Court of Appeal Clarifies Rules For Determining Awards Of Attorney's Fees To Prevailing Plaintiffs

By Christopher S. Andre

A number of California statutes permit plaintiffs who prevail on various wage and hour claims to recover attorney's fees and costs. See, e.g., California Labor Code Sections 218.5, 226 (e), and 1194. Courts are also permitted to enhance such fee awards by applying a multiplier, which can result in an award of attorney's fees significantly higher than what a plaintiffs' attorney would be paid by the hour at market hourly rates.

In Pellegrino v. Robert Half International, Inc., a companion decision to the decision we previously discussed here, the Court of Appeal addressed certain issues about how awards of attorney's fees are to be determined:

1. The court reiterated that an award of attorney's fees is not available to plaintiffs who prevail on claims for alleged violation of California's Unfair Competition Law codified at California Business and Professions Code Section 17200, et seq., which forbids business practices that are unlawful, unfair, or fraudulent. Plaintiffs alleging violations of the Labor Code nearly always allege also violations of the Unfair Competition Law because a four-year statute of limitations period applies to the Unfair Competition Law instead of the three-year statute of limitations that applies to many alleged violations of the Labor Code.

2. The court held, however, that when alleged violations of the Labor Code and of the Unfair Competition Law are sufficiently interrelated, a court is not required to allocate between fees "incurred" to pursue alleged violation(s) of the Labor Code and fees "incurred" to pursue alleged violations of the Unfair Competition Law. The court held the trial court made no error when it reduced the fee award by 15% to account for fees "incurred" to pursue the plaintiffs' claims for alleged violation of the Unfair Competition law.

3. The court affirmed the trial court's use of a 1.75 multiplier to enhance the award of attorney's fees to the plaintiffs' attorneys for fees "incurred" to pursue the plaintiffs' substantive claims, which effectively increased the award from $558,926.85 to $978,121.98.

4. The court held the trial court erred when it applied a multiplier to the fees "incurred" to pursue the plaintiffs' claims for an award of attorney's fees. The court reasoned that the factors that support applying a multiplier to an award of attorney's fees to the plaintiffs for their substantive claims does not apply to attorney's fees "incurred" to pursue an award of attorney's fees.

Click here to download and to read the opinion.

Bill Would Bring Welcome Reform To Class Action Litigation

By Christopher S. Andre and Scott K. Dauscher

For a number of years, California employers have been besieged by costly, time consuming class action lawsuits, which frequently take the form of suits alleging violation of California's wage and hour laws. Welcome reform may on the horizon.

On February 10, 2010, California Assembly Member Audra Strickland introduced Assembly Bill ABX8 38, a bill that would significantly reform California's class action procedures.

The bill presently includes a Legislative finding that "[t]he lack of clear standards for the certification and management of class actions in California has led to abuses of the class action devise that have harmed Class members with legitimate claims as well as defendants who have acted responsibly, and these abuses have undermined public respect for our judicial system."

Among other things, the bill would:

1. Create a uniform set of standards for the certification of class actions and management of class actions modeled after Rule 23 of the Federal Rules of Civil Procedure.

2. Remove "any presumption or policy in favor of class certification and allow class certification only when all requirements set forth" in the bill are satisfied.

3. When a class is certified, require that each member of the certified class carry "the burden of proving all elements of the member's cause of action, including individual injury and the amount of damages."

4. Require the proponents of a class to bear the expense of required notices.

5. Provide to defendants the opportunity to propose to the court a settlement not approved of by class counsel representing the plaintiff class (i.e., to remove class counsel as an obstacle to settlement).

6. Clarify that courts have discretion to stay discovery directly solely to the merits of the claims until a decision about class certification is made.

We will monitor this important piece of pending legislation and report on significant developments.

Click here to download and read the bill.

Ninth Circuit Decision Clarifies Tip Pooling Rules Under Federal Law: A Cautionary Tale

By Christopher S. Andre and Scott K. Dauscher

On February 23, 2010, in Cumbie v. Woody Woo, Inc., the Ninth Circuit Court of Appeal held that an employer that pays its wait staff a wage greater than the minimum wages does not violate the Fair Labor Standards Act ("FLSA") by requiring its wait staff to participate in a tip pool that redistributes approximately 55% to 70% of their tips to employees who are not customarily tipped, such as dishwashers and cooks.

The Ninth Circuit agreed with the trial court there was no violation of the FLSA because the FLSA does not restrict which employees may share in a tip pool so long as the employer does not apply a portion of an employee's tips toward payment of the Federal minimum wage, and Woody Woo paid its wait staff wages greater than the Federal minimum wage. On the other hand, when an employer does take such a "tip credit," tips can be distributed only to employees "who customarily and regularly receive tips."

We refer to the decision as a cautionary tale because California employers are subject to both Federal law and California law, which frequently overlap. When Federal law and California law overlap, an employer is generally required to comply with the law that is most favorable to the employee. An employment practice lawful under Federal law might violate California law and vice versa. For example, while the FLSA permits an employer in some circumstances to apply a portion of an employee's tips toward payment of the Federal minimum wage, California Labor Code Section 351 forbids that practice entirely.

Click here to download and read the decision.

Click here to download and read the Fair Labor Standards Act

Click here to download and read California Labor Code Section 351.

U.S. Supreme Court Clarifies Key Test For Federal Court Jurisdiction

By Scott K. Dauscher and Christopher S. Andre

This morning, in Hertz Corp. v. Friend, a unanimous U.S. Supreme Court vacated the decision of the Ninth Circuit Court of Appeals and held that a corporation’s "principal place of business” under the federal diversity-jurisdiction statute and the Class Action Fairness Act (CAFA):

refers to the place where the corporation’s high level officers direct, control, and coordinate the corporation’s activities. Lower federal courts have often metaphorically called that place the corporation’s “nerve center.” … We believe that the “nerve center” will typically be found at a corporation’s headquarters.

In so holding, the court disapproved Ninth Circuit precedent, which instructed courts as follows:

to identify a corporation's "principal place of business" by first determining the amount of a corporation's business activity State by State. If the amount of activity is "significantly larger" or "substantially predominates" in one State, then that State is the corporation's "principal place of business." If there is no such State, then the "principal place of business" is the corporation's "'nerve center,'" i.e., the place where "'the majority of its executive and administrative functions are performed.'"

Today's decision by the Supreme Court is potentially significant for employers doing business within California but headquartered outside California and vice versa.

Click here to download and read the opinion.

California Supreme Court Holds That "Kin Care" Paid Leave Statute Does Not Apply To Leave Policies That Allow An Unlimited Number Of Paid Days Off

By Christopher S. Andre and Andres C. Hurwitz

Labor Code Section 233, sometimes referred to as the "kin care" statute requires employers that provide paid leave to an employee who is ill to permit an employee to use a portion of the employee's accrued and available paid sick leave to care for an ill parent, spouse, child, domestic partner, or child of a domestic partner. The amount of paid leave that can be used for that purpose is limited to the amount of paid leave that would be accrued during six months at the rate of accrual at the time the leave is taken.

On February 18, 2010, in McCarther v. Pacific Telesis Group, the California Supreme Court held unanimously that Labor Code Section 233, which permits an employee to use a portion of accrued paid sick leave to care for ill relatives or for a domestic partner, does not apply to employer paid sick leave policies that (1) do not permit employees to accrue or "bank" paid sick leave or that (2) provide as a practical matter an unlimited number of paid sick leave days.

The sick leave policy at issue in the case contained in a collective bargaining agreement between the employees' union and the employer allowed employees to take paid leave for up to five days in any seven day period subject to an attendance management policy intended to prevent abuse. The policy at issue provided no bank of paid sick days that accrued over time. The court held the "kin care" statute does not apply to that leave policy because the statute states it applies to "accrued and available sick leave entitlement, in an amount not less than the sick leave that that would be accrued during six months at the employee's then current rate of entitlement."

The court was careful to point out that "most California employers are not required [by law] to provide sick leave to employees," and that the "kin care" statute generally "applies only to employers that elect to do so."

Click here to download and read the opinion.

Court of Appeal Strikes Down Another Arbitration Agreement

By Christopher S. Andre

Again and again, California appellate courts have held various features of employment arbitration agreements to be unconscionable and therefore unenforceable.

On February 18, 2010, in Suh v. Superior Court, the Court of Appeal held another employment agreement to be unenforceable. The court held the agreement was unenforceable because the plaintiffs were not provided an opportunity to read the agreement before they agreed to it and because the agreement limited the remedies that would otherwise be available to the plaintiffs.

Plaintiffs were anesthesiologists employed by a medical group that had contracts with a hospital to provide anesthesiology services. They filed suit and alleged they were removed from the hospital anesthesiology schedule on account of their age and on account of their national origin, which, if true, would violate California's Fair Employment and Housing Act.

The trial court granted the petition of the defendant medical group and of the defendant hospital to compel the plaintiffs to arbitrate their claims. The operative agreement specified that arbitration would be conducted in accordance with the American Health Lawyers Association Alternative Dispute Resolution Service Rules of Procedure for Arbitration. Those rules specified that the arbitrator may not award "consequential, exemplary, incidental, punitive or special damages in certain types of actions, including actions arising out of employment. " However, the trial court severed from the operative agreement those rules based on the trial court's determination that those rules are not enforceable.

The Court of Appeal reversed the trial court and held that the arbitration provision of the operative agreement was procedurally unconscionable because the plaintiffs were not provided a copy of the agreement before they agreed to it and substantively unconscionable because it limited the remedies potentially available to the plaintiffs. Further, the court stated, "[t]he limitation on damages in this case is so egregious and so draconian that it should not be permitted to be severed. Otherwise, parties will be encouraged to insert such clauses, with the only sanction being the removal of the clause."

Click here to download and read the opinion.

California appellate courts frequently address employment arbitration agreements in reported opinions. An employment arbitration agreement previously believed to be enforceable might not withstand judicial scrutiny today or in the future. Employers should therefore consider having such agreements reviewed periodically by experienced counsel.

The Press-Enterprise Reports Grim Outlook For Labor's Agenda In Congress

By Christopher S. Andre and Scott K. Dauscher

As we previously reported here, shortly after Republican Scott Brown's victory in Massachusetts to fill the Senate Seat Edward Kennedy held for 46 years, Senate Republicans joined by a number of Democrats successfully used the filibuster to block President Obama's controversial nomination of attorney Craig Becker to the National Labor Relations Board. One Wall Street Journal commentator has referred to Mr. Becker as "Labor's Secret Weapon."

The center piece of labor's agenda in Congress is the Employee Free Choice Act. If passed, the Employee Free Choice Act would, among other things, do away with the use of secret ballot elections to determine whether employees want to be represented by a union and require appointment of an arbitrator if the employer and the union are not able to agree on a contract.

In an article entitled "Outlook Grim for Labor's Agenda in Congress," The Press-Enterprise reports the rejection of Craig Becker "casts heavy doubt on whether the [Employee Free Choice Act] has any chance of passing." Author Jack Katzanek reports "experts in the fields of labor law and politics say, if Becker's supporters were not able to bring his name up for a vote -- to say nothing of confirming him -- it signals that it's likely the Senate will not pass the Employee Free Choice Act. . . ."

Among those interviewed for that article was AALRR partner Thomas A. Lenz who served as a staff attorney with the NLRB before joining AALRR. Tom, who has closely followed labor's efforts to get the Employee Free Choice Act passed told The Press-Enterprise the Employee Free Choice Act has little chance of being passed in its current form in the current political climate. " 'I think that right now the current version of the [Employee Free Choice Act] is a dead issue.'" Tom explained that union leaders will likely have to compromise on some of the key features of the Employee Free Choice Act if they wish to have a realistic hope of getting it passed. Tom noted that some legislators would accept a modified version of the measure that preserves secret ballot elections but streamlines the process of determining whether employees do or do not want to represented by a union. '"I think there would be legislators who would accept that,'" said Tom.

Tom will speak in detail about the Employee Free Choice Act and other pending legislation and the potential impact of such measures on employers at AALRR's 11th Annual Employment Law Conference on March 25, 2010, at the Cerritos Center for Performing Arts. Click here to download an event brochure. Click here to register.

New Court of Appeal Decision Might Make Class Certification Easier In Wage and Hour Cases

By Christopher S. Andre and Scott K. Dauscher

In Jaimez v. Daiohs USA, Inc., a decision we think is wrongly decided in many ways, the California Court of Appeal might have made it significantly easier for plaintiffs to obtain class certification in wage and hour cases.

Alex Jaimez was employed by DAIOHS USA, Inc., as a Sales Route Representative, and filed suit alleging he was misclassified as an exempt employee during part of his employment, that he was not paid for all hours worked, that the did not receive all required meal and rest periods, and that his wage statements were not accurate.

The trial court denied Jaimez' motion for class certification, finding, among other things, that common issues of law and fact did not predominate and that Jaimez was not an adequate class representative.

In a wide-ranging opinion, the Court of Appeal reversed the trial court's decision to deny class certification. According to this Court of Appeal, the trial court erred when it found based on the evidence submitted in support of and in opposition to the motion for class certification that individual issues would predominate over common questions of law and fact. According to this Court of Appeal, in determining whether common issues of law and fact predominate, the inquiry is whether the plaintiff's "theory of recovery" is likely to prove amenable to class treatment.

The court's opinion might be read by some to mean that a trial court cannot consider the merits of evidence offered to rebut a plaintiff's "theory of recovery" (i.e., the plaintiff's allegations of wrongdoing) when ruling on a motion for class certification.

The court's opinion contains also statements that might be read by some to mean that meal periods cannot be waived, that employers must ensure that employees take their meal periods, and that an employee who alleges he or she received inaccurate wage statements meets the requirement of showing actual injury if the statements are inaccurate and if he or she was confused about whether he or she was compensated for all hours worked.

In one bright spot for employers, the court affirmed the trial court's finding that plaintiff Jaimez was not an adequate class representative because, among other things, Jaimez lied on his employment application about his felony conviction and admitted in deposition his view that it is acceptable to lie in order to obtain or maintain employment

We note that the Court of Appeal initially did not certify the opinion for publication. However, in response to requests by a number of plaintiffs' attorneys and associations of plaintiffs' attorneys, the Court of Appeal certified the opinion for publication on February 8, 2010. As a result, unless it is decertified or overruled, plaintiffs' attorneys can now cite to the opinion as precedent in pending and future cases.

Click here to download and read the opinion.

We are submitting to the California Supreme Court a request that the Court of Appeal's opinion in be decertified.

Senate Fillibuster Blocks President Obama's Labor Board Nominee

By Scott K. Dauscher and Christopher S. Andre

As we previously reported here, on Tuesday, January 19, 2010, Republican Scott Brown defeated Democrat Martha Coakley in a special election to fill the United States Senate seat previously held by Democrat Edward Kennedy for 46 years.

As a consequence of Scott Brown's remarkable victory in a Democratic stronghold, Republicans now hold 41 seats in the Senate. Although still in the minority, those 41 seats are sufficient to enable the Senate Republicans to use the filibuster to effectively block legislation the Senate Republicans oppose and to block presidential appointments Senate Republicans oppose.

Today, Senate Republicans joined by a number of Senate Democrats successfully used the filibuster to block President Obama's nomination of attorney Craig Becker to the National Labor Relations Board. Mr. Becker's nomination was controversial because Mr. Becker, a former union side labor attorney, was viewed by some as being too closely aligned with union interests. One Wall Street Journal commentator has referred to Mr. Becker as "Labor's Secret Weapon."

Employer Tip Of The Week: Documents Employers Are Required To Post

By Christopher S. Andre

California employers are required to post where employees can easily read them a variety of documents concerning wages, hours, and working conditions, such as Industrial Welfare Commission Wage Orders, California Minimum Wage Notice, California Pay Day Notice, and many others.

Click here to view a list of the required postings identified by the California Division of Labor Standards Enforcement with links to those documents and posters.

Study Shows Emloyment Cases Are The Most Frequently Filed Class Actions

By Christopher S. Andre

A recent report issued by the Judicial Council of California, Administrative Office of the Courts, Office of Court Research, provides interesting data about class action lawsuits filed in California state and federal courts. Researchers examined class action cases filed between 2000 and mid-2006. Findings of interest to California employers include the following:

3,711 class action cases were filed between 2000 and 2005.

While total filings decreased by 17.8%, class action filings increased by 63.3%

Employment cases were the most frequently filed class actions, representing 29.3% of the class actions filed.

Employment case filings increased by 313.8%.

Over half of the employment cases filed alleged violations of Labor Code provisions governing payment of wages, rest and meal periods, and related claims.

Employment cases were certified as class actions more often than any other type of case filed as a class action.

Click here to download and read the February 2010 report entitled "Class Certification In California: Second Interim Report From The Study Of California Class Action Litigation."

Court of Appeal Upholds Employment Arbitration Agreement

By Christopher S. Andre and Scott K. Dauscher

Arbitration can streamline the process of resolving disputes between employers and current or former employees and can reduce the costs of resolving such disputes. However, for approximately the last 10 years, California appellate courts have closely scrutinized employment arbitration agreements and have frequently invalidated such agreements on a variety of grounds, finding them to be procedurally unconscionable, substantively unconscionable, or both procedurally and substantively unconscionable. Most commonly, when courts invalidate such agreements, it is because the court finds that the arbitration agreement in question unfairly stacks the deck in favor of the employer.

In Dotson v. Amgen, Inc., the California Court of Appeal reversed the trial court's determination that an employment agreement containing an arbitration agreement was unenforceable because it limited the parties each to one percipient or eye witness deposition, unless the arbitrator decides additional depositions are necessary based on a showing of need. The court held the provision authorizing the arbitrator to permit additional depositions upon a showing of need was a sufficient safeguard of the parties' rights to vindicate their claims and defenses. The court explained that "arbitration is meant to be a streamlined procedure" and that while parties are entitled to conduct discovery sufficient to prosecute their claims or defenses, "'adequate' discovery does not mean 'unfettered' discovery." The court further concluded that "the trial court [incorrectly] assumed that the arbitrator would not be fair in determining whether additional depositions were needed" and that the law requires courts to "assume that the arbitrator will operate in a reasonable manner in conformity with the law."

The Dotson decision appears to be good news for employers seeking to enforce arbitration agreements.

Click here to download and read the opinion.

Court of Appeal Holds That Employment Agreements Shortening The Deadline To File Suit Violate Public Policy And Are Unenforceable

By Christopher S. Andre

On January 28, 2010, the California Court of Appeal issued its decision in Maria Pellegrino v. Robert Half International, Inc., holding that employment agreements shortening to six months the deadline for employees to bring claims arising out of their employment violate public policy and are therefore unenforceable. The court held also that the staffing agency's account executives did not qualify as exempt administrative employees.

According to the court's opinion, the plaintiff employees were employed by RHI as account executives. Their duties involved recruiting candidates to be placed as temporary employees, placing candidates with RHI clients, and new business development. The account executives filed suit against RHI alleging RHI violated wage and hour laws applicable to non-exempt employees, such as the requirements for paying overtime and for providing meal periods.

As part of its defense, RHI contended the account executives' claims were barred by employment agreements requiring them to file suit within 6 months of the termination of their employment and because the account executives were in any event properly classified as exempt employees. The trial court rejected RHI's defenses, and an appeal followed.

In a lengthy opinion, the Court of Appeal held the 6 month limitation period of the employment agreements violates Labor Code section 219 and violates public policy and are unenforceable because, according to the court, the 6 month limitation period is tantamount to an unenforceable waiver of non-waivable rights. The court held also the account executives did not qualify as exempt employees because, in the court's view, their duties were not sufficiently related to the administrative operations of RHI but were in the nature of "production" work or sales.

Click here to download and read the opinion.

Jury Awards $820,700 To Employee Mocked On Blog By Co-Workers

By Nate J. Kowalski

As reported by the Daily Journal, an Orange County jury recently returned a large verdict in favor of an Orange County juvenile corrections officer whose co-workers mocked his deformed hand on an unofficial blog about the workplace. Some of the plaintiff's co-workers posted comments mocking the plaintiff with terms such as "rat claw" and "one-handed commander." After he complained to the County, the plaintiff was removed from his position. He alleged that he was ostracized by co-workers, that the County did not investigate his complaint, that the County did not protect him from harassment, and that the County retaliated against him.

As use of blogs and other social media becomes more common, we are often asked, what are the legal implications of these new technologies? While there are few reported cases addressing the impact of Facebook, Twitter and the like on employment law, we believe courts will for the most part apply existing legal standards to the use of social media.

In a typical case alleging harassment by co-workers, the employer has a duty to investigate the alleged harassment and to take appropriate remedial measures if warranted. Here, the jury apparently concluded the County knew about the harassment, failed to take appropriate remedial measures, and retaliated against the plaintiff by removing him from his position.

An employer's duty to investigate and to take appropriate remedial measures applies not only when an employer knows an employee is being harassed but also when an employer should know about the harassment. Thus, the duty can be triggered even if an employee who is being harassed does not complain about it. This can become more complicated in the digital age. What if harassing blog entries are posted on a password-protected blog and then brought to management's attention? What if the complaining party surreptitiously gained entry to the password-protected blog? Does it make a difference whether the harassing blog entries were made at work or at home? Does the employer ever have an obligation to monitor an employee's blog? These kinds of questions are making their way through the courts already, as this recent jury verdict illustrates.