SB 1241: Choice-of-Law, Choice-of-Venue Provisions in Employment Agreements Now Voidable by Employees

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Thanks to a new Labor Code provision signed into law by Governor Brown last fall, California employees may no longer need to worry about being forced to litigate their employment cases in far-flung jurisdictions or under laws that provide less protection than California’s. On September 25, 2016, Governor Brown signed Senate Bill 1241 (available here), which enacted new Labor Code section 925. Under that new provision, for contracts entered into, modified, or extended on or after January 1, 2017, an employer cannot condition employment on requiring an employee who “primarily resides and works in California” to sign a provision that either (1) requires the employee to adjudicate outside of California a claim that arises in California or (2) deprives the employee of substantive protections of California law for claims arising in California.

The measure originated in the California Senate as an employee and consumer protection measure that would have allowed a California employee or consumer to void contractual provisions that require adjudicating disputes out-of-state or under the law of a foreign jurisdiction. The measure was, at least in part, aimed at companies’ oppressive arbitration provisions that attempted to exploit the United States Supreme Court’s decision in AT&T Mobility, LLC v. Concepcion, 563 U.S. 333 (2011). Many employers and businesses saw Concepcion as a green light to force employees and customers to resolve disputes in arbitration, in other states, and apply those states’ anti-consumer/anti-employee laws. As the bill made its way through the state legislature, lawmakers narrowed the bill’s scope to employment agreements. Importantly, the new law applies generally to all employment contracts and all forms of dispute resolution. As such, it is generally applicable, does not single out arbitration as a target, and therefore is likely not preempted by the Federal Arbitration Act.

The new law confirms California’s longstanding dedication to protecting employees’ rights, but it is not a sea change in the law. Indeed, the legislative history notes that some opponents of the bill questioned whether it was even necessary. Those opponents noted that California’s choice of law/choice of forum jurisprudence already allowed courts to invalidate such provisions if they would result in (a) litigation in an inconvenient forum or (b) applying law that conflicted with a fundamental California public policy. See e.g., The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 17 (1972) (choice of forum clauses may be invalidated if they effectively deprive the litigant of their day in court); Wash. Mut. Bank v. Super. Ct., 24 Cal. 4th 906, 916 (2001) (court may refuse to enforce choice of law provision when the other state’s law fundamentally conflicts with California public policy).

Yet, although section 925 is consistent with prior jurisprudence, it is still a needed protection for California employees. As the bill’s supporters noted, under existing jurisprudence, Californians were still obliged to demonstrate that (a) the forum was inconvenient and/or (b) that the applicable law conflicted with fundamental California public policy. Litigating those issues presented substantial burdens both legally and practically. That said, section 925 presents some unanswered questions, such as defining what it means for an employee to “primarily reside[] and work[]” in California and what qualifies as a “substantive protection of California law” that needs to be defended. Needless to say, section 925 is a welcome addition to the Labor Code that will provide the state’s labor force additional protection and ensure that they are not deprived of the protections of California’s substantive law.

Authored By:
Andrew Sokolowski, Senior Counsel
CAPSTONE LAW APC

Brazil v. Dole: A Cautionary Tale of Class Certification

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In 2012, Plaintiff Chad Brazil filed a consumer class action against Dole, alleging that the labels on a total of 38 varieties of Dole’s packaged fruit misleadingly describe the products as “all natural,” despite Dole’s use of artificial ingredients, including chemical preservatives synthetic citric acid and ascorbic acid. See Order Granting in Part and Denying in Part Motion for Class Certification, Brazil v. Dole Packaged Foods, LLC, No. 12-CV-01831-LHK, 2014 WL 2466559, at *1-2 (N.D. Cal. May 30, 2014). Brazil then filed a motion for class certification on January 31, 2014, limiting the claims therein to 10 products and the “All Natural Fruit” label statement. Id. at *3. In May 2014, Judge Koh granted in part the plaintiff’s motion for certification under Rule 23(b)(2) to seek declaratory and injunctive relief, but denied it to the extent that monetary damages were sought under Rule 23(b)(2), reasoning they were “more properly brought under Rule 23(b)(3).” Id. at *11. Thus, the court also certified a California damages class under Rule 23(b)(3) instead, noting that, pursuant to the Unfair Competition Law (UCL), False Advertising Law (FAL), and Consumers Legal Remedies Act (CLRA), “[t]he proper measure of restitution in a mislabeling case is the amount necessary to compensate the purchaser for the difference between a product as labeled and the product as received.” Id. at *15.

Judge Koh’s analysis of the damages models proffered by Brazil is instructive in the context of class actions involving the mislabeling of consumer products. The Brazil plaintiff offered three different damages models to the court. The court rejected the first option, the “Full Refund Model” (refunding the entire purchase price of the relevant product), as inconsistent with the plaintiff’s theory of liability “because it is based on the assumption that consumers receive no benefit whatsoever from purchasing the identified products. This cannot be the case, as consumers received benefits in the form of calories, nutrition, vitamins, and minerals.” Order Granting in Part and Denying in Part Motion for Class Certification, Brazil v. Dole Packaged Foods, LLC, 2014 WL 2466559, at *15. The court also rejected the plaintiff’s second option, the “Price Premium Model,” which proposed calculating the difference in price between the challenged products and comparable products without the “All Natural” label statements, as too speculative. Id. at *16. As Judge Koh explained, the model “‘assumed that 100% of that price difference [is] attributable to [Dole]’s alleged misrepresentations’” and thus fails under Comcast. Id. (quoting In re POM Wonderful LLC, 2014 WL 1225184, at *5 (C.D. Cal. Mar. 25, 2014)). However, the court accepted the third option, the “Regression Model,” which examined sales of the identified products before and after Dole placed the alleged misrepresentations on its product labels, using regression analysis to control for other variables that could otherwise explain changes in Dole’s sales. Id. at *17. Judge Koh found that this model sufficiently tied damages to Dole’s alleged liability under Comcast because the regression analysis “isolates the effect of the alleged misrepresentation by controlling for all other factors that may affect the price of Dole’s fruit cups and the volume of Dole’s sales.” Id. The injunction and damages classes where certified accordingly.

However, once the plaintiff’s expert report had been filed, Dole filed a motion to decertify on August 21, 2014, contending that the regression model could not adequately assess damages on a class-wide basis and that the damages and injunction classes were not ascertainable, which the court partially granted and partially denied. The court held that the plaintiff failed to tie damages to his theory of liability because “the labels for nine of the ten products certified did not actually change during the class period,” precluding the methodology proposed by the preliminarily approved Regression Model. See Order Granting in Part and Denying in Part Motion to Decertify, Brazil v. Dole Packaged Foods, LLC, 2014 WL 5794873, at *6 (N.D. Cal. Nov. 6, 2014). In granting Dole’s motion to decertify the damages class, Judge Koh opined that, ultimately, the regression analysis used instead to compensate for the unanticipated data was too speculative and failed to meet the Rule 23(b)(3) requirement that common issues predominate over individual ones. Id. at *14. She denied Dole’s motion to decertify the injunction class, however, on the grounds that it remained ascertainable. Id. at *15.

The district court also granted a motion for summary judgment, primarily on the grounds that Brazil’s arguments that the “All Natural Fruit” statement on Dole product labels was likely to mislead reasonable consumers generally were too conclusory to support any triable issues of fact. See Order Granting Defendant’s Motion for Summary Judgment, Brazil v. Dole Packaged Foods, LLC, 2014 WL 6901867, at *4 (N.D. Cal. Dec. 8, 2014), aff’d in part, rev’d in part, No. 14-17480, 2016 WL 5539863 (9th Cir. Sept. 30, 2016). For example, Brazil’s own testimony that he was misled, without more, and citing the FDA’s informal definition of the term “natural” as “evidence of how reasonable consumers would view” the “All Natural Fruit” label while presenting no evidence that citric acid and ascorbic acid “would not normally be expected to be in” those products, per the FDA definition, was insufficient to create a genuine dispute of material fact. Id. at *4-5.

The plaintiff appealed the district court’s orders on defendant’s motions to dismiss, for summary judgment, and on plaintiff’s motion for class certification. In an unpublished order, the Ninth Circuit recently held that summary judgment on the merits for claims under the UCL, FAL, and CLRA had been erroneously granted, finding that a reasonable consumer could have been misled by the challenged labels. Brazil v. Dole Packaged Foods, LLC, No. 14-17480, 2016 WL 5539863 (9th Cir. Sept. 30, 2016) (slip op. available here). The panel, however, affirmed the decision to grant Dole’s motion to decertify the class, agreeing that “Brazil did not explain how this [price] premium could be calculated with proof common to the class.” Slip op. at 7. The panel also affirmed dismissal of Brazil’s class-wide claim for unjust enrichment on the same grounds, noting, however, that its recent decision in Astiana v. Hain Celestial Grp., Inc. provides that “unjust enrichment claims may be pleaded in the alternative in quasi-contract” and preserving his individual claim. Id. at 8 (citing Astiana, 783 F.3d 753 (9th Cir. 2015)). The case was remanded to resolve claims on behalf of the injunction class and Brazil’s individual claim for restitution.

A final, compelling question raised in Brazil regarding plaintiff’s burden of proof, but not resolved by either Judge Koh or the Ninth Circuit and specific to claims of misbranding or mislabeling, is whether “non-binding FDA policy statements,” which do not specifically regulate labeling statements, make such statements material as a matter of law. Brazil, 2014 WL 2466559, at *8; Brazil, 2014 WL 6901867, at *6. As Judge Koh noted, “[a]bsent any evidence that reasonable consumers would not normally expect citric acid and ascorbic acid to be found in the challenged Dole products, Brazil cannot rely on FDA’s informal policy to show that those consumers were likely to have been misled,” the judge said. Brazil, 2014 WL 6901867, at *6. The Brazil opinions as a whole stress the evidentiary burden plaintiffs face in alleging class claims for product liability, generally, as well as the particular challenge of establishing a reasonable, class-wide damages calculations that will satisfy Rule 23(b)(3) under Comcast.

Authored by: 
Karen Wallace, Associate
CAPSTONE LAW APC

Lubin v. Wackenhut: Decertification Order Based on Dukes Reversed by Cal. Ct. of Appeal

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On November 21, 2016, the California Court of Appeal for the Second Appellate District reversed the decertification of a class of over 10,000 employees. The Court of Appeal held that the trial court should examine the plaintiffs’ theory of recovery when evaluating class certification, rather than the frequency of violations resulting from that theory. Lubin v. The Wackenhut Corporation, No. B244383, __ Cal. App. 4th __ (2nd Dist. Div. 4 Nov. 21, 2016) (slip op. available here). This is welcome news for the plaintiffs’ class action bar, as it narrows the ways in which a trial court may peek at the merits of the plaintiff’s claims at the class certification stage.

The Lubin class of security officers, employed by Wackenhut, was initially certified for Labor Code claims on the basis of on-duty meal period waivers that the security officers had signed. Following certification, the parties agreed to a statistical sampling of records to determine the merits of the class claims—specifically, to determine how many class members had signed on-duty meal waivers that did not include required revocation language. Then, the United States Supreme Court issued its ruling on Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011), in which the high court cast doubt on the acceptability of using statistical sampling to prove liability in an employment class action. The defendant in Lubin moved for decertification based on Dukes, on the grounds that the agreed-upon sampling of meal break waivers would violate Dukes’ proscription of “trial by formula.” The trial court took further briefing in light of Brinker Rest. Corp. v. Superior Court, 53 Cal. 4th 1004 (2012), and then decertified the class. The Lubin plaintiffs appealed.

The Court of Appeal, citing Brinker, held that the answer to the “ultimate question” for class certification “hinges on ‘whether the theory of recovery advanced by the proponents of certification is, as an analytical matter, likely to prove amenable to class treatment.’” Slip op. at 8 (internal citations omitted). In pushing against the trial court’s application of Dukes, the Court of Appeal pointed to the clarification in Tyson Foods, Inc. v. Bouaphakeo, 136 S. Ct. 1036, 1048 (2016) (stating that Dukes does not “stand for the broad proposition that a representative sample is an impermissible means of establishing classwide liability”). Slip op. at 12. Further, the Court of Appeal criticized the trial court for examining, in its class certification analysis, the damages issue of whether employees actually experienced meal period violations. Notably, the Court of Appeal held that the trial court’s “standard requiring plaintiffs to ‘conclusively establish’ that Wackenhut had a policy that violated wage and hour laws is improper because plaintiffs’ burden at class certification is to produce substantial evidence.” Id. at 41 (emphasis in original).

With Lubin, the impact of Dukes has been reduced, and class action plaintiffs in California can now more easily certify claims based on solid theories of liability, even if the actual impact of those theories does not necessarily result in widespread damages. However, defendants may see this as a dilution of what it means to have a certified class, given that the bar has, in a sense, been lowered.

Authored by: 
Jonathan Lee, Associate
CAPSTONE LAW APC

Ochoa v. McDonald’s: First of Its Kind Joint-Employer Case Settles for $3.75M

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McDonald’s Corporation has agreed to pay $3.75 million to settle a certified wage-and-hour class action lawsuit in Ochoa, et al. v. McDonald’s Corp., et al., No. 3:14-cv-02098-JD (ND. Cal.). See Plaintiff’s Motion for Preliminary Approval of Class Action Settlement (Oct. 28, 2016) (available here). According to the motion seeking preliminary approval of the deal, the settlement marks the first of its kind in the fast food giant’s history between McDonald’s and a certified class of non-exempt “crew members” at a franchisee-operated restaurant.

In Ochoa, the plaintiffs sued McDonald’s and a franchisee alleging that the franchisee had violated various provisions of California’s Labor Code by miscalculating wages, incorrectly reporting timecards, failing to pay overtime and premium payments for noncompliant meal and rest breaks, failing to reimburse employees for the time and expense of maintaining uniforms, and issuing inaccurate wage statements. McDonald’s was named as a co-defendant on a theory of direct and vicarious liability. In August 2016, the court orally granted final approval to the plaintiffs’ settlement with the franchise owner, The Edward J. Smith and Valerie S. Smith Family Limited Partnership, leaving the claims against McDonald’s Corporation pending.

Certain preliminary rulings in the case were crucial to the first-ever settlement of its kind in McDonald’s history. In September 2015, Judge Donato of the United States District Court for the Northern District of California partially granted summary judgment in favor of McDonald’s, rejecting the plaintiffs’ claims that McDonald’s directly employs the plaintiffs and the putative class. Ochoa, No. 3:14-cv-02098-JD (N.D. Cal. Sept. 24, 2015) (slip op. available here). Critically, however, the district court denied summary judgment as to whether McDonald’s is potentially liable as a joint employer under an agency theory. The court held that the plaintiffs’ evidence demonstrating their belief that McDonald’s was their employer (being required to wear McDonald’s uniforms, serving McDonald’s food in McDonald’s packaging, receiving paystubs and orientation materials marked with McDonald’s name and logo, and applying for the job through McDonald’s website) was sufficient to follow a line of cases that found ostensible agency on similar facts. Further, the court found “that the ostensible agency theory would appear to apply with equal force against both McDonald’s USA and McDonald’s, Inc., despite the fact that the latter has no contractual relationship with Smith [the franchisee], because the plaintiffs and putative class may well not distinguish between McDonald’s corporate entities.” Slip op. at 15.

Almost a year after ruling on the summary judgment motion, in July 2016, the court handed another victory to the plaintiffs by certifying their “miscalculated wages claims, overtime claims and maintenance-of-uniform claims, and any claims that are derivative of those claims.” Ochoa, at 15, No. 3:14-cv-02098-JD (N.D. Cal. July 7, 2016) (slip op. available here). In rejecting McDonald’s argument challenging the plaintiffs’ agency theory as incapable of class-wide resolution due to individualized questions of personal belief and reasonable reliance, the court found that the “[p]laintiffs have tendered substantial and largely undisputed evidence that the putative class was exposed to conduct in common that would make proof of ostensible agency practical and fair on a class basis.” Id. at 5. That evidence included declarations showing that the plaintiffs “were required to wear McDonald’s uniforms, packaged food in McDonald’s boxes, received paystubs, orientation materials, shift schedules and time punch reports all marked with McDonald’s name and logo, and in most cases applied for a job through a McDonald’s website.” Id. The court also noted the fact that employees “spent every work day in a restaurant heavily branded with McDonald’s trademarks and name,” and found that “[t]hese facts are shared in common across the proposed class and make classwide adjudication of ostensible agency against McDonald’s a suitable and appropriate procedure.” Id.

These preliminary rulings on summary judgment and class certification are significant both because they yielded the first settlement of its kind in McDonald’s history, and because Ochoa may portend future findings of joint employer liability across franchisee and franchisor. Only time will reveal Ochoa’s true impact, but it is clear that courts will start to look past the franchisee to the franchisor as the source of violative practices that result in wage-and-hour violations.

Authored by: 
Suzy Lee, Associate
CAPSTONE LAW APC