"Tip Pooling" class actions are the latest craze

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Greatsealcal100Today, in Etheridge v. Reins International California, Inc., the California Court of Appeal (Second Appellate District, Division Three) issued an opinion in a class action lawsuit about the practice of "tip pooling" common in restaurants and casinos.  That, by itself, might not even be interesting enough to write about here.  But it is news when it marks the third such opinion on the topic this year.  Lu v. Hawaiian Gardens Casino, Inc. (2009) 170 Cal.App.4th 466 began the trend, followed by Grodensky v. Artichoke Joe’s Casino (March 11, 2009) ___ Cal.App.4th ___.  Grodensky was exciting in that it created a split of authority as to whether Labor Code section 351 provides for a private right of action or serves merely as a predicate violation of law under the UCL.

This effectively sums up the dearth of good class action-related news in California this week.

UPDATE (3/30/09):  A reader has been kind enough to let me know that I missed the fourth such case this year, Budrow v. Dave & Buster's of California, Inc. (March 2, 2009) (Second Appellate District, Division Eight).  That same reader advised me that Petitions for Review have been or will be filed in several of these cases.

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In Naranjo v. Spectrum Security Services, Inc., another pre-emption argument falls flat

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Greatsealcal100With collateral attacks on the class action device – such as several efforts to amend California’s class action law (Code Civ. Proc., § 382) – proving unsuccessful, the name of the game in recent years has been pre-emption arguments. In general, it’s fair to say that those arguments have had limited success. <cough> Wyeth. <cough> In Naranjo v. Spectrum Security Services, Inc. (March 24, 2009), the Court of Appeal (Second Appellate District, Division Four) considered whether the McNamara-O’Hara Service Contract Act of 1965 (SCA) (41 U.S.C. § 351 et seq.) pre-empts all state law remedies for wage & hour violations.

The Court described the SCA:

“ The SCA requires government contractors to pay service employees “minimum wages and benefits determined by the Secretary of Labor.” (U.S. ex rel. Sutton v. Double Day Office Services (9th Cir. 1997) 121 F.3d 531, 533.) “Its purpose is to protect employees of government contractors. Before the [SCA], the federal government had been ‘subsidizing’ substandard levels of compensation by awarding contracts to those who were able to bid low by paying less. [Citation.]” (Saavedra v. Donovan (9th Cir. 1983) 700 F.2d 496, 497.)

(Slip op., at p. 4.) After considering the pre-emption argument successfully raised by defendant at summary judgment, the Court concluded that the SCA did not pre-empt the Labor Code Claims at issue:

“ We therefore conclude that Naranjo’s action to recover additional wages under Labor Code section 226.7 neither conflicts with the SCA nor hinders the achievement of its goals. The wage determination attached to Spectrum’s contract sets forth the minimum basic wage rates for a large number of employment categories, including Naranjo’s category of detention officer; in addition, it contains provisions setting minimum rates for night pay, Sunday pay, and a “[h]azardous [p]ay [d]ifferential,” but none regarding additional pay for the denial of meal and rest breaks. Naranjo’s suit thus seeks state-required wages that exceed the minimum wages determined by the Secretary. In view of the language of the form clause in Spectrum’s contract and the authorities discussed above, Naranjo’s action under Labor Code section 226.7 does not conflict with the SCA and promotes, rather than impedes, its goals.

We reach the same conclusions regarding Naranjo’s claims under Labor Code sections 203 and 226. Labor Code section 203, subdivision (a), imposes a penalty upon employers who willfully fail to pay discharged employees their full compensation in a timely manner. Naranjo’s complaint seeks this penalty for the additional wages allegedly not paid under Labor Code section 226.7. As explained above, Naranjo may properly seek the wages in a state court without impeding the operation of the SCA. In view of Butler, we conclude that Naranjo’s litigation of his request for a penalty under Labor Code section 203 also would not hinder or conflict with the SCA.

Finally, Labor Code section 226 obliges employers to provide their employees with records of their earnings and deductions, and imposes penalties upon employers who knowingly and intentionally fail to supply the records. In contrast, under the SCA and its regulations, employers must maintain records and disclose them to the Secretary, but are not required to disclose the records to employees. (29 C.F.R. § 4.6(g)(1).) The employer’s sole duty regarding employees is to post a form notice in a prominent place regarding the wages and benefits required under the SCA. (29 C.F.R. §§ 4.183, 4.184.) The form clause in Spectrum’s contract specifying its SCA obligations imposes no duty upon Spectrum to provide wage and benefit records to its employees. (48 C.F.R. § 52.222-41(i).) As the evident goal of the employer’s recordkeeping duties under the SCA is to ensure compliance with the SCA, we conclude that Labor Code section 226 complements the SCA and facilitates its goals by enhancing scrutiny of the employers’ conduct.

(Slip op., at pp. 13-14.) The plaintiff did not address the trial court’s ruling of pre-emption as to claims for violation of the UCL, conversion, and injunctive relief. Having not raised those rulings as erroneous, the Court did not address them. And so another pre-emption argument fizzles.

The life cycles of these trends are interesting.  Consider, for example, the anti-class action arbitration provisions that were struck down in waves, or the run of decisions about class member identity discovery after Pioneer.  Makes you wonder how these issues manage to percolate up to the appellate level in such temporal proximity.  Probably coincidence, but maybe a vast defense conspiracy...

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In Franco v. Athens Disposal Company, Inc., another "no class action" arbitartion clause bites the dust, and with a kicker

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Greatsealcal100Today, in a putative class action asserting various Labor Code violations, the Court of Appeal (Second Appellate District, Division One) invalidated as unconscionable an arbitration agreement containing a “no class action or private attorney general action (PAGA) clause” in Franco v. Athens Disposal Company, Inc. (March 10, 2009).

The Court held:

“We conclude that the class arbitration waiver is unconscionable with respect to the alleged violations of the meal and rest period laws given “the modest size of the potential individual recovery, the potential for retaliation against members of the class, [and] the fact that absent members of the class may be ill informed about their rights.” (Gentry v. Superior Court (2007) 42 Cal.4th 443, 463 (Gentry).) In addition, because the arbitration agreement prevents plaintiff from acting as a private attorney general, it conflicts with the Labor Code Private Attorneys General Act of 2004 (PAGA) (§§ 2698–2699.5) — an act that furthers Gentry’s goal of comprehensively enforcing state labor laws through statutory sanctions (see Gentry, supra, 42 Cal.4th at pp. 462–463).

(Slip op., at p. 2.) But you have to admire the employer for the sheer chutzpah of it. A “no private attorney general” clause?  Bold, and daring.

The opinion is longer than you might expect.  Several preliminary issues required discussion before the Court moved to the meat of the issues.  And the Court provided an extensive discussion of both Gentry and the nature of PAGA actions.  If this happens to be your bailiwick, the opinion is a must read.  If you never confront arbitration agreements or wage & hour matters, move along - there is nothing to see here.

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Are meal period premiums part of the "regular rate" in FLSA cases? One District Court says, "No."

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In a LinexLegal.com news article entitled Must Employers Include Meal-Period Premium Payments in the "Regular Rate" Used to Compute the Overtime Owed to Their Employees?, it is reported that, on February 25, 2009, Judge Saundra B. Armstrong of the U.S. District Court for the Northern District of California held that meal-period premiums mandated by California Labor Code Section 226.7 need not be included in the "regular rate" for purposes of calculating an employee's overtime compensation under the federal Fair Labor Standards Act (FLSA), 29 U.S.C. para 201 et seq.   The ruling was issued in the context of a putative state-wide class-action in Rubin v. Wal-Mart Stores, Inc., No. CV 08-4214.

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BREAKING NEWS: First appellate construction of Labor Code section 206.5 concludes that it doesn't mean what it seems to say

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Greatsealcal100As predicted in this post, the Fourth Appellate District, Division Three, has issued a published opinion in Chindarah et al. v. Pick Up Stix, Inc. et al (February 26, 2009).  The opinion construes Labor Code section 206.5, concluding that employer-obtained releases of wage claims in dispute were not void by operation of section 206.5.  There is some qualifying language in the opinion worth mentioning, but, that must wait for another day.

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California Supreme Court grants itself additional time to consider Petition in Brewer v. Premier Golf Properties

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Greatsealcal100On February 23, 2009, the California Supreme Court extended the time for granting or denying review in Brewer v. Premier Golf Properties (2008) 168 Cal. App. 4th 1243. The Complex Litigator’s initial post about Brewer discusses its holding that punitive damages are unavailable for violations of at least some Labor Code provisions.  The Supreme Court now has to and including April 8, 2009 to grant or deny review.

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Labor Code section 206.5 may be the focus of forthcoming opinion in Fourth Appellate District

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Greatsealcal100I’m told that the Fourth Appellate District, Division Three, has an interesting opinion on the way in the next couple of weeks. According to Wage Law via Twitter (@wagelaw), Chindarah et al. v. Pick Up Stix, Inc. et al. is going to have something interesting to say about Labor Code section 206.5. @wagelaw suggests that the decision is due this week, and the docket nominally supports that contention, noting that the decision is “due” on February 19, 2009. However, at least some of the Courts of Appeal around the state interpret the 90-day deadline on the issuance of opinions in submitted matters to mean that the case must be decided by the end of the month in which the decision is due (when the Court reports on whether it has resolved all pending matters under penalty of nonpayment of Justices’ salaries). I don’t know if this interpretation is universal across the state, but, if it applies here, the decision could issue any time before the end of the month. And don’t forget that, in rare circumstances, the Court can essentially vacate the submission and resubmit the matter if the press of other business makes issuance of an opinion by its orginal due date impossible.

Section 206.5 fascinates me.  Maybe "fascinates" is a bit strong.  In any event, there is little in the way of decisional law about this Labor Code section, which states:

“(a) An employer shall not require the execution of a release of a claim or right on account of wages due, or to become due, or made as an advance on wages to be earned, unless payment of those wages has been made. A release required or executed in violation of the provisions of this section shall be null and void as between the employer and the employee. Violation of this section by the employer is a misdemeanor.

(b) For purposes of this section, "execution of a release" includes requiring an employee, as a condition of being paid, to execute a statement of the hours he or she worked during a pay period which the employer knows to be false.

Subdivision (b) is new, so the opinion can’t address that provision. That leaves subdivision (a). In the world of wage and hour class actions, the only time I ever ran across this section was when an employer was picking off class members by making them sign a release to get an offered payment. I believed that the releases obtained were void, but I never had the opportunity to test that belief. I’m very curious to see if that is the issue that has been presented in Chindarah. Of course, there is no guarantee of publication, but, as a matter of first impression (while I wildly speculate about the issues on appeal), one has to believe that publication would be certain.

And to digress for a moment, Twitter is definitely building momentum as a source for breaking news (amongst the nonsense about what somebody has decided to eat for dinner). You can read my recent posts in the sidebar on this blog or see whose posts I am following on Twitter by going to http://twitter.com/hsleviant (@hsleviant, in Twitter-ese).  If you start by reading posts from legal news sources, you may find that you can build a customized legal news amalgamation that suits your interests very precisely.

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Cristler v. Express Messenger says more about the standard of review on appeal than it does about class actions or employee misclassification

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Greatsealcal100When does a class action go to trial? That’s not an easy question to answer. The potential recovery is a factor, but not always. Personalities involved in the litigation are a factor, but not always. The jury pool is factor, but not always. However, when the class is seeking to declare unlawful a delivery company’s classification of delivery drivers as “independent contractors,” it looks like a sure bet that the class action will go to trial.

In Christler v. Express Messenger Systems, Inc. (February 11, 2009), the Court of Appeal (Fourth Appellate District, Division One) considered challenges to a number of rulings surrounding the trial of plaintiffs’ claim that defendant misclassified its delivery drivers as “independent contractors.” While this opinion does discuss the legal standard for determining employment, the Court of Appeal limited its review, based upon what appellant presented:

“ Cristler emphasizes throughout its briefing that other cases addressing the proper classification of package delivery drivers have resulted in findings that the drivers were employees, rather than independent contractors. (See Estrada, supra, 154 Cal.4th at pp. 11-12 [reciting litany of factors that provided substantial evidence to support trial court's finding that FedEx drivers were employees, including "FedEx's control over every exquisite detail of the drivers' performance, including the color of their socks and the style of their hair"]; JKH Enterprises, Inc. v. Department of Industrial Relations (2006) 142 Cal.App.4th 1046, 1065 [listing factors that provided substantial evidence for trial court's conclusion that drivers were employees and thus "reject[ing] JKH's contention" that the evidence "dictate[d] but one conclusion here — that the drivers are independent contractors"]; Air Couriers, supra, 150 Cal.App.4th at p. 938 [same].) The simple answer to these references is that these cases concerned different circumstances presented to a different finder of fact. Indeed, even if the facts of this case were identical to those in the cases Cristler cites (and they are not), we would not be authorized to overrule the determination of the jury to achieve conformity with other cases — particularly as Cristler does not even argue that the jury's verdict is unsupported by substantial evidence.

(Slip op., at p. 8, fn. 2.) If nothing else, this certainly suggests a trend when suing delivery companies who have, as their business model, decided to classify delivery drivers as “independent contractors.”

As part of the appeal, plaintiffs contended that the trial court erred by failing to continually review the class definition to ensure that class members were not inappropriately excluded: “In the instant case, regardless of whether the trial court erred in defining the class, Cristler fails to carry its burden of establishing reversible error as there is no showing of prejudice from the trial court's assertedly erroneous rulings.” (Slip op., at p. 11.) Continuing, the Court explained: “In light of the trial court's refusal to expand the class definition, the drivers who remained in the class — those without any employees of their own and who did not deliver even an occasional package for clients other than Express Messenger — were the most likely to be characterized as Express Messenger's employees rather than as independent contractors.” (Ibid.) Losing at trial with a narrow class didn’t do much for the plaintiffs’ arguments.

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UPDATED: Lu v. Hawaiian Gardens Casino, Inc. offers a reminder that the UCL can borrow statutes that do not themselves include a private right of action

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Greatsealcal100Better late than never, a brief comment about Lu v. Hawaiian Gardens Casino, Inc. (Jan. 22, 2009) is in order. In Lu, the Second Appellate District, Division Three, considered whether dealer tip pooling in casinos (1) gives rise to a private right of action under California Labor Code section 351 and/or 450, and (2) whether those or other Labor Code sections can serve as predicates for an Unfair Competition Law claim.

After reviewing the two Labor Code sections at issue, the Lu Court concluded with little difficulty that neither section (351 or 450) created a private right of action. However, the Lu Court then noted that such Labor Code sections could nevertheless serve as predicates for the “unlawful” conduct prong under the UCL:

“Nevertheless, Lu alleged a cause of action under the UCL for violation of Labor Code sections 351 and 450. “ ‘Virtually any law -- federal, state or local -- can serve as a predicate for an action under Business and Professions Code section 17200.’ [Citation.]” (Ticconi v. Blue Shield of California Life & Health Ins. Co. (2008) 160 Cal.App.4th 528, 539; cf. Louis v. McCormick & Schmick Restaurant Corp. (C.D.Cal. 2006) 460 F.Supp.2d 1153, 1156, fn. 5; Matoff v. Brinker Restaurant Corp., supra, 439 F.Supp.2d at pp. 1037-1038.) The UCL is a proper avenue for Lu to challenge violations of these Labor Code provisions. Therefore, we turn to the substantive question of whether the tip pool procedure here violates the Labor Code sections enumerated in the complaint such as would support UCL causes of action.

(Slip op., at p. 11.) The Court then analyzed various Labor Code sections asserted in the plaintiff’s complaint, concluding that section 351 could support a UCL “unlawful” prong claim sufficient to withstand summary judgment. (Slip op., at pp. 21-23.)

UPDATE:  Just when you get around to writing a post, wouldn't you know that the Court of Appeal changes the Opinion.  A Modified Opinion issued on February 11, 2009, which slightly alters the judgment.

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California Supreme Court grants request to file over-length Opening Brief in Brinker Restaurant v. Superior Court

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As indicated on the docket, the Supreme Court granted permission for Petitioner to file an over-length Opening Brief in Brinker Restaurant v. Superior Court.  Sources indicate that the Opening Brief was in the neighborhood of 135 pages, so "over-length" may not truly communicate the magnitude of the Brief.

By all rights, between that Opening Brief and the Opposition Brief, there should be nothing left for amicus filers to discuss.  In theory, Amicus Briefs should not repeat arguments advanced in the briefing by the parties.  In practice, this rule isn't just tested, it is abused.  The Proposition 64 briefing, in particular, took great liberties.  But the Supreme Court has appeared tolerant on this point, at least as indicated by its liberal granting of permission to file Amicus Briefs.  Of course, there is no way of knowing whether such Briefs receive any meaningful consideration if they are duplicative of the parties' Briefs.  I assume the "me too" briefs are primarily intended to exert some measure of pressure on the decision, but no one would ever admit as much.

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