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I overlooked last week's Conference Results from the California Supreme Court until today, but better late than never. On March 20, 2013, the Court denied review in Bradley v. Networkers International (December 12, 2012). See earlier post here. This is a significant result, as the case applies Brinker to a certification analysis in the context of whether workers were misclassified as independent contractors.
The long-running saga of Wang v. Chinese Daily News, Inc. took its latest turn today, when the Ninth Circuit, on remand from the United States Supreme Court, issued the most decision in Wang v. Chinese Daily News, Inc. (9th Cir. Mar. 4, 2013). The Ninth Circuit reversed various aspects of the District Court's certification order after applying Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011) to the District Court's decision.
First, the Court vacated the District Court's Rule 23(a)(2) analysis and directed the District Court to conduct the rigorous analysis required by Wal-Mart:
We vacate the district court’s Rule 23(a)(2) commonality finding and remand for reconsideration in light of Wal-Mart. On remand, the district court must determine whether the claims of the proposed class “depend upon a common contention . . . of such a nature that it is capable of classwide resolution — which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.” Wal-Mart, 131 S. Ct. at 2551. Plaintiffs must show “significant proof that [CDN] operated under a general policy of [violating California labor laws].” Ellis, 657 F.3d at 983 (quoting Wal-Mart, 131 S. Ct. at 2553 (alteration omitted)). However, plaintiffs need not show that every question in the case, or even a preponderance of questions, is capable of classwide resolution. So long as there is “even a single common question,” a would-be class can satisfy the commonality requirement of Rule 23(a)(2).
Slip op., at 10.
Next, the Court quickly concluded that the monetary relief sought by the plaintiffs was not "incidental." The Court reversed the District Court's order certifying the class under Rule 23(b)(2).
Finally, the Court remanded for further consideration as to whether certification was warranted under Rule 23(b)(3):
For two reasons, we remand to the district court for reconsideration of the propriety of class certification under Rule 23(b)(3). First, the district court’s conclusion that common questions predominate in this case rested on the fact, considered largely in isolation, that plaintiffs are challenging CDN’s uniform policy of classifying all reporters and account executives as exempt employees. See Wang, 231 F.R.D. at 612–13. In two recent decisions, we criticized the nature of the district court’s Rule 23(b)(3) predominance inquiry in this case. See In re Wells Fargo Home Mortg. Overtime Pay Litig., 571 F.3d 953, 958–59 (9th Cir. 2009); Vinole v. Countrywide Home Loans, Inc., 571 F.3d 935, 944–48 & n.14 (9th Cir. 2009). We observed that the district court in this case “essentially create[d] a presumption that class certification is proper when an employer’s internal exemption policies are applied uniformly to the employees.” In re Wells Fargo Home Mortg. Overtime Pay Litig., 571 F.3d at 958. We wrote that such a presumption “disregards the existence of other potential individual issues that may make class treatment difficult if not impossible.” Id. The main concern of the predominance inquiry under Rule 23(b)(3) is “the balance between individual and common issues.” Id. at 959. “[A] district court abuses its discretion in relying on an internal uniform exemption policy to the near exclusion of other factors relevant to the predominance inquiry.” Vinole, 571 F.3d at 946.
Slip op., at 13. The Court also noted that Brinker impacted the analysis of meal period claims and required evaluation by the District Court.
While I configured and wired a veritable recording studio, the world marched on, with the issuance of interesting appellate opinions here and elsewhere in U.S. The California Supreme Court has been up to some interesting activity this year as well. For instance, the recent debpulication of opinion from the Second Appeallate District, Division Eight, that seemed inconsistent with the manner in which Brinker instructed courts to evaluate class issues, at least in the wage & hour field. And in the last few weeks the California Supreme Court's Conference events included the following item of note:
The grant of review in Ayala raises the question of whether Bradley v. Networkers International LLC, 211 Cal. App. 4th 1129 (2012), as modified (Jan. 8, 2013), might turn on some issue that the Supreme Court intends to resolve in Ayala.
The Brinker-related news is still flowing today. While the Supreme Court was busy depublishing decisions that affirmed certification denials purportedly based on Brinker, the Court of Appeal (Fourth Appellate District, Division One) in Bradley v. Networkers International LLC (December 12, 2012) reversed the trial court's decision to deny class certification as to all but one cause of action (off-the-clock work). The decision of the Court of Appeal follows an extended detour through the California Supreme Court. The California Supreme Court granted plaintiffs' petition for review, and ordered the first Bradley decision (unpublished) held pending the high court's decision Brinker Restaurant Corp. v. Superior Court, 53 Cal. 4th 1004 (2012). The court then remanded the first Bradley opinion to the Court "with directions to vacate its decision and to reconsider the cause in light of Brinker . . . ."
The Court took its instructions seriously. The Court received extensive supplemental briefing on Brinker and other decisions from the parties. The Court concluded that the trial court erred when it refused to certify every claim.
The Court carefully reviewed Brinker's approach for analyzing class claims based on policies applicable to the class:
In finding that common issues predominated on this rest break issue, the high court emphasized that "[c]laims alleging that a uniform policy consistently applied to a group of employees is in violation of the wage and hour laws are of the sort routinely, and properly, found suitable for class treatment," citing with approval three Court of Appeal decisions: Jaimez v. Daiohs USA, Inc. (2010) 181 Cal.App.4th 1286 (Jaimez); Ghazaryan v. Diva Limousine, Ltd. (2008) 169 Cal.App.4th 1524 (Ghazaryan); and Bufil, supra, 162 Cal.App.4th 1193. (Brinker, supra, 53 Cal.4th at p. 1033.) In each of these decisions, the Court of Appeal held the trial court abused its discretion in denying class certification based on the predominance issue. (Jaimez, supra, at pp. 1299-1307; Ghazaryan, supra, at pp. 1534-1538; Bufil, supra, at pp. 1205-1206.) These courts reasoned that the plaintiffs were challenging a uniform employment policy that allegedly violated California law and thus this violation could be proved (or disproved) through common facts and law. (Jaimez, supra, at pp. 1299-1300; Ghazaryan, supra, at pp. 1536-1538; Bufil, supra, at p. 1206.) The Jaimez and Ghazaryan courts further found that common issues predominated even if the policy did not affect each employee in the same way and damages would need to be proved individually. (See Jaimez, supra, at pp. 1301, 1303-1305; Ghazaryan, supra, at p. 1536.)
Slip op., at 17-18. (Moment of self-aggrandizement: At this point, I'm feeling pretty good about my work on Ghazaryan.) The Court continued with a thorough analysis of the clarified standards for meal and rest period claims. Notably, the Court highlighted the guidance provided by Justice Werdegar on the questions of whether meal period claims are categorically uncertifiable if the defendant raises as an issue the reason for the missed meal period:
Justice Werdegar stated that if an employer's records show no meal period for a given shift, a rebuttable presumption arises that the employee was not relieved of duty and no meal period was provided, shifting the burden to the employer to show the meal period was waived. (Id. at p. 1053.) Justice Werdegar further stated that "[w]hile individual issues arising from an affirmative defense can in some cases support denial of certification, they pose no per se bar [citations]." (Ibid.)
Slip op., at 20.
Later in the opinion, the Court also concluded that the question of independent contractor status is generally one that turns on common issues:
Under both the Borello and Martinez standards, the evidence relevant to the factual question whether the class members were employees or independent contractors is common among all class members. Each of the class members signed a standard "Independent Contractor Agreement" that characterized the worker as an independent contractor; each class member was engaged in a similar occupation (skilled labor in installing or servicing cell sites); each class member was required to work full time and to be available on every working day and during assigned "on call" times; each class member was told how to prioritize each day's jobs; each class member received hourly pay, rather than pay by the job; each class member submitted timesheets to Networkers and Networkers' customers for approval; and each class member was required to use a specific set of tools on the job and to obtain those tools from Networkers. Additionally, although Networkers' standard contract stated that the workers had the right to control the manner and means of the work, including that the workers were permitted to subcontract the work, Networkers had specific time and place job requirements that all workers were required to follow, and the workers could not deviate from these rules or delegate the work.
Slip op., at 23. The Court continued:
Networkers argued below that there would be a need for individualized proof because of differences among the workers pertaining to job titles, skill levels, pay grades, and the specific type of repair or installation work. However, with respect to the issues "likely to be presented" in the litigation (Brinker, supra, 53 Cal.4th at p. 1025), these distinctions are not significant. The fact that some workers engaged in repair work and others engaged in installation work, or that workers had different pay grades or worked for different lengths of times on particular days, is not central to the issue whether the workers here were employees or independent contractors under the Borello or Martinez tests. (See Martinez, supra, 49 Cal.4th at p. 76; Borello, supra, 48 Cal.3d at pp. 350-351.) Under the analysis, the focus is not on the particular task performed by the employee, but the global nature of the relationship between the worker and the hirer, and whether the hirer or the worker had the right to control the work. The undisputed evidence showed Networkers had consistent companywide policies applicable to all employees regarding work scheduling, payments, and work requirements. Whether those policies created an employer-employee relationship, as opposed to an independent contractor relationship, is not before us. The critical fact is that the evidence likely to be relied upon by the parties would be largely uniform throughout the class.
Slip op., at 24-25. Unequivocal. Seems like that IC pendulum is swinging back towards a presumption that IC classification is customarily a question suitable for certification.
The Court then returned to the specific claims in the case before it, applying Brinker's standards to the claims and trial court record. Rather than wade through that discussion, I will offer this observation. The employer chose to classify installers and repair techs as independent contractors. When it made that choice, it also chose not to provide meal periods and authorize rest breaks. It had no policy for them. Based on Brinker, the Court concluded that this arrangement raised common questions and let the employer live with the consequences of its choice.
And, while the Court distinguished Lamps Plus and Chipotle, it need not have worried about them; they were depublished today.
After a long dry spell, we finally have a busier day for class action news. And it all relates to Brinker! I've missed you, Brinker news! As part of its weekly conference, the California Supreme Court depublished the post-Brinker appellate court decision in Lamps Plus Overtime Cases and Hernandez v. Chipotle Mexican Grill. It appears as though the California Supreme Court is not entirely supportive of the analysis supplied by the Second Appellate District, Division Eight, as it applied the Supreme Court's guidance in Brinker.
While it may not last much longer than it takes the ink to dry on the opinion, the Court of Appeal (Second Appellate District, Division One), in Franco v. Arakenian Enterprises, Inc. (November 26, 2012) considered a significant question: "The question on appeal is whether Gentry was overruled by Stolt-Nielsen S.A. v. AnimalFeeds International Corp. (2010) 559 U.S. ___ [130 S.Ct. 1758] (Stolt-Nielsen) and AT&T Mobility LLC v. Concepcion (2011) 563 U.S. ___ [131 S.Ct. 1740] (Concepcion)." Slip op., at 3. Summarizing a 65-page opinion, the Court said:
We conclude that Gentry remains good law because, as required by Concepcion, it does not establish a categorical rule against class action waivers but, instead, sets forth several factors to be applied on a case-by-case basis to determine whether a class action waiver precludes employees from vindicating their statutory rights. And, as required by Stolt-Nielsen, when a class action waiver is unenforceable under Gentry, the plaintiff's claims must be adjudicated in court, where the plaintiff may file a putative class action. Accordingly, we affirm.
Slip op., at 3.
The decision follows an earlier opinion in the matter, Franco v. Athens Disposal Co., Inc., 171 Cal. App. 4th 1277 (2009) (Franco I). That procedural and factual history is extensive, and I won't summarize it. The opinion also contains a footnote indicating that it invited comment on D.R. Horton, but because Franco did not respond to the request, the Court declined to address the impact of that matter.
The decision also has an exhaustive review of arbitration decisions in the context of statutory claims. After that history, the Court examined the reach of the Concepcion. An extended portion of the Court's analysis cited approvingly to a law review analysis: Gilles & Friedman, After Class: Aggregate Litigation in the Wake of AT&T Mobility v. Concepcion (2012) 79 U.Chi. L.Rev. 623.
Ultimately, after looking at the Question Presented in Concepcion, the Court concluded that, in this case, Franco lacked the means, not the incentive, to pursue his claims. That distinction, the Court held, justified the trial court's decision to deny the petition to compel arbitration.
Then, tucked right into the end of the opinion, the Court offered a monumental observation that would have had great significance if the Court had considered D.R. Horton:
Which brings us to the subject of Concepcion's effect, if any, on PAGA claims. We have already concluded that Athens Services's arbitration agreement — the MAP — contains two unenforceable clauses: the class action waiver and the prohibition on acting as an attorney general. (See Franco I, supra, 171 Cal.App.4th at pp. 1297–1300, 1303; fn. 2, ante.) Those clauses operate independently of each other: One restricts Franco‘s pursuit of his rest and meal period claims while the other prohibits his recovery under the PAGA. Together, they render the MAP tainted with illegality, making it unenforceable and permitting Franco to adjudicate his claims in a judicial forum. (See Franco I, at p. 1303; fn. 2, ante.) Concepcion does not preclude a court from declaring an arbitration agreement unenforceable if the agreement is permeated by an unlawful purpose.
Slip op., at 64. See that?! Right there?! This Court gets it! If you impose a contract that violates the law (e.g., the NLRA), then the contract is unenforcable in Court on the general ground of illegality. Any contract that violates the NLRA, not just arbitration agreements, is void and unenforceable. How hard is this, really? And here we finally see a Court clearly articulate the illegality defense analysis, but the Court declined to address the NLRA argument because one of the parties was too busy to answer. Wonderful.
Of course, this case may vanish for years when it gets sucked up into the California Supreme Court's Gentry re-examination.
If I tried really hard, I could probably come up with similarly dumb headlines for most posts on appellate decisions. But it would hurt me as much as it would hurt you, so I don't. But, getting back on track, in See's Candy Shops, Inc. v. Superior Court (October 29, 2012), the Court of Appeal (Fourth Appellate District, Division One) granted a petition for a writ filed by See's Candy after the trial court granted summary adjudication in favor of the plaintiff as to four affirmative defenses asserted in the case. The defenses related to See's Candy's practice of rounding hourly employee punch in and punch out times to the nearest tenth of an hour.
In an amended answer, See's Candy denied plaintiff's allegations and "asserted 62 affirmative defenses, including defenses based on See's Candy's claim that: (1) any unpaid amounts are de minimis; (2) the nearest-tenth rounding policy is consistent with federal and state law; and (3) the grace period policy is lawful under federal and state law." Slip op., at 5. Two of the defenses concerned See's Candy's claim that any unpaid wages based on off-the-clock claims or its rounding policies were "de minimis." The "de minimis" defense was not at issue in the writ proceedings, so don't get excited. The other two challenged defenses encompassed See's Candy's claim that its rounding policy is consistent with state and federal laws "permitting employers to use rounding for purposes of computing and paying wages and overtime" and that the nearest-tenth rounding policy did not deny plaintiffs or the class members "full and accurate compensation." Plaintiff did not move for summary adjudication on See's Candy's affirmative defense that its grace period policy is "lawful under both federal and California law."
Plaintiff argued that there is no California statutory or case authority allowing See's Candy to use a rounding policy, and its policy violates section 204, which generally requires an employer to pay an employee "All wages" every two weeks, and section 510, which requires an employer to pay an employee premium wages for "Any work" after eight hours per day or 40 hours per work week. See's Candy then argued that its timekeeping records were inaccurate because of its unusual grace period policy that allows employees to clock in up to 10 minutes before their scheduled shift time so long as they do not start working until the actual start time.
The Court of Appeal examined the competing approaches, holding that See's Candy had the better view:
Although California employers have long engaged in employee time-rounding, there is no California statute or case law specifically authorizing or prohibiting this practice. Absent specific binding authority under California law, See's Candy argues that it is appropriate for this court to adopt the federal regulatory standard, which is also used by the DLSE (the state agency charged with enforcing California's wage and hour laws), and allows rounding if the employees are fully compensated "over a period of time." (29 C.F.R. § 785.48(b).) Silva counters that this federal/DLSE rule violates California statutes and rounding should be permitted only if the employer "unrounds" every two weeks to ensure full compensation. For the reasons explained below, we conclude the federal/DLSE standard is the appropriate standard.
Slip op., at 17. To support this conclusion, an extensive discussion of federal law, state law, and DLSE regulations follows. Distilled to its essence, the key holding of the Court turns on its construction of Labor Code section 204:
Moreover, Silva's contention has a false premise — that using unrounded figures within a finite time period is the only way to measure "All" earned wages. (§ 204, subd. (a).) Fundamentally, the question whether all wages have been paid is different from the issue of how an employer calculates the number of hours worked and thus what wages are owed. Section 204 does not address the measurement issue. The Legislature has amended section 204 since the DLSE adopted the federal rounding regulation, and has never indicated that the state agency's adoption of the federal rounding rule is inconsistent with its statutory provision.
Slip op., at 24. The Court then declared its finding as to California law, and addressed the analysis that it would apply in the context of the case before it:
Relying on the DOL rounding standard, we have concluded that the rule in California is that an employer is entitled to use the nearest-tenth rounding policy if the rounding policy is fair and neutral on its face and "it is used in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked." (29 C.F.R. § 785.48; see DLSE Manual, supra, §§ 47.1, 47.2.) Applying this legal standard, we turn to address whether the parties met their summary adjudication burdens with respect to the 39th and 40th affirmative defenses alleging that See's Candy's nearest-tenth rounding policy was consistent with California law.
Slip op., at 27. Thus, as with federal law, the legality of rounding in California turns on the outcome, not its use. Rounding is judged "as applied," not "as defined." In this matter, the Court concluded that the plaintiff did not meet the burden of proof on a motion for summary judgment to dispose of See's Candy's affirmative defenses before trial.
After the Supreme Court decided Brinker Restaurant Corp. v. Superior Court, 53 Cal. 4th 1004 (2012), a number of cases were remanded to Courts of Appeal for further consideration after Petition grant and hold Orders were issued in those cases. The Second Appellate District, Division Eight, seems to have a disproportionate share of those cases. And, generally speaking, Division Eight concluded that Brinker didn't require any change in its analyses:
In all fairness to Division Eight, the other Courts of Appeal didn't seem to think that, even though Brinker declared a somewhat different standard than that applied by many Courts of Appeal, the clarified standard, according to the Courts of Appeal, didn't require any material modification to their prior opinions. Go figure.
Interestingly, the same Division Eight, which never met a meal period it liked, partially reversed a denial of class certification in an unpublished decision, Santos v. Vitas Healthcare Corp. of California, Case No. B222645, 2012 WL 4378175 (Sept. 26, 2012). The Court relied heavily on Brinker for its discussion of an employer's obligation to pay employees when it knows, or has reason to know, that employees are working overtime or off-the-clock. Hmmmm.
The Statement of Issues for the Iskanian v. CLS Transportation matter is as follows:
This case presents the following issues: (1) Did AT&T Mobility LLC v. Concepcion (2011) 563 U.S. __ [131 S. Ct. 1740, 179 L.Ed.2d 742] impliedly overrule Gentry v. Superior Court (2007) 42 Cal.4th 443 with respect to contractual class action waivers in the context of non-waivable labor law rights? (2) Does the high court's decision permit arbitration agreements to override the statutory right to bring representative claims under the Labor Code Private Attorneys General Act of 2004 (Lab. Code, 2698 et seq.)? (3) Did defendant waive its right to compel arbitration?
This is also a day of the week ending in the letter "Y." Hence, a new arbitration opinion to discuss. In Truly Nolen of America v. Superior Court (August 13, 2012), the Court of Appeal (Fourth Appellate District, Division One) examined several arbitration issues in a putative class action wage & hour matter. Adding to the miasma of conflicting aribtration opinions in California, this Court concluded that Gentry was not preempted by Concepcion and must be followed under principles of stare decisis. However, the Court also found that, on the factual record in the trial court, the Gentry test was not satisfied. Instead, the Court directed the trial court to permit briefing on the issue of whether the parties' agreement includes an implied agreement to permit class arbitration.
In the trial court, defendant moved to compel arbitration. The arbitration agreements did not contain a specific provision pertaining to the availability or unavailability of classwide arbitration. The court granted the motion to compel arbitration, but rejected defendant's request that the court order individual arbitration, relying on Gentry v. Superior Court, 42 Cal. 4th 443 (2007). Defendant petitioned for review.
The Court set forthan extensive history of arbitration law in California, beginning with cases before Stolt-Neilsen and Concepcion. It is very exiting, so I will not spoil it by summarizing it here. Then the Court discussed the impact of Concepcion on Discover Bank and Gentry. Having concluded the history lesson, the Court had to choose from the conflicting decisions as to whether Gentry remains valid law.
Exercising caution, the Court threaded the eye of the needle, concluding that it doubted the analysis of cases finding Genry valid but agreeing with the plaintiffs that it was nevertheless obligated to follow decisions of the California Supreme Court until expressly invalidated: "On federal statutory issues, intermediate appellate courts in California are absolutely bound to follow the decisions of the California Supreme Court, unless the United States Supreme Court has decided the same question differently." Slip op., at 23.
Having so concluded, the Court then considered whether the evidentiary record was sufficient to support a finding that the Gentry factors were present. The Court concluded that the plaintiffs failed to connect attorney declarations with the facts of the case. Based on an insufficient evidentiary record, the Court reversed the trial court's finding that Gentry required a class arbitration.
Next, the Court examined other contentions. First, the Court agreed that an arbitartion agreement may include an implied agreement to class arbitration: "Relying on Stolt-Nielsen, the courts have recognized that an implied agreement may be sufficient to support class arbitration." (Slip op., at 33.) Although plaintiffs did not raise the issue in the trial court, the Court concluded that they were not precluded from doing so on remand. The Court left it to the trial court to develop the record as to whether the parties' agreement includes an implied agreement to class arbitrations. Notably, the Court recognized that California contract law would govern the analysis of whether an implied agreement permitting arbitration agreements exists.
Next, as with several other Courts of Appeal, the Court, in cursory fashion, rejected the contention that the NLRA protects employees from the enforcement of contract provisions that would impede their right to undertake concerted activity, including class actions. I have commented elsewhere on the paucity of analysis supplied by other Courts in California (Iskanian and Nelsen), and this Court did nothing to advance the analysis beyond more than something akin to bare assertion based on skepticism. As an aside, even if the Court believes that its scant analysis is correct, the existence of the NLRA and the many decisions protecting class actions as concerted activity should, at minimum, supply the requisite implied intent to permit class arbitrations. After all, the defendant could not have intended to violate the NLRA, could it?
With every class-related arbitration decision issued in California, the need for comprehensive, detailed holdings from the California Supreme Court grows. I urge the California Supreme Court to assist parties in consumer and employment class actions by sweeping up all of these decisions and rendering a number of much needed rulings as quickly as possible.
The Complex Litigator reports on developments in related areas of class action and complex litigation. It is a resource for legal professionals to use as a tool for examining different viewpoints related to changing legal precedent. H. Scott Leviant is the editor-in-chief and primary author of The Complex Litigator.
