New Court of Appeal Decision Potentially Helpful To Employers Opposing Class Certification Of Wage And Hour Claims

By Christopher S. Andre and Scott K. Dauscher

Today, in Faulkinbury v. Boyd & Associates, Inc., the California Court of Appeal issued a decision that might prove helpful to employers opposing motions for class certification of wage and hour claims.  The court reiterated that it is the plaintiff(s)' burden to show his or her claims are susceptible to common proof (i.e. proof of alleged liability common to all of the purported class members) and that a defendant employer "'may defeat class certification by showing that an affirmative defense would raise issues specific to each potential class member and that the issues presented by that defense predominate over common issues.'" 

In general, non-exempt employees must be provided at least one unpaid, duty-free meal period of at least 30 minutes each workday.  An additional unpaid, duty-free meal period may be required if an employee works more than 10 hours in a workday.  The Industrial Welfare Commission wage orders permit an employer to instead provide a paid on-duty meal period "when the nature of the work prevents an employee from being relieved of all duty and when by written agreement between the parties an on-the-job meal period is agreed to."

The plaintiffs in the case were employed as security guards who worked at numerous different locations.  They alleged, among other things, that the employer improperly required them to agree to paid on-duty meal periods, contending that the nature of their work did not prevent them from being relieved of all duty (i.e., that they should have been provided unpaid, duty-free meal periods instead of paid, on-duty meal periods).  The plaintiffs alleged also that they were not authorized and permitted to take all required rest periods and that the employer improperly calculated their overtime rates of pay. 

The trial court denied class certification, finding that common issues of law and fact did not predominate over individualized issues. 

The Court of Appeal affirmed the trial court's decision as to plaintiffs' meal period claims and as to plaintiffs' rest period claims, holding that the trial court correctly applied the law as to those claims and holding that the trial court's rulings as to those claims were supported by substantial evidence. 

The Court of Appeal was persuaded that the evidence in the record sufficiently showed that common issues of law and fact would not predominate over individual issues because there was no common proof showing whether or not the requirements for a valid on-duty meal period were or were not satisfied as to any particular security guard employee.  As to the plaintiffs' rest period claim, the Court of Appeal was persuaded that the declarations the employer submitted by employees stating they were authorized and permitted to take all required rest periods was substantial evidence supporting the trial court's conclusion that common issues of law and fact did not predominate over individualized issues because those declarations showed a lack of common proof as to whether the security guard employees were or were not authorized and and permitted to take all required meal periods. 

However, the Court of Appeal reversed the trial court's denial of class certification of plaintiff's claim that the employer incorrectly calculated the applicable overtime rates of pay because its calculations did not include annual bonus payments and other forms of alleged compensation provided to the security guard employees.  The Court of Appeal held that claim was susceptible to common proof because the claim could be determined based on the employer's payroll records.  In other words, the employer either correctly calculated the rate of overtime pay or it did not.  This part of the decision is still potentially helpful to employers because the Court of Appeal emphasized that the claim should have been certified because it was susceptible to common proof, and we believe many common wage and hour claims are in fact not susceptible to common proof.  

Court of Appeal Decision Reiterates That Class Certification Is Appropriate Only When The Claims Asserted Are Susceptible To Common Proof

By Christopher S. Andre and Scott K. Dauscher

Claims asserting violations of California's wage and hour laws are frequently if not predominantly brought as class actions.  One of the most hotly litigated issues in such cases is the issue of whether the case should or should not be certified as a class, which nearly always turns on whether common issues of law and fact predominate over individual issues.  Two recent Court of Appeal decisions emphasizing that plaintiffs seeking class certification carry the burden of showing that liability can be established based on common proof (i.e., proof applicable to all of the class members) may be helpful to employers opposing class certification.  

As we previously reported here, in Arenas v. El Torito Restaurants, et al., the Court of Appeal affirmedThe court stated: "Based on the record presented, the plaintiffs have not demonstrated that resolution of the common issues of act and law will be accomplished by common proof that can be extrapolated to all class members. Instead, the plaintiffs have demonstrated that the case is replete with individual factual issues." the trial court's denial of class certification based on the trial court's finding that plaintiffs failed to meet their burden of showing that common issues of law and fact predominate over individual issues. 

On May 26, 2010, in Bomersheim v. Los Angeles Gay and Lesbian Center, the Court of Appeal reversed the trial court's denial of class certification based on the Court of Appeal's holding the claims were susceptible of susceptible to common proof.  The Court of Appeal held that based on the unique facts of that case the issue of whether the defendant's alleged negligent medical treatment of patients who presented with a confirmed syphilis infection or reported sexual contact with persons known or suspected to be infected with syphilis proximately caused injury or other damages was susceptible to common proof.  The Court reasoned that whether the Centers patients underwent retesting and retreatment as a result of having been allegedly mistreated or for other reasons was susceptible to common proof because the Center's own records would tend to show the reason why a particular patient underwent retesting and retreatment. 

We think various wage and hour claims frequently are not susceptible to common proof.  For example, we think an individual employee's reasons for not taking a rest period or a meal period will seldom be reflected by an employer's records or by other evidence applicable to all of the class members and for that reason would not be susceptible to common proof.  

California Supreme Court Clarifies Who Can Be Liable For Alleged Wage And Hour Violations

By Christopher S. Andre and Scott K. Dauscher

Today, by a unanimous decision in Martinez v. Corky N. Combs, the California Supreme Court clarified the standard courts must use to determine who is liable as an "employer" for violations of wage and hour laws embodied in Industrial Welfare Commission ("IWC") Wage Orders, including claims for unpaid or underpaid wages.

We think the decision is generally favorable for employers because the Supreme Court expressly rejected on the facts before it a number of theories of liability plaintiffs sometimes assert when attempting to hold liable for wage and hour claims persons or entities other than the obvious "employer."

Miguel Martinez and others were employed by Isidro Munoz, Sr., who did business as Munoz & Sons ("Munoz"), as seasonal agricultural workers who picked and sometimes packed strawberries. After Munoz failed to pay the employees' wages for a period of weeks, the employees submitted claims to the Division of Labor Standards Enforcement and later filed suit against Munoz and against two businesses that regularly purchased strawberries from Munoz and against certain employees of those businesses. The employees alleged the defendants were all liable for unpaid minimum wages (Labor Code section 1194), for liquidated damages for unpaid minimum wages (section 1194.2), for unpaid contract wages (section 216) for waiting time penalties (section 203), for breach of contract, and derrivative claims under California's Unfair Competition Law (Business and Professions Code section 17200, et seq.).

The trial court and the Court of Appeal determined that neither the other businesses that did business with Munoz nor the employees of those businesses were liable to the employees for their claims. The employees then petitioned the California Supreme Court to review the Court of Appeal's decision affirming the trial court's decision.

In a lengthy 56-page opinion, the Supreme Court revisited its decision in Reynolds v. Bement (2005) 36 Cal.4th 1075 holding that a corporation's officers and directors are not personally liable for unpaid overtime compensation and concluded that it "spoke too broadly in concluding that the common law defines the employment relationship in actions under [Labor Code] section 1194. The Supreme Court now states "an examination of section 1194 in its full historical and statutory context shows unmistakably that the Legislature intended to defer to the IWC's definition of the employment relationship in actions under [section 1194]." The Supreme Court explained, nevertheless, that its holding that a corporation's officers and directors are not personally liable for wage and hour violations when acting within the scope of their employment remains in tact because that opinion "properly holds that the IWC's definition of 'employer' does not impose liability on individual corporate agents acting within the scope of their agency."

The Supreme Court went on to hold that the IWC's definition of "employer" does not incorporate federal law. Similarly, and potentially significantly, the Supreme Court noted also that the IWC's broader definition of the term "hours worked" was in response to enactment of the Federal Portal-to-Portal Act, "which relieved employers of the obligation to compensate employees for time spent traveling to the work site, even in an employer's vehicle, and for time spent in activities 'preliminary and postliminary' to work," and intended by the IWC to provide California employees with greater protection than Federal law provides.

Turning to the IWC' s definition of the employment relationship in the wage orders, the Supreme Court now states that under the IWC's definition, to "employ" means "(a) to exercise control over the wages, hours or working conditions, or (b) to suffer or permit to work, or (c) to engage [a person to work], thereby creating a common law employment relationship. "

Applying the above test to the facts of the case in the record before it, the Supreme Court further held:

1. Neither of the businesses that did business with Munoz had a business relationship with Munoz that allowed those businesses to "exercise control over Munoz's employees' wages and hours."

2. Neither of the businesses that did business with Munoz "suffered or permitted plaintiffs to work because neither had the power to prevent the plaintiffs employees from working." Rather, Munoz and his foreman had exclusive power to do that.

3. Neither of the businesses that did business with Munoz had a business relationship with Munoz that allowed either of them to directly or indirectly "exercise control over Munoz's employees' wages and hours." Rather, "Munoz alone, with the assistance of his foremen, hired and fired plaintiffs, trained and supervised them, determined their rate and manner of pay . . ., and set their hours, telling them when and where to report to work and when to take breaks."

4. Neither of the businesses that did business with Munoz nor the employees of one of those businesses who encouraged Munoz' employees to continue working to help Munoz and who told Munoz' employees that they would be paid once Munoz received additional payments from one of the business did not "engage to work" the employees of Munoz because the facts and circumstances made it clear that no offer of employment was being made.

5. Although employees of the businesses that did business with Munoz frequently spoke in the filed with Munoz' employees about how the strawberries were to be packed, they nevertheless did not exercise sufficient control over how services are performed and hence the working conditions of Munoz' employees because no evidence in the record showed that any of Munoz' employees thought they must obey anyone other than Munoz or Munoz' foremen.

6. The Supreme Court rejected also the plaintiffs' contention that they were entitled to recover their unpaid wages as third party beneficiaries of a contract between Munoz and one of the businesses that did business with Munoz. Because the contract at issue required Munoz to comply with all applicable laws, including "labor," the plaintiff employees argued that the business was liable to them for their claims. The Supreme Court rejected that argument, stating, "[t]he plain import of these contractual provisions is that Munoz agreed to pay his employees the wages required by law, assuming sole responsibility in the matter. . . ."

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California Supreme Court Denies Review Of Court Of Appeal Decision That Might Make Class Certification Easier In Wage And Hour Cases

By Christopher S. Andre and Scott K. Dauscher

As we previously reported here, 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

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 we previously reported here, on March 8, 2010, we filed with the California Supreme Court a request that the Court of Appeal's decision be depublished, and on March 15, 2010, DAIOHS USA, filed with the California Supreme Court a petition for review of the Court of Appeal's decision.

Today, the California Supreme Court denied both DAIOHS USA's petition for review of the Court of Appeal's decision and our separate request that the Court of Appeal's decision be depublished. Had either the petition for review or the depublication request been granted, the Court of Appeal's decision would no longer have been citeable as precedent.

With this latest action by the California Supreme Court, the unfortunate trend of California appellate court decisions generally favoring employees over employers continues.

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Department of Labor Administrative Interpretation States Duties Of Mortgage Loan Officers Do Not Qualify As Exempt Duties

By Ronald W. Novotny

As we previously reported here, On March 24, 2010, the United States Department of Labor ("DOL") Wage and Hour Division made a significant change in its compliance assistance by moving from its longstanding practice of issuing fact specific opinion letters to issuing more general, across-the-board Administrator's Interpretations. The change is significant because it likely signals the DOL's intention to more aggressively establish its own interpretation of federal wage and hour laws.

In the first such Administrator's Interpretation, the DOL revisited the seemingly settled issue of whether mortgage loan officers qualify as exempt employees under the Fair Labor Standards Act ("FLSA"). Reversing two prior determinations that mortgage loan officers ordinarily qualify as exempt employees and therefore not entitled to be paid premium pay when they work overtime, the DOL now takes the position that the routine duties of such employees do not qualify as exempt duties.

The DOL defined the position as persons employed by financial institutions as mortgage loan officers, representatives, consultants, or originators. The typical duties include receiving internal leads, contacting potential customers, collecting required information from customers and entering that information into a computer, assessing and recommending loan products, and compiling customer documents for handling by underwriters or loan processors.

The DOL revisited the issue of whether such duties should be characterized as "non-manual work directly related to the management or general business operations of the employer or its customers" and therefore within the scope of the "administrative employee" exemption from the premium pay requirements of the FLSA.

The DOL now concludes that loan officers do not qualify as exempt employees because the work they perform is predominantly "production work" and not "administrative work." Likening mortgage loan officers to inside salespersons, the DOL now characterizes loan officers' duties as the "production work of an employer engaged in selling or brokering mortgage loan products" and not related to internal management of the business. The DOL now takes the position also that loan officers' duties do not relate to the "general business operations" of the employer's customers (who are typically individual consumers).

As part of its interpretation, the DOL withdrew a 2001 opinion letter and a 2006 opinion letter stating mortgage loan officers can qualify as exempt employees.

We think this new administrative interpretation signals a willingness on the part of the Obama Administration to reverse prior administrative interpretations interpreting FLSA exemptions more broadly.

Although this more recent administrative interpretation is not binding on the courts, current or former employees asserting they are or were misclassified as exempt employees can cite to this new administrative interpretation as persuasive authority from the administrative agency charged with enforcement of the FLSA.

In light of this new interpretation, financial institutions should consider consulting with experienced counsel to determine whether employees previously thought to be exempt would still be considered exempt employees.

Click here to download and to read a copy of the administrative interpretation.

Ninth Circuit Holds Wage Claim Against Church Is Barred By The Free Exercise Clause And The Establishment Clause Of First Amendment

By Christopher S. Andre

Today, in Alcazar, et al. v. The Corporation Of The Catholic Archbishop of Seattle, et al., the Ninth Circuit Court of Appeals held that a Catholic seminarian's claims against his church for allegedly unpaid wages brought under a Washington state minimum wage statute is barred as a matter of law by the Free Exercise Clause and the Establishment Clause of the First Amendment of the United States Constitution.

Cesar Rojas and Jesus Alcazar were Catholic seminarians in Mexico. They were required to participate in ministry training in Washington state. Mr. Rojas and Mr. Alcazar both brought sexual harassment claims against Father Horatio Alvarez and the Corporation Of The Catholic Archbishop of Seattle, and Mr. Rojas brought also claims for alleged unpaid overtime under Washington state's Minimum Wage Act.

On appeal, the Ninth Circuit affirmed the District Court's dismissal of the claims. In particular, the Ninth Circuit held that Rojas' wage and hour claims are barred by the Free Exercise Clause and by the Establishment Clause of the United States Constitution. Significantly:

The court held that the "ministerial exception" mandated by those clauses "applies as a matter of law across statutes, both state and federal, that would interfere witht he church-minister relationship." The court determined that applying Washington state's Minimum Wage Act to "ministers" would unconstitutionally "interfere with a protected employment decision."

The court held the "ministerial exception" "encompasses all 'tangible employment actions' and disallows lawsuits for damages based on 'lost or reduced pay'" because "[s]uch damages would 'necessarily trench on the Church's protected ministerial decisions.'"

The court established a broad test for determining who qualifies as a "minister," stating "if a person (1) is employed by a religious institution, (2) was chosen for the position based 'largely on religious criteria,' and (3) performs some religious duties and responsibilities, the person is a 'minister' for purposes of the ministerial exception." The court noted that lay persons can be "ministers" under this test and that "secular duties are important to a ministry." For example, the court noted that a church's director of music ministry and part-time teach fell under the "ministerial exception."

Because of the constitutional underpinnings and breadth of the court's holding and the breadth of the court's reasoning, this decision may provide to employers that are religious institutions a powerful defense to a variety of employment claims when brought by persons who satisfy the court's test for who qualifies as a "minister."

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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.

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