Class Action Waivers

Disputes over the enforceability of class action waivers are percolating in several forums. Most recently, the National Labor Relations Board has rejected federal courts of appeals rulings that upheld class action waivers against attacks that they violate the National Labor Relations Act. In Murphy Oil USA, Inc., Case No. 10-CA-038804 (Oct. 28, 2014), the Board ruled that extracting a class action waiver as a condition of employment and then enforcing it in a judicial forum violates employees' right under section 7 of the NLRA to engage in concerted activities. Because section 7 applies regardless of whether the workplace is unionized or not, all employers risk an enforcement action by the Board if they obtain class action waivers from their employees.

As the Murphy Oil opinion itself recognizes, judicial reception to the Board's position has been hostile. It originally announced that position in the D.R. Horton case. The Fifth Circuit declined to enforce that decision in D.R. Horton, Inc. v. NLRB, 737 F. 3d 344 (5th Cir. 2013). Two other circuits have refused enforcement of Board rulings based on the Board's rejection of class action waivers. See Owen v. Bristol Care, Inc., 702 F.3d 1050 (8th Cir. 2013) and  Sutherland v. Ernst & Young LLP, 726 F.3d 290 (2d Cir. 2013).

In the mean time, as mentioned in a previous post, California courts are dealing with the enforcement of arbitration agreements that do not include class claims. In Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014), the California Supreme Court ruled that an arbitration agreement with a class action waiver was enforceable, but that PAGA claims covered by the agreement could not be waived. A petition for certiorari is pending in the U.S. Supreme Court. There is a split in the courts of appeal about who decides whether an arbitration clause provides for arbitration of class claims. The Second District Court of Appeal in Los Angeles has ruled that the question is for the arbitrator. Sandquist v. Lebo Auto., Inc., 228 Cal. App. 4th 65 (2014). Division Three of the Fourth District Court of Appeal in Santa Ana has ruled that it is for the court. Network Capital Funding Corp. v. Papke, 2014 Cal. App. LEXIS 907(Cal. App. 4th Dist. Oct. 9, 2014)

Are truckers independent contractors?

Trucking companies have become the targets of lawsuits alleging that they misclassified their drivers as independent contractors. Such cases include Robles v. Comtrak Logistics, Inc., Case No. 2:13-CV-00161 (putative class action currently pending in the federal court in Sacramento) and Seacon Logix Inc. v. Labor Commissioner (Seacon ordered to pay $105,000 for violations against four of its drivers).

Truck drivers often own or lease their own trucks, and sign independent contractor agreements with the trucking companies. Those two factors alone are not sufficient evidence of independence to make the drivers independent contractors. As the California Court of Appeal explained in a 2007 case involving FedEx drivers: "The parties' label is not dispositive and will be ignored if their actual conduct establishes a different relationship." Estrada v. FedEx Ground Package System, 64 Cal. Rptr. 3d 327 (Ct.App. 2007). FedEx wound up paying $27 million for that misclassification case.

The factors to be evaluated in determining whether a driver is an independent contractor are: (1) whether the worker is engaged in a distinct occupation or business, (2) whether, considering the kind of occupation and locality, the work is usually done under the principal's direction or by a specialist without supervision, (3) the skill required, (4) whether the principal or worker supplies the instrumentalities, tools, and place of work, (5) the length of time for which the services are to be performed, (6) the method of payment, whether by time or by job, (7) whether the work is part of the principal's regular business, and (8) whether the parties believe they are creating an employer-employee relationship.

Under a California statute that became effective in January 2012, companies that "willfully" misclassify employees as independent contractors face increased penalties of up to $15,000 per violation (increased to $25,000 if there was a "pattern or practice" of misclassification. See California Labor Code sections 226.8 and 2753.

Before classifying workers as independent contractors businesses should make sure that they have carefully analyzed the nature of their relationships with those workers so that they do not incur the substantial liability that would be imposed if the workers have been misclassified.

Arbitration Agreement May Not Preclude PAGA Representative Actions

The Labor Code Private Attorneys General Act of 2004 (Labor Code sections 2698 - 2699.5) (PAGA) allows a aggrieved employee to recover civil penalties for violations of the California Labor Code on behalf of himself or herself and other employees. 75 percent of the amount recovered goes to the State and the balance to the aggrieved employees. The Federal Arbitration Act requires all courts in the United States to enforce arbitration agreements, "save upon such grounds as exist at law or in equity for the revocation of any contract." In AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011), the U.S. Supreme Court rejected a California Supreme Court ruling that class waivers in consumer arbitration agreements are unconscionable if the agreement is in an adhesion contract, disputes between the parties are likely to involve small amounts of damages, and the party with inferior bargaining power alleges a deliberate scheme to defraud. (See Discover Bank v. Superior Court, 36 Cal.4th 148 (2005).) The ruling stood as an obstacle to the accomplishment of the FAA's objectives.

The effect of the Concepcion case on class action waivers in the employment context is unsettled. The California Supreme Court has granted review in several cases that raise that issue. The lead case is Iskanian v. CLS Transportation of Los Angeles. Others include Franco v. Arakelian Enterprises and Flores v. West Covina Auto Group.

In Brown v. Superior Court, Case No. H037271 (Jun. 4, 2013), the Sixth District Court of Appeal has ruled that, when applied to the PAGA, an arbitration agreement that purports to waive the right to take representative action is unenforceable because it wholly precludes the exercise of this unwaivable statutory right. Concepcion does not require a different result, because a PAGA claim is asserted on behalf of the State and does not belong to the individual employee.

Rest periods must be separately compensated

Safeway paid its truck drivers on what it called a piece rate basis. Pay was based on (1) mileage rates that varied by number of miles driven, time of day, and location, (2) fixed rates for certain tasks, (3) an hourly rate for a predetermined amount of minutes for other tasks, and (4) an hourly rate for delays beyond the driver's control. Its collective bargaining agreement with the drivers' union provided for two rest periods for every eight or ten hour shift.

The California wage orders require employers to "authorize and permit" nonexempt employees to take a 10-minute rest period for every four hours worked. The rest periods "shall be counted as hours worked for which there shall be no deduction from wages." See section 12 of Wage Order No. 7-2001. Safeway authorized and permitted the drivers to take rest periods, and claimed that its compensation system included pay for the rest periods.

The Third District Court of Appeal in Sacramento ruled that Safeway's system violated the applicable wage order, and directed the trial court to certify a class action and determine the damages payable to the drivers. In a piece rate system, rest periods must be separately compensated. Bluford v. Safeway Stores, Inc., Case No. C066074 (May 8, 2013).

Private Attorney General and Class Action Waivers

A recent case alleging Labor Code violations by Ralphs Grocery Co. discusses the current state of the law regarding waivers of the right to pursue class actions and private attorney general claims. The arbitration policy at issue in Brown v. Ralphs Grocery Co., Case No. B222689 (2nd Dist. Ct. App. Jul. 12, 2011) provided for arbitration of all employment-related disputes. It also stated that there was no right for such disputes "to be heard or arbitrated on a class action basis, as a private attorney general, or on bases involving claims or disputes brought in a representative capacity on behalf of the general public, of other Ralphs employees (or any of them), or of other persons alleged to be similarly situated. . . . [T]here are no judge or jury trials and there are no class actions or Representative Actions permitted under this Arbitration Policy."

The California Supreme Court has frequently refused to enforce arbitration clauses that are invoked to interfere with rights for the benefit of individual citizens. See, e.g., Armendariz v. Foundation Health Psychcare, 24 Cal.4th 83 99 Cal.Rptr.2d 745, 6 P. 3d 669 (2000) (refusing to require arbitration of FEHA claims because arbitration procedure interfered with public interest). Just about as frequently, the United States Supreme Court has overturned such decisions for violating the Federal Arbitration Act. See Southland Corp. v. Keating, 465 U.S. 1 (1984) (California could not bar arbitration of claims under the Franchise Investment Law); Perry v. Thomas, 482 U.S. 483 (1987) (California could not refuse to enforce arbitration of wage disputes); Preston v. Ferrer, 552 U.S. 346 (2008) (California Labor Commissioner's authority could not supplant that of the arbitrator). Most recently, in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), the Court overturned the Discover Bank rule, which had called class action waivers in consumer arbitration agreements into question.

In Brown, the Second District Court of Appeal enforced the class action waiver, but ruled that the attempted private attorney general waiver was invalid. The plaintiff had asserted a claim under the Private Attorney General Act of 2004, which allows actions to recover civil penalties brought by employees on his or her own behalf and on behalf of current or former employees. According to the Court of Appeal, AT&T Mobility did not apply because an employee brings a PAGA action as a proxy for the state.

In dissent, Justice Kriegler opined that AT&T Mobility required the court to uphold the entirety of the arbitration agreement.

Does the Wal-Mart decision matter?

Business and employee advocates seem to agree that the Supreme Court's decision in Wal-Mart Stores, Inc. v. Dukes (No. 10-277 June 20,2011) is a landmark decision of some sort. The U.S. Chamber of Commerce says that it "is without a doubt the most important class action case in more than a decade." According to the ACLU, the decision "increases the likelihood that discrimination will now go unremedied in many cases." Newspaper editorial boards concur. The L.A. Times says that, because of the decision, "serious allegations against Wal-Mart dating back a decade won't be tested in court, and similar lawsuits against other employers will never be undertaken at all." A Wall Street Journal article says that the decision "is likely to reverberate in other class actions, making lower courts scrutinize whether large groups of employees are similar enough to sue together."

The fact of the matter is that the decision breaks no new ground and is unlikely to have any long term effects on discrimination cases. This is an example of the Supreme Court's correction of an error by the Ninth Circuit in applying established class action rules, not of the articulation of a new standard. It was not appropriate to use the class action device to to address pay and promotion decisions at 3,400 individual stores involving hundreds of thousands of employees. In fact, all nine justices agreed that the Ninth Circuit's decision to recognize the class alleged in the case was wrong.

Employers should not expect that large class actions will become less frequent, particularly in the wage and hour area, where an unlawful pay practice can lead to multi-million dollar awards to employees. Wal-Mart itself has had a string of such cases go against it recently. On June 10, 2011, a Pennsylvania appellate panel affirmed the award of over $150 million in damages and penalties for wage and hour violations. Braun v. Wal-Mart Stores, Inc., 2011 PA Super 121. In December 2008, it agreed to pay up to $640 million to settle a number of wage and hour class actions around the country.

Discrimination class actions will also continue, where the plaintiffs can show that groups of employees with the same protected characteristic have different terms and conditions of employment than others. Ebbert v. Nassau County (Case No. 05-CV-5445 April 32, 2009) is a good example. Nassau County paid police communications workers (over 90 percent of whom were women) less then it paid fire communications workers (100 percent of whom were men). The county could not come up with a sufficiently convincing explanation for the disparity to win a summary judgment motion. On June 9, 2011, it submitted a proposed settlement of $7 million for court approval to settle the class action.

Employer New Year Resolutions

As the New Year begins, here are four suggestions for New Year resolutions to help reduce the risk of employment law liability during the coming year.

1. Prepare job descriptions for every position in your organization. The job description is the most important document in an employee's personnel file. It provides the basis for evaluation of performance. It is the foundation for determining disability and workers compensation issues. To get started, take a look at the MS Word templates for job descriptions on the Microsoft website.

2. Review the job duties of every exempt employee. In recent years, the greatest exposure to liability for employers has been in wage and hour class actions. The most important factor in the multi-million dollar verdicts and settlements is misclassification of nonexempt employees as exempt. You must decide whether or not to treat employees as exempt based on actual job duties not on whether they are paid a salary or by job title. If you need an incentive, the December 26, 2008 issue of "Daily Journal Verdicts and Settlements" reports the following recent settlements: $21 million by Edward D. Jones & Co., $11.2 million by SBC and AT&T, $8.5 million by Unisource, $5.4 million by Kaiser, $2.25 million by EMC and Legato Systems, $1.3 million by Valley Farm Transport, and $900,000 by E-Trade Securities. We discussed wage and hour compliance in a June 29, 2008 post to this blog.

3. Review changes to the FMLA. Congress and the Department of Labor made important changes to the Family and Medical Leave Act rules last year. There is a new form of leave for members of military families, and there are changes to the existing regulations. We discussed these changes in a December 9, 2008 post to this blog, with links to the new rules.

4. Make sure that you are complying with immigration laws. All indications are that the federal government will continue to insist on strict compliance with the laws that prohibit employment of workers who lack authorization to work in the United States. If you knowingly employ someone who lacks such authorization, you have committed a federal crime. To assure that your workplace is in compliance, follow the rules for the I-9 Form. We discussed immigration compliance in an August 3, 2009 post to this blog.