Northern District Court certifies class in misclassification suit against Deloitte & Touche LLP

United States District Court Judge Susan Illston (Northern District of California) certified a class of salaried employees alleging that they were misclassified as exempt by Deloitte & Touche LLP.  Brady v. Deloitte & Touche LLP, 2010 WL 1200045 (N.D. Cal. Mar. 23, 2010).  The class consists of salaried employees in the audit line of service but who were not licensed accountants.  The Court identified common issues of law and fact as follows:

Common questions of law include whether the professional exemption under California law requires a license for accountants, whether accounting is a “learned profession” under California Wage Order 4-2001, and whether the duties of proposed class members would qualify for administrative exception under California law. Common factual questions include whether defendant's standardized policies and procedures prevented the class members from customarily and regularly exercising discretion and independent judgment with respect to matters of significance, whether defendant categorically classified all class members as exempt, whether defendant required class members to work overtime, along with a host of other questions relating to overtime, meal breaks, timekeeping and pay.

Slip op., at 4.  Generally, the Court maintained a sharp delineation between certification questions and merits issues.

Brinker Watch 2010

If you were in a coma for a while, Brinker Restaurant v. Superior Court (Hohnbaum) was fully briefed back in October 2009.  And...that's it.  Other than a striking new logo for 2010, there is no news.  I post this only because this blog receives traffic from Brinker searches on an almost daily basis.  I should have added some sort of extra bit to the logo, like "Now with EXTRA uncertainty...."  Back in September 2009 I moved my estimate for an Opinion release date out from June 2010 to August 2010.  The notice of argument would need to issue in April to make that August Opinion release date a near certainty.  Thus, I need to adjust the over-under to October 2010 to equalize the wagering.  Place your bets, folks.

In brief: Ninth Circuit issues new opinion in Rutti v. Lojack Corporation, Inc.

After granting a panel petition for rehearing, the Ninth Circuit withdrew the Opinion in Rutti v. Lojack Corporation, Inc., 578 F.3d 1084 (9th Cir. 2009), and issued a new opinion, Rutti v. Lojack Corporation, Inc. (9th Cir. March 2, 2010).  The change is significant on the issue of commute time under California law: "[W]e vacate the district court’s grant of summary judgment on Rutti’s claim for compensation of his commute under California law and on his postliminary activity of required daily portable data transmissions, and remand the matter to the district court for further proceedings consistent with this opinion."  Slip op., at 3237.  I may provide a longer post about this change later.  The earlier post on Rutti can be found here.

More thoughts on Jaimez v. DAIOHS USA, Inc.

There is quite a bit to absorb in  Jaimez v. DAIOHS USA, Inc., et al. (February 8, 2010), and I wanted to provide some further commentary.  For example, no California Court of Appeal has interpreted or provided any guidance to trial courts regarding the wage statement "injury" requirement.  Jaimez holds that: (1) "a very modest showing" will satisfy the injury requirement; (2) the filing of a lawsuit and "the difficulty and expense ... encountered in attempting to reconstruct time and pay records" may satisfy the wage statement injury requirement; (3) the "injury" requirement is distinct from "damages"; and, (4) trial courts may certify wage statement classes even without evidence of an injury arising from inaccurate wage statements. Opinion at 22-23.

Jaimez also re-affirms and clarifies key standards applicable to class certification motions, including the fact that the proper predominance analysis is comparative. Jaimez appears to be the first published California Court of Appeal decision since the issuance of Sav-On Drug Stores, Inc. v. Superior Court, 34 Cal. 4th 319 (2004) to hold that the "relevant comparison lies between the costs and benefits of adjudicating plaintiffs' claims in a class action and the costs and benefits of proceeding by numerous separate actions- not between the complexity of a class suit that must accommodate some individualized inquiries and the absence of any remedial proceeding whatsoever." Opinion at 13 (quoting Sav-On, 34 Cal. 4th at 339  n.10). This holding is a good reminder of the "relevant comparison" predominance analysis when examining whether to certify a class.

Jaimez clarifies the role of the trial court when considering issues surrounding certification of meal break classes, holding that trial courts may certify a meal break class regardless of any legal uncertainty regarding an employer's obligation to provide meal breaks. Opinion at 18-19.

Jaimez also establishes important precedent regarding meal break timing requirements.  Employers and employees continue to dispute when employees are entitled to meal breaks.  No California Court of Appeal has offered guidance on this frequently disputed issue. Jaimez holds that trial courts may certify meal break classes based on the theory that an employer failed to provide meal breaks within the first five hours of a shift.

Labor Code § 226 directs employers to provide their employees with "an accurate itemized statement in writing" showing "total hours worked" and "all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate."  When a violation occurs, "[a]n employee suffering injury as a result of a knowing and intentional failure by an employer to comply with [section 226(a)] is entitled to" specified damages. Id.  While this statutory language appears to differentiate between injury and damage, employees in California continue to face substantial resistance to the type of analysis supplied by Jaimez.

No California Court of Appeal has directly construed the wage statement "injury" requirement. Rather, only federal authorities have discussed this issue.  California employers, employees and courts continue to dispute the meaning of the wage statement injury requirement.  Jaimez now provides the first comments from a California Court of Appeal interpreting the wage statement injury requirement, assisting trial courts and litigants in the process.  On this point, Jaimez holds: "While there must be some injury in order to recover damages, a very modest showing will suffice." Opinion at 22.  Going further, Jaimez explains that '''this lawsuit, and the difficulty and expense [Jaimez has] encountered in attempting to reconstruct time and pay records,' may well be 'further evidence of the injury' he has suffered." Opinion at 22.  Adopting the federal approach to identifying injury, Jaimez explains that injury can include "the possibility of not being paid overtime, employee confusion over whether they received all wages owed them, difficulty and expense involved in reconstructing pay records, and forcing employees to make mathematical computations to analyze whether the wages paid in fact compensated them for all hours worked."  Opinion at 22.  This clearly articulated standard was missing from California jurisprudence.

Finally, with respect just to the wage statement aspects of the opinion, Jaimez holds that the absence of evidence at the certification stage of an injury arising from inaccurate wage statements does not preclude class certification because the plaintiff's theory (an erroneous wage statement form) is suitable for class treatment. Opinion at 22-23.

Despite many decisions regarding aspects of class certification, the actual application of certification standards to the facts of a particular case remains an area of substantial confusion for litigants and many trial courts.  Jaimez, citing Ghazaryan v. Diva Limousine, Ltd., 169 Cal.App.4th 1524 (2008), tacitly recognized this ongoing area of difficulty for trial courts when it said, "The trial court misapplied the criteria, focusing on the potential conflicting issues of fact or law on an individual basis, rather than evaluating 'whether the theory of recovery advanced by the plaintiff is likely to prove amenable to class treatment.'"  Opinion, at 13.

Following this general observation about the application of incorrect criteria to the certification question, the Jaimez Opinion follows with one of the more thorough discussions of how to apply correct certification criteria to the specific facts of a case, on a claim-by-claim basis, spanning some 10 pages of the Opinion.  For example, the Opinion provides concrete examples regarding the correct method for evaluating evidence submitted in support or opposition to the motion for class certification:

[H]ad the trial court focused on the correct criteria, it would have necessarily found the First Choice declarations, while identifying individual effects of policies and practices that may well call for individual damages determinations, nevertheless confirm the predominance of common legal and factual issues that make this case more amenable to class treatment.  For example:

• Eight of the First Choice Declarations admit that RSR’s regularly “forego” meal breaks and one states that he never takes a meal break; and
• The First Choice declarations also fail to state that the RSR’s were compensated with an additional hour of pay, as required by California law, when the RSR’s failed to follow their “normal” practice and/or did not receive a 30-minute uninterrupted meal period.

The First Choice declarations actually demonstrate there are numerous predominant common factual issues.  The fact that individual RSR’s may have different damages does not require denial of the class certification motion.  Furthermore, declarations from a small percentage of objectors do not bar class certification.  In sum, the trial court applied improper criteria in evaluating the merits of the First Choice declarants’ statements rather than considering whether they rebutted plaintiff’s substantial evidence that predominant factual issues (if not legal, too) make this case more amenable to class treatment than to myriad individual adjudications (Bell v. Farmers Ins. Exchange (2004) 115 Cal.App.4th 715, 743 (Bell); Richmond, supra, 29 Cal.3d at p. 475.)

Opinion at 15-16.  Opinions with this degree of practical detail about the correct method for evaluating evidence submitted in support of and in opposition to class certification are uncommon.  The rarity of such discussions about the practical mechanics of certification makes this Opinion that much more valuable for practitioners and trial courts alike.  Clarity of legal standards tends to reduce the duration and cost of litigation.

Just as important as the practical demonstration of how to assess evidence supplied by the parties on a contested certification motion is the Opinion's restatement of the correct legal test for evaluating predominance.  Since Sav-On, trial courts have continued to deny certification on the erroneous ground that a complex class action would, by necessity, require management of some individualized inquiries.  Jaimez provides a needed reminder that “'[T]he established legal standard for commonality . . . is comparative.'”  Opinion at 13, citing Sav-On.  Jaimez continues, "Specifically, '[t]he relevant comparison lies between the costs and benefits of adjudicating plaintiffs’ claims in a class action and the costs and benefits of proceeding by numerous separate actions—not between the complexity of a class suit that must accommodate some individualized inquiries and the absence of any remedial proceeding whatsoever.  [Citations.]'"  Ibid.  Though simple to state, this principle has received inconsistent application in practice.  Where a legal standard is applied inconsistently, repeated affirmations of the principle will help guide trial courts towards greater homogeneity of their analyses.   

The Supreme Court is currently considering appeals of the decisions in Brinker Restaurant Corp. v. Superior Court [previously reported at 165 Cal. App. 4th 25 (2008)] and Brinkley v. Public Storage, Inc. [previously reported at 167 Cal. App. 4th 1278 (2008)], both of which address, among other things, issues surrounding meal period requirements.  Jaimez bluntly observes that the law in this area is unsettled.  Despite this uncertainty, since Petitions for Review were granted in Brinker and Brinkley, trial courts throughout the state have routinely declined to decide matters based on existing law, proposing to stay wage & hour class actions while awaiting Supreme Court decisions that may not be issued until late 2010 or later.

Prior to publication, no California case addressed the issue of how to apply the standards for class certification to meal and rest break claims while the Brinker and Brinkley cases are pending before the California Supreme Court.  Moreover, the conflict between the court of appeal's decision in Cicairos v. Summit Logistics, Inc., 133 Cal. App. 4th 944 (2005) and a number of federal district court decisions also remains unresolved.  The Court, in Jaimez, found a way to avoid paralysis while awaiting Supreme Court decisions in Brinker and Brinkley. Jaimez held that a court "need not try to predict the outcome of the Supreme Court's review [of, in this case, Brinker and Brinkley], as we are not, at this stage, charged with adjudicating the legal or factual merits of Jaimez's causes of action."  Opinion at 19.

Jaimez makes it clear that trial courts need not stay class actions pending the outcome of the Supreme Court's proceedings in Brinker and Brinkley simply because they involve meal and rest break claims. California trial courts that are frequently being asked to deny or delay class certification of meal and rest break claims will find the Court's demonstrative application of class certification principles to meal and rest break claims helpful.

There is also a strong argument that, under California law, employees must have a 30-minute, uninterrupted meal break within the first five hours of a shift.  Labor Code § 512 say, "An employer may not employ an employee for a work period of more than five hours per day without providing the employee with a meal period of not less than 30 minutes .... "  Wage orders provide: "No employer shall employ any person for a work period of more than five (5) hours without a meal period of not less than 30 minutes .... "  And the California Supreme Court said, "Pursuant to IWC wage orders, employees are entitled to an unpaid 30-minute, duty-free meal period after working for five hours .... "  Murphy v. Kenneth Cole Productions, Inc., 40 Cal. 4th 1094, 1104 (2007).

Despite these and other suggestive authority, trial courts continue to encounter employers and employees that dispute when employees are entitled to meal breaks. No California Court of Appeal has offered explicit guidance on this issue before this opinion. Jaimez found that trial courts may certify meal break classes based on the theory that an employer failed to provide meal breaks within the first five hours of a shift. See Opinion at 19 (observing that individual issues do not predominate because the First Choice's declarations "fail to establish that any of the meal breaks were: (1) uninterrupted, (2) for 30 continuous minutes, or (3) provided within the first five, hours of a shift").

There is a lot to chew on in Jaimez (much of it not all that palatable to employers).  I can't imagine that, with an opinion this comprehensive, we've heard the last about Jaimez.  There is more to read about in Jaimez (like what to do when the plaintiff is inadequate), but I am done writing about it.

Breaking News: Court of Appeal orders publication of previously unpublished decision in Jaimez v. Daiohs USA, Inc. et al.

On January 12, 2010, the Court of Appeal (Second Appellate District, Division One) issued an informative but unpublished opinion in Jaimez v. DAIOHS USA, Inc., et al.  A number of requests to publish that opinion which addresses several novel aspects of wage & hour claims and class certification.  David Arbogast (Arbogast & Berns, LLP) and I authored a request for publication on behalf of CAOC and CELA.  It now appears from the docket that an Order granting publication has been filed.  I would assume that the published opinion will appear on the California Courts website in the next day or so.

I will post some discussion of the case this evening.

Update on 2010-02-08 21:17 by The Complex Litigator

The published opinion is now available.

Class-related: Court of Appeal affirms wage law policies, power of trial court to direct order of proof

I briefly direct your attention to Pellegrino v. Robert Half International, Inc., in which the Court of Appeal (Fourth Appellate District, Division Three) affirmed a trial court judgment that invalidated a contractual agreement purporting to shorten statutes of limitation for wage & hour claims and decided an equitable defense of "administrative exemption" before the jury phase of the trial.

From Bridgeport's 6th Annual Wage & Hour Litigation Conference: Future attacks on Gentry v. Superior Court

I'm attending Bridgeport's 6th Annual Wage & Hour Litigation Conference. Today, one topic of discussion is the subject of class arbitrations after Gentry. According to Steven Katz, partner at Reed Smith LLP, Gentry is one of the California Supreme Court's most erroneously-reasoned decisions in quite some time. That's not the interesting part (it's the funny part). The interesting commentary comes from how the defense bar hopes to limit Gentry.

Mr. Katz starts from the premise that Gentry. does not state a bright-line rule precluding class action waivers in all wage & hour class actions. The defense bar hopes to elicit further review of Gentry by challenging trial and appellate orders that impose a bright-line rule when invalidating arbitration agreements with such waivers. The protective measure that plaintiffs should take is to draft proposed orders that identify the four-factor test from Gentry as having been satisfied.

The second major challenge to Gentry that is being tested at the appellate level is a species of "field" preemption. The defense contention is that Gentry allows for a type of contract impairment that isn't directed at arbitration agreements directly, but nevertheless affects only those types of agreements. This argument disregards the fact that the principles in Gentry are subject-neutral. It is merely the nature of the effect of these agreements that renders them invalid. The factors in Gentry don't seek out just arbitration agreements with class action waivers. Despite that weakness in the defense-side argument, plaintiffs should handle these arguments with great care. This species of "field" premption is very complex, and the attorneys bringing these arguments often have an advantage in the form of repeated experience with them. Don't take a novel preemption argument lightly.

Bates v. Rubio's Restaurants, Inc. reminds defendants to be sure the class list is complete before the money starts flowing

While most of this opinion has nothing to do with class actions and everything to do with whether a judge can sua sponte reconsider a prior order and then recuse himself in the same minute order, Bates v. Rubio's Restaurant's Inc. (November 30, 2009) includes an important lesson for the administration of class action.  The Court of Appeal (Fourth Appellate District, Division Three) affirmed an interesting order of the trial court that had a significant effect on the constituency of a class in a settlement.  The concise summary of key events sets the stage for the discussion that follows in the opinion:

The parties in this wage and hour class action litigation entered into a $7.5 million settlement agreement, providing for three payments of $2.5 million to approved class members. After the initial $2.5 million payment was distributed among 529 approved class members, defendant and appellant Rubio‟s Restaurants, Inc. (Rubio‟s) realized it had not provided the names of all potential class members to the settlement administrator. One hundred forty potential class members had not received notification of the settlement.

After postjudgment briefing and status conferences, the court ruled that the 140 late-identified class members should receive notice and be folded into the settlement agreement. Later, the judge reconsidered his ruling sua sponte and vacated it. In the same minute order, the judge, citing Code of Civil Procedure section 170.1, subdivision (a)(6)(A)(i), then recused himself from any further proceedings in the matter, in the interests of justice.

Slip op., at 2.  Rubio's argued that the recusal negated the validity of the portion of the order vacating the prior ruling.  The Court of Appeal said that was nonsense, concluding that the trial court could properly rescing its earlier ruling and later, in the same minute order, recuse itself.

The only reason for all the fuss was the fact that 140 class members can file another class action and state with great certainty that they didn't receive notice of the prior settlement.  There's your class action angle.

California Supreme Court activity for the week of October 26, 2009

The California Supreme Court held its (usually) weekly conference on October 28, 2009.  Notable results include:

• A Petition for Review was denied in Messenger Courier Association of the Americas, et al. v. California Unemployment Insurance Appeals Board.  See this blog's prior post on this matter here.
• A Petition for Review was denied in Ali v. U.S.A. Cab.  The interesting texture to this denial is that (1) I argued the appeal so I didn't cover this decision on this blog, and (2) aspects of Ali's construction of the Borello opinion are contrary to language in Messenger Courier, but both originate in the Fourth Appellate District, Division One.
• A Depublication Request was denied in Clark v. American Residential Services LLC, et al.  See this blog's prior post on this matter here.

Schachter v. Citigroup, Inc. holds that forfeiture of restricted stock shares during restriction period does not run afoul of Labor Code section 201, 201 and 219

Nothing all that exciting here, but in Schacter v. Citigroup, Inc. (November 2, 2009), the California Supreme Court examined a voluntary employee incentive compensation plan that provided employees with shares of restricted company stock at a reduced price in lieu of a portion of the employee's annual cash compensation.  Under the program, if an employee resigns or is terminated for cause before their restricted shares of stock vest, the employee would forfeit the stock and the portion of cash compensation they directed be paid in the form of the restricted stock.  The Supreme Court considered whether the "incentive plan's forfeiture provision violates Labor Code sections 201, 202, and 219, which provide that employees be paid all earned, unpaid wages upon termination or resignation and prohibit agreements that purport to circumvent that requirement."  Slip op., at 1.

The plan worked as follows:

Under the Plan, eligible employees could elect to receive awards of restricted company stock “in lieu of cash payment of a percentage of the employee‟s annual compensation.” Participating employees could elect to receive 5, 10, 15, 20, or 25 percent of their “total compensation in the form of restricted stock.” To participate in the Plan for the following calendar year, an employee had to execute a “Capital Accumulation Plan Election to Receive Restricted Stock” form at the end of the current calendar year indicating the amount of “total compensation in the form of restricted stock” he or she wished to receive. The percentage of “total compensation” received as restricted stock could be different for the first and second six-month periods of the year. 

Restricted stock could not be sold, transferred, pledged, or assigned for a two-year period commencing on the date of the award; however, the Plan provided that participating employees “shall have the right to direct the vote” and “receive any regular dividends on restricted stock shares” during the restricted period.

For purposes of determining the number of shares to be acquired under the Plan, the purchase price of the stock was discounted at a rate of 25 percent of its then-current market price, averaged over the five days preceding the date of the acquisition, to “reflect the impact of the restrictions on the value of the restricted stock, as well as the possibility of forfeiture of restricted stock.” On the date of the purchase, the company either issued stock certificates to a participating employee, to be held by the company until the restricted period lapsed, or made a “book entry” in the company's records evidencing the award. Although a participating employee could elect to pay taxes on the restricted stock when the stock was purchased (see 26 U.S.C. § 83), “the participating employees' restricted shares [were] not included in the participating employees' gross income for federal tax purposes until the two-year vesting period had expired.”

If an employee remained in the company's employ for the two years following the purchase of restricted stock, title to the shares vested fully with the employee, free of any restrictions. However, if an employee voluntarily terminated employment or was terminated for cause before the end of the two-year period, the employee forfeited his or her restricted stock as well as the percentage of annual income designated by the employee to be paid as shares of restricted stock. In contrast, if an employee was involuntarily terminated without cause, the employee forfeited his or her restricted stock, but received in return, without interest, “a cash payment equal to the portion of his or her annual compensation that had been paid in the form of such forfeited [r]estricted [s]tock.”

Slip op., at 2-3.  The facts surrounding this particular plan's terms made the Court's decision a relatively easy one (or at least a unanimous one):

Schachter voluntarily terminated his employment before his restricted stock fully vested. By the terms of the Plan, and Schachter's own concession, he is not entitled to those unvested shares of restricted stock. Having elected to receive some of his compensation in the form of restricted stock, a transaction he was aware carried risk as well as the potential for reward, Schachter cannot now assert that he should have been paid in cash that portion of his compensation he elected to receive as restricted stock. As the company persuasively argues, Schachter's “bargained-for 'wages' have been paid in full. He received all of his promised cash compensation, received immediately exercisable voting and dividend rights in the restricted stock, and was awarded contingent rights of full ownership in that stock. The only thing that has not been 'paid' is something Schachter never 'earned' — fully vested [company] stock. Schachter therefore has no claim under [section] 201 or [section] 202.”

Slip op., at 13.

I hope we don't see a rash of employers trying to concoct illusory bonus plans or divert vested wages from employees as a result of this plan.  But given some of the crazy attempts that I have seen some employers do to accomplish such purposes, I don't hold out much hope that Schachter won't be misused somewhere by some employer or other.