California Court Proves That They'll Print Anything These Days With Denial of Decertification in Newspaper Carrier Case

Posted by Jeffrey Vlasek on April 30, 2012

When James Bond brandishes his Walther PPK and walks into a printing plant, you know one thing is certain - you will be "treated" to at least a half-dozen newspaper puns.  And, since this article is about a recent California case involving newspaper carriers, it will, of course, be no different.

Ever since Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), stopped the presses last summer, courts have been struggling with how to interpret the decision, and more importantly, how to define its holding with pending class actions.  The judge in Dalton v. Lee Publications, Inc., Case No. 3:08-cv-01072 (S.D. Cal. April 24, 2012), faced just such a dilemma.  The plaintiffs, employed as newspaper home delivery carriers, initially sued in 2008 on the premise that the employer, Lee, had misclassified them as independent contractors.  In July 2010, the court certified the class as Lee newspaper home delivery carriers who had signed written agreements designating them as independent contractors.

Lee was black, white, and red all over its face when it saw that a class of 800 employees had been certified, so it quickly appealed.  In November 2010, however, the Ninth Circuit denied its appeal.  Still determined that the certification was not fit to print, Lee moved for decertification following the Dukes decision in 2011.  Primarily, Lee argued that individualized issues predominated over common issues, and that the class of 800 would be unmanageable.

The court disagreed.  Using Dukes as front page, above the fold material, it wasted no time distinguishing the 1.5 million individuals involved there with the "scant" 800 employees of Lee.  Lee argued that the court could not merely look to the similar contracts signed by the plaintiff class members as a "common answer" to the question.  Plaintiffs, on the other hand, convinced the court that Lee kept "extensive records" that purportedly demonstrated mileage, hours, and other information with respect to each class member.  Any individual damages could be determined through those records, and without any kind of "representative sampling."

It wasn't all bad news for Lee, however.  Before putting the paper to bed, the court conceded that if the workers could not present such proof of individualized damages at trial, and they were forced to resort to individual testimony, Lee could renew its motion for decertification at that time.

The Bottom Line:  Even after Dukes, it is difficult to allege individualized damages for decertification purposes when the defendant keeps meticulous records from which it can easily calculate the amounts.

California Court Affirms Summary Judgment Against Putative Class of Insurance Agents

Posted by Greg Mersol on January 13, 2012

Court Finds That Insurance Agents Were Independent Contractors As A Matter Of Law

As we have noted in prior blogs, litigation involving alleged independent contractor status is on the rise, and is increasingly the topic of class action claims. Plaintiffs in these cases tend to argue that they were misclassified as independent contractors and were improperly denied their rights as employees, ranging from employee benefits to overtime to the right to assert certain types of discrimination claims. In several industries these challenges have proven successful, but a recent California case reflects that victory for the plaintiffs is far from a certainty.

In Arnold v. Mutual of Omaha Insurance Co.pdf., Case No. A131440 (Cal. 1st App. Dec. 30, 2011), the plaintiff sought to bring a class action against insurer Mutual of Omaha, with which she had been an agent. She claimed that although classified as an independent contractor agent, she was in fact an employee and had been denied the incidents of an employment relationship under California law, such as the right to reimbursement of business expenses and immediate payment of wages upon termination. The claims were brought solely under California law.

The trial court granted summary judgment, and the court of appeals affirmed. The court of appeals held that in California a common law test was to be used to determine independent contractor status. The primary focus of the common law test was whether the alleged employer had "the right to control the manner and means of accomplishing the result desired." Quoting S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341, 350 (1989). Although the right of control was the primary factor, it was not exclusive, and the inquiry might require review of additional factors such as whether the relationship was at will, the intent of the parties, the type of business etc.

The court rejected arguments by the plaintiff that a different (and more favorable) standard should apply under the California Labor Code. Instead, it found that the California Labor Code provisions should be read "with" the common law test for employment.

Applying the common law factors, the court concluded that the agents were independent contractors. It began by examining the plaintiffs' evidence first, but found that managers generally assisted agents rather than supervise them. The company did not reimburse agents for their expenses and paid them solely by commission. No one dictated how agents made sales or how they spent their time. Further, the contract provided that the relationship was at will and was one of an independent contractor and not an employee. Taken as a whole, the court had "little difficulty" concluding that the Mutual of Omaha agents were independent contractors.

Interestingly, the case was decided solely under California law. The court therefore had no reason to cite, and did not cite, two significant federal cases addressing the same issue of whether insurance agents were independent contractors. See Nationwide Mutual Insurance Co. v. Darden, 503 U.S. 318 (1992) (applying common law test; agents were independent contractors under ERISA); Barnhart v. New York Life Insurance Co., 141 F.3d 1310 (9th Cir. 1998) (agent was independent contractor and could not recover under ERISA or ADEA).

The Bottom Line: Even courts perceived to favor plaintiffs can be persuaded that agents are independent contractors with the right facts.

California District Court Denies Certification of Putative Class of Independent Contractor Strippers

Posted by Holli Hartman on October 19, 2011

COURT:  EXOTIC PERFORMER MUST DANCE THE DANCE TO LEAD A CLASS ACTION

An exotic dancer’s effort to certify a class of dancers in a minimum wage suit against an adult night club in California hit a bump and ground to a temporary halt in early October after a federal court determined she could not serve as a class representative.

The named plaintiff in Beachemin v. Tom L. Theaters, Inc. No. SACV 11-0394-DOC (C.D. Cal. Oct. 6, 2011), who went by the pseudonym “Ms. Behaved,” apparently didn’t “misbehave” enough at the club, Fantasy Topless in Colton, California, to become a member of the class she wished to represent. In a tentative order, the court denied class certification after the defendants argued that Beauchemin had only auditioned for a spot at the club and had performed only one dance for less than three minutes.

Beauchemin brought the suit against Fantasy Topless and its owners alleging that they had misclassified their dancers as independent contractors, failed to pay them minimum wage in violation of the Fair Labor Standards Act and California law and forced the dancers to share their tips with management.

This case is one in a series of class actions that exotic dancers have pressed against adult night clubs alleging claims under FLSA and state minimum wage laws. For the most part, exotic dancers have been successful in their legal quests. For example, the Northern District of Georgia in September held that a group of nude dancers at a club in Atlanta were wrongly classified as independent contractors and should have been classified as employees under the FLSA, entitling them to minimum wage and overtime compensation. See Clincy v. Galardi South Enterprises, Inc., No. 1:09-CV-2082-RWS (N.D. Ga. Sept. 7, 2011).

The California court in Beauchemin, however, noted that Beauchemin could not serve as a class representative because she failed to satisfy both the typicality and adequacy prongs of Federal Rule of Civil Procedure 23. The court by no means dropped the final curtain on the strippers’ class action show. The court noted that another member of the class could step into the limelight to lead the class to certification.

Cases involving exotic dancers are resulting in the creation of a body (no pun intended) of case law involving independent contractor status. In the years ahead, we can expect to see these holdings applied to more mainstream employers. The Beauchemin case is notable as part of this trend, but also because it is a relatively uncommon case in which certification is denied due to a lack of adequacy of representation.

The Bottom Line: Even potentially good class action claims need viable lead plaintiffs. Courts will give the plaintiffs leeway to find a suitable plaintiff if the initial representative is found to be inadequate.

$10 Million Settlement for Exotic Dancers a Not-So-Exotic Outcome in Wage Class Actions

Posted by Holli Hartman on April 08, 2011

If you think wage and hour class actions aren’t very sexy, you’re wrong.

A class of exotic dancers in California and other states have received preliminary court approval of a $10 million settlement of their class action suit in which they claimed that their adult nightclub employers misclassified them as independent contractors.  Trauth v. Spearmint Rhino Companies Worldwide, Inc.pdf (Case No. 5:09-cv-01316) (C.D.Cal).

The representative plaintiffs of the class of approximately 11,000 females who perform live nude and semi-nude dance entertainment alleged that their employers violated the Fair Labor Standards Act (FLSA), the California Labor Code and Unfair Competition Act and other states’ wage and hour laws when they allegedly failed to pay them minimum wage and split their tips to pay for “stage fees” and compensate other nightclub employees such as managers, doormen, and disc jockeys.

While this case may attract a peculiarly prurient interest, it ought to strip all employers of the notion that they are immune from similar suits.  Courts have been approving multimillion-dollar settlements involving employers of all stripes, including the pharmaceutical, banking, health club, energy, telecommunications, casino and health care industries.

The authors of Employment Class Action blog have written about many of these cases in the past.  Some arise when former “independent contractors” file for unemployment benefits and then argue that they are really employees.  Class actions are now also being filed when a large number of independent contractors in a particular line of work -- such as tech support or computer programmers, sales representatives, maintenance workers, nurses and construction workers -- work exclusively for one employer over a significant period of time and perform duties similar to that of workers traditionally classified as employees. 

Often, the employers getting into the most trouble are those that have laid off a large group of employees only to re-hire them as independent contractors so that they can avoid paying employment taxes, overtime wages and benefits.

The Internal Revenue Service, U.S. Department of Labor and many state labor departments also are looking to lay bare employers who they claim are misclassifying their workers.  In an effort to collect more employment tax revenue, over the next three years, the IRS plans to randomly select and audit up to 6,000 businesses that use contractors.  The DOL stated in its 2011-2016 strategic plan that it will partner with the IRS to root out employers who continue to misclassify employees as independent contractors. 

The government efforts likely will arouse the interest of workers eager to seek unpaid minimum wage and overtime pay through class action filings.

The Bottom Line:  An employer can be nakedly exposed to a wage and hour class action unless workers are properly classified.

Court Finds Insurance Claims Adjusters Exempt

Posted by Greg Mersol on January 14, 2011

I wasn’t sure whether to caption this “Oh, How The Mighty Have Fallen” or “What A Difference A Decade Makes.”

Only ten years ago, in Bell v. Farmers Insurance Exchange, 87 Cal. App. 4th 805, cert. denied, 534 U.S. 1041 (2001), a California Court of Appeals sent shock waves through the insurance industry by affirming summary judgment against a major insurer on the issue of whether insurance claims adjusters were exempt from overtime.  The surprise was due in part to the fact that insurance claims adjusters were given as specific examples of employees performing administrative exempt work under 29 C.F.R. section 541.205(c), and because numerous federal courts had held that they were exempt under federal law.   To the extent, if any, that the opinion did not draw notice, the subsequent $90 million verdict against the company and later settlement well into the nine figures certainly did.  As a result, insurers across the country and especially in California were inundated with wage and hour suits, and hundreds of millions of dollars changed hands.

We were honored to be counsel in one of the cases stemming the tide in Palacio v. Progressive Insurance Co., 244 F. Supp. 2d 1040 (C.D. Cal. 2002), a case later picked up by the United States Department of Labor, which again concluded that claims adjusters should be treated as exempt.  See Opinion dated Nov. 19, 2002.  Within only a few years, courts increasingly, again, began to recognize insurance claims adjusters as exempt.  See, e.g., In re Farmers Insurance Exchange, Claims Representatives' Overtime Pay Lit'n, 466 F.3d 853 (9th Cir. 2006), amended by 481 F.3d 1119 (9th Cir. 2007); Robinson-Smith v. Government Employees Insurance Co., ___F.3d___ (D.C. Cir. 2010).

Most recently, in an unpublished decision, the Fifth Circuit held that claims adjusters are, indeed, exempt.  In Talbert v American Risk Insurance Co Inc.pdf Case. No. 10-20355 (5th Cir. Dec. 20, 2010), the plaintiffs brought a collective action under the FLSA for overtime pay, challenging their exempt status as administrative employees or, in one case, as an independent contractor.  The district court granted summary judgment on the  grounds that one of the named plaintiffs was administratively exempt and that the second was an independent contractor who was not even covered by the FLSA.  Amazingly, the first plaintiff did not even have the title of “claims adjuster,” but that of an “assistant claims adjuster,” a title that would have been viewed as highly suspect in the wake of the Bell case.  A Texas District Court granted summary judgment on both grounds, and the Fifth Circuit affirmed.

The Talbert case is remarkable for many, largely historical, reasons.  In the wake of Bell, it would have been difficult to predict that even assistant claims adjusters would be deemed exempt, or that a federal circuit court opinion on the topic would be of so little note that it would designate such an opinion as “unpublished.”  Still, many plaintiffs’ counsel developed expertise in handling wage and hour class and collective actions on cases against insurers and are using those skills to pursue claims against other industries.

The Bottom Line:  Contrary to some of the significant early cases, the law is increasingly settled that insurance claims adjusters are exempt.  The reversals of fortune involving that industry underscore the incredibly dynamic nature of class action employment litigation.

The Western District of Texas Shows Some True Grit By Refusing To Grant Conditional Certification

Posted by Jeffrey Vlasek on January 10, 2011

In this day and age, finding a court to deny conditional certification of a proposed FLSA class is sometimes about as difficult as successfully remaking a classic Hollywood western with modern actors and sensibilities.  But, just as the Coen Brothers’ True Grit continues to surprise audiences and critics alike as one of the finest remakes in years, the recent decision in Botello v. COI Telecom, LLC, Case No. SA-10-CV-305-XR, from the Western District of Texas, has proven that not everything turns out the way you would expect.

The court in Botello considered the plight of a group of Field Service Technicians (FST) or former FSTs of the defendants.  The plaintiffs opened fire with both barrels and alleged that COI and Time Warner violated the FLSA when they failed to pay overtime wages, and that they violated ERISA when they denied the plaintiffs pension, health, disability, and other benefits.  Additionally, the FSTs loaded their wagon with a slew of other claims, as well, including unjust enrichment, deceptive trade practices, negligent misrepresentation, promissory estoppel, and fraud. 

While the story of the FSTs and the defendants could be told in campfire tale fashion, it would be a tedious one filled with talk of direct control of duties.  COI provided telecommunications and fiber optics systems integration in the Texas area.  Sometime in late 2003 or early 2004, it re-characterized its relationship with FSTs from employees to independent contractors.  One of COI’s customers was Time Warner, which entered into an Installation Services Agreement with COI.  Included in that agreement was a paragraph requiring any disputes to be submitted to binding arbitration (a fact which, like the pursuit of Lucky Ned’s gang to the silver mine, ultimately led to a dead end).

Several pages of the court’s decision are devoted to describing the myriad ways that Time Warner exerted control over the independent contractors.  In no particular order, and certainly not encompassing the entire gamut of examples provided, the plaintiffs testified that: 1) they were subject to being “fired” by Time Warner; 2) they had their homes checked for any illegal cable hookups prior to hiring; 3) FSTs could only wear headgear that had Time Warner or COI on the cap; 4) FSTs were required to wear a badge that designated them as a Time Warner contractor; 5) they were fined if they were not wearing hats that said COI when climbing utility poles; 6) they were required to display magnetic signs on their vans with COI’s logo and Time Warner’s phone number; 7) some FSTs were required to use a portable device that would transmit information directly to Time Warner regarding jobs and invoices; 8) and if someone needed to change their daily assignments, they needed approval from COI or Time Warner.

Keeping all of that (and more) in mind, the plaintiffs requested the court certify a class on their ERISA and unjust enrichment claims under Rule 23.  Among other things, the defendants argued that some of the plaintiffs were bound by the aforementioned arbitration agreement, while others were not.  Using the analysis provided by Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 130 S. Ct. 1758 (2010), however, the court determined that the arbitration agreements in and of themselves did not preclude plaintiffs from seeking that a court certify a class and adjudicate a class claim. 

Galloping along, the court also concluded that the proposed class members were not harmed in substantially the same manner, as many of the FSTs chose not to purchase health insurance, and the plaintiffs could not agree whether the purchase of equipment from COI was optional or mandatory and whether or not financing was available.  

More importantly, perhaps, to the realm of employment law was the court’s decision on the plaintiffs’ motion for conditional class certification.  As mentioned above, the plaintiffs moved to allow the FLSA claim to proceed as a collective suit, and thus receive the names, addresses, and telephone numbers of the potential class members to effectively distribute notice.  The court employed the Lusardi approach, and began the trademark Lusardi analysis by looking only at the pleadings and affidavits to determine whether notice should be sent out.  Because so many courts, at least at times, seem to view this first stage as merely a formality on the way towards progressing into the discovery phase of the action, the court’s decision not to conditionally certify the collective action sounded like a gunshot in the middle of night, and it may prove helpful to employers defending similar lawsuits in the future.

When considering whether or not to grant conditional certification for discovery purposes, the court agreed that the plaintiffs made a “plausible” argument that they were improperly characterized as independent contractors, and that both COI and Time Warner were joint employers.  The court pointed out, however, that other issues should be taken into consideration—namely, that FSTs working in San Antonio were treated differently than those working in other cities, and that the same was true for FSTs working in Austin.  It therefore determined that conditional certification was not appropriate, as the collective action members would not be similarly situated.  In many ways, the court’s determination sounds almost like a second stage analysis in the Lusardi paradigm, albeit only with the benefit of reading the initial pleadings and affidavits.

Ultimately, just as Mattie Ross gets her revenge on Tom Cheney (SPOILER ALERT), Time Warner had its day, as well, when the court granted it partial summary judgment on various ERISA and unjust enrichment issues.  And when the dust cleared from the denial of conditional certification and the Rule 23 certification, only a handful of claims are left against the various defendants. 

The Bottom Line:  While it has become less common for a court to deny conditional certification, Botello now stands as a recent example that courts can (and do) find that plaintiffs are not substantially similar based solely on the pleadings and affidavits alone.

Court Grants Summary Judgment in Multidistrict Independent Contractor Cases

Posted by Greg Mersol on January 05, 2011

We've written at least three times now on the case of Dukes v. Wal-Mart, now pending before the United States Supreme Court, as it is the largest employment class action in history.  Perhaps a relatively distant second is the collection of cases against FedEx Ground Package System, currently being handled through the multidistrict litigation docket in Northern Indiana.  See In re FedEx Ground Package System, Inc., Employment Practices Litigation.pdf Cause No. 3:05-MD-527 RM (MDL-1700). The MDL litigation includes over 40 cases arising in more than half of the states in the Union. Those cases, together, challenge various aspects of the decision by FedEx Ground of classifying its drivers as independent contractors under a variety of theories and statutes that include (depending upon the case), state laws of contract, state tort claims, various state employment and business practices acts,  ERISA, the FMLA, USERRA, and the FLSA.  During the litigation's long, complex, and tortuous procedural history, several of the cases were certified, at least in part, and over 2,000 pleadings or orders were filed.

 It's not over yet, but on December 13, 2010, the court rendered a 182-page opinion that will pare down the case's massive scope.  The court's opinion is notable not only because of the size of the case, but because even after granting much of the employer's summary judgment motion, several large cases remain.  The case is also worthy of note because the court had to deal with the unique variations among states regarding tests for "independent contractor" status.

The beginning of the end, so to speak, came a few months ago, on August 11, 2010, when the court granted summary judgment with respect to the claims of the company's Kansas drivers.  Applying Kansas law, and focusing on the "right of control," the court concluded the terms of the FedEx operating agreements under which the drivers worked did not render them employees. Finding the agreement to be controlling, the court largely rejected arguments by the plaintiffs regarding the control they claimed that the company actually exercised, and drew a distinction between the company's requirements as to results versus the manner and means by which work was to be performed.   Following that decision, the court directed the parties to brief the same issues regarding the cases in states other than Kansas. 

In its lengthy December 13 order, the court reviewed the laws of the various states regarding the tests for independent contractor status and, for the most part, concluded that the company was also entitled to summary judgment because the laws were substantially similar to those of Kansas.  It did not grant summary judgment with respect to some of the federal claims (such as the FLSA or FMLA) as well as certain state law tort or statutory claims.  Interestingly, in some cases, such as the Kentucky Wage Payment statute, the court actually granted summary judgment in favor of the plaintiffs.  With respect to the surviving claims, the court generally asked the parties to submit proposed pretrial orders to resolve the outstanding issues.

The Bottom Line:   Even very large cases are amenable to summary judgment.  State law variations may or may not lead to different determinations on complex issues.

Summary Judgment Denied, But No Class Certification In Tip Dispute

Posted by Greg Mersol on October 12, 2010
On September 30, 2010, the United States District Court for the District of Massachusetts entered an interesting order in a case involving multiple issues under the Fair Labor Standards Act.  

In Travers v JetBlue Airways.pdf., airline JetBlue engaged an independent contractor named Flight Services and Systems ("FSS") to provide skycaps Boston Logan Airport.  Because these skycaps received tips from passengers, the employer (more about that in a minute) took advantage of the tip credit of 29 U.S.C. § 203(m) to meet its minimum wage obligations.  At some point, however, the airline instituted a $2 "curbside check-in fee" that cut into the skycaps' tip income. In many cases, the plaintiffs claimed, they "covered" the fee themselves or, in other words,  paid the fee from the tips they had received.  The parties disputed whether their doing so was voluntary or not.  In either case, the plaintiffs contended that their payment of the fee undercut the tip credit and therefore caused them not to be paid the minimum wage.  The plaintiffs also complained that they were subject to a policy that made them liable for shortages, which also destroyed the tip credit. 
 

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Federal Court in New York Denies Class Certification of Independent Contractors' Misclassification Claim

Posted by Gilbert Brosky on June 25, 2010

On June 16, 2010, a federal court in New York held that a group of newspaper delivery drivers who claimed they were wrongfully misclassified as independent contractors under New York law could not pursue their claims as a class action. Edwards v. Publishers Circulation Fulfillment Inc., No. 09 Civ. 4968 (S.D.N.Y. 6/16/10).  In an effort to show that the proposed class was susceptible to class wide proof, the plaintiffs heavily relied on a form Independent Contractor Agreement ("ICA") they all signed as well as various training materials produced by PCF.

The court first found that the critical determination as to whether an employment relationship exists “is the degree to which the purported employer exercises control in fact over the results produced or the means to obtain them.” The court then noted that form agreements or other such standardized company documents, while relevant, are not necessarily dispositive of what “is ultimately an individualized determination of the degree of control PCF actually exercised over each class member.” Therefore, plaintiffs’ reliance on the form ICA and training materials was insufficient to demonstrate the requisite class wide proof. Finally, the court held that the plaintiffs would not have been able to establish the necessary Rule 23 elements even if, contrary to New York law, it would have been sufficient to show that PCF had reserved a right of control over the deliverers with respect to the manner in which the work was to be done.

The bottom line: Due to an increase in private lawsuits, investigations by state and federal agencies and proposed legislation such as the Employee Misclassification Prevention Act, employers are increasingly forced to defend their classification of workers as independent contractors. For employers facing class allegations of contractor misclassification - particularly under New York law - the court’s finding that the existence of an employment relationship requires an individualized factual determination should be extremely valuable in opposing certification.