Articles from September 2012

More than 11,000 Verizon employees are now part of a certified class alleging that Verizon failed to comply with specific requirements set forth in California’s Pay Stub Law (Cal. Lab. Code § 226). The case is Banda v. Verizon California Inc., No. BC434587 (L.A. Super. Ct. Sept. 4, 2012) (order granting motion for class certification) (available here).

Superior Court Judge Charles F. Palmer rejected Verizon’s argument — commonly made by defendants facing class actions alleging wage statement violations — that the “injury” required by Labor Code section 226(e) rendered individual questions of injury predominant. Judge Palmer held that because “injury” as used in Section 226(e) is coextensive with the deprivation of a legal right, and the plaintiffs alleged that they had been uniformly deprived of the right to statutorily compliant pay stubs, individualized inquiries would not be substantially implicated. Additionally, Judge Palmer interpreted the statute as mandating that the nine pieces of information specifically required by Section 226(a)(1)-(9) be provided by the employer, thus rejecting Verizon’s contention that employees could find the missing information by doing simple math.

Section 226 requires that wage statements (commonly known as pay stubs) issued to California’s hourly workers show gross wages (Cal. Lab. Code § 226(a)(1)); total hours worked (§ 226(a)(2)); piece-rate units (§ 226(a)(3)); deductions (§ 226(a)(4)); net wages (§ 226(a)(5)); pay period beginning and ending dates (§ 226(a)(6)); employee’s name (§ 226(a)(7)); employer’s legal name (§ 226(a)(8)); and all hourly rates (§ 226(a)(9)). Filed in April of 2010, Banda alleged that the Verizon pay stubs issued to him and fellow employees failed to show the beginning dates of pay periods, hourly rates, and the number of hours worked at each hourly rate. The now-certified class is comprised of Verizon hourly employees who worked for the company in California between April 2009 and May 2011.

Because of the systematic nature of wage statements, few workplace violations are better suited to class treatment. The “injury” argument rejected in Banda has historically been the chief impediment to certification. To clarify that the Legislature’s intention as to the Section 226(e) “injury” language is consistent with Judge Palmer’s reading of it, the Legislature’s current term has been debating amendments to Section 226 that would effectively foreclose other defendants from relying on this argument in the future.

This past February, California’s Fourth Appellate District issued an opinion where it declined to broadly interpret the U.S. Supreme Court’s AT&T Mobility v. Concepcion decision in the employment context. See Mayers v. Volt Management, No. G045036, ___ Cal. App. 4th ____ (available here). In June, the California Supreme Court agreed to take up the case, but further action is deferred pending disposition in a case from the Second Appellate District, Sanchez v. Valencia Holding Co. (201 Cal. App. 4th 74 (2011)), which addresses a related issue in the consumer context.

The question presented in Sanchez is: “Does the Federal Arbitration Act, as interpreted in AT&T Mobility LLC v. Concepcion, preempt state law rules invalidating mandatory arbitration provisions in a consumer contract as procedurally and substantively unconscionable?” (citations omitted). Sanchez is now fully briefed, but oral argument has not been scheduled.

In the underlying Mayers suit, the plaintiff alleged California Fair Employment and Housing Act (FEHA) violations against his former employer. The defendant responded by attempting to compel arbitration, relying on its standard arbitration clause which was included in its employment application, employment agreement, employee handbook, and ADR policy, all of which were ostensibly received by and consented to by Plaintiff in the course of his job application and orientation process. See slip op. at 3-7. The trial court denied the defendant’s motion to compel arbitration, and a unanimous panel of the Fourth Appellate District’s Division Three upheld the ruling. See id. at 12-19.

The Mayers panel rejected the defendant’s argument that even if the contested clauses were unconscionable, as the plaintiff had argued and the trial court had ruled, such terms could be severed while preserving the overall arbitration provision. See id. at 2-4. The Court of Appeal detailed the ways in which the asymmetric, unconscionable terms and procedures so pervaded the at-issue terms as to render them fatal to any enforcement of the arbitration clause: (1) the plaintiff was not provided a copy of the arbitration rules governing the process, nor told how to find them; (2) the arbitration provisions failed to identify the specific American Arbitration Association (AAA) rules that applied; and (3) the provisions included a prevailing party attorney fees term which would expose Plaintiff to greater liability for fees than if he pursued the claims in court. Thus, the court found the arbitration provisions to be unconscionable and therefore unenforceable, and stated that “[b]ecause the unconscionable terms cannot be severed from the rest of the arbitration provisions, plaintiff cannot be compelled to arbitrate his claims against defendant.” Id. at 3.

Though many have questioned whether California’s unconscionability doctrine would continue to have vitality in the wake of Concepcion, Mayers and Sanchez represent key decisions in the increasingly formidable post-Concepcion bulwark against the enforcement of arbitration clauses or terms deemed unconscionable. In Sparks v. Vista Del Mar Child and Family Servs. (available here), California’s Second Appellate District reached a substantially similar conclusion, holding that the plaintiff was not bound by an arbitration clause buried within a lengthy employee handbook.

The California Supreme Court’s decisions in Mayers and Sanchez are expected to bring much-needed clarity to California’s post-Concepcion landscape.

The long, strange journey of former UBS-AG investment banker and qui tam relator Bradley Birkenfeld has reached a resolution, with Birkenfeld being awarded a $104-million payment for his role in providing the IRS with evidence of as many as 4,000 individuals’ tax evasion. The nine-figure award (or “bounty” in qui tam jargon) is believed to be the largest ever of its kind. While relator bounties of up to $100,000 are not uncommon, the $104 million to be paid to Birkenfeld is several orders of magnitude greater than the norm, a function of the substantial value of the information provided by Birkenfeld.

The evidence that Birkenfeld provided to the government resulted in UBS paying upwards of $780 million to settle criminal charges involving secret offshore accounts and being forced to turn over the account information of thousands of alleged tax evaders. Additionally, the publicity surrounding this case is thought to have been a factor in prompting more than 33,000 U.S. taxpayers to voluntarily come forward and admit to having offshore accounts. The IRS has been able to collect more than $5 billion in fees and penalties from these mass confessions.

Birkenfeld’s much-covered saga (most major news outlets have covered the story) is not without a darker controversial side, as he was released from federal prison only last month after serving a two-and-a-half year felony sentence for conspiracy in connection with the same tax evasion as to which he provided evidence.

United States District Court Judge Stefan Underhill has issued a ruling that augments the growing body of law rebuffing defendants’ attempts to use the U.S. Supreme Court’s 2011 decision in AT&T Mobility v. Concepcion to force plaintiffs seeking classwide relief into individual arbitration. See Fromer v. Comcast Corp., No. 09-02076 (D. Conn. Aug. 21, 2012) (ruling on motion to compel arbitration) (available here).

Comcast customer Robert Fromer filed the class action in 2009, alleging that the company violated antitrust laws by bundling its digital voice service with a modem, essentially forcing subscribers to rent the modem. Comcast sought to use Concepcion to force the plaintiff to arbitrate his claims pursuant to the arbitration clause in his subscriber agreement, which included a class action waiver. Judge Underhill denied Comcast’s motion and found the ban on classwide arbitration to be void, since it would “effectively preclude[] Fromer from pursuing federal statutory remedies.” Fromer at 11. Judge Underhill cited the cost of individual litigation versus the potential gain for plaintiffs, stating that “Fromer can expect to recover approximately $1 for every $202 spent in litigation.” Id. at 10.

The ruling follows a similar decision by the 2nd Circuit Court of Appeals (available here) holding that American Express could not invoke its arbitration clause in an antitrust lawsuit filed by merchant customers.