Department of Labor Works Overtime to Draft New Exemption Rules

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It looks like President Barack Obama would like to add overtime reform to his growing list of second-term accomplishments.  Last week, in response to a March 2014 memorandum issued by the President, the Wage & Hour Division of the U.S. Department of Labor (“DOL”) made public a proposal that would broaden federal overtime pay regulations to include millions of additional workers and make it more difficult for employers to classify employees as exempt under the Fair Labor Standards Act’s “white collar” overtime exemption (29 CFR Part 541).

As the regulations stand now, employees are generally exempt from overtime pay if they perform certain types of work (i.e., executive, administrative, professional, outside sales, and/or IT) and receive a minimum annual salary of $23,660.  Under the proposed rule, this salary floor would more than double in 2016—to $50,440—and be indexed to inflation on an annual basis.  The current salary threshold was last updated in 2004.  

The proposal is expected to be published in the Federal Register this week, which will be followed by a 60-day comment period.  The DOL is specifically seeking input as to whether changes should be made to any of the job duty tests, and suggests the possibility of adopting the California rule (where a worker has to spend at least 50 percent of their time on exempt duties in order to be exempt from overtime) as the new federal standard.  

 

Settlement Delivers $228M to FedEx Drivers

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After over 10 years of litigation, a settlement has finally been proposed in a case alleging that FedEx misclassified more than 2,300 California truck drivers who worked for the company between 2000 and 2007. The drivers’ complaint alleged that they were classified as independent contractors, rather than employees; the latter would afford the drivers certain protections such as overtime pay, reimbursement for certain business expenses, and meal and rest periods.

The settlement follows a 2014 order from the Ninth Circuit overturning a lower court’s denial of the plaintiffs’ motion for partial summary judgment on the question of whether they were improperly classified as independent contractors. Alexander v. FedEx Ground Package Sys., 765 F.3d 981 (9th Cir. 2014) (available here) (previously covered by the ILJ here). In Alexander, the Ninth Circuit evaluated a number of different factors under California’s right-to-control test, which courts use to determine whether a company has the right to control the manner and means of its employees’ work. Id. at 988. The Alexander court found that FedEx mandated workers’ clothing “from their hats down to their shoes and socks,” and also required drivers to adhere to a specific work schedule, both of which exemplify a company’s control over the manner and means of the work performed. Id. at 990. As such, the Ninth Circuit determined that “FedEx [had] a broad right to control the manner in which its drivers perform their work,” and that the FedEx truck drivers were employees as a matter of law. Id. at 997.

The proposed settlement will require approval of a California federal judge. If approval is granted, it will finally resolve the claims of the 2,300 FedEx truck drivers misclassified as independent contractors.

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

California Court of Appeal: PacPizza Can’t Deliver on Arbitration Bid

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On May 1, 2015, the California Court of Appeal, First Appellate District, affirmed a Contra Costa County Superior Court decision denying a defendant pizza restaurant’s motion to compel arbitration in a wage-and-hour class action brought by former employees. Both the trial and appellate courts found that PacPizza had waived its right to arbitration by engaging in extensive litigation for many months before filing the motion to compel. The appellate court’s opinion was certified for publication on June 1, 2015. See Oregel v. PacPizza, LLC, No. A141947 (Cal. Ct. App. May 1, 2015) (slip opinion available here).

Oregel demonstrates what not to do as a defendant that wishes to enforce an arbitration clause. As noted by the Court of Appeal, PacPizza answered two class complaints, attended two case management conferences, negotiated a briefing schedule on a motion for class certification, and propounded and responded to extensive discovery, which included admissions that an arbitration agreement did exist—all without indicating any intent to enforce an arbitration agreement. PacPizza’s motion to compel arbitration was not filed until after the plaintiff’s motion for class certification had been filed, seventeen months after the initial complaint.

Relying heavily on St. Agnes Med. Ctr. v. PacifiCare of California, 31 Cal. 4th 1187 (2003), the trial court and court of appeal found that PacPizza had waived its right to arbitration by: (1) acting inconsistently with that right when continuing with the litigation; (2) engaging in discovery and progressing well into the class certification preparation and briefing stage without indicating an intent to arbitrate; (3) requesting arbitration enforcement only after a long delay; (4) taking advantage of judicial discovery and participating in other procedures not available in arbitration; and (5) affecting, misleading, and prejudicing the opposing party with the delay. Only one St. Agnes factor, regarding cross-complaints, did not affirmatively favor a finding of waiver. Both courts also noted that PacPizza’s delay may have been a strategic ploy to attempt arbitration only if the plaintiff’s class certification motion seemed likely to be granted (the proposed class was later certified by the trial court). As one may expect, this gamesmanship displeased both courts.

Oregel is not a close case of waiver. Rather, it occupies the extreme end of the spectrum where a defendant has engaged in extensive judicial litigation prior to seeking to compel arbitration, which clearly amounts to waiver. Oregel thus joins a growing collection of cases wherein defendants have essentially forfeited their rights to compel arbitration by not doing so soon enough, creating additional work and expense for all involved. This type of dilatory conduct results in waiver because it undermines the traditional policy justifications for contractual arbitration, which are that it saves time and money.

Authored by: 
Jonathan Lee, Associate
CAPSTONE LAW APC

Iskanian PAGA Ruling Stands; U.S. Supreme Court Denies Cert. in Bridgestone

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On Monday, June 1, 2015, the U.S. Supreme Court denied the defendant’s petition for a writ of certiorari in Brown, et al. v. Bridgestone Retail Operations, LLC, a wage-and-hour class action involving the enforceability of waivers of Private Attorneys General Act of 2004 (PAGA) claims—the same issues litigated in Iskanian v. CLS Transportation Los Angeles, 59 Cal. 4th 348 (2014). See Brown, 331 P.3d 1274 (Aug. 27, 2014) (cert. denied by Bridgestone Retail Operations, LLC v. Brown, et al., 2015 U.S. LEXIS 3644 (U.S. June 1, 2015)) (Mr. Brown is represented by Capstone Law APC). In Iskanian, the California Supreme Court held that an arbitration agreement purporting to waive the employee’s right to bring representative claims under PAGA is invalid under California law, and that California’s rule against PAGA enforcement action waivers is not preempted by the Federal Arbitration Act (FAA). In January 2015, the Supreme Court of the United States denied CLS’s petition for writ of certiorari.

Initially, in June 2013, the California Court of Appeal upheld a class action waiver in Brown, finding that the employers’ delay in compelling arbitration had not resulted in a waiver of their right to arbitrate, but found the representative action waiver unenforceable as a violation of public policy. Brown, 216 Cal. App. 4th 1302. The court directed the trial court to vacate its order and enter a new order granting the motion to compel arbitration with respect to all except the PAGA claim, and stay the action pending the arbitration. Id. The California Supreme Court then granted the plaintiffs’ petition for review in September 2013, putting on hold further action in Brown pending Iskanian. 307 P.3d 877. Following Iskanian, the California Supreme Court transferred Bridgestone back to the Court of Appeal with directions to vacate the latter’s prior decision and reconsider the cause in light of the Supreme Court’s holding in Iskanian. The Court of Appeal then issued a writ of mandate directing the superior court to vacate its order granting defendant’s motion to compel arbitration and for a stay.

By denying certiorari in Bridgestone, the U.S. Supreme Court leaves intact the California high court’s Iskanian decision requiring that representative actions brought under the PAGA proceed on a representative basis in some forum, whether it be court or in arbitration.

Authored by: 
Mao Shiokura, Associate
CAPSTONE LAW APC