District Court narrows but does not entirely decertify class alleging misclassification as exempt from overtime

United States District Court Judge Samuel Conti (Northern District of California) granted in part and denied in part Defendant Dollar Tree Stores, Inc.'s Motion to Decertify a class of store managers contending that they were misclassified as exempt from overtime.  Cruz v. Dollar Tree Stores, Inc., 2010 WL 3619800 (N.D. Cal. Sept. 9, 2010).  The facts and result here are interesting.

Dollar Tree requires its store managers to certify that they spend more than fifty percent of their actual work time each week performing tasks on a list of 17 items that are all arguably managerial-type duties. Dollar Tree's expert, Robert Crandall, MBA, analyzed employee task certifications comprising 29,431 workweeks during the class period.  The analysis shows that approximately 62 percent of store managers "always certified that they spent the majority of their workweeks on the seventeen managerial tasks, 2.5 percent reported that they never spent most of their time performing these tasks, and about 35 percent of SMs fall somewhere in between."  Slip op., at 2.

The Court then offered this interesting analysis:

In this case, unlike in Wells Fargo II, Whiteway, and Weigele, Plaintiffs have common proof of how SMs were actually spending their time. Plaintiffs can rely on the certification forms that SMs signed every week to, in the words of the Ninth Circuit, transform what would otherwise be an individual issue into a common one. See Wells Fargo I, 571 F.3d at 959. However, the Ninth Circuit's reasoning in Vinole and Wells Fargo I persuades the Court of the need to narrow the class definition to include only SMs who responded “no” on their certification forms during the class period. Narrowing the class in this way ensures that common issues will predominate over individual ones, and significantly lessens the risk that the class consists of both injured and uninjured parties.

In this case, Plaintiffs “must show that it is more likely than not that [Dollar Tree's] exemption as applied to [SMs] was a policy or practice of misclassification.” Marlo, 251 F.R.D. at 483. In order to make this showing, Plaintiffs can point to common evidence including Dollar Tree's decision to uniformly classify SMs as exempt, Dollar Tree's employment hierarchy and structure, its standardized policies and training procedures for SMs, the common tools it requires SMs to utilize, and, most importantly of all, the fact that SMs often certified on a weekly basis that they were not spending most of their time on managerial tasks. Dollar Tree's common policy of having SMs fill out weekly certifications obviates the need for much individual testimony from SMs concerning how they spent their time.

The Court is persuaded that common issues will predominate over individual ones only if it narrows the class to SMs who responded “no” at least once on the weekly payroll certification forms. According to Dollar Tree's analysis of certification forms comprising 29,431 workweeks, approximately 62 percent of SMs always certified that they spent a majority of their time performing managerial tasks. Crandall Decl. ¶¶ 15, 22-23. If the class were to continue to include SMs who always certified “yes,” then Plaintiffs would be required to show that these SMs were not always being truthful, and this issue could not be resolved without resorting to individualized inquiries that would quickly overwhelm the common issues in this case.

No such individualized inquiries are necessary if the Court focuses its attention on SMs who certified “no.” Dollar Tree classified this group of employees as exempt, yet they certified at least once that they were spending most of their time during particular workweeks performing non-managerial tasks. With regard to this group of employees, Plaintiffs can use the weekly payroll certifications and the other evidence of Dollar Tree's standardized practices and procedures in their attempt to convince the jury that “misclassification was the rule rather than the exception” at Dollar Tree. See Sav-On Drugs Stores, Inc. v.Super. Ct., 34 Cal.4th 319, 330, 17 Cal.Rptr.3d 906, 96 P.3d 194 (2004).

Slip op., at 6-7.  The Court then addressed what is, perhaps, the most obvious challenge to this approach:

Nonetheless, the Court recognizes that some SMs may have always certified “yes” even though they were not spending most of their time on managerial tasks. The Court does not want to preclude these SMs from pursuing their misclassification claims on an individual basis. The Court is willing to entertain a motion to equitably toll the statute of limitations on their misclassification claims so as to preserve their right to pursue individual claims against Dollar Tree. See Marlo, 251 F.R.D. at 476, 488 (after decertification of case, inviting parties to brief question of whether statute of limitations on plaintiff's individual claims should be tolled).

Slip op., at 8.  The balance of the opinion consists mostly of a discussion about the positions of the respective experts used by the parties.  While that is also an educational read, the Court's solution regarding the class definition (only those persons that certified at least once that they did not meet the 50% level) is worth taking the time to evaluate carefully.

District Court finds "first-to-file rule" inapplicable where first-filed case is no longer a class action

United States District Court Judge William Alsup (Northern District of California) denied a motion by defendant P.F.Chang's China Bistro, Inc. to transfer a putative wage & hour class action to the Central District of California.  Dubee v. P.F. Chang's China Bistro, Inc., 2010 WL 3323808 (N.D. Cal. Aug. 23, 2010).  Defendant asserted the "first-to-file rule" and an earlier case pending in the Central District as grounds for the transfer.  After explaining that the "first-to-file rule is an underdeveloped but generally recognized legal doctrine regarding duplicative lawsuits," the Court denied the motion:

When deciding whether to apply the first-to-file rule, the court looks to three threshold factors: (1) the chronology of the two actions; (2) the similarity of the parties; and (3) the similarity of issues. Ibid. The two actions need not be identical; it is enough that they are “substantially similar.” Nakash v. Marciano, 882 F.2d 1411, 1416 (9th Cir.1989).

In the instant action, the first factor of chronology is met. The Vasquez action was filed over a year before the instant action. The second factor, however, is not met. While P.F. Chang's China Bistro is the defendant in both actions, the plaintiffs are neither the same nor “substantially similar.” As stated, while the Vasquez action was originally filed as a putative class action, it is now proceeding solely as an individual action. In the instant case, plaintiff Dubee is proceeding as a representative plaintiff on behalf of himself and all other California P.F. Chang's employees that are similarly situated. While this class-if certified-could encompass the plaintiff in Vasquez, the claims asserted by the plaintiff in Vasquez do not (and will not) encompass plaintiff and the putative class in the instant action. For this reason, the two actions are not substantially similar with respect to the parties involved.

Slip op., at 2.  The Court noted as significant the fact that certification was never briefed in Vasquez.

In Gutierrez v. California Commerce Club, Inc., Court of Appeal reverses order sustaining a demurrer to class allegations in a wage & hour suit

Those corporate employers are nothing if not a tenacious lot.  They keep challenging class action allegations at the pleading stage despite a substantial weight of authority finding that approach to be improper in most class actions.  In Gutierrez v. Commerce Club, Inc. (August 23, 2010), the Court of Appeal (Second Appellate District, Division One) reviewed a trial court order sustaining a demurrer to class allegations without leave to amend in a suit alleging, among other things, that the plaintiffs and other similarly situated members of the putative class were injured by the Club's unlawful policy and practice of denying meal and rest breaks to certain hourly, non-union employees.

After stating the procedural history in fair detail, the Court restated some of the purposes for class action litigation:

The wisdom of permitting the action to survive a demurrer is elementary.  "'Class action litigation is proper whenever it may be determined that it is more beneficial to the litigants and to the judicial process to try a suit in one action rather than in several actions. . . . It is clear that the more intimate the judge becomes with the character of the action, the more intelligently he may make the determination. If the judicial machinery encourages the decision to be made at the pleading stages and the judge decides against class litigation, he divests the court of the power to later alter that decision . . . . Therefore, because the sustaining of demurrers without leave to amend represents the earliest possible determination of the propriety of class action litigation, it should be looked upon with disfavor.' [Citation.]" (Tarkington, supra, 172 Cal.App.4th at p. 1511; see also Prince, supra, 118 Cal.App.4th at p. 1326.)

Slip op., at 7-8.  The Court then agreed with the defendant that there have been occasions where class allegations were resolved at the demurrer phase.  But the Court went on to explain that wage & hour cases were not amongst those relatively rare examples:

The Club is correct that there are circumstances in which granting a motion to strike or sustaining a demurrer without leave to amend a class action complaint will be appropriate. A review of the cases in which courts have approved the use of demurrers to determine the propriety of class actions, however, reveals that the majority of those actions involved mass torts or other actions in which individual issues predominate.

Slip op., at 8.  In contrast to mass tort actions, the Court found that wage & hour cases were generally unsuited to evaluation of class claims on the pleadings:

There is no discernible difference between this action and the wage and hour cases (or their type) at issue in Prince and, more recently, in Tarkington. As we explained in Prince and reiterated in Tarkington, such cases "'routinely proceed as class actions' because they usually involve '"a single set of facts applicable to all members,"' and '"one question of law common to class members."'" (Tarkington, supra, 172 Cal.App.4th at p. 1511, quoting Prince, supra, 118 Cal.App.4th at pp. 1327–1328.) As long as the lead plaintiff "'alleges institutional practices . . . that affected all of the members of the potential class in the same manner, and it appears from the complaint that all liability issues can be determined on a class-wide basis,'" no more is required at the pleading stage. (Tarkington at p. 1511.)

Slip op., at 9.  The Court finished its discussion with emphasis:

We return again to and rely upon the well-established principle, that "only in mass tort actions (or other actions equally unsuited to class action treatment) [should] class suitability . . . be determined at the pleading stage. In other cases, particularly those involving wage and hour claims, [such as the instant action,] class suitability should not be determined by demurrer." (Prince, supra, 118 Cal.App.4th at p. 1325, italics added; see also Tarkington, supra, 172 Cal.App.4th at p. 1512.)

Slip op., at 11.

While their message should be clear, somehow I doubt that it will appreciably reduce that massive waste of resources devoted to pleadings challenges.

District Court certifies a class of newspaper carriers classified as independent contractors

United States District Court Judge Barry Ted Moskowitz (Southern District of California) certified a class of newspaper home delivery carriers classified as independent contractors by Lee Publications, Inc. but alleging their status as employees of Lee Publications.  Dalton, et al. v. Lee Publications, Inc., ___ F.R.D. ___, 2010 WL 2985130 (July 27, 2010).  As is usually the case, commonality was the primary area of dispute.  The Court succinctly stated California's approach to identifying the employer-employee relationship:

Under California law, the most important aspect of the employee-employer relationship is the “right to control the manner and means of accomplishing the result desired.” Cristler v. Express Messenger Sys., Inc., 171 Cal.App.4th 72, 77, 89 Cal.Rptr.3d 34 (2009) (citing Empire Star Mines Co. v. Cal. Employment Comm'n, 28 Cal.2d 33, 43-44, 168 P.2d 686 (1946), overruled on other grounds by People v. Sims, 32 Cal.3d 468, 479 n. 8, 186 Cal.Rptr. 77, 651 P.2d 321 (1982)).

Although control is the primary factor, California courts also consider several secondary factors. “Strong evidence in support of an employment relationship is the right to discharge at will, without cause.” Empire Star Mines, 28 Cal.2d at 43, 168 P.2d 686. Other secondary factors include (1) whether the one performing services is engaged in a distinct occupation; (2) the kind of occupation and whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision; (3) the skill required; (4) whether the principal or the worker supplies the tools and the place of work; (5) the length of time for which the services are to be performed; (6) the method of payment, by time or by job; (7) whether the work is a part of the regular business of the principal; (8) whether the parties believe they are creating an employer-employee relationship; (9) the hiree's degree of investment in his business and whether the hiree holds himself or herself out to be in business with an independent business license; (10) whether the hiree has employees; (11) the hiree's opportunity for profit or loss depending on his or her managerial skill; and (12) whether the service rendered is an integral part of the alleged employer's business. JKH Enterprises, Inc. v. Dep't of Indus. Relations, 142 Cal.App.4th 1046, 1064 n. 14, 48 Cal.Rptr.3d 563 (2006) (citing S.G. Borello & Sons, Inc. v. Dep't of Indus. Relations, 48 Cal.3d 341, 350-55, 256 Cal.Rptr. 543, 769 P.2d 399 (1989)).

Slip op., at 5.

Trial court, in Avalos v. La Salsa, Inc., offers early glimpse of how California courts may reconcile Stolt-Nielsen and Gentry

Earlier today, in Avalos v. La Salsa, Inc., JCCP 4488, the Santa Barbara Superior Court, Judge Denise deBellefeuille presiding, granted the defendants’ motion for reconsideration of a class certification order in to consider the impact of the recent United States Supreme Court decision in Stolt-Nielsen S. A. v. AnimalFeeds International Corp., 130 S.Ct. 1758 (2010) on the coordinated proceedings before the Court.  After an extensive analysis of Stolt-Nielsen, including its interaction with Gentry v. Superior Court, 42 Cal. 4th 443 (2007), the Court affirmed the certification order previously entered.  While the certification aspect is mildly interesting, the Court's extensive discussion of the interplay between arbitration clauses and class actions in California is the pot of gold in this unusually thorough trial court order.  While the attached opinion is a tentative ruling, the Court adopted its tentative without modification.

You can view the embedded opinion in the acrobat.com flash viewer below:

If the viewer isn't working for you (say, if you are viewing this on an iPad or iPhone), you can download the opinion here.

Kirby v. Immoos Fire Protection, Inc. examines fee shifting triggers in wage & hour litigation

After a very brief trip to the Windy City (aka, the Humid City in Need of a Breeze and my apologies to JB for not visiting), I bring you the first of yesterday's opinions related to class actions.  In Kirby v. Immoos Fire Protection, Inc. (July 27, 2010), the Court of Appeal (Third Appellate District) examined an award of attorney fees to the defendant following a dismissal by the plaintiff when certification was denied.  Fees were awarded by the trial court on causes of action for UCL violations (first cause of action), rest period violations (sixth cause of action) and section 2810 violation for entering into contracts while knowing them to be insufficient to pay all wages owed (seventh cause of action).

The plaintiff argued that bilateral attorney fee awards are precluded in any "action" where a claim arising under section 1194 is included as one of the claims.  The Court explained why it rejected that construction:

Although Kirby advances a plausible reading of the legislative history, we reject it in favor of construing the section 1194 exception as applying only to causes of action for unpaid minimum and overtime wages. (Accord Earley, supra, 79 Cal.App.4th at p. 1430.) To adopt Kirby‟s statutory construction would allow the exception of section 1194's unilateral fee shifting to eviscerate the rule of section 218.5.

We harmonize sections 218.5 and 1194 by holding that section 218.5 applies to causes of action alleging nonpayment of wages, fringe benefits, or contributions to health, welfare and pension funds. If, in the same case, a plaintiff adds a cause of action for nonpayment of minimum wages or overtime, a defendant cannot recover attorney's fees for work in defending against the minimum wage or overtime claims. Nonetheless, the addition of a claim for unpaid minimum wages or overtime does not preclude recovery by a prevailing defendant for a cause of action unrelated to the minimum wage or overtime claim so long as a statute or contract provides for fee shifting in favor of the defendant.

Slip op., at 16-17.

More interesting is the Court's conclusion that section 218.5 applies to rest break claims:

Kirby's sixth cause of action alleged that Kirby was “owed an additional one hour of wages per day per missed rest period.”  As a claim seeking additional wages, the sixth cause of action was subject to section 218.5's provision of attorney's fees for “any action brought for the nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions . . . .” (Italics added.)

Slip op., at 19 (footnotes omitted).  The Court explained why the plaintiff was incorrect that section 1194 controlled the fee issue:

Kirby's claim was not based on a failure to pay the statutory minimum wage for hours he actually worked. Instead, the cause of action was one for failure to provide rest periods. If his claim had succeeded, Kirby would have been entitled to an additional wage “at the employee's rate of compensation.” (See fn. 25, ante.) The “employee's rate of compensation” refers to the contractual rate of compensation, not the legal minimum wage. Consequently, the claim is not one premised on failure to pay the minimum wage.

Slip op., at 19.  The Court relied, in part, on Murphy, which, oddly enough, seems to provide the answer to virtually all wage & hour mysteries.  It wouldn't be surprising to see an increase in minimum wage claims and a concurrent reduction in contractual wage payment claims.

The Court had less difficulty analyzing the arguments related to the UCL claim and the section 2810 claim for underfunded contracts.  Regarding the UCL, the Court observed that it was a settled issue that attorney's fees were not specified as available under the UCL.  As for the last claim, the Court found that the fee provision in the statute was a unilateral fee-shifting statute.

Efforts to prune Labor Code section 203 are relegated to compost status in Baker v. American Horticulture Supply, Inc.

An ever astute reader has directed my attention to the fact that the Court of Appeal (Second Appellate District, Division Six) today issued a modification of its June 23, 2010 Opinion in Baker v. American Horticulture Supply, Inc. (June 23, 2010) as mod. (July 21, 2010).  The modification, which is focused entirely on the "willful" definition used in Labor Code section 203, appears to respond to contentions raised in a petition for rehearing.  The majority of the text of the modification is as follows:

The application here of the ordinary definition of "willful" is supported by the judicial construction of Labor Code section 203, subdivision (a), which provides in relevant part: "If an employer willfully fails to pay . . . any wages of an employee who is discharged or who quits, the wages of the employee shall continue as a penalty from the due date thereof at the same rate until paid or until an action therefor is commenced; but the wages shall not continue for more than 30 days." (Italics added.) "The settled meaning of 'willful,' as used in section 203, is that an employer has intentionally failed or refused to perform an act which was required to be done. [Citations.] '[T]he employer's refusal to pay need not be based on a deliberate evil purpose to defraud workmen of wages which the employer knows to be due.' [Citations.]" (Amaral v. Cintas Corp. No. 2 (2008) 163 Cal.App.4th 1157, 1201.)

Slip op. (mod.), at 1-2.

We reject respondent's contention in its petition for rehearing that "conduct violating the Act is willful only if the manufacturer, jobber or distributor knows of its obligations but intentionally declines to fulfill them." The knowledge requirement would be difficult to prove and would encourage manufacturers to remain ignorant of their obligations under the Act. This would frustrate the legislative intent to provide "unique protection" to independent wholesale sales representatives. (§ 1738.10.) But a manufacturer's failure to comply with the Act would not be willful if the manufacturer proved that its failure was "the result of a good faith and reasonable belief the facts imposing the statutory obligation were not present." (Kwan v. Mercedes-Benz of North America, Inc. (1994) 23 Cal.App.4th 174, 185.) For example, a failure to comply would not be willful if the manufacturer reasonably and in good faith believed that a person did not qualify as a "wholesale sales representative" within the meaning of the Act. This interpretation "will not vitiate the intended deterrent effect of the [treble damages provision]." (Ibid.)

Slip op. (mod.), at 2.

The courts, however, have recognized that a finding of "willfulness" within the meaning of Labor Code section 203 may be negated by a reasonable, good faith belief in a legal defense to a wage claim. (Amaral v. Cintas Corp. No. 2, supra, 163 Cal.App.4th at p. 1201; Armenta v. Osmose, Inc. (2005) 135 Cal.App.4th 314, 325; Barnhill v. Robert Saunders & Co. (1981) 125 Cal.App.3d 1, 8-9; see also Cal. Code Regs., tit. 8, § 13520.) Accordingly, we conclude that a finding of a willful failure "to pay commissions as provided in the written contract" (§ 1738.15) may be negated by a reasonable, good faith belief in a legal defense to a commissions claim.

Slip op. (mod.), at 2, n. 7.  The key here is the Court's rejection of a standard that would allow willfulness only when an employer "knows of its obligations but intentionally declines to fulfill them."  An employee does not have to show that the employer had any awareness of is actual obligations; it is enough to show that the employer acted but should have acted otherwise.

Courts draw lines on scope of statutory rights protected by Labor Code section 226

On one end of the Labor Code section 226 spectrum are the defendants who assert that the "injury" requirement of section 226 is met only when an employee suffers a broken leg as a result of the defective wage statement (this would occur when the statement is printed on stone and delivered by dropping it from a substantial height above the employee, whose legs are restrained in a horizontal position to ensure impact).  On the other end of the spectrum are the few optimistic plaintiff-side firms that argue that any violation of Labor Code section 226(a) requirements is an infringement of a legal right sufficient to entitle the employee to, at minimum, statutory penalty damages.

Jaimez v. DAIOHS USA, Inc., et al., 181 Cal. App. 4th 1286 (February 8, 2010), which is the current standard in California, splits the difference at the very minimal injury level.  Specifically, Jaimez holds: "While there must be some injury in order to recover damages, a very modest showing will suffice."  Jaimez went on to state 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."  In other words, it takes something, but not much.

Today, in Morgan v. United Retail (July 19, 2010), the Court of Appeal (Second Appellate District, Division Seven) added guidance as to what constitutes valid construction of section 226 requirements, or at least one small part of section 226.  Quickly summarizing the entire opinion, the Court said:

On behalf of a class of current and former non-exempt employees, Morgan alleged that United Retail's wage statements failed to comply with section 226, subdivision (a) because they listed the total number of regular hours and the total number of overtime hours worked by the employee, but did not list the sum of the regular and overtime hours worked in a separate line. The trial court granted summary adjudication in favor of United Retail on the section 226 claim. We conclude that the trial court properly granted summary adjudication because United Retail's wage statements complied with the statutory requirements of section 226 by “showing . . . total hours worked.” (§ 226, subd. (a)(2).) We accordingly affirm.

Slip op., at 2.  The Court of Appeal actually went out of its way to analyze the obligations imposed by section 226(a)(2):

Apart from the summary conclusion in Rubin, however, none of the published cases or DLSE opinion letters directly address whether the “total hours worked” component of section 226 may be satisfied by separately listing the total regular hours and the total overtime hours worked during the pay period. (§ 226, subd. (a)(2).) Section 226 itself does not define the terms “showing” or “total hours worked” anywhere in the statute. Yet in construing statutes, we must be mindful that “words are to be given their plain and commonsense meaning.” (Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, 1103.) In other words, we are not free to “give the words an effect different from the plain and direct import of the terms used.” (California Fed. Savings & Loan Assn. v. City of Los Angeles (1995) 11 Cal.4th 342, 349.)

Slip op., at 11.  After much analysis, the Court concluded that summary judgment was correctly granted:  "Consistent with the language of section 226 and the DLSE's May 17, 2002 opinion letter, United Retail's wage statements listed 'the precise, actual number of hours worked' by the employee at each hourly rate of pay in effect during the pay period."  Slip op., at 12.  You can't fault this panel for the work they did, construing statutory language, examining DLSE materials, looking at a wage statement exemplar on the DLSE's website, and analyzing the import of 1984 and 2000 legislation affecting section 226.

Other courts have been drawing their own lines around section 226 claims.  In an unpublished opinion, the Ninth Circuit, in Villacres v. ABM Industries Incorporated (June 17, 2010) (D.C. Case No. 2:07-cv-05327-VAP-OP), while not tackling the extent of injury required to satisfy section 226, was clear that the "intrusion upon the legally protected right" is not, in its view, sufficient to state a claim:

Villacres argued that violations of section 226(a) in and of themselves are injuries sufficient to make section 226(e) relief available to him and his proposed class. This is not how California courts typically have defined “injury.” See Steketee v. Lintz, Williams & Rothberg, 38 Cal. 3d 46, 54 (1985) (“‘Wrongful act’ and ‘injury’ are not synonymous.  The word ‘injury’ signifies both the negligent cause and the damaging effect of the alleged wrongful act and not the act itself.”)(citations omitted); Lueter v. California, 115 Cal. Rptr. 2d 68, 81 (Cal. Ct. App. 2002) (“Although the words ‘injury’ and ‘damage’ often are used interchangeably, a distinction may be made.  ‘Injury’ refers to the fact of harm suffered by the plaintiff due to the defendant’s conduct.  ‘Damages’ refers to the monetary sum that the plaintiff may be awarded as compensation for injury.”). We have no reason to believe that the California Supreme Court would interpret section 226(e) differently. The district court did not err when it held that section 226(e) relief was unavailable to Villacres and his proposed class.

Memorandum, at 3.  It is interesting to note, however, that this panel's construction of the term "injury" is at odds with another Ninth Circuit panel's view on injury, expressed days later.  In Edwards v. First American Title Insurance (9th Cir. June 21, 2010), the Ninth Circuit, in a published opinion, found that "injury" existed in a RESPA case, despite the absence of an overcharge:  "Because the statutory text does not limit liability to instances in which a plaintiff is overcharged, we hold that Plaintiff has established an injury sufficient to satisfy Article III.  Slip op., at 9095.  Applying that same analysis to a 226 claim, once could see that same Edwards panel concluding that the violation of a protected right under 226 causes the necessary "injury" and the alternative damage clause (greater of actual damage or statutory damages) is triggered when no "actual" damage exists.

So the Ninth Circuit has figured out what it thinks the California Supreme Court would do were it faced with the injury issue raised by section 226.

Until the California Supreme Court decides to tell us what it thinks about any of this, we'll have to settle for Jaimez, Morgan, and the Ninth Circuit's prognostications. 

Ninth Circuit finds that propriety of independent contractor status is not well suited to summary adjudication in Narayan v. EGL, Inc.

In Narayan v. EGL, Inc. (July 13, 2010), the Ninth Circuit reviewed a district court order granting summary judgment to defendant EGL, Inc. on the theory that the plaintiffs were independent contractors, not employees as contended in their lawsuit.  After examining choice of law issues, the Court turned to the showing required to obtain summary judgment on the employment-status issue.  In particular, the Court explained the special burdens in this type of action:

There are two special circumstances that are relevant to the application of this standard here. First, under California law, once a plaintiff comes forward with evidence that he provided services for an employer, the employee has establisheda prima facie case that the relationship was one of employer/employee. Robinson v. George, 105 P.2d 914, 917 (Cal. 1940). As the Supreme Court of California has held, “[t]he rule . . . is that the fact that one is performing work and labor for another is prima facie evidence of employment and such person is presumed to be a servant in the absence of evidence to the contrary.” Id. at 916; see also Cristler v. Express Messenger Sys., Inc., 171 Cal. App. 4th 72, 83 (Ct. App. 2009). Once the employee establishes a prima facie case, the burden shifts to the employer, which may prove, if it can, that the presumed employee was an independent contractor. Cristler, 171 Cal. App. 4th at 84 (approving a jury instruction that “[t]he Defendant has the obligation to prove that the Plaintiffs were independent contractors”)

Slip op., at 10078.  The Court then discussed the employment test in California, saying:  "The Supreme Court of California has enumerated a number of indicia of an employment relationship, the most important of which is the 'right to discharge at will, without cause.' Borello, 769 P.2d at 404 (quoting Tieberg v. Unemployment Ins. App. Bd., 471 P.2d 975, 979 (Cal. 1970)).  Slip op., at 10079.  Incidentally, the right to discharge at will is concomitant with, and, to a large extent creates, the right to control.  The Court then listed the many additional employment test factors approved by Borello.  Such multi-factor tests, the Court concluded, don't lend themselves to summary adjudication:

Judge Easterbrook has keenly observed in a case under the Fair Labor Standards Act that:

[i]f we are to have multiple factors, we should also have a trial. A fact-bound approach calling for the balancing of incommensurables, an approach in which no ascertainable legal rule determines a unique outcome, is one in which the trier of fact plays the principal part. That there is a legal overlay to the factual question does not affect the role of the trier of fact.

Sec’y of Labor v. Lauritzen, 835 F.2d 1529, 1542 (7th Cir. 1987) (Easterbook, J., concurring) (internal citations omitted).

Slip op., at 10080-81.  The Court then reviewed the record, criticizing the trial court for not crediting evidence of the right to terminate at will set forth in the contracts between defendant and plaintiffs and other evidence consistent with employment, including the lack of any need for specialized training and the fact that the Internal Revenue Service declared the plaintiffs employees under its multi-factor employment test.

Judge Easterbrook received a number of nods from the Court.  In describing the policy goals of wage & hour statutes, the Court said:

As Judge Easterbrook observed in a closely analogous context, statutes enacted to confer special benefits on workers are “designed to defeat rather than implement contractual arrangements.” Sec’y of Labor v. Lauritzen, 835 F.2d 1529, 1545 (7th Cir. 1987) (Easterbook, J., concurring).

Slip op., at 10073.  In other words, the protections granted by California's Labor Code are designed, in part, to defeat employer attempts to circumvent them with "independent contractor" agreements. 

Munoz v. BCI Coca-Cola Bottling Company of Los Angeles (Greenwell, objector) provides much-needed words of restraint concerning Kullar

Since Kullar v. Foot Locker Retail, Inc., 168 Cal. App. 4th 116 (2008) (Kullar) and Clark v. American Residential Services LLC, 175 Cal. App. 4th 785 (2009) (Clark) were decided, trial courts and settling parties in class actions have been looking over their shoulder at every settlement, concerned about the amount of information necessary to meet the Kullar/Clark standard for adequate settlement review.  For example, the Los Angeles Superior Court appears to be utilizing some form of checklist derived, in part, from Kullar to analyze proposed class action settlements.  Fortunately, in Munoz v. BCI Coca-Cola Bottling Company of Los Angeles (ord. pub. July 2, 2010) (Greenwell, objector), the Court of Appeal (Second Appellate District, Division Eight) explains that much of the angst over Kullar/Clark is overblown because their requirements have been overstated and/or misconstrued.

Plaintiffs in Munoz filed a class action lawsuit against BCI Coca-Cola Bottling Company of Los Angeles (BCI), alleging unpaid overtime wages, missed meal and rest period wages, and other Labor Code violations and unfair business practices. The proposed class consisted of production supervisors and merchandising supervisors who were allegedly misclassified as exempt.  After mediation, the parties agreed to settle the matter for $1.1 million. Notice of the proposed settlement elicited one objection. Two of the 188 class members opted out.  The average net payment to each class member would be about $4,300. The trial court found the settlement fair and reasonable. The objector, Greenwell, appealed, arguing that the trial court abused its discretion in approving the settlement, principally because the parties did not provide the court with the information necessary to make a finding that the settlement was reasonable and fair.

The Court of Appeal summarized the obligation of a trial court evaluating a class action settlement:

Some cases state that a presumption of fairness exists “where: (1) the settlement is reached through arm's-length bargaining; (2) investigation and discovery are sufficient to allow counsel and the court to act intelligently; (3) counsel is experienced in similar litigation; and (4) the percentage of objectors is small.” (Dunk, supra, 48 Cal.App.4th at p. 1802.) Kullar emphasizes that this is only an initial presumption; a trial court's approval of a class action settlement will be vacated if the court “is not provided with basic information about the nature and magnitude of the claims in question and the basis for concluding that the consideration being paid for the release of those claims represents a reasonable compromise.” (Kullar, supra, 168 Cal.App.4th at pp. 130, 133.) In short, the trial court may not determine the adequacy of a class action settlement “without independently satisfying itself that the consideration being received for the release of the class members' claims is reasonable in light of the strengths and weaknesses of the claims and the risks of the particular litigation.” (Id. at p. 129.)

Slip op., at 10.  However, after explaining that the objector complained "that the record before the trial court contained no evidence of 'the potential value of the claims,'" the Court went on to explain that Kullar is misunderstood:

Greenwell misunderstands Kullar, apparently interpreting it to require the record in all cases to contain evidence in the form of an explicit statement of the maximum amount the plaintiff class could recover if it prevailed on all its claims--a number which appears nowhere in the record of this case. But Kullar does not, as Greenwell claims, require any such explicit statement of value; it requires a record which allows “an understanding of the amount that is in controversy and the realistic range of outcomes of the litigation.”

Slip op., at 11.  Continuing, the Court noted, "Indeed, the standard list of factors a trial court should consider in determining whether a settlement is fair and reasonable does not expressly include specification of the maximum amount of recoverable damages (see Kullar, supra, 168 Cal.App.4th at p. 128), and Kullar is clear that the most important factor '"'is the strength of the case for plaintiffs on the merits, balanced against the amount offered in settlement.'"' (Id. at p. 130.)"  Slip op., at 11, n. 6.

The Court itemized the information available to the trial court in the case before it:

The information before the court included the size of the class (188) and the payroll data on all class members during the class period (including total amounts of salaries paid during the class period). It also included declarations from 30 class members (15 percent of the class) indicating the number of hours worked per week and per day (and the significant differences in those numbers): e.g., 70 hours per week, 48 hours per week, 60 hours per week, 42-44 hours per week, 55 hours per week, “no more than 50 hours per week,” 45 hours per week in winter and 50-60 hours per week at other times of the year, eight to nine hours per day, 45 hours per week, and so on. These declarations also showed significant variations....

Slip op., at 11.  In other words, the trial court had more than enough information to evaluate the "strength of the case" and compare that to the amount offered in settlement.

As an additional measure of assistance, the Court highlighted the facts from Kullar and Clark that undermined those settlements:

As a final observation on this topic, we note that the evidentiary records in Kullar and Clark, upon which Greenwell relies so heavily, are significantly different from this case. In Kullar (which did not involve the misclassification of exempt employees), there was no discovery at all on meal period claims that were added in an amended complaint and were the focal point of the objections to the settlement. (Kullar, supra, 168 Cal.App.4th at pp. 121-122.) While Kullar class counsel argued that the relevant information had been exchanged informally and during mediation (id. at p. 126), nothing was presented to the court--no discovery, no declarations, no time records, no payroll data, nothing (id. at pp. 128-129, 132)--to allow the court to evaluate the claim. And in Clark, the problem was that the trial court was not given sufficient information on a core legal issue affecting the strength of the plaintiffs' case on the merits, and therefore could not assess the reasonableness of the settlement terms. (Clark, supra, 175 Cal.App.4th at p. 798.) The record in this case contains neither of the flaws that doomed the Kullar and Clark settlements.

Slip op, at 13.

Munoz v. BCI clearly holds that there is no obligation on parties seeking approval of a class action settlement to state a specific sum that would represent the maximum possible recovery if the class prevailed on all theories.  Rather, the Court must have information that permits it to evaluate the strength of the claims compared to the amount offered in settlement.  This showing ought to be satisfied by a discussion of the specific risk factors associated with the various theories, along with data about such things as the size of the class.  In other words, if a trial court can roughly approximate the magnitude of the claims and the likelihood of recovery, it can fashion the necessary metric.

In addressing other arguments, the Court rejected a challenge to the $5,000 incentive awards approved by the trial court.