Employment Class Action Blog

Employment Class Action Blog

Information and Commentary on Class Action Cases Affecting Employers

Arizona District Court Rejects Joint Employer Arguments in Independent Contractor Case Alleging Misclassification of Truck Drivers

Posted in Independent Contractors

A month ago we discussed the Ninth Circuit’s decision in Ruiz v. Affinity Logistics Corp., Case No. 12-56589 (9th Cir. June 16, 2014), in which the employer treated its delivery drivers as employees in everything but name, resulting in the unsurprising finding that they were employees and not independent contractors.  An Arizona district court has now granted summary judgment in favor of at least one of the putative employers on similar claims involving very different evidence.

In Montoya v. 3DP, Inc. Case No. CV-13-8068-PCT-SMM (D. Ariz. July 9, 2014), the plaintiff was a delivery driver for a contractor of the Home Depot home improvement chain.  He sought to bring a collective action under the FLSA and a state law class action against both the contractor and Home Depot, contending that he and others like him were misclassified as independent contractors.  He argued that Home Depot was a joint employer of the contractor and thus liable for any misclassification.  In support of this argument, he pointed to facts such as instruction and training he had received in a Home Depot parking lot, contact with a Home Depot employee responsible for coordinating deliveries, and the presence of Home Depot logos both on the truck he leased and on his uniform.

The court ultimately concluded that these facts were not sufficient to find that Home Depot was a joint employer.  Among other factors, it found that Home Depot did not interview or hire drivers, and that even if it no longer wanted a driver’s services, that individual could still make deliveries for the contractor on behalf of other companies.  It rejected the notion that Home Depot’s coordination of schedules amounted to control over hours of work.  Similarly, it found that the contracts between Home Depot and the contractor did not amount to control over wages.  Home Depot did not keep a personnel file (or its equivalent) for the drivers.

The court distinguished Ruiz as not addressing the joint employment issue, and granted summary judgment for Home Depot.  The court’s opinion does not address the contractor’s own liability.

The plaintiff in Montoya probably saw naming Home Depot as a defendant as a means of broadening the case from a local-based contractor to a nationwide chain with many times more potential class members.  In doing so, however, he put himself in the position of having to challenge both the independent contractor status and to establish the requisite control by the customer.  Even had summary judgment not been granted, it is easy to see the employer prevailing on class certification on the grounds that each contractor managed its workforces differently and the relationship between Home Depot and the various delivery contractors varies by location.

The bottom line:  Joint employer arguments can be hard to make in cases challenging independent contractor status and present serious strategic issues for the plaintiff.

California District Court Rejects Shotgun Attacks on Arbitration Agreements

Posted in Arbitration, Wage and Hour

Alright, we all know in the wake of Italian Colors, Concepcion, and now many other cases that the presumption of arbitrability isn’t just a doctrine to recite in the manner of saying grace before invalidating an agreement, but is actually meant to be followed, even when it might ultimately thwart a class action.  But can a would-be class action plaintiff evade an arbitration provision through scattershot attacks on the arbitration agreement’s individual provisions?

That seemed to be the approach in Herrera v. CarMax Auto Superstores, Inc., Case No. CV-14-776-MWF (VBKx) (C.D. Cal., July 2, 2014), but it didn’t really work.  In Herrera, the three plaintiffs brought a garden-variety wage and hour suit against the employer asserting that they were not paid for all hours worked.  Each of the plaintiffs signed arbitration agreements that incorporated arbitration rules and procedures set forth in a separate booklet that was periodically updated.  They raised no fewer than eleven arguments why the provisions of those agreements could not be enforced.

The District Court, in an opinion notable for its conciseness, rejected each of those arguments including finding that:

  • The defendant could enforce the agreements, even though technically they were entered into by a corporate predecessor.
  • The defendant’s right to change the rules on 30 days’ notice under a set procedure did not render the agreements illusory.
  • While the arbitration agreements were contracts of adhesion, they were only slightly procedurally unconscionable, and not enough to invalidate them solely on that basis.
  • It was not unconscionable for the agreements to use the same statute of limitations as state law.
  • The arbitration agreements required both parties to arbitrate their claims, and thus were mutual.
  • In perhaps the most interesting part of the decision, the district court rejected the view of the Ninth Circuit in Ingle v. Circuit Stores, Inc., 328 F.3d 1165, 1179 (9th Cir. 2003), on a state law issue as being superseded by a subsequent California Appellate court on the issue of whether the employer’s right to modify the rules rendered the arbitration provisions unconscionable.
  • Contrary to the plaintiffs’ arguments, the agreements bound both parties.
  • Limitations on discovery did not invalidate the agreement.
  • The fact that arbitration has claim-preclusive effect does not render the agreement unenforceable.
  • Confidentiality is not unreasonable and the alleged jeopardy to the right to select counsel was too remote to find otherwise.
  • Giving the arbitrator the power to assess sanctions absent bad faith did not invalidate the agreement.

Rejecting each of these arguments, the court granted the defendant’s motion to compel arbitration and dismissed the case.

The bottom line:  In the wake of Italian Colors and Concepcion, even lots of little claimed problems with arbitration provisions will not thwart the obligation to arbitrate.

The Ninth Circuit Puts Up Road Block to Motor Carrier Arguing that California Break Laws are Preempted by the FAAA Act, But Leaves Some Wiggle Room

Posted in Meal and Rest Periods

On Wednesday, the United States Ninth Circuit Court of Appeals rendered a decision that, on its face, involved a technical preemption issue, but one that will have serious repercussions for those in the transportation industry operating in California.  In plain terms, the question was whether California’s detailed meal and rest break requirements conflict with a federal statute barring states from regulating the prices, routes and services of motor carriers and airlines.

Over the past few years, California district courts have varied as to whether motor carriers must follow California meal and rest break laws, or whether the Federal Aviation Administration Authorization Act of 1994 (“FAAA Act” or the “Act”) preempts California law in this regard.  On July 9, 2014, in Dilts v. Penske Logistics, LLC, the Ninth Circuit decided, for the first time, that such preemption generally does not apply.  Nevertheless, the possibility remains open that, in a future case, a motor carrier (particularly a long haul carrier) or airline may offer stronger evidence of and arguments for preemption.

Under the FAAA Act, in most instances a state “may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier . . . or any motor private carrier, broker, or freight forwarder with respect to the transportation of property.”  49 U.S.C. § 14501(c)(1).  The Act was passed “‘to prevent States from undermining federal deregulation of interstate trucking’ through a ‘patchwork’ of state regulations.”

In Dilts, the plaintiffs sought to represent a class of hourly appliance delivery drivers and installers, working exclusively within California and on short-haul routes.  They argued that they were unable to take the California-mandated meal and rest periods, and sought to assert the usual array of California wage and hour claims as a result.  The lower court found that because California’s rest and meal period requirements so severely affected trucking prices, routes, and services, they were preempted by the FAAA Act, and it granted summary judgment in the employer’s favor.

After finding a strong presumption against preemption, the Ninth Circuit stated that while the FAAA Act’s “related to” language is deliberately expansive and broad, it does not preempt state laws that affect prices, routes, or services in only a tenuous way.  It concluded that where a law does not refer directly to rates, routes, or services, “the proper inquiry is whether the provision, directly or indirectly, binds the carrier to a particular price, route or service and thereby interferes with the competitive market forces within the industry.”

The Ninth Circuit held that California break laws do not, in either a direct or indirect way, set prices, mandate or prohibit certain routes, or force motor carriers to provide or not provide certain services.  While motor carriers may have to account for meal and rest break requirements when scheduling routes, including potentially reallocating resources, the court held that the break laws do not bind motor carrier to specific prices, routes, or services to a significant degree.

This holding was likely wrong as carriers must deal with a myriad of logistics and timing issues, including pricing based on delivery time and speed, and having to schedule and staff to account for rest and meal periods.  This is further complicated by both legal and practical issues that carriers often cannot control, such as traffic delays and other limitations that vary based on the type of truck being used.  All of these tasks must be performed in a highly rate-competitive marketplace, and thus, California break laws do, indeed, have the “force and effect” of relating to the prices, routes, and services a carrier provides.

However, the court left open the issue of whether a federal law can ever preempt a state law on an “as applied” basis, or in other words, whether federal law can sometimes preempt a state law, but not at other times.  In that regard, the court was somewhat dismissive of the employer’s arguments regarding the difficulties of scheduling breaks, the impact on staffing, and the inevitable influence on rates.  Both the majority and concurring decisions were unconvinced by Penske’s evidence, or lack thereof, that finding routes which would allow drivers to comply with California’s break laws would limit motor carriers to a smaller set of possible routes.

The Bottom Line:  The Ninth Circuit has rejected, at least on one set of facts, the application of FAAA Act preemption to California’s meal and rest period requirements in the transportation industry, but a better developed factual record might lead to a different conclusion.

U.S. Supreme Court Refuses to Hear Petition that Proceeding as a Collective Action Under the FLSA is a Non-Waivable Substantive Right

Posted in collective action, FLSA

In the last week, we have seen several significant decisions from the U.S. Supreme Court.  On Monday, however, the Court made a noteworthy “non-decision” by declining a petition for certiorari that raised the question of whether a collective action under the Fair Labor Standards Act is a non-waivable, substantive right.

In Walthour v. Chipio Windshield Repair LLC, No. 13-1354 (June 30, 2014), former auto body employees filed a putative collective action against Chipio Windshield Repair LLC and an affiliate under the Fair Labor Standards Act (FLSA), alleging that the defendants had failed to pay them minimum and overtime wages.  Upon being hired, the employees had signed arbitration agreements with class action waivers and stipulations that all employment disputes would be resolved though individual arbitration.  The district court granted the defendant’s motion to compel arbitration.

In affirming, the Eleventh Circuit relied upon the U.S. Supreme Court’s decisions in Gilmer v. Interstate/Johnson Lane Corp. and American Express Co. v. Italian Colors. In Gilmer, the Court held that the Age Discrimination in Employment Act (ADEA), which expressly adopts the collective action language set forth in FLSA, doesn’t bar individual arbitration. In Italian Colors, an anti-trust case, the U.S. Supreme Court reiterated the rejection of the argument that a class action waiver was invalid under the “effective vindication” exception to enforcement because the class action waiver did not eliminate an individual plaintiff’s right to pursue its own statutory remedies.  In so holding, the Court cited its decision in Gilmer and explained that it “had no qualms in enforcing a class waiver in an arbitration agreement even though the federal statute at issue, the [ADEA] expressly permitted collective actions.” We blogged about the Italian Colors case last year.  The Eleventh Circuit concluded that “based on these Supreme Court decisions read together, we conclude that the text of FLSA § 16(b) does not set forth a non-waivable substantive right to a collective action.”  The Eleventh Circuit also found that “the legislative history of [FLSA  § 16(b)] does not contain the requisite contrary congressional command sufficient to override the [Federal Arbitration Act].”

In their petition for certiorari, the employees argued that the question of whether the FLSA contains a “contrary congressional command” remains unresolved because none of the cases the Eleventh Circuit relied on were brought under the FLSA.

The Bottom Line: The U.S. Supreme Court’s denial of the employees’ petition leaves unchanged the position espoused by the 2nd, 4th, 5th, 8th, and 11th Circuits – that the FLSA does not provide for a non-waivable, substantive right to bring a collective action. Accordingly, employers can take a deep breath (for now) and continue including class and collective action waivers in their arbitration agreements.

This blog post is a joint submission with BakerHostetler’s Employment Law Spotlight blog.

Federal Courts Continue To Find Claims Adjusters Exempt

Posted in FLSA

We have previously discussed how, over the past 10+ years, courts have increasingly recognized that insurance claims adjusters are exempt under the Fair Labor Standards Act (FLSA).  The recent cases of Estrada v. Maguire Ins. Agency, Inc., 12-cv-604 (E.D. Penn. Feb. 28, 2014) and Locke v. Am. Bankers Ins. Co. of Florida, 12-cv-1430 (E.D. Cal. May 19, 2014), further reflect this trend and that insurance adjusters are properly exempt even if they are assigned “relatively simple” claims and/or use detailed job aids and computer software as part of their claims adjusting work.

In Estrada, the plaintiff worked as an insurance claims examiner and handled “relatively simple, low-cost automobile claims,” which consisted largely of auto accidents involving only one vehicle and small amounts of damage.  The plaintiff alleged that he was misclassified as exempt under the FLSA and moved for conditional certification.  The employer moved for summary judgment.

The court made short work of the plaintiff’s argument that he was a non-exempt “production” worker, noting that claims adjusters perform an essential task of an insurance company – processing claims – and that every Circuit court that has considered the argument has reached the same conclusion.

The court also rejected the plaintiff’s argument that his primary duties did not involve the exercise of discretion and independent judgment, but rather he performed “clerical work” and was made to follow a strict step-by-step process that removed any meaningful discretion.  The court found that even if insurance adjusters are required to follow such a rigid process, they are still exempt if they engaged in discretionary tasks occasionally.  The court found that the plaintiff’s own testimony and claims notes proved that he exercised such discretion in performing tasks such as interviewing insureds and witnesses, inspecting property damage through pictures, evaluating coverage, providing coverage recommendations to supervisors, determining liability through application of comparative negligence, and settling low-value claims.

The court therefore found that the plaintiff was “plainly and unmistakably” an exempt administrative employee and, therefore, denied the plaintiff’s conditional certification motion and granted the employer’s motion for summary judgment.

In Locke, the plaintiffs were property insurance adjusters who investigated insurance claims.  For small value claims, the plaintiffs made coverage decisions.  On higher level claims, they were forwarded along to someone else.  The plaintiffs alleged that they were essentially “claims robots” who had virtually no discretion.  Instead, they alleged that they had to follow the employer’s strict claims procedures and use employer’s claims adjusting software, which reduced their role to low-level fact finders who merely confirmed that the software information was consistent with the claimed damages.  The plaintiffs sought a collective action under the FLSA and employer moved for summary judgment.

The court granted summary judgment for the employer in a fairly lengthy, detailed opinion in which it provided a thorough review of relevant claims adjuster case law and regulations.  However, perhaps most interesting for employers is the fact that while the court found it “clear” that the employer published a substantial amount of “material instructing its adjusters what to do and how to do it,” it rejected the argument that this made them non-exempt.  Instead, the court reasoned that it would be the “rare company” that did not implement such detailed materials, especially in an industry so highly regulated as insurance.  The same thing was true for employer’s use of automated claims adjusting software.  Instead, the court found it determinative that none of these job aides “remove[d] plaintiffs’ independent judgment in the initial investigative stages” and that the plaintiffs still had “the ultimate responsibility to gather the facts and put them together and either determine or make a recommendation as to most every aspect of the claims process.”  On June 19, 2014, the plaintiff appealed the decision to the Ninth Circuit.  We will follow this appeal and pass along any meaningful updates.

Insurance claims adjusters have been the target of numerous FLSA collective actions and state law class actions over the past dozen years, but as these cases demonstrate, courts are increasingly rejecting the most common arguments raised by the employees and holding that they are performing administrative exempt work.

Bottom Line:  Courts continue to find that, regardless of whether they handle “low-level” claims, follow detailed guidelines or use automated claims adjusting software, insurance claims adjusters are administratively exempt when they conduct coverage investigations and make recommendations regarding coverage and/or liability.

California Supreme Court Eases Path Toward Class Certification of Independent Contractor Misclassification Claims

Posted in Class Certification, Independent Contractors

Managing independent contractor relationships requires a delicate balance, perhaps best described (unknowingly, of course) by the band .38 Special in the song “Hold On Loosely”:

Just hold on loosely
But don’t let go
If you cling too tightly
You’re gonna lose control

Maintaining too much control causes the loss of control.  And so it goes with companies who use independent contractors.

In Ayala v. Antelope Valley Newspapers, Inc., the California Supreme Court set forth the legal standard for determining whether independent contractor misclassification claims can be brought on a classwide basis, or must be brought separately by each individual.  According to the court, the determining factor is whether the company retains the right to exert control over the contractors, regardless of whether the actual control exerted varies from individual to individual.

Put another way, California employers who cling too tightly (or merely retain the right to do so) are gonna lose control.  Tight clinging may lead to, among other things, class certification.

In Ayala, four newspaper carriers filed a putative class action against Antelope Valley Newspapers.  The carriers alleged that they had been misclassified as independent contractors and should have been considered employees for purposes of overtime, deductions, rest and meal periods, reimbursement of business expenses and other provisions of California law applying to employees.  The four named plaintiffs moved for class certification, arguing that they had all signed the same form contract which provided the newspaper with the right to control how they performed their work.

The trial court declined to certify the class due to a lack of predominance.  It found that variations among the work performed by the carriers, as well as the availability of rest and meal periods, varied widely and would have to be resolved on an individual basis.  The named plaintiffs appealed.

The court of appeal separately analyzed the various claims and held that while overtime and meal and rest period claims were too individualized, the trial court should have certified the remaining claims due to the newspaper’s right of control.  The California Supreme Court agreed to review that decision.

The test under California law for determining whether an individual independent contractor is misclassified is well settled.  This determination depends primarily on the extent to which the hiring party retains the right to control how the work is performed.  See S.G. Borello & Sons, Inc. v. Dep’t of Industrial Relations, 48 Cal. 3d 341 (1989).

The California Supreme Court ruled that, for purposes of certification, it does not matter how much variation exists in how the company actually exerted control from individual to individual.  The misclassification test looks at the right of control, not how it is exercised.  Thus, if the carrier had the same right to control the work of all the carriers, then class certification may be appropriate, regardless of whether the actual exercise of that control varied from carrier to carrier.

The Court noted that all of the carriers were made to sign the same independent contractor agreement, which set forth the rights of the parties.  The Court suggested, therefore, that the company’s right to exert control over any one contractor would likely be the same as its right to exert control over any other contractor.  The uniformity in the contract suggested uniformity in the newspaper’s retention of its right to control how the work is performed.

The California Supreme Court was careful not to make a determination on the merits, noting that the company’s right to control might be significant or might be miniscule.  The issue before the Court was not the merits of the claims but whether the merits of those claims should be considered on a classwide basis.  It remanded the case to the trial court with instructions to re-analyze the suitability of class certification based on whether the company’s right of control varied from individual to individual, not whether their exercise of control varied for each carrier.

While the Court emphasized the right of control, and ultimately certified the case, there is still hope for the employer on remand.  Keep in mind that the court of appeal had affirmed the decision not to certify the overtime, rest and meal period claims, which were among the most significant, and that holding was undisturbed. Further, the majority and at least one concurrence stressed the importance of the contract, and assuming it was well-drafted (admittedly a significant assumption), it might very well prove to help the defense.  The Court also noted the existence of secondary factors that could weigh against certification (such as the right to terminate at will, the place of work, the requisite skill, etc.) and recognized the potential for findings by the trial court that “would have been sufficient to justify denying class certification.”  The Court thus left the door open both for the trial court to refuse to certify the case and for a judgment in the employer’s favor on the merits.

The bottom line:  In deciding whether to grant certification in a class action involving independent contractor issues in California, the court should focus on the right of control, rather than the actual control exerted.

U.S. Supreme Court Nixes Obama Recess Appointees To NLRB

Posted in NLRB

D.R. Horton Ruling May Survive, However

With all due respect, Meatloaf, you were wrong. It turns out that two out of three is, in fact, bad.

The United States Supreme Court held today that President Obama’s 2012 appointments to the National Labor Relations Board were not valid recess appointments under the United States Constitution. NLRB v. Noel Canning, U.S. Supreme Court Case No. 12-1281 (June 26, 2014). At the time of the appointments on January 4, 2012, the Senate was conducting pro forma sessions, which simply consisted of opening and then immediately adjourning every Tuesday and Friday. At the time, three vacancies were open on the National Labor Relations Board, with Presidential nominations pending for each.

The President took the position that the Senate was in a “functional” recess because it was not transacting business, and that he therefore had the power under the Constitution to make recess appointments to the NLRB without the Senate’s advice and consent. Based on this view, President Obama gave recess appointments to all three of his pending NLRB nominees (Sharon Block, Richard Griffin, and Terence Flynn). After receiving an adverse ruling from the NLRB following these appointments, Noel Canning appealed based on its argument that the NLRB was not properly constituted.

The Supreme Court held that the January 2012 appointments presented three questions:

(i)                 Whether the recess appointment power can be exercised during a temporary break that occurs within a Congressional session (an “intra-session recess”), or is instead limited to breaks that occur between formal sessions;

(ii)               Whether the recess power allows the President to fill vacancies that exist at the time of a Congressional recess, or is instead limited to filling vacancies that occur after the commencement of a recess; and

(iii)             Whether Congressional recesses are interrupted by pro forma sessions in which no business is transacted.

The D.C. Circuit Court of Appeals held that the appointments were invalid on the basis that the recess appointment power cannot be exercised during an intra-session recess, and furthermore does not permit the President to fill vacancies that were open prior to the commencement of a recess.

The Supreme Court majority disagreed, and decided the first two questions in the President’s favor on the basis that to hold otherwise might paralyze the federal government during a period in which the Senate is in recess. (Some may question whether that would be a bad outcome, but that is beyond the scope of this article.) Moreover, the majority reasoned that Presidents had frequently exercised the recess power during intra-session recesses to fill pre-existing recesses. On the third question, however, the majority offered a polite “thanks, but no thanks” to the President’s invitation to decide whether a pro forma session interrupts a Congressional recess. Instead, the majority held that the legislature decides when it is and is not in session.

The always-lovable Justice Scalia authored a separate opinion concurring in the judgment, joined by Justices Roberts, Thomas and Alito. While agreeing that the appointments were invalid, Scalia gently excoriated the majority in his own irascible manner for deciding the first two questions in favor of the President. According to Justice Scalia, the majority’s “but, we’ve always done it that way” reasoning allowed expansion of the executive power by “adverse possession.” Scalia at his best, no doubt.

So, that brings us to why two out of three is, in fact, bad, regardless of Meatloaf’s wisdom to the contrary. While the Supreme Court’s opinion will invalidate a number of astonishingly ill-reasoned NLRB opinions (hey, this is an employer blog), it does not invalidate the Board’s D.R. Horton opinion (discussed here). That opinion was issued on January 3, 2012, the day before the recess appointments that were addressed in Noel Canning.

There was some hope that Noel Canning might invalidate the D.R. Horton decision, because outgoing NLRB member Craig Becker had been appointed to a pre-existing vacancy during an intra-session recess in March 2010. Under the D.C. Circuit’s reasoning in Noel Canning, his appointment might have been invalidated as well. Sadly, the Supreme Court held that such exercises of the recess appointment power are legitimate. Of course, the Supreme Court still may reject D.R. Horton on its merits, so the ship hasn’t sailed as of yet.

Bottom Line: While Noel Canning was decided in the employer’s favor, the Supreme Court’s reasoning allows D.R. Horton to survive—at least for now.

Ninth Circuit Upholds Employment Arbitration Agreement And Class Waiver

Posted in Arbitration, NLRB

But Can The Good Guys Avoid A Last Second Goal In This Case?

The Ninth Circuit’s decision in Johnmohammadi v. Bloomingdales, Inc., Case No. 12-55578 (9th Cir. June 23, 2014), should have employers feeling as good as the U.S. Men’s Soccer team up through the fourth minute of added time in the second half of their match against Portugal.  But, is fancy-boy Christiano Renaldo again racing down the side of the pitch, ready to deliver a heartbreaking assist?

[Editor’s Note:  Frankly, the use of the World Cup metaphor in discussing this case is clumsy at best.  However, nearly 72 hours after the end of the U.S./Portugal match, we find ourselves still seething over the draw that was snatched from the jaws of a win.  The hope is that the writing of this article will provide the author with a much-needed catharsis.  We’ll see.]

The plaintiff in Johnmohammadi was a sales associate for Bloomingdale’s (one of Renaldo’s favorite places to get facials and have his eyebrows waxed).  She filed a proposed class action alleging that Bloomingdale’s unlawfully failed to pay overtime to its associates.  In response, Bloomingdale’s pointed out that the materials the plaintiff received when she was hired included an arbitration agreement with a class action waiver provision.  The plaintiff was given 30 days to sign and return an opt-out form that would have voided both the arbitration agreement and the waiver, but failed to do so.  On that basis, Bloomingdale’s argued that the plaintiff was required to arbitrate her individual claim, and was barred from seeking class-based relief.  The district court agreed and dismissed the case in favor of arbitration.

On appeal, the plaintiff made an interesting argument.  She claimed that the arbitration agreement was comparable to an employer offering a benefit to employees, such as a raise, to dissuade them from engaging in concerted activity, i.e., voting for union representation.  The National Labor Relations Board holds that such an offer is actually a disguised (and unlawful) threat that the employer will take benefits away if the employees exercise their right to act concertedly, i.e., “the iron fist in the velvet glove.”  (Speaking of iron, did you know that Renaldo uses so much hair product that his hair is three times harder than solid steel?  True story.)  According to the plaintiff, Bloomingdale’s offered her the “benefit” of arbitration to dissuade her from preserving her right to engage in concerted activity, i.e., to seek class-based relief.

The Ninth Circuit wasn’t buying it.  The court held that the plaintiff could prevail on her “iron fist/velvet glove” theory only by showing that Bloomingdale’s offered a benefit that was “immediately favorable” to its associates.  After concluding that arbitration may come with “disadvantages” for employees, the court found that the plaintiff was unable to make this showing.  Accordingly, it rejected her theory and affirmed the district court’s order compelling arbitration.

(Let’s pause for just a moment to enjoy the irony of the above.  In short, the plaintiff was arguing that the arbitration agreement was unlawful because it was just too good a deal to pass up.  The Ninth Circuit disagreed and found that the arbitration agreement was perfectly appropriate because there was a decent possibility that the plaintiff would lose.  Strange days, indeed.

Now, back to our regularly scheduled programming.)

So, what’s with all the hand-wringing Renaldo references (and gratuitous personal attacks)?  Well, the Ninth Circuit’s reasoning leaves two open questions that may be cause for concern.  First, the Ninth Circuit held that the National Labor Relations Board’s D.R. Horton ruling (discussed here) was not implicated because the plaintiff had an opportunity to opt out of the arbitration agreement, and was not forced to accept it as a condition of employment.  While that remark may not be cause for alarm on its own, the court also observed that “there is some judicial support” for the proposition that the filing of a proposed class action is protected, concerted activity under the National Labor Relations Act.  Taken together, these comments might suggest that the Ninth Circuit has not yet recognized the folly of the NLRB’s D.R. Horton decision.  (Ok, that’s probably a somewhat subjective manner of phrasing the issue.)

The second question has to do with the Ninth Circuit’s reasoning in rejecting the plaintiff’s “iron fist/velvet glove” theory.  The court analyzed the question from the perspective of whether arbitration is enough of a benefit to support such an argument.  But, given the undisputed fact that the arbitration agreement was not a mandatory condition of employment, there is a much larger question as to whether the “iron fist/velvet glove” theory could ever apply.  The rationale for this theory, as explained above, is the implicit threat that “the employer can giveth, and the employer can taketh away.”  But, an employer cannot unilaterally taketh away an employee’s right to bring a class action.  That right can only be surrenderedeth by the employee.

Is this a distinction without a difference?  Maybe.  But, what about those employers who offer a payment to employees as an incentive against opting out of non-mandatory arbitration agreements?  How would the Ninth Circuit analyze that case?

Bottom Line:  While recent case law from the Supreme Court has been favorable toward arbitration, the case law is still developing around arbitration agreements and class waivers in the employment context.  Furthermore, writing a blog article is insufficient to relieve the disappointment of a senseless World Cup loss.  Here’s hoping that the Germany match makes the Portugal draw nothing but an amusing bit of trivia!

California Supreme Court Again Considers the Validity of Class and Representative Action Waivers

Posted in PAGA

Today, in a highly-anticipated decision, the California Supreme Court in Iskanian v. CLS Transportation Los Angeles, Inc. (Case No. S204032), resolved several long-standing questions regarding the impact of class and representative action  waivers under California law.  The Court’s prior Discovery Bank v. Superior Court (2005),decision was invalidated by the U.S. Supreme Court in AT&T Mobility v.Concepcion.

The 48-page majority opinion in Iskanian found that after Concepcion, class action waivers in arbitration agreements are generally enforceable—thus overturning Gentry v. Superior Court, 42 Cal.4th 443 (2007).   The Iskanian court also affirmed the appeals court holding that plaintiffs cannot rely on the NLRB’s decision in D.R. Horton (2012) 357 NLRB No. 184, to sidestep agreements requiring individual arbitration.  But the California Supreme Court reversed the Court of Appeal on the issue of California Private Attorney General Act (“PAGA”) claims and representative action waivers.  It found that the Federal Arbitration Act (“FAA”) “does not preempt a state law that prohibits waiver of PAGA representative action in an employment context.”

In Iskanian, plaintiff Arshavir Iskanian signed a mandatory arbitration agreement that contained a class and representative action waiver providing: “[E]xcept as otherwise required under applicable law, (1) EMPLOYEE and COMPANY expressly intend and agree that class action and representative action procedures shall not be asserted, nor will they apply, in any arbitration pursuant to this Policy/Agreement; (2) EMPLOYEE and COMPANY agree that each will not assert class action or representative action claims against the other in arbitration or otherwise; and (3) each of EMPLOYEE and COMPANY shall only submit their own, individual claims in arbitration and will not seek to represent the interests of any other person.”  As a private litigant, the California Supreme Court held that Iskanian is bound to that agreement by Concepcion.  But as a PAGA representative, suing on behalf of the state to enforce California labor law, the Iskanian decision limits the impact of waivers barring representative actions.

BOTTOM LINE: Although the California Supreme Court affirmed the validity of class-action waivers in arbitration agreements, the Court found an exception for representative actions as a matter of public policy.  Whether that exception will withstand FAA preemption analysis in federal courts remains to be seen.

Federal Court In New York Decertifies FLSA Collective Action Of 1,000 Hospital Workers Challenging Auto-Deduct Policy

Posted in Class Action, Conditional Certification, FLSA

Over the past several years, medical providers in particular have been beset by wage and hour claims arising out of so-called “auto-deduct” policies.  A recent case, arising out of the Eastern District of New York, a jurisdiction that has generally been friendly to plaintiffs in this arena, suggests that such claims may ultimately fail.

In Desilva v. North Shore-Long Island Jewish Health Sys, Inc., 10-cv-1341 (E.D.N.Y. June 5, 2014), the Eastern District of New York decertified a 1,000+ class of hospital workers asserting FLSA unpaid overtime claims based on their employer’s use of a policy that automatically deducted 30 minutes of time per employee shift for lunch.  In doing so, it became the latest in a string of decisions which have held that an employer’s implementation of an automatic deduction policy does not, in and of itself, warrant final certification.

The plaintiffs were LIJ current and former health care employees across the country.  LIJ used the popular “Kronos” timekeeping system and a procedure in which managers entered employees’ schedules into the system, and the employees verified their hours worked by swiping their security badge when the entered and left the facility.  However, the employees did not swipe in and out for meal periods.  Instead, Kronos was programmed to automatically deduct half-hour meal periods for all employees who worked six or more hours in a single day.  The employees were paid for their scheduled shift hours minus 30 minutes for the automatic deduction, unless their managers added time worked during the meal period to the employees’ time cards.

The plaintiffs alleged that as a result of LIJ’s auto deduct policy and Kronos system, they often worked through meals and breaks but were not compensated in violation of the FLSA.  In March 2012, the court conditionally certified the matter as an FLSA collective action.  After notice was issued, 1,196 plaintiffs opted in to the action.  Approximately one year later a new district judge was assigned to the case.  The following year, LIJ moved to decertify the class based on what the court described as a “voluminous” evidentiary record.

The court agreed with defendants and decertified the class based on several grounds.  The court noted that during the last few years, numerous courts have found that automatic meal deductions are facially legal and that, without more, such policies “cannot serve as the common bond around which an FLSA collective action may be formed.”  Thus, the court found that the plaintiffs were unable to point to a common violation of the law that bound the purported class action.  Absent such a unifying illegal policy, the plaintiffs were required to demonstrate that LIJ systematically disregarded its own legal policy and that it was done in such a uniform and pervasive way as to warrant class treatment.  The court found that the plaintiffs failed to do so and, to the contrary, the evidence demonstrated a wide range of compensation practices across the various facilities.

Finally, the court also found that if it allowed the matter to proceed as a collective action, it would be left in the untenable position of having to choose between either holding, in effect, 1,196 mini-trials or depriving the defendants of their due process right to present a full defense.  The court therefore decertified the collective action.

What jumps out about this case is that the factors which led the court to decertify the class – the reliance on a wage payment policy that was facially legal, the inherent individualized inquiry that would be necessary to show that such a facially legal policy was illegally applied, and a class that could not realistically be taken to trial – should all have been readily apparent at the conditional certification stage.  Unfortunately, due to the lenient conditional certification standard, the defendants were forced to engage in nearly two years of class discovery and compile a “voluminous” evidentiary record to dispose of a national collective action that never really had a chance of success.  This is why many defense counsel (this one included) are of the opinion that any “efficiencies” of the lenient FLSA conditional certification process are more than offset by the resulting failure to weed out untenable class actions prior to expensive class discovery and decertification.

The Bottom Line:  Automatic meal deductions are facially legal under the FLSA and, without more, are not enough for plaintiffs to prevail on a FLSA collective action.  Unfortunately, because of the lenient conditional certification standard, it still might take an employer years of litigation to successfully defend against such claims.