment Law Section’s annual meeting, the Hastings Women’s Law Journal’s annual symposium, at a forum at UC Berkeley (Boalt Hall) School of Law sponsored by the California Employment Lawyers Association and Berkeley Journal of Employment and Labor Law, at the Employment Law Center, and at a meeting of SCORE (a partner of the U.S. Small Business Administration (SBA));

serving as Of Counsel to the firm of Hoffman & Lazear;

and

creating a successful employment law blog (bryanschwartzlaw.blogspot.com) and website (www.BryanSchwartzLaw.com), which both receive extensive Internet traffic.

My primary goal for the upcoming year is to continue attracting and accepting cases which help the individuals and groups of workers involved, and which have the potential to create a better legal climate for employees throughout the workforce.

I hope to win summary judgment in the matter of Ulloa v. United States Postal Service, on behalf of a disabled former Postal worker in Arizona, and to win class certification in the matter of Meyer v. United States Department of State, on behalf of all disabled/perceived as disabled Foreign Service Officer applicants nationwide. Both motions are fully briefed and pending decisions.

I hope to remain active in the California and National Employment Lawyers Associations and the California State Bar’s Labor and Employment Law Section, and will be speaking at seminars, conferences, conventions, and/or events sponsored by all of these organizations throughout the year.

I hope to finally post the Spanish translation of my website. I hope to continue: writing provocative blog postings and other articles in hot areas of employment law; providing a fulfilling and fun work environment for my employees; providing useful support in Hoffman & Lazear matters in which I can be of assistance; and, to continue supporting my family, which will be moving to a new home in Alameda, California.

Thank you for your support over the last year. Please, keep thinking of Bryan Schwartz Law if you or someone you know needs help with a workplace or civil rights issue.

All the best,

Bryan Schwartz

Death to the Reversionary, "Claims-Made" Settlement

One wage/hour settlement practice which both California and federal courts have rejected in recent years is the reversionary, or “claims-made,” settlement. In a reversionary or claims-made settlement, defendants receive a complete waiver and agree to pay an amount of money – and plaintiffs’ attorneys collect fees based upon a percentage of this amount of money – even though both sides know that defendants will only, in actuality, be paying a fraction of the agreed-upon amount.

The idea of a reversionary, claims-made settlement is that the defendants will actually be paying “up to” the amount indicated, depending on the number and value of the claims that are submitted. So, if only 50% of eligible claims are submitted, then defendants may wind up paying only half of the agreed-upon amount, with the rest reverting to defendants, though the plaintiffs’ attorneys still collect fees on the full settlement amount. Though many courts no longer permit this practice, defendants still frequently try to offer claims-made (aka reversionary) settlements (which can be easy to sell to the corporate client – “I know X sounds bad, but you’re really only paying Y, so don’t worry!”). Some plaintiffs’ counsel may still agree to claims-made/reversionary settlements, too – but I urge you not to do so!

One top plaintiffs' firm that now has an absolute policy not to enter into any claims-made, reversionary settlements is Schneider Wallace Cottrell Brayton Konecky, of San Francisco. In Kakani v. Oracle Corp., 2007 WL 1793774 (N.D.Cal. June 19, 2007) (Alsup, J.), the Northern District of California – an epicenter of nationwide wage/hour class and collective action litigation – denied preliminary approval to a claims-made settlement of $9 million, which would have awarded $2.25 million (25%) in attorneys’ fees to Schneider Wallace and their co-counsel for plaintiffs, regardless of how many claims were submitted. As Judge Alsup explained, rejecting the deal, the “$2.25 million might wind up being more in fees than the class receives in payments.” Id. at *5. See also Zucker v. Occidental Petroleum Corp., 192 F.3d 1323, 1329 (9th Cir. 1999) (after parties to a securities class action had agreed in settlement that class counsel would receive almost $3 million in fees, despite not securing any actual damages payable to class members, Ninth Circuit affirmed district court’s right to drastically reduce fee award, based on the rule that “the reasonableness of attorneys' fees is within the overall supervisory responsibility of the court in a class action”).

In Kakani, the Court explained that, “Such a [reversionary] scheme would be a bonanza for the company,” because Oracle would have eliminated all liability as to class members, regardless of how many claims they actually paid. Kakani, 2007 WL 1793774 at *5. Ultimately, the Northern District of California rejected the Kakani agreement, finding, “Without doubt, the main losers under this proposal would be those absent class members who wind up not submitting a timely claim and/or who never receive a notice letter in the first place.” The Court continued to state, “The Settlement Agreement expressly recognizes that some workers will never get any actual notice [e.g., because of bad addresses] and/or submit claims …. Nonetheless, Oracle specifically extracted a concession that all settlement amounts attributable to those workers would revert to Oracle…, yet those workers' rights would be erased.” Id.

The Kakani court effectively concluded what any lay person would know instinctively, looking at a class action settlement in which a company gets off the hook cheaply while the plaintiffs’ lawyers and representative plaintiffs make out big: that such a settlement does not suggest arms’-length bargaining, but rather, stinks of collusion. The inference may not be justified in every case - certainly even the most highly-regarded plaintiffs' attorneys, like Schneider Wallace, have at times (in the past) agreed to claims-made, reversionary agreements - but even this appearance of conspiracy can be and should be avoided, in my view.

California state courts have followed the Northern District of California’s lead in looking with disfavor upon reversionary, claims-made settlements, with one superior court judge in the complex litigation unit of Alameda County – a favorite place for plaintiffs to file wage/hour class actions – ruling unequivocally that, “The Court will not approve a settlement that contains a reversion to a defendant,” and denying proposed settlements on that ground. The judge in question, Steven A. Brick, relies upon “Managing Class Action Litigation: A Pocket Guide for Judges,” published by the Federal Judicial Center, which addresses reversion clauses and explains:

“A reversion clause creates perverse incentives for a defendant to impose restrictive eligibility conditions and for class counsel and defendants to agree to an inflated settlement amount as a basis for counsel fees. Instead of approving a settlement with a reversion clause, consider encouraging the parties to use an alternative approach, such as pro-rating the total settlement amount among the class members who file claims. Prorating is a straightforward way to avoid the possibility of unclaimed funds and has become a standard practice in class settlements."

Managing Class Action Litigation at p13.
See http://www.fjc.gov/public/pdf.nsf/lookup/classgde.pdf/$file/classgde.pdf

Judge Brick has also issued guidelines for obtaining approval of a class settlement -
http://www.17200blog.com/orders/Judge_Brick_Guidelines_for_Counsel_re_Class_Settlement_Applications_2-18-2009.pdf

These guidelines cite the influential decision in Kullar v. Foot Locker Retail, Inc. (2008) 168 Cal. App. 4th 116, 129-133, requiring parties seeking approval of a class settlement to demonstrate the true value to the class of the settlement, and showing that such represents a reasonable compromise. It is impossible to show the value of a settlement to the class, and hence, that the settlement value is reasonable, if a settlement promises money which ultimately reverts to the employer under the agreement’s terms.

There are many ways to avoid the pitfall of a reversionary, claims-made settlement – the first of which is for plaintiffs and their counsel, when negotiating an agreement, to absolutely reject any offer containing such a term, like Bryan Schwartz Law does and Schneider Wallace does. Defendants and their counsel should be made to understand that the dollar value reached at the end of the negotiation is the actual amount defendants are spending – and not a penny less. Waived claims should be paid claims. It is up to plaintiffs’ advocates to do everything we can to make sure that employers do not get off easy for their wage/hour violations – and claims-made, reversionary settlements are inherently an easy out for employers.

Rather than having a reversion, a settlement can contain terms having any unclaimed funds be distributed to the participating class members in a second allocation. If the remainder amount is modest, it should go directly to a suitable cy pres recipient. Indeed, if a claims-made settlement agreement does not state where unclaimed funds will go, then – at least in California – such funds will go to a cy pres recipient (under Cal. Code Civ. Pro. §384), and will not revert to defendants. Cundiff v. Verizon California, Inc. (2008) 167 Cal.App.4th 718, 721-722.

Without a reversionary/claims-made term of the agreement, the parties to settlement and absent class members share a common interest – maximizing participation in the settlement, so the largest number of people benefit from the agreement, and hence, release claims. The parties will thus collaborate on ensuring that class members are actually contacted and appropriately encouraged to step forward and assert their claims. This way, the settlement value will be the amount that gets into class members’ hands to quiet their claims – as it should be – and plaintiffs’ counsel will have amply justified his/her fee as a percentage of the common fund.

PS - I note, only as a footnote, because of its very limited application, that the Ninth Circuit has permitted, in one instance, a limited reversionary clause in an unpublished opinion, in Glass v. UBS Financial Services, Inc., 331 Fed.Appx. 452 (9th Cir. 2009), in which any attorneys' fees allocated in the settlement which were not approved by the Court would revert to the defendants. While describing the pitfalls of a reversionary provision, and noting that reversionary provisions are generally "problematic," the Ninth Circuit permitted this limited reverter in the Glass case based upon a specific finding that the class received "exceptional" results from the agreement notwithstanding the provision. Id. at **2.

The New Rules of Negotiating Wage/Hour Class Action Settlements – An Introduction

Back in the "good old days," which weren't always so good for everyone, and weren't that long ago (or old), for that matter, wage/hour class action settlements came easily, with big potential windfalls for the named plaintiffs and their lawyers. Courts are getting tired of these types of settlements - and, in my view, rightfully so, to a large degree.

Class action wage/hour lawyers need to keep in mind why most of us came to this area of the law - to make an impact on wage theft practices impacting large segments of the workforce, by hitting employers the only way we can make it count - at the bottom line. Letting employers off the hook relatively cheaply - with broad waivers for which absent class members get little or nothing in return - is wrong, whether the plaintiffs' lawyers and their named plaintiffs reap a hefty reward or not.

On the other hand - equally importantly - defendants have woken up from the shock of being repeatedly stung in these cases and have started to develop too-clever new means of killing claims for segments of the class, including getting cheap waivers of claims from individuals in the putative class in an efffort to whittle down the numbers of eligible class members. When defendants collect waivers of claims, without fully disclosing the extent of their potential liabilty to these putative class members, and pay pennies on the dollar compare to what they ought to be paying, these employers violate the robust public policies protecting workers' rights to be compensated fairly, and favoring class actions to vindicate wronged employees' wage/hour rights. Clear U.S. Supreme Court precedent and California Labor Code regulations state that employees' rights to be paid their wages are unwaivable. These employers may also violate their ethical obligations (e.g., Cal. Rules of Professional Conduct 3-600), since their interests are or may become clearly adverse to the putative class members' whose waivers they are soliciting, and since they are trying to pressure these under-informed employees to take substantially less than what they are (or arguably may be) owed.

In a series of blog entries over the coming months, I will discuss the string of recent cases in which courts have reacted to plaintiffs and defendants testing the limits of wage/hour settlements, and I will offer some thoughts as to where the courts and parties will be (or should be) drawing the lines in the months and years to come.

Reading the Crystal Ball: Plaintiffs’ Class Action Attorneys Weigh in on Top 5 Evolving Areas of Wage/Hour Law in California

Copyright Bryan Schwartz 2009, for the 2009 State Bar Labor and Employment Law Conference

Bryan@BryanSchwartzLaw.com

Plaintiffs’ lawyers can be a trendy lot. We need to know what issues are hot, what issues are not, who is bringing what – otherwise, we might find ourselves a step behind in the footrace for good cases. And no one is shooting for that 11th Place ribbon, after all.

Having conducted an entirely non-scientific, non-comprehensive survey of leaders in plaintiffs’-side wage/hour litigation around California, and bringing in my admitted biases based on the matters that happen to be sitting on my desk now, I have developed a Top 5 watch list of areas which might show significant movement in 2010.

#5: Independent Contractor-Franchisee Abuse

With the economy faltering, plaintiffs’ lawyers perceive that employers are more likely than ever to push the envelope on independent contractor classification, even going so far as to label some employees “franchisees.” By using the independent contractor designation, employers ostensibly avoid overtime and other wage/hour concerns, unemployment liability, federal and state tax deductions, workers’ compensation, wrongful termination hazards, etc. – in one fell swoop, drastically improving their bottom line by slashing the number of “employees.” Independent contractors can be terminated at a moment’s notice. Rather than having employees and all the burdens associated with such, by taking the next step and creating franchisees instead of employees, employers might even hope to generate income to improve their financial outlook, e.g., by charging franchise fees. Janitorial and transportation services are industries where such practices are rife.

However, employers should remain wary of overstepping into the independent contractor/franchise arrangement. Plaintiffs’ attorneys – and the government – are watching this area closely. Philip Monrad of Oakland, whose firm Leonard Carder has litigated regarding independent contractor designations for many years against FedEx, has other major independent contractor cases (with co-counsel) presently in litigation against UPS Supply Chain Solutions, Carey Limousine, and SuperShuttle. Mr. Monrad reports that because of the surge in unemployment claims (probably the biggest growth area in 2009) – and employers attempting to disclaim unemployment liability by claiming independent contractor designation – EDD has created a task force to crack down on independent contractor misclassification. Recall Air Couriers Intern. v. Employment Development Dept. (2007) 150 Cal.App.4th 923 (citing S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341), in which the employer wound up in litigation with EDD over its independent contractor classification – and lost. SuperShuttle is litigating now with EDD, and plaintiffs’ attorneys hope for a similar result. We may learn in 2010 to what extent plaintiffs’ attorneys and their clients can benefit from the fruits of EDD’s battles over independent contractor issues.

Independent contractor cases will still make good class actions in 2010. Earlier this year, Mr. Monrad’s firm obtained FLSA conditional certification of a class of “independent contractor” drivers alleging that they were misclassified, in Labrie v. UPS Supply Chain Solutions, Inc., 2009 WL 723599 (N.D.Cal. March 18, 2009) (Hamilton, J.). Providing first-tier FLSA notification under Hoffman-LaRoche to the class, the Court found most persuasive plaintiffs’ undisputed averments supporting certification that: (1) drivers were uniformly classified by defendant as “independent contractors;” (2) drivers were required to sign the same or similar contracts, setting forth the relationship between defendant and the drivers; (3) drivers performed pick-up and delivery services for defendant and its customers at the direction of the company’s dispatchers; (4) drivers regularly and consistently worked more than 8 hours per day and 40 hours per week, and were not compensated for overtime, time waiting for assignments, or return travel time; (5) drivers were paid according to a standard formula devised by defendant; and (7) drivers were subject to a nationwide policy with respect to rules for dispatchers in dealing with drivers. Labrie, 2009 WL 723599, at *7. Where plaintiffs can provide declarations from a group uniformly classified as independent contractors whose job performance is in fact controlled day-to-day by the employer, and who work extensive overtime, Labrie is a good model to obtain class certification. See also Khairy, et al v. SuperShuttle (N.D. Cal. May 21, 2009), Case No. 3:08-cv-02993 (White, J.), Docket #124 (“Order Granting Motion to Facilitate Collective Action Notice”).

And while on the subject of federal court – recall that the definition of “employer” under the FLSA is essentially broader than under any other statute,[1] such that it is certainly “legally possible to be an employee for purposes of the FLSA and an independent contractor under most other statutes.” Hopkins v. Cornerstone Am., 545 F.3d 338, 347 (5th Cir. 2008).

On the other hand, the recent cases of Ali v. U.S.A. Cab Ltd. (2009) 176 Cal.App.4th 1333, 98 Cal.Rptr.3d 568, and Cristler v. Express Messenger Systems, Inc. (2009) 171 Cal. App.4th 72, stand for the proposition that plaintiffs with independent contractor cases – like all other putative class actions – should stay as far as possible away from California’s Court of Appeal in San Diego.

In Ali, the Court of Appeal upheld a certification denial, relying upon differences in declarations from the cab drivers at issue, showing divergent levels of the drivers’ usage of the services of the company’s dispatcher. Ali¸ 98 Cal.Rptr.3d at 581. The Court weighed and credited evidence that the drivers assumed “entrepreneurial risk” and provided “tools or instrumentalities of their own in connection with the services they render[ed]” in finding that individualized considerations would predominate and that the group lacked commonality. Id.

In Cristler, the Court of Appeal was unmoved by plaintiffs’ argument that the trial court's instruction that the plaintiff had “the obligation to prove that [the class members] were [defendant’s] employees” was improper – holding that the instruction did not improperly shift the burden of proof on the question of independent contractor status to the plaintiff. Cristler, 171 Cal.App.4th at 84. Employers might be tempted to believe that plaintiffs’ rebuttable presumption on the question of “employer” status is weakened after Christler, but even San Diego’s Court of Appeal acknowledged that the rebuttable presumption is intact, as long as plaintiffs present some evidence linking themselves to the employer. Id. at 84. See also id. at 83 (citing Lujan v. Minagar (2004) 124 Cal.App.4th 1040, 1048 [“There is a rebuttable presumption that one who furnishes services for an employer is an employee. (§ 3357.)”].)

Defendants may attempt to test – and plaintiffs may be fighting them in 2010 – regarding how far companies can push the “entrepreneurial risk” argument, like in Ali. We may expect to see cases where employers cross the line in arguing that their operational controls over employees are in fact just proper enforcement by a franchisor seeking to protect its trademark and the goodwill of its brand against abuse by franchisees. Mr. Monrad imagines that case law may develop in 2010 where employers try to argue that their controls over employees are merely just the company communicating to its contractors the details of the government’s regulations over the industry in question – as opposed to the controls of the employer over an employee. See, e.g., Southwest Research Institute v. Unemployment Ins. Appeals Bd. (2000) 81 Cal.App.4th 705 (methods the plaintiff was required to follow were dictated by health and safety regulations imposed by government agencies, so the putative employer did not exercise the requisite level of control over the plaintiffs’ work to categorize the plaintiff as an “employee”). Regardless, 2010 promises to be an interesting year in independent contractor/franchisee misclassification cases.

#4: Efforts to Undermine Class Litigation Through Individual Releases

In Chindarah v. Pick Up Stix, Inc. (2009) 171 Cal.App.4th 796, the company attempted settlement with individual putative class members after settlement of the lawsuit in mediation failed. Id. at 798. When many putative class members accepted the settlement offers, they executed general releases benefiting the company. Id. The releases required admissions that undermined the allegations in the lawsuit concerning the executive exemption, and a release of all overtime liability and any other Labor Code violations, agreeing not to participate in a class regarding the released claims. Id. Several of those who accepted the settlement offers and signed the general releases subsequently joined the putative class action, claiming the releases violated Labor Code sections 206 and 206.5 (providing that an employer shall not require the execution of a release of a claim or right on account of wages due), and the company cross-complained against them, alleging breach of contract. Id. The trial court held that the Labor Code did not prohibit the releases because a bona fide dispute existed as to the classification of the employees, and the Court of Appeal affirmed. Id. at 798-799, 803-804. See also Watkins v. Wachovia Corp. (2009) 172 Cal.App.4th 1576, 1587 (following Chindarah).

According to David Lowe, of San Francisco’s Rudy Exelrod Zieff & Lowe, Chindarah and Watkins will not be last word on releases – more litigation on this issue can be expected around the state throughout 2010, as California employers are now emboldened to try to undermine class litigation through individual releases, and California employees’ attorneys are ready for a fight.

As Chindarah recognized, the federal law under the FLSA is opposite to the Chindarah holding, providing that statutory rights to overtime, etc., are unwaivable. Chindarah, 171 Cal.App.4th at 804 (citing Lynn’s Food Stores, Inc., v. United States (11th Cir. 1982) 679 F.2d 1350, 1352-1353). See also Barrentine v. Arkansas-Best Freight System (1981) 450 U.S. 728, 739, 101 S.Ct. 1437, 67 L.Ed.2d 641 (unwaivable statutory rights). As Chindarah also recognized (171 Cal.App.4th at 803), the California Supreme Court’s holding in Gentry v. Superior Court (2007) 42 Cal.4th 443, 456, aligns California law with Barrentine, holding that the right to overtime is unwaivable, and generally extolling the class action mechanism as the best means of enforcing wage/hour laws in most cases. See Gentry, 42 Cal.4th 459-464. The Chindarah decision minces words, holding that, notwithstanding Gentry, “there is no statute providing that an employee cannot release his claim to past overtime wages as part of a settlement of a bona fide dispute over wages.” Chindarah, 171 Cal.App.4th at 803.

The California Supreme Court denied review of Chindarah on June 10, 2009, and Chindarah’s holdings have since been repeated by Watkins, but other Courts of Appeal may well split with this line of cases, or effectively distinguish them. Chindarah, for example, did not deal with Cal. Labor Code §206.5’s provision that neither a right nor a “claim” on wages can be waived in a release – which some courts might hold does not permit a release even of claims that are disputed. Other plaintiffs and courts might seek to clarify the undefined “bona fide dispute” holding, defining a “bona fide” dispute essentially as one in which the employer would ultimately prevail on liability.

In the meantime, plaintiffs’ attorneys will likely more often file in Federal court, pleading FLSA claims – where such damaging waivers are patently ineffective. Defendants, for their part, are likely to try to have Chindarah elevated to the status of Sacred Legal Doctrine and try to have it spill over into the FLSA context – arguing, for example, that similar reasoning should allow them to obtain waivers of (for example) certain rights in FLSA cases (e.g., the right to pursue collective action).

Regardless, it seems evident that in many class actions in California, the Chindarah release approach will be hotly litigated in 2010, and the ramifications of this decision so frustrating to plaintiffs’ counsel will be further defined.

#3: Where to Go With Tip Pooling/Allocation Cases

In 2008, Plaintiffs attorneys were jubilant when Rudy Exelrod and Oakland’s Goldstein Demchak Baller Borgen & Dardarian won a B.P.C. §17200 verdict worth over $100 million from Starbucks on behalf of baristas, whose tips in the tip box on the register counter were shared with Starbucks’ shift supervisors, in violation of Labor Code §351. Apparently, those nickels and dimes add up to $1.71/hour per barista, times over 100,000 baristas working a lot of hours = a lot of tip money.

Section 351 provides that no employer or employer’s agent shall collect, take or receive any gratuity paid, given to, or left for an employee by a patron, and the trial court found that Starbucks’ shift supervisors were the employer’s “agents,” under §350(d) – a finding undisturbed by the Court of Appeal. However, the Court of Appeal in San Diego reversed the trial verdict based on the notion that the tips left in the tip box were not actually given to baristas, but given to both baristas and the shift supervisors who also serve customers. Chau v. Starbucks Corp. (2009) 174 Cal.App.4th 688, 691. The Court of Appeal held that nothing prohibits supervisors from sharing in proceeds placed in collective tip boxes, coining the term “tip allocation” to distinguish Chau from prior cases prohibiting agents from partaking in line employees’ tip pools. Id. at 691, 695-696, 703-706 (distinguishing Leighton v. Old Heidelberg, Ltd. (1990) 219 Cal.App.3d 1062, and Jameson v. Five Feet Restaurant, Inc. (2003) 107 Cal.App.4th 138). For example, in Jameson, the Court of Appeal held that under §351, tip pooling is only permitted among employees who are neither employers nor agents under §350. Id. at 144-145.

David Borgen, co-chair of the National Employment Lawyers’ Association wage and hour committee, whose firm co-counseled the Chau case on plaintiffs’ behalf, believes that when employers overreach relying on the Starbucks case, they will still get slapped down in 2010. Though the Supreme Court denied review of Chau on September 9, 2009, Jameson is still good law. Employers’ agents who do not provide customers service the majority of the time, but still take a portion of their employees’ tips, or agents who engage in traditional tip pooling with their employees – taking a portion of tips given directly to first-line servers at tables, for example – will still be vulnerable to class action litigation. On the flip side, now perhaps low-level supervisors who have not been provided a tip allocation (like Starbucks shift supervisors received) but who did provide customer service can argue that they should have been receiving a portion of the tips – the opposite of the Chau plaintiffs’ argument, but a possibility in light of the Court of Appeal’s holdings.

Finally, the Supreme Court did grant review in Grodensky v. Artichoke Joe's Casino (2009) 91 Cal.Rptr.3d 732 (S172237) and Lu v. Hawaiian Gardens Casino, Inc. (2009) 88 Cal.Rptr.3d 345 (S171442) to determine whether there is a private right of action under §351. While the issue may have little consequence to plaintiffs’ lawyers accustomed to using B.P.C. §17200 in any event (e.g., Chau was brought strictly under §17200), the Supreme Court may use the occasion to further define the scope of permissible tip pooling in 2010 (which had been raised in both the Grodensky and Lu review petitions), laying out the battle grounds in tipping cases for years to come.

#2: Certification Wars in Misclassification Cases

Of course, the defining moment of most wage/hour cases is the class certification motion, when we learn whether we are dealing with a big case, or little or no case at all. The often-friendly 9th Circuit dealt plaintiffs’ attorneys a body blow recently in deciding the companion cases of In re Wells Fargo Home Mortg. Overtime Pay Litigation, 571 F.3d 953 (9th Cir. 2009) and Vinole v. Countrywide Home Loans, Inc., 571 F.3d 935 (9th Cir. 2009), in which the 9th Circuit rejected Northern District of California Judge Marilyn Hall Patel’s holding in In re Wells Fargo that:

"[I]t is manifestly disingenuous for a company to treat a class of employees as a homogenous group for the purposes of internal policies and compensation, and then assert that the same group is too diverse for class treatment in overtime litigation. This is particularly true in a situation such as this, where the difficulty of proving hours worked and compensation received is exacerbated by defendants' complete failure to maintain pertinent records. Accordingly, plaintiffs have satisfied their burden and demonstrated that common issues predominate."

In re Wells Fargo, 571 F.3d at 956. See also Wang v. Chinese Daily News, Inc., 231 F.R.D. 602, 612-13 (C.D.Cal. 2005) (predominance based on policy of treating employees in a certain position as uniformly exempt). Essentially, the Court of Appeal held that plaintiffs cannot establish predominance under the Fed.R.Civ.P. 23(b)(3) requirement in a wage/hour misclassification case just by establishing that the entire class was classified in the same manner by the employer. Discussing the outside sales requirement, the 9th Circuit explained, “Often, this exemption will militate against certification because, as the district court noted, it requires ‘a fact-intensive inquiry into each potential plaintiff's employment situation....’” In re Wells Fargo, 571 F.3d at 959. In Vinole, the 9th Circuit held that an employer may preemptively move to deny class certification – before plaintiffs have even filed their Rule 23 motion. Id., 571 F.3d at 948.

Matthew Helland, of Nichols Kaster in San Francisco, a firm which is currently litigating dozens of wage/hour class actions nationwide and in California, foresees that in 2010, employers in federal court will seek to revisit certification, seeking de-cert in many previously certified misclassification cases, relying on In re Wells Fargo and Vinole. Defendants may be chomping at the bit, ready to collect hundreds of declarations giving courts ominous indicators of “thousands of mini-trials” regarding “individualized circumstances.” Defendants are further likely to try to get the In re Wells Fargo and Vinole reasoning to permeate California’s state court jurisprudence. California’s Supreme Court, in fact, is still deciding on Harris v. Superior Court (2007) 64 Cal.Rptr.3d 547 (review granted November 28, 2007), in which a class of allegedly misclassified claims adjusters was decertified by the trial court, but re-certified and held to be non-exempt as a matter of law under the administrative/production worker dichotomy by the Court of Appeal, applying the Bell v. Farmers Ins. Exchange line of cases. See Bell v. Farmers Ins. Exchange (2001) 87 Cal.App.4th 805; Bell v. Farmers Ins. Exchange (2004) 115 Cal.App.4th 715. Some worry that the Supreme Court may dispense with the entire administrative/production worker dichotomy reasoning in deciding Harris.

However, plaintiffs still have quite a few arrows left in their quiver when it comes to certification. The 9th Circuit did recognize that uniform classification remains a factor (but not the only factor) when determining predominance under Rule 23(b)(3). In re Wells Fargo, 571 F.3d at 957-958. Unfortunately for the plaintiffs, Judge Patel’s decision in In re Wells Fargo was highly vulnerable to being overturned because the court certified the class, even while finding “serious issues regarding individual variations among [class members’] job duties and experiences.” Id. at 957. Suffice it to say, plaintiffs can still win certification where they demonstrate that job duties, job descriptions, compensation schemes, and the employer’s expectations were common to the class – as the plaintiffs in In re Wells Fargo have argued in their renewed class certification motion, after the 9th Circuit’s remand to Judge Patel. See In re Wells Fargo, Case No. MDL 06-1770, Docket #305 (September 15, 2009).

Moreover, plaintiffs bringing state claims might have an opportunity to avoid the problems of certification altogether in 2010. In Arias v. Superior Court (Angelo Dairy) (2009) 46 Cal.4th 969, the Supreme Court affirmed the Court of Appeal’s holding that a plaintiff does not need to comply with class certification requirements of California Code of Civil Procedure §382 when bringing claims under the Private Attorney Generals Act (PAGA), Labor Code §2699 (id. at 988) – unlike under §17203, as amended by the voters’ Proposition 64. Id. at 980. PAGA, in subdivision (a), says that “[n]otwithstanding any other provision of law” an aggrieved employee may bring an action against the employer “on behalf of himself or herself and other current or former employees.” The Supreme Court explained that, “[i]n a lawsuit brought under the act, the employee plaintiff represents the same legal right and interest as state labor law enforcement agencies-namely, recovery of civil penalties that otherwise would have been assessed and collected by the Labor Workforce Development Agency.” Id. at 986. The Supreme Court in Arias went on to hold that, “[b]ecause an aggrieved employee's action under the Labor Code Private Attorneys General Act of 2004 functions as a substitute for an action brought by the government itself, a judgment in that action binds all those, including nonparty aggrieved employees, who would be bound by a judgment in an action brought by the government.”Id. The Supreme Court explained that non-party employees – who would not have received any class certification notice nor have been afforded the opportunity to be heard – could benefit from a favorable judgment by seeking other remedies in addition to civil penalties (e.g., back wages and premiums), by using collateral estoppel. Id. at 986-987. Yet, they would not be bound by any adverse judgment as to remedies other than civil penalties. Id.

How the repercussions of In re Wells Fargo, Vinole, Harris and Arias will play out in 2010 is anyone’s guess, but assuredly, employers and employees will be litigating and re-litigating class certification issues in misclassification cases across California trying to build on these precedents (or, in the case of Harris, anticipated precedents).

#1: Meal/Rest Period Litigation – Explosion or Implosion

The biggest pending wage/hour case in California is Brinker Restaurant Corporation, et al. v. Superior Court (Hohnbaum) (2008) 80 Cal.Rptr.3d 781 (S166350), which San Diego’s Tracee Lorens, lead counsel for the plaintiffs, hopes and believes will be decided this coming year, after oral argument in the early months of 2010. Ms. Lorens reports that 23 amici have been filed in the case on behalf of dozens of organizations (including the undersigned’s amicus on behalf of the California Employment Lawyers Association). Virtually every workplace in the state will be affected by the Brinker decision, since none of us really knows, awaiting this decision, what we are supposed to do about meal and rest period premiums for non-exempt employees in our workplaces or in our cases.

At stake in Brinker is the viability of Cal. Labor Code §226.7 and §512, which require that employers pay one-hour premiums each time employees do not receive proper meal or rest periods. Or, is that what the Labor Code requires? Perhaps the Labor Code only requires employers to have a policy on the books officially allowing for compliant meal periods or rest periods, but leaving the rest up to employees. Or, perhaps the law requires something in-between – some level of employers ensuring that proper meal/rest periods are taken, but short of employers’ strict liability for premiums when meal/rest periods are missed. How different are the levels of obligation incumbent on employers with respect to meal periods compared to rest periods, if at all? The crux of the issue (and the reason, Ms. Lorens believes, the Supreme Court will want to decide promptly) is the vagueness of the statute requiring that employers “provide” breaks or else pay premiums. How should “provide” be interpreted? Like San Diego’s Court of Appeal decided in Brinker, or like the Court of Appeal in Sacramento, in Cicairos v. Summit Logistics, Inc. (2005) 133 Cal.App.4th 949, 962-963?

Also at stake in Brinker is the viability of survey evidence to prove class claims. Brinker’s heavy reliance on the “individualized inquiry” line of reasoning and skepticism over survey evidence could devastate class wage/hour litigation, if adopted by the Supreme Court. As employers well know, without the use of special tools like surveys and statistics, proving liability and damages will always be an uphill battle in a class action – since plaintiffs will rarely equal defendants in the declaration collection race, inasmuch as defendants have a captive audience of employees.

At stake in Brinker may be more than just meal/rest period litigation – it may be the future of class wage/hour litigation in the state. In cases like Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575, Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, and Gentry, 42 Cal.4th at 443, the California Supreme Court has established itself as a powerful force in ensuring (or at least, providing) employee-friendly workplaces in California, sympathetic to wage/hour class actions. Does the denial of review in the Cristler v. Express Messenger Systems, Chindarah v. Pick Up Stix, and Chau v. Starbucks indicate that the Supreme Court is growing impatient with wage/hour class litigation, or does Arias mean the Supreme Court remains favorably disposed to wage/hour classes, but was just too busy to hear these 2009 cases? My crystal ball says that the Brinker decision, possibly just around the corner, will answer a lot of questions for California’s employment lawyers.

####


[1] Section 203(d) of the FLSA defines the term “employer” very broadly, as “any person acting directly or indirectly in the interest of an employer in relation to an employee….” 29 U.S.C. §203(d). See Falk v. Brennan, 414 U.S. 190, 195, 94 S.Ct. 427, 38 L.Ed.2d 406 (1973) (noting the “expansiveness” of the FLSA’s definition of “employer”). See also Randolph v. Budget Rent-A-Car, 97 F.3d 319, 326 FN1 (9th Cir. 1996) (“The definition of the term ‘employee’ in the FLSA is extremely broad….(‘The Fair Labor Standards Act defines ‘employee’ simply as ‘any individual employed by an employer,’ and ‘employ’ as including ‘to suffer or permit to work.’ 29 U.S.C. §§ 203(e)(1), 203(g)). Thus, the term ‘employee’ is used in the broadest sense ‘ever ··· included in any one act.’”) (Emph added.); Bonnette v. California Health & Welfare Agency, 704 F.2d 1465, 1469 (9th Cir. 1983) (FLSA’s expansive employer definition).