Majority of California Supreme Court Justices conclude that the California Pay Scale Manual issued by CalHR controls over Wage Orders for public employees


Some wage and hour decisions have broad implications. Others, no so much. Here, in Stoetzl v. Department of Human Resources (July 1, 2019), the California Supreme Court issued a decision that falls decidedly into the later category. Stoetzl concerns a trial on the issue of unpaid wages for what the Court calls “entry-exit walk time” and “duty-integrated walk time.” Sounds like we are about to get a decision about a California equivalent to preliminary and post-liminary time, right? Not so much. Stoetzl is really about whether the relevant Wage Order (Wage Order 4) or the California Pay Scale Manual issued by CalHR (read about CalHR here) controls pay obligations for “entry-exit walk time” and “duty-integrated walk time” for represented and unrepresented state employees working in prisons.

Don’t get the wrong idea. Stoetzl might impact lots of employees; California has a metric <BLEEP> ton of employees. But that’s really the only group impacted by this decision, since the tension arises as a result of the conflict between the Pay Scale Manual’s express adoption of FLSA provisions and the Wage Order’s use of California’s differing and more protective standards. On top of all that, the represented state employees are bound by a collective bargaining agreement that controls certain pay obligations.

If you want to find something of broader note in Stoetzl, it again demonstrates that less protective FLSA provisions do no displace more protective California laws and regulations unless there is an express statement of an intent to do so. Here, in this 5-2 decision, a majority of the Court concluded that the Legislature properly empowered CalHR to define state employee pay provisions, and CalHR chose to expressly adopt FLSA rules that governed such things as walk time.

The minority opinion, written by Justice Liu, with Justice Cuellar concurring, found particular fault with the majority’s discussion of the minimum wage pay issue for the unrepresented class of employees.

Watching how they make the sausage...Eastern District set to try Taco Bell wage & hour class actions

Class actions don't make it to trial all that often.  But when they get close, things can get pretty ugly.  In Medlock, et al. v. Taco Bell Corp., et al., the United States District Court for the Eastern District of California (Magistrate Stanley A. Boone presiding) issued an Order on nine motions in limine filed by the Plaintiffs. See 2016 WL 430438 (February 4, 2016).

In Medlock, the Court certified three classes, on claims for meal period violations, rest period violations, and improper time record adjustments.  With trial approaching on February 22, 2016, the Plaintiffs filed nine motions in limine to exclude expert testimony (motions 1 and 2), rates of meal and rest period violation (motion 3), challenges to the authenticity of raw time clock data (motion 4), evidence of job performance or discipline (motion 5), evidence related to elements of class certification (motion 6), evidence of explicit instructions to class members to skip meal or rest periods (motion 7), evidence of the likeability of working at Taco Bell (motion 8), and alterations to the testimony of Taco Bell's Rule 30(b)(6) designee.  The court denied all motions other than motion 6, and that motion was limited to ordering that the defendants could not discuss the Rule 23 elements before the jury.

Considering the evidence the Court described as potentially probative, it appears that the jury will get to hear the kitchen sink of Defendants' reasons why meal and rest periods were missed. 

And yes, I am not dead.

(Surprising) California Supreme Court activity for the week of May 14, 2012

The California Supreme Court held its (usually) weekly conference on May 16, 2012.  Highly notable results include:

  • Review was granted in Duran v. U.S. Bank National Association (February 6, 2012). The Court of Appeal reversed a trial verdict for a class of managers claiming misclassification and decertified the class.  The case was covered on this blog here.  I would have put the odds on obtaining review at zero when I wrote about Duran in February.  But, after reading Brinker, there were a number of comments suggesting that the Supreme Court might support the forms of sampling evidence used in the Duran trial.  Of course, review may also have been granted to clarify that decertification by the Court of Appeal was inappropriate, with the better approach being to remand for a new trial and reconsideration of the certification question by the trial court.  All that speculation aside, I am shocked, SHOCKED, to find that review was granted here.  Of course, it is also possible that the Petition for Review, which I have not seen, paints a decidedly different picture than the one presented by the Court of Appeal.

$15 million misclassification class judgment reversed in Duran v. U.S. Bank National Association

Exemption-based misclassification cases are hard to certify.  But when you certify an overtime exemption misclassification case, try it, and win a $15 million verdict, you'd think that the hard times are behind you.  Not so fast.  In Duran v. U.S. Bank National Association (February 6, 2012), the Court of Appeal (First Appellate District, Division One) reversed that verdict, decertified the class, and sent the whole thing back down to the trial court for further consideration of how to resolve the individual break claims in light of Brinker.

The plaintiffs in the case were 260 current and former business banking officers (BBO's) who claimed they were misclassified by USB as outside sales personnel exempt from California‘s overtime laws.  The procedural history was messy.  Exemption defenses were summarily adjudicated.  The defendant moved unsuccessfully to decertify.  The trial included motions about evidentiary exclusions.  It appears from the summary that a substantial amount of evidence the defendant sought to introduce was excluded from the trial.  Significantly, a small survey was conducted and then relied upon by a statistics expert to determine class-wide liability.

The Court issued a number of significant holdings, which all revolve around the propriety of proving liability in a misclassification class action with statistical evidence, as opposed to proving damages once liability is established.  For example, the Court held that use of statistical evidence to prove liability is inconsistent with cases examining such evidence at certification:

USB claims California law precludes class-wide liability determinations based on evidence obtained from a representative sample in employment cases alleging misclassification. USB relies on several state and federal wage and hour class action cases for the proposition that surveying, sampling, and statistics are not valid methods of determining liability because representative findings can never be reasonably extrapolated to absent class members in misclassification claims given that time spent performing exempt tasks may differ between employees. While all the cases cited by USB involve rulings on motions to certify or decertify class actions, they support the conclusion that improper procedures were followed in this case.

Slip op., at 47-48.  The Court also held that statistical sampling for proof of liability is inconsistent with its Bell III decision:

The procedures we approved in Bell III are only superficially similar to the procedures utilized in the present case.  Again, in Bell III we did not have occasion to consider the use of a representative sample to determine class-wide liability, since liability was not an issue on appeal. Accordingly, the only issue we addressed was the damages calculation itself, and not whether the plaintiff employees had a right to recover damages in the first place. And our assessment was based on a record evidencing cooperation and agreement among the parties and their counsel.

Slip op., at 45.  With respect to Bell III, the Court explained that the present case suffered a number of flaws (sample too small, no test studies to set sample size, lack of randomness, and no cooperation between the parties) not found in Bell III.  The Court then said:

Fifth, the restitution award here was affected by a 43.3 percent margin of error, more than 10 percentage points above the margin of error for the double-overtime award we invalidated in Bell III. In absolute terms, the average weekly overtime hour figure could conceivably be as low as 6.72 hours per week, as opposed to the 11.86 hour figure arrived at here. While we again will not set a bright line for when a margin of error becomes so excessive as to be deemed unconstitutional, we are troubled by this result.

Slip op., at 46.

Next, the Court concluded that the exclusion of 78 sworn statements that, if admitted, would have reduced the class size by about one-third, was a prejudicial error that violated the defendant's due process right to present relevant evidence in its defense: "The evidence USB sought to introduce, if deemed persuasive, would have established that at least one-third of the class was properly classified. Thus, this evidence USB sought to introduce is unquestionably relevant and therefore admissible."  Slip op., at 55.

The Court then explained that the fatal flaw in the trial management plan was the exclusion of virtually all means by which the defendant could have defended against class-wide liability:

Fundamentally, the issue here is not just that USB was prevented from defending each individual claim but also that USB was unfairly restricted in presenting its defense to class-wide liability. With that in mind, the cases relied on by plaintiffs are inapposite. Both Long v. Trans World Airlines, Inc. (N.D.Ill. 1991) 761 F.Supp. 1320 [protective order limited discovery of information from plaintiff flight attendants to a representative sample of class members], and In re Antibiotic Antitrust Actions (S.D.N.Y. 1971) 333 F.Supp. 278 [states sought recovery for alleged overcharges in the sale of certain antibiotics], concerned the damages phase of a trial, not the liability phase.

Slip op., at 58.  So, when a defendant asserts that this case stands for the proposition that it gets to defend agasint each individual class member's claim, be sure to remind the defendant and Court that the holding actually criticized the absence of any means to mount a defense, rather than specifying the specific forms that a reasonable opportunity to defend must take:

In sum, the court erred when, in the interest of expediency, it constructed a set of ground rules that unfairly prevented USB from defending itself. These ground rules were the product of the trial court. We do not suggest that the implementation of any particular additional procedural tool would have satisfied due process. We simply hold that the court, having agreed to try this matter as a class action, denied USB the opportunity to defend itself by flatly foreclosing the admission of potentially relevant evidence.

Slip op., at 60.

The Court spent some additional time commenting on the margin of error near 44 percent, which it found to be unacceptably large to form the basis of any reasonable result.  The Court concluded its opus by finding that, under the second motion to decertify, the trial court erred by failing to decertify the class.

I think I can sum all this up by observing that (1) misclassification cases in the exemption context are difficult cases and getting tougher all the time, and (2) defendants will incorrectly claim that this decision stands for a mythical due process right that the defendant gets to challenge each class member's claim.  Can't help with one, and can't stop two, but as to two, you can point out that there are many ways to provide a defendant with a reasonable opportunity to defend against class liability.

In Muldrow v. Surrex Solutions Corp., court holds that commissions need not be strict percentage of sales

Trials of class actions are uncommon.  Here, though, we have an example of a class action that made it through trial (though admittedly a bench trial, which is more like a long and painful, multi-day summary judgment hearing).  In Muldrow v. Surrex Solutions Corp. (January 24, 2012), the Court of Appeal (Fourth Appellate District, Division One) considered "whether the trial court erred in determining that an employer was not required to pay overtime wages (Lab. Code, § 510) to a class of its current and former employees because they were subject to the commissioned employees exemption (Cal. Code. Regs., tit. 8, § 11070, subd. (3)(D))."

The class of employees was comprised of recruiters that located potential employees for clients of Surrex.  Surrex was paid only when an employee was successfully placed with a client.  The class members were paid a percentage of "adjusted gross profit."  The "adjusted gross profit" was calculated by subtracting various costs from the amount clients paid for a placement.

The Court reached two key conclusions that resulted in an affirmance for the trial court.  First, the Court concluded that "sales-related activities" should be viewed more broadly than the time involved in the sale itself:  "We also reject appellants' contention that time spent 'searching on the computer, searching for candidates on the website, cold calling, interviewing candidates, inputting data, and submitting resumes,' may not be considered sales-related activities."  Slip op., at 14.

Second, the Court concluded that "commissions" do not have to equal a fixed percentage of revenues:

We disagree that either the Keyes Motors court or the Ramirez court intended to preclude an employer from calculating commissions based on anything other than a straight percentage of profits. Most importantly, neither the Keyes Motors court nor the Ramirez court had any occasion to address this issue, because in both cases, the employees' commissions were based on a straight percentage of the price charged to the customer. (Keyes Motors, supra, 197 Cal.App.3d at p. 561 [The "mechanic earns a fixed percentage of the hourly rate charged the customer"]; Ramirez, supra, 20 Cal.4th at p. 804 [employee received a "percentage of the price of the bottles of water and related products sold"].) " ' "It is axiomatic that cases are not authority for propositions not considered." ' " (Silverbrand v. County of Los Angeles (2009) 46 Cal.4th 106, 127, citations omitted.) Thus, "the Keyes Motors definition of 'commission' . . . does not control our case." (Areso, supra, 195 Cal.App.4th at p. 1006.)

Slip op., at 17.  The Court then focused on incentives, distinguishing Keyes Motors and Ramirez:

In this case, in contrast, appellants affected not only the revenue that Surrex received, but also the costs that Surrex would bear. Paige Freeman, a senior consulting services manager, testified that consulting service managers negotiated both the rates that Surrex paid candidate/consultants and the rate at which Surrex billed clients for those services. Appellants therefore had an impact on both the revenue (bill rate) that Surrex received and the costs (pay rate) that Surrex incurred. Thus, while in Keyes Motors and Ramirez, a commission system based on the price of the products or services provided employees with an incentive to increase the number of repairs performed (Keyes Motors) or the number of bottles of water sold (Ramirez), in this case, a commission system based solely on revenue or price would fail to reward employees who helped Surrex achieve greater profits by limiting costs. We see nothing in Ramirez or Keyes Motors that requires such a result, particularly since neither court had occasion to consider a compensation system similar to the one at issue in this case.

Slip op., at 18.  This is all very interesting, but the Court cites no authority in support of its power to define commissions so as to apply the incentives that it views as, in some manner, "better."  Instead, the Court falls back to Black's Law Dictionary for its definition of commission.  Maybe someone has some regulatory history materials handy to check and see whether the Court has the right of what the IWC intended when it created this exemption.

Wells Fargo ordered to repay an estimated $203 million in overdraft fees to customers

United Stated District Court Judge William Alsup (Northern District of California) issued a number of Orders, including injunctive relief and an order requiring refunds in the estimated amount of $203 million, after finding defendant Wells Fargo guilty of "gouging and profiteering" when it reordered bank charges from highest to lowest so as to maximize the number of overdrafts that could occur in an account.  Gutierrez v. Wells Fargo & Co.  See this previous post for more on the case.

Cellphone Fee Termination Cases affirms class action settlement with several instructive holdings

This initially unpublished opinion in Cellphone Fee Termination Cases (July 27, 2010) follows from a consolidated appeal in one of several coordinated class actions that challenged wireless telephone carriers' practice of charging early termination fees (ETF's) on customers seeking to cancel cellular telephone contracts. The defendant in this particular case is Cellco Partnership (doing business as Verizon Wireless ("Verizon")).  The class action case against Verizon went to a jury trial on June 16, 2008, in the Alameda County Superior Court. On July 8, 2008, after plaintiffs had rested their case and the defense presentation had commenced, the parties announced that they had signed a memorandum of understanding outlining the terms of a settlement. The settlement also encompassed claims of nationwide certified class claimants (excluding California class members) in a proceeding then pending before the American Arbitration Association (AAA), as well as two actions filed in federal district courts.

Objectors challenged the settlement at final approval, contending that the notice of the settlement was inadequate,  that the settlement terms were not fair, reasonable and adequate, and that incentive payments awarded to four named class representatives were improper.  The trial court overruled the objections and approved the settlement.  The objectors appealed, but the Court of Appeal (First Appellate District, Division Five) affirmed.

In an otherwise standard, but lengthy, discussion of appellate review standards, the Court offered some useful holdings:

  • The appellants argued that the statement in the short-form publication notice was misleading in that it gave the impression that members of the Subscriber Class would share in a portion of the $21 million settlement fund.  The Court disagreed:  "That publication notice, however, (as well as the mail notice) directed potential settlement class members to the settlement Web site to learn more about the settlement, and the publication notice specifically referenced the ― detailed notice and claim form package which subscribers would need to submit to ― qualify for a payment."  Slip op., at 11.  Thus, the short form notice need not contain all information about the settlement, so long as it directs class members to a source of full information about the settlement.
  • The appellants also argued that notice was defective in failing to disclose the enormous size of the class to the EFT Assessed Class, asserting that this interfered with an informed decision about whether to participate, object, or opt out.  The Court quickly disposed of that argument: "[Appellant] cites no authority for her position that information as to the size of the potential class, or the contingencies of recovery in any particular amount, is required. Courts which have considered such objections in the context of class settlement have rejected the claim."  Slip op., at 13.
  • The appellants also contended that $10,000 incentive awards to the representatives constituted a breach of their fiduciary duty to the class. Specifically, appellant alleged that "Schroer and White received amounts grossly disproportionate to the average recovery to the ETF Assessed Class", and asserted that "Nguyen and Brown (members of the Subscriber Class) received 'pay-offs to induce them to sell out the Subscriber Class.'" Slip op., at 20. The Court commented: "While there has been scholarly debate about the propriety of individual awards to named plaintiffs, '[i]ncentive awards are fairly typical in class action cases.'"  Slip op., at 20. The Court went on, observing: "There is a surprising dearth of California authority directly addressing this question. The threshold question of whether a class representative is entitled to a fee in a California class action was recently answered in the affirmative in Clark v. American Residential Services LLC (2009) 175 Cal.App.4th 785 (Clark)." Slip op., at 21. After discussing the policies behind incentive awards and the evidence of representatives' efforts in this case, the Court concluded: "In contrast to the more detailed analysis given by the trial court to other aspects of the settlement, the discussion of the incentive awards was sparse. There is no 'presumption of fairness' in review of an incentive fee award. (Clark, supra, 175 Cal.App.4th at p. 806.) The court, however, found the awards justified in light of the total settlement on the 'substantial benefit/common fund approach' and the 'material support' provided by the named plaintiffs to the prosecution of the case. Given the familiarity of the trial court with the history of the lengthy litigation and the evidence before the court that the representatives had, over the course of the litigation, assisted with investigation, responded to discovery requests, reviewed documents and pleadings, and testified either in deposition or at trial, we find no abuse of discretion in these awards. Slip op., at 23.

In Nelson v. Pearson Ford Co., Court of Appeal reviews judgment in class action, clarifies "causation" in UCL "omission" cases

The opinion in Nelson v. Pearson Ford Co. (July 15, 2010) is hot off the presses and over 50 pages long.  Plaintiff Nelson sued Pearson Ford, alleging violations of the Automobile Sales Finance Act (ASFA) (Civ. Code, § 2981 et seq.), California's unfair competition law (UCL) (Bus. & Prof. Code, § 17200 et seq.), and the Consumers Legal Remedies Act (CLRA) (Civ. Code, § 1750 et seq.)  The trial court certified the matter as a class action, with two classes: the backdating class and the insurance class. After a bench trial, the trial court found Pearson Ford not liable under the ASFA to the backdating class, but liable under the ASFA to the insurance class. It also found Pearson Ford liable to both classes under the UCL, but not the CLRA. The trial court issued certain remedies under the ASFA and the UCL, and awarded Nelson his attorney fees and costs under the ASFA. Both parties appealed.

With a 50-page-plus opinion, there is a lot to digest, but the comments regarding UCL "causation" are so valuable in and of themselves that I wanted to post them in full immediately:

A. Liability

The UCL defines "unlawful competition" to include an "unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising . . . ." (Bus. & Prof. Code, § 17200.) "By proscribing 'any unlawful' business practice, '[Business & Professions Code,] section 17200 "borrows" violations of other laws and treats them as unlawful practices' that the unfair competition law makes independently actionable." (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180 (Cel-Tech).) After the 2004 amendment of the UCL by Proposition 64, a private person has standing to sue only if he or she "'has suffered injury in fact and has lost money or property as a result of [such] unfair competition.'" (In re Tobacco II Cases (2009) 46 Cal.4th 298, 305 (Tobacco II), citing Bus. & Prof. Code, § 17204, italics added.) In the context of a class action, only the class representatives must meet Proposition 64's standing requirements of actual injury and causation. (Tobacco II, supra, at pp. 315-316.)

The actual payment of money by a plaintiff, as wrongfully required by a defendant, "constitute[s] an 'injury in fact' for purposes of Business and Professions Code section 17204. [Citations.]" (Troyk v. Farmers Group, Inc. (2009) 171 Cal.App.4th 1305, 1347 (Troyk).) Causation for UCL standing purposes is satisfied if "a causal connection [exists] between the harm suffered and the unlawful business activity." (Daro v. Superior Court (2007) 151 Cal.App.4th 1079, 1099 (Daro); accord, Troyk, supra, at p. 1349.) However, "[t]hat causal connection is broken when a complaining party would suffer the same harm whether or not a defendant complied with the law." (Daro, supra, at p. 1099.)

For example, in Troyk, an insured filed a class action against his automobile insurer alleging the insurer violated the UCL by requiring him to pay a service charge for payment of his automobile insurance policy premium and, because the service charge was not stated in his policy, the insurer violated Insurance Code section 381, subdivision (f), requiring that this be done. (Troyk, supra, 171 Cal.App.4th at p. 1314.) Although the Troyk court found that the insurer had violated the Insurance Code as alleged (id., at p. 1334), it concluded that causation under the UCL did not exist because plaintiff did not show that had the insurer disclosed the monthly service charges in the policy documents as required by the Insurance Code, he would not have paid them. (Id. at p. 1350.) Significantly, the lack of disclosure of proper charges, not illegal charges, violated the UCL in Troyk.

Here, the trial court impliedly found that Pearson Ford had violated the UCL as to both classes through its violations of the ASFA, and we have affirmed that Pearson Ford is liable for its violations of the ASFA. (Ante, part II.A.2.) Pearson Ford does not challenge the conclusion that its violations of the ASFA support Nelson's UCL claims; rather its appeal is limited to the trial court's finding that Nelson had standing to pursue claims under the UCL. Pearson Ford focuses its argument on whether Nelson suffered injury "as a result of" its unfair competition under the UCL. (Bus. & Prof. Code, § 17204.) Relying on Troyk, Pearson Ford contends that Nelson needed to prove he would not have bought the car if he had known that the second contract: (1) charged him pre-consummation interest; (2) misstated the APR; and (3) failed to separately itemize the $250 insurance premium. We disagree.

The failure of Pearson Ford to comply with the ASFA caused Nelson to suffer an injury and lose money as to both classes because he paid pre-consummation interest (the backdating class), and paid sales tax and financing charges on the insurance premium (the insurance class). Unlike Troyk, these illegal charges violated the UCL and Pearson Ford improperly collected additional funds from Nelson. UCL causation exists because Nelson would not have paid pre-consummation interest, or sales tax and financing charges on the insurance premium had Pearson Ford complied with the ASFA. Because Nelson had standing to pursue claims under the UCL, we reject Pearson Ford's argument that the judgment in favor of both classes should be vacated to the extent it grants relief under the UCL.

Slip op., at 32-34.  This discussion adds some clarity to the situation where an unlawful act underlies the imposition of a charge or fee.  The plaintiff need not plead that the product or service wouldn't have been purchased had the truth been disclosed.  Instead, it is enough to plead that money was spent on the product or service and that the amount charged included some unlawful component that would not have been charged had the law been followed.  This won't resolve all cases alleging fraud or omissions, but it does offer some blunt guidance about so-called "causation" under the UCL.

I don't know if I will get around to posting more about Nelson, but you can follow the link above to peruse it yourself if automobile financing just gets you crazy with anticipation.