On Tuesday, January 20, 2015, the United States Supreme Court declined certiorari review of Iskanian v. CLS Transportation Los Angeles, LLC, No. 14-341. In June 2014, the California Supreme Court ruled that class action waivers in arbitration agreements are generally enforceable in light of Concepcion, but that waivers of representative claims brought under PAGA are not enforceable—holding that an employee’s right to bring a PAGA representative action is unwaivable and that the state law rule is not preempted by the FAA. Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (June 23, 2014). By denying cert., the Supreme Court leaves intact the California high court’s ruling requiring that representative actions brought under the PAGA proceed on a representative basis in some forum, whether it be court or in arbitration.
On January 8, 2014, the California Supreme Court issued a highly anticipated decision, ruling that employers must pay workers for all time spent on a job site, even if they are on-call or sleeping rather than on-patrol, clarifying the meaning of the state wage order defining “hours worked.” Mendiola et al. v. CPS Security Solutions, Inc., et al., No. S212704 (Jan. 8, 2015) (slip op. available here). It affirmed the Court of Appeal’s ruling that on-call time constituted “hours worked” under Industrial Welfare Commission (IWC) Wage Order 4 and must be paid for, even if the employees can read, eat, shower, or engage in other personal activities. Id. at 4. However, the Supreme Court reversed the Court of Appeal’s decision to exclude pay for sleep time during the employees’ 24-hour shifts, finding that the lower court had incorrectly concluded that all wage orders implicitly incorporated a federal regulation permitting the exclusion of eight hours of sleep time from 24-hour shifts. Id. at 12.
In 2008, on-call construction site guards filed two class action lawsuits against their employer CPS Security Solutions Inc., alleging minimum wage and overtime violations under the California Labor Code and IWC Wage Order 4. The Los Angeles Superior Court consolidated the cases and certified the class of employees; the trial court also granted the plaintiffs’ motion for summary adjudication of declaratory relief claims, finding that CPS’s on-call compensation policy violated Wage Order 4. On appeal, the injunction requiring CPS to compensate the guards for all on-call time spent in their residential trailers was affirmed in part and reversed in part. The Court of Appeal agreed that CPS needed to pay guards while they were on patrol for eight hours and on call for eight hours (but not while off duty for eight hours); however, the Court of Appeal also held that CPS did not have to pay for eight hours of sleep time on weekends when the guards were on duty for all 24 hours (i.e. on patrol for 16 hours and on call for eight hours). During on-call hours overnight, the company typically only compensated guards for time they spent actively investigating disturbances.
The California Supreme Court affirmed in part and reversed in part, finding that CPS must pay its security guards for all the time they spend overseeing construction sites, partly because CPS benefited from the security guards’ “mere presence,” which served to deter theft and vandalism on-site, even when they were not actively responding to disturbances. Slip op. at 9. Furthermore, the court stated that “[t]he fact that guards could engage in limited personal activities does not lessen the extent of CPS’s control.” Id. at 10. The Mendiola court found that because the employees were not free to leave the worksite, they needed to be compensated for all their time while on-site, even while they are asleep. The company’s contracts with its construction clients stated that a guard would be at the worksite during all hours. CPS was ultimately unable to convince the court that it should interpret the state wage order in light of a federal law that treats on-call time as uncompensated free time. Instead, California law sets a higher standard: “Federal regulations provide a level of employee protection that a state may not derogate. Nevertheless, California is free to offer greater protection.” Id. at 11.
On December 31, 2014, a California Court of Appeal issued a ruling affirming the trial court’s decision to deny employer Inter-Con Security Systems Inc.’s motion to compel arbitration of a putative wage-and-hour class action. Bower v. Inter-Con Security Systems Inc., No. A135940 (First Dist. Div. 3 Dec. 31, 2014) (slip op. available here). The court held that the company had waived its right to arbitration because it knew of an existing right to compel arbitration, it acted inconsistently with that right by requesting discovery documents relating to the entire potential class, and its actions prejudiced the plaintiff.
In August of 2011, the plaintiff Bower, a former security guard, filed a wage-and-hour class action lawsuit against Inter-Con. The lawsuit alleged that the defendant failed to provide armed guard employees the required meal and rest periods under California law. While Inter-Con did not immediately file a petition to compel arbitration, it stated as an affirmative defense and in its objections to the plaintiff’s discovery that Bower’s claims were subject to arbitration. However, although the defendant agreed to provide responses and documents limited to the plaintiff’s individual capacity, it provided “at least one substantive answer” regarding class issues and even propounded its own discovery on class-wide issues. Slip op. at 2. Inter-Con argued that it was not uncommon for wage-and-hour defendants to seek information on individuals with similar claims, so seeking class-wide discovery was not inconsistent with its right to arbitrate. The opinion, written by Justice William McGuiness and joined by Justices Stuart Pollak and Peter Siggins, states, “We will simply reiterate the trial court’s response to Inter-Con’s claim: ‘Come on. Of course it is.’ Discovery concerning individuals who may support a plaintiff’s factual claims is distinct from classwide discovery.” Id. at 8.
Inter-Con only sought to compel arbitration after the plaintiff indicated he would amend his complaint to include unarmed guards and after settlement negotiations fell through, around May of 2012. The defendant contended that its actions did not prejudice the plaintiff because Inter-Con did not gain an unfair advantage in the litigation, other than causing the plaintiff to incur court costs and legal expenses. However, the court found that Inter-Con’s actions caused the plaintiff unreasonable delay in taking advantage of the efficiencies of arbitration, and that was sufficient to waive the defendant’s right to compel arbitration. Among other tactics, the defendant pursued a class-wide settlement in its settlement negotiations even though the arbitration agreement’s terms limited its claims to arbitration on an individual basis only, which led the plaintiff believe the company intended to pursue a resolution in court. The court concluded, “The crux of the prejudice suffered by Bower is that he suffered delay and incurred costs in litigating and attempting to settle class claims that Inter-Con led him to believe would be encompassed within the litigation.” Slip op. at 11.
In December, the Eleventh Circuit ruled that individual, unaccepted offers of judgment under Federal Rule of Civil Procedure 68 do not moot a plaintiff’s ability to represent a putative class. Stein v. Buccaneers Limited Partnership, No. 13-15417 (11th Cir. Dec. 1, 2014) (slip op. available here). The Stein decision is in line with other Circuits on this issue, including the Third, Fifth, Ninth, and Tenth Circuits. See, e.g. Diaz v. First Am. Home Buyers Protection Corp., 732 F.3d 948 (9th Cir. 2013). However, the decision does not align with the Seventh Circuit’s ruling in Damasco, where unaccepted offers of judgment can potentially moot putative class actions, if made prior to the filing of a certification motion. Damasco v. Clearwire Corp., 662 F.3d 891 (7th Cir. 2011). Note, the Seventh Circuit has also held that an offer of judgment does not moot a plaintiff’s individual or class claims, where the amount needed to satisfy the plaintiff’s claims is disputed. Scott v. Westlake Services LLC, No. 13-2699 (7th Cir. Jan. 23, 2014).
In Stein, the plaintiffs filed a consumer class action in Florida state court, alleging that the Buccaneers violated the Telephone Consumer Protection Act by sending unsolicited faxes advertising tickets to National Football League games. The complaint sought statutory damages and injunctive relief for a nationwide class. Once the case was removed, the defendant issued an offer of judgment to each named plaintiff pursuant to Rule 68. The plaintiffs did not accept the offers and the defendant then moved to dismiss, contending that the unaccepted offers rendered the case moot. The plaintiffs quickly moved to certify the class, a motion which was denied by the district court as being “purposefully . . . premature.” Slip op. at 4. The district court granted the defendant’s motion to dismiss.
On appeal, the Eleventh Circuit reversed. The panel, comprised of Judges Beverly Martin, Richard Keaton, and Robert Hinkle, ruled that an unaccepted offer is withdrawn and not admissible. The plaintiffs still retained their claims; the defendant still had its defenses. No money had been paid, nor any obligation to pay was made; nor was the defendant enjoined from sending out more faxes, so the individual claims were not moot. Slip op. at 7. “After the offers lapsed, and . . . after the district court entered its order dismissing the case, the legal relationship between [the Buccaneers] and the named plaintiffs was precisely the same as before the offers were made[.]” Id. at 10 (emphasis added). Additionally, the court found that even if it assumed the individual claims were moot, the class claims remain live. Id. at 10. Finding the timing of when an offer of judgment is made irrelevant (i.e. before or after a motion for class certification is filed, in contrast with Damasco), the court stated that what matters most was that plaintiffs acted diligently after they received the offers of judgment. Id. at 11-17 (citing Zeidman v. J. Ray McDermott & Co., 651 F.2d 1030, 1041 (5th Cir. 1981)). Simply receiving the offer of judgment did not “without more, disqualify [the plaintiffs] from going forward.” Id. at 18.