Huff v. Securitas: Ct. of App. Confirms PAGA’s Purpose in Refusing to Limit Penalties to Only Those L.C. Violations that Affected Plaintiff Personally

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For years, employers and employees have disagreed on the scope of California’s Private Attorneys General Act of 2004 (“PAGA”). One hotly-disputed issue is whether the named representative plaintiff needs to have experienced the exact Labor Code violation for which she is pursuing a PAGA claim on behalf of the state and other aggrieved employees. The disagreement turns on the aggrieved employee’s standing, defined under the PAGA statute as “any person who was employed by the alleged violator and against whom one or more of the alleged violations was committed.” Cal. Lab. Code § 2699(c). Employees construed the “one or more” language to mean that a plaintiff “need not have suffered all PAGA violations for which she seeks to pursue civil penalties” in order to seek civil penalties for those violations under PAGA. Jeske v. Maxim Healthcare Services, Inc., 2012 WL 78242, *13 (E.D. Cal. Jan. 10, 2012). Employers, on the other hand, interpreted the “one or more” language as an acknowledgement that PAGA penalties may be recovered based on more than one type of Labor Code violation, but that plaintiffs “have no standing to bring a PAGA claim” if they did not personally experience the Labor Code violations at issue. Wassink v. Affiliated Computers Services, Inc., 2011 WL 13977358, *3 (C.D. Cal. Dec. 21, 2011). In other words, employers read a Rule 23 “typicality” requirement into PAGA.

On May 23, 2018, the California Court of Appeal, Sixth District, resolved the dispute. In Huff v. Securitas Security Servs. USA, Inc., No. H042852, 233 Cal. Rptr. 3d 502 (2018) (slip op. available here), the Court of Appeal analyzed the plain language of the PAGA statute and the legislative intent underlying PAGA. Id. at 6-16. The court reasoned that the defendant’s “proposition that PAGA allows an employee to pursue penalties only for the type of violation he or she has suffered is directly at odds with the provision that an action may be brought by an employee against whom ‘one or more’ of the alleged violations was committed.” Id. at 7-8. “Had the Legislature intended to limit the recovery of a PAGA plaintiff suing in a representative capacity to only the penalties for employees affected by the same Labor Code violation as the plaintiff, it would have said so in the statute.” Id. at 8.

Unlike the typicality requirements of a class action, “it would be arbitrary to limit the plaintiff’s pursuit of [PAGA] penalties to only those Labor Code violations that affected him or her personally.” Slip op. at 10. Thus, the court’s decision in Huff follows California Supreme Court authority holding that PAGA actions have no typicality requirements, whether an employer argues that a plaintiff be typical of other aggrieved employees in terms of violations committed or typical in terms of job duties assigned. Arias v. Superior Court, 46 Cal.4th 969, 980-81 (2009); accord Baumann v. Chase Invest. Servs., 747 F.3d 1117, 1023 (9th Cir. 2014) (“PAGA contains no requirements of numerosity, commonality, or typicality”).

More importantly, however, the well-reasoned Huff decision is directly in line with the legislature’s purpose in enacting PAGA. PAGA was enacted to solve the problem of inadequate state enforcement resources by allowing private citizens to pursue violations and seek penalties on behalf of the state. Arias, 46 Cal.4th at 980-981; see Brown v. Ralphs Grocery Co., 197 Cal. App. 4th 489, 501 (2011) (“The purpose of the PAGA is not to recover damages or restitution, but to create a means of “deputizing” citizens as private attorneys general to enforce the Labor Code.”). Allowing a plaintiff to enforce Labor Code violations committed by employers against their employees, even when all of those violations may not have been personally suffered by the plaintiff, supports PAGA’s purpose as a law enforcement action designed to protect the public and penalize the employer for past illegal conduct. Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal.4th 348, 381 (2014).

Huff resolves a dispute that has vexed trial courts. With the California Supreme Court having recently denied review, Huff will govern this standing issue for PAGA cases going forward, ensuring that an aggrieved employee’s duty to serve as a labor law enforcer is not stymied by onerous requirements manufactured by employers.

Authored By:
Bevin Allen Pike, Senior Counsel
CAPSTONE LAW APC

Sali v. Corona Regional: “Compensable Time” and Considering Inadmissible Evidence at Class Cert.

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On May 3, 2018, the Ninth Circuit Court of Appeals issued its ruling in Sali, et al. v. Corona Regional Medical Center, et al., 889 F.3d 623, 629 (9th Cir. 2018) (slip op. available here), a wage-and-hour class action, reversing the district court’s denial of class certification on several grounds. The Ninth Circuit found that the plaintiffs’ evidence of typicality, while not admissible at trial, should be considered for the purposes of class certification. Significantly, in reversing the denial of class certification, the panel found that the district court erred in interpreting compensable time as limited to time spent actually working. The ruling reaffirms that compensable time is both the time when an employee is under the control of the employer, regardless of whether or not the employee is engaged in work activities, as well as the time when an employee is “suffered or permitted to work, whether or not required to do so.” Slip op. at 24 (quoting Morillion v. Royal Packing Co., 22 Cal.4th 575 (2000)).

In Corona, the plaintiffs alleged that the employer failed to fully compensate a putative class of registered nurses (RNs) due to an electronic timekeeping system that did not account for their starting early and failed to pay their statutory time-and-a-half for overtime. Under Corona’s timekeeping system, a clock-in at seven minutes before or after the hour would round to the hour. But a clock-in at eight minutes or more before the hour would round back to the prior quarter hour, while those made eight minutes or more after the hour are rounded forward to the next quarter hour. The district court initially denied certification as to the plaintiffs’ rounding claim, finding that “time records are not a reliable indicator of the time RNs actually spent working because RNs frequently clock in for work and perform non-compensable activities, such as waiting in the break room, getting coffee, or chatting with their co-workers, until the start of their scheduled shift.” Slip op. at 23. The district court also rejected, on evidentiary grounds, that the plaintiffs had demonstrated typicality. Slip op. at 10. The plaintiffs appealed the district court’s denial of class certification.

The Ninth Circuit reversed the lower court’s denial of certification on several grounds, finding that the district court misapplied California’s definition of “work” because it did not decide whether Corona controlled workers after they had clocked in. Under California law, employees must be compensated for all time under the employer’s control, whether the employee is actually required to work or not. Morillion, 22 Cal.4th at 578 (quoting Cal. Code Regs., tit. 8, § 11140, subd. 2(G)). The panel found that the district court erred in suggesting that “‘non-compensable activities, such as waiting in the break room, getting coffee, or chatting with their co-workers’ are categorically not time ‘actually worked . . . ’,” meaning that this was not “time spent engaging in work activities.” Slip op. at 24. This misapplies California law. The Ninth Circuit further elaborated that that the question of whether the rounding policy was unfair required a focus on the company’s policies and practices, and whether they “restricted RNs in a manner that amounted to employer control during the period between their clock-in and clock-out times and the rounded shift-start and shift-end times,” an issue that the district court failed to consider. Id. at 26.

The Sali panel also found it to be an abuse of discretion for a district court to limit its analysis of whether class plaintiffs satisfied a Rule 23 requirement “to a determination of whether Plaintiffs’ evidence on that point was admissible.” Slip op. at 14 (quoting Ellis v. Costco Wholesale Corp., 657 F.3d 970, 982 (9th Cir. 2011)). Specifically, Sali found that the lower court committed reversible error by striking the class counsel’s paralegal’s declaration regarding Corona’s time-rounding to demonstrate the plaintiffs’ injuries, because courts cannot be limited to only evidence which is admissible at trial when deciding whether to certify a class: “Limiting class-certification stage proof to admissible evidence risks terminating actions before a putative class may gather crucial admissible evidence . . . [a]nd transforming a preliminary stage into an evidentiary shooting match inhibits an early determination of the best manner to conduct the action.” Slip op. at 13-14. Thus, inadmissibility alone is not a proper basis to reject evidence submitted in support of class certification.

Corona will be helpful for potential employee-plaintiffs because they are not restricted to presenting admissible evidence in support of their class certification motions. Further, the Ninth Circuit affirmed Morillion’s broad definition of compensable time as time when an employee is actually working or under the control of his or her employer.

Authored by:
Jordan Carlson, Associate
CAPSTONE LAW APC

Temp Nurses & Hospital Techs Class Certified Despite Differing Housing Benefits

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With staffing agencies gaining a greater foothold in the employment market, their employees face unique challenges in trying to hold them accountable for wage-and-hour violations. The staffing business model—where employees ostensibly under the staffing agency’s control are lent out to different companies—is often deemed to preclude class certification, since the assigned positions and duties can be too varied, creating too many individualized inquiries. However, one court recently rejected this line of reasoning in a case involving nurses’ and hospital technicians’ claims for housing benefits provided by Fastaff, a travel nurse staffing agency. See Dalchau v. Fastaff, LLC, No. 17-cv-01584-WHO (N.D. Cal. April 9, 2018), Order Granting Motion for Class Certification and Denying Motion to Stay (slip op. available here). The plaintiffs avoided commonality and predominance problems by emphasizing that the defendant employer’s policy inflicted a common legal injury on the class of staffed temporary employees. This theory confounded Fastaff’s counsel, who did not even offer a defense against it. Indeed, in granting class certification, Judge William Orrick let the defendant employer know just how poorly they understood the legal thrust of the plaintiffs’ case.

In March 2017, the plaintiffs in Dalchau filed a putative class action and a Fair Labor Standards Act (“FLSA”) collective action on behalf of hourly-paid employees of defendants Fastaff and its parent company, U.S. Nursing Co. Fastaff, which provides temporary staffing for hospitals, offered housing to their employees during their assignments. Fastaff’s traveling nurses and technicians had the option of either accepting a weekly stipend or staying in company-provided housing. However, before the employee can receive the full benefit, he or she had to complete a set amount of work. If the employee did not fulfill their work requirements, Fastaff would collect the difference by either prorating the employee’s stipend or the deducting the difference from their paycheck as “charge-back.” Slip op. at 2. Under certain circumstances, Fastaff could determine, at its discretion, whether any “exceptional” personal circumstance had occurred causing the employee to not fulfill their assigned hours, and could approve an exception and not make the deduction.

The plaintiffs alleged that the value of this weekly housing stipend or supplied housing, a benefit offered by the employer, was being excluded improperly from the employees’ regular rate for purposes of calculating overtime, resulting in underpayment. Slip op. at 1. In response, Fastaff argued that certification was improper because the different methods of bestowing the housing benefit created too many individualized situations, particularly where an exception to the charge-back was granted. However, as the court clarified, the nurses did not claim commonality on a similar set of facts. Instead, the nurses claimed the company inflicted a common legal injury when it refused to include the housing benefit into their regular rate for overtime payments. Their claim focused on a widespread, uniform policy of excluding the housing benefits from their regular rate calculations resulted in illegal underpayment, not a universal set of facts (such as whether all employees received the full amount of their benefits). Further, the court stated that the commonality “does not require that class members suffer identical harm.” Slip op. at 11.

In light of the above, Judge Orrick granted the plaintiffs’ motion for class certification. Fastaff must now defend this employment practice on the merits as the case moves forward towards trial.

Authored by:
Brooke Waldrop, Associate
CAPSTONE LAW APC

Employee or Independent Contractor? Simple as A-B-C

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On April 30, 2018, the California Supreme Court issued its long-awaited ruling in Dynamex Operations West, Inc. v. The Superior Court of Los Angeles County, No. S22732, 2018 WL 1999120 (April 30, 2018) (slip op. available here). Dynamex announced a new test under California law to determine whether workers are properly classified as independent contractors rather than employees and, in so doing, adopted the “ABC test,” a standard that should make class certification of misclassification claims more likely. The ruling will also presumably result in findings that many “independent contractors” are currently misclassified and, therefore, are entitled to the rights and benefits of California’s wage orders. These important benefits include the right to minimum wage, overtime, meal and rest breaks, and, depending on the wage order in question, reimbursement for certain business expenses.

In Dynamex, the plaintiffs alleged that Dynamex, a nationwide package and document delivery company, had improperly misclassified its delivery drivers as independent contractors rather than employees. The drivers claimed that the misclassification led to Dynamex’s violation of the provisions of Industrial Welfare Commission Wage Order No. 9, the applicable state wage order governing the transportation industry, and various sections of the Labor Code. Id. at 3. Then, the plaintiffs moved for class certification. The trial court granted certification of a class consisting of “Dynamex drivers who, during a pay period, did not themselves employ other drivers and did not do delivery work for other delivery businesses or for the drivers’ own personal customers.” Id. at 4. In certifying the class, the trial court determined that the applicable standard for determining whether the drivers were employees was the test announced in Martinez v. Combs, 49 Cal.4th 35 (2010), which held that “[t]o employ . . . under the [wage order], has three alternative definitions[:] (a) to exercise control over the wages, hours, or working conditions, or (b) to suffer or permit to work, or (c) to engage, thereby creating a common law employment relationship.” 49 Cal.4th 35, 64.

Thus, the trial court rejected Dynamex’s argument that the multi-factor test from S. G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal.3d 341 (1989), governs the independent contractor analysis rather than the Martinez test. Dynamex at 4. Dynamex had claimed that the Martinez wage order definitions are relevant only to the joint employer question that was directly presented in Martinez—namely, whether, when a worker is an admitted employee of a primary employer, another business or entity that has some relationship with the primary employer should properly be considered a joint employer of the worker and therefore also responsible, along with the primary employer, for the obligations imposed by the wage order. Id. at 5. Dynamex then appealed the trial court’s order of certification. The Court of Appeal affirmed, concluding that the wage order definitions discussed in Martinez are applicable to the “employee or independent contractor” question with respect to obligations arising out of the wage order, and not just to joint employer determinations. The Court of Appeal upheld the trial court’s class certification order with respect to all of plaintiffs’ claims based on alleged violations of the wage order. Id.

Dynamex filed a petition for review, and the California Supreme Court granted review. In rendering a unanimous decision, the court extensively analyzed the relevant wage orders and judicial decisions and announced a new test for determining whether a worker is to be classified as an employee or independent contractor. The court interpreted the “suffer or permit to work” standard in California’s wage orders as: (1) placing the burden on the hiring entity to establish that the worker is an independent contractor who was not intended to be included within the wage order’s coverage; and (2) requiring the hiring entity, in order to meet this burden, to establish each of the three factors embodied in the ABC test—namely (A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. Id. at 57, n20. Further, the court held that the hiring entity’s failure to satisfy any one of the three parts itself establishes that the worker should be treated as an employee for purposes of the wage order. Id. at 76. The court also provided guidance as to case management, commenting that a trial court is free to consider the separate parts of the ABC standard in whatever order it chooses and that, in terms of increased clarity and consistency, courts will often be best served by first considering one or both of the latter two parts of the standard (i.e., B and C) in resolving the employee or independent contractor question. Id.

Dynamex streamlines the employee/contactor analysis because only one prong may need be analyzed, simplifying the theory of liability and making certification far more probable. For example, in many cases, the plaintiff can focus on part B of the ABC test to argue that there is sufficient commonality of interest regarding the question whether the work provided by the workers is outside the usual course of the hiring entity’s business to permit the plaintiff’s claim of misclassification to be resolved on a class basis. If so, the class will be certified and the merits of the case hinge on an analysis of this single question. In fact, that is exactly how the California Supreme Court applied its new legal standard to the facts in Dynamex and accordingly affirmed the trial court’s certification order. Id. at 78-82. The state Supreme Court also analyzed part C of the ABC test and found a sufficient commonality of interest as to whether the drivers in the certified class are customarily engaged in an independently established trade, occupation, or business to permit resolution of that issue on a class basis. Id. at 81.

The significance of Dynamex on independent contractor misclassification claims in California cannot be overstated. Dynamex should also increase the likelihood that plaintiffs will prevail on the merits given that the work performed by the “contractors” is frequently part of, or even critical to, the hiring entities’ business. For example, it is now difficult to imagine that delivery drivers would not be employees for any company with a business model that centers on, or includes, the delivery of products. Whereas workers such as plumbers, electricians, and other trade workers would properly be classified as independent contractors, given that they are customarily engaged in business distinct from the hiring entity. Many companies, especially those part of the gig economy, rely on the use of independent contractors as key to their business model, since it would be much more expensive to provide benefits and rights to which an employee would be entitled. It is now clear that many of those companies will need to make dramatic changes to their workforce to comply with California law.

Authored By:
Robert Drexler, Senior Counsel
CAPSTONE LAW APC