Articles from July 2014

The Ninth Circuit Court of Appeal recently ruled, in a precedential opinion, that the Federal Aviation Administration Authorization Act (“FAAAA”), which regulates motor carriers and the trucking industry, does not preempt California meal and rest break requirements. Dilts v. Penske Logistics, LLC, No. 12-55705 (9th Cir. July 9, 2014) (slip opinion available here). The FAAAA provides that a state “may not enact or enforce a law . . . related to a price, route, or service of any motor carrier . . . with respect to the transportation of property.” 49 U.S.C. § 14501(c)(1). Dilts is an employment class action on behalf of delivery drivers for Penske Logistics LLC. Previously, U.S. District Judge Bencivengo of the Southern District of California dismissed the certified class’ claims, holding that the application of state meal and rest break laws to these truck drivers would have a significant effect on the company’s prices, routes, and services, because the break requirements would impact the types and lengths of feasible routes. Dilts v. Penske Logistics, LLC, 819 F. Supp. 2d 1109 (2011).

The Ninth Circuit reversed, holding that “generally applicable background regulations that are several steps removed from prices, routes, or services, such as prevailing wage laws . . . , are not preempted, even if employers must factor those provisions into their decisions about the prices that they set, the routes that they use, or the services that they provide.” Slip op. at 16. The Court thus held that California meal and rest break laws are not preempted because they are “not the sorts of laws ‘related to’ prices, routes, or services that Congress intended to preempt.” Id. at 18. Instead, they are “normal background rules for almost all employers doing business in the state of California.” Id. The panel found persuasive the brief filed by attorneys from the Department of Transportation, the Federal Motor Carrier Safety Administration, and the Department of Justice, which stated that the FAAAA did not preempt state break requirements because it is “squarely within the states’ traditional power to regulate the employment relationship and to protect worker health and safety.” The Court stated that it would give some weight to the government’s interpretation and ultimately rejected all six of the defendant’s arguments as to how the laws related to routes and services, stating that motor carriers were free to hire enough drivers and stagger employees’ breaks in order to provide continuous services and that a driver briefly pulling over to stop to take breaks does not “meaningfully interfere” with a motor carrier’s ability to choose its starting points, end points, and routes. Id. at 22. The Court found that defendants submitted no evidence showing that the break laws would actually or meaningfully decrease the availability of routes.

The Ninth Circuit also issued an unpublished ruling in a related case, Campbell v. Vitran Express Inc., which involved the same meal and rest break claims as Dilts. No. 12-56250 (9th Cir. July 9, 2014) (slip opinion available here). The holdings in Dilts and Campbell are likely to curb employers’ attempts to use the FAAAA to preempt employees’ state law claims.

Earlier this month, the Seventh Circuit Court of Appeal held that “commonality of damages” was not required under Wal-Mart v. Dukes, 131 S. Ct. 2541 (2011) and Comcast v. Behrend, 133 S. Ct. 1426 (2013) for class certification in a consumer case involving claims that “organic” roof shingles did not meet an industry standard. In the Matter of IKO Roofing Shingle Prods. Liab. Litig., No. 14-1532 (7th Cir. July 2, 2014) (slip opinion available here). Purchasers of the shingles sued IKO, alleging that the defendant falsely told customers that the shingles met an industry standard. Plaintiffs asked the district court to certify a class that would cover IKO’s sales of the product in various states since 1979, but the motion was denied by the multidistrict litigation judge in the Central District of Illinois. The district court stated that Comcast and Dukes required proof “that the plaintiffs will experience a common damage and that their claimed damages are not disparate” and that “’commonality of damages’ is essential.” Slip op. at 6.

Circuit Judge Frank Easterbrook authored the opinion for the panel consisting of Judges Wood and Kanne. The panel wrote that the district court incorrectly interpreted Comcast; such an interpretation would make “class actions about consumer products impossible.” Slip op. at 6. Distinguishing Dukes as having “nothing to do with commonality of damages,” the opinion stated, “[i]t dealt instead with the need for conduct common to members of the class, and it concerned Rule 23(a)(2) rather than Rule 23(b)(3).” Id. However, in a suit like IKO Roofing, which alleges a defect common to all instances of a consumer product, “the conduct does not differ.” Id. at 6-7.

Furthermore, while Comcast does discuss injury under Rule 23(b)(3), all it requires is that the theory of loss (damages) match the theory of liability. Id. at 7. In Comcast, the plaintiffs specified four theories of liability, but the district judge had only certified a class limited to one of the four theories. However, the plaintiffs’ damages expert estimated harm assuming all four of the theories were established. Because there was only one certified theory of liability but four theories of damages, the theory of loss failed to match the theory of liability. Id. In IKO Roofing, the panel found that the plaintiffs submitted two theories of damages that matched their theory of liability: the first being the difference between the market price between the product as represented and a tile that does not satisfy the industry standard, which is applied to every purchaser, and the second being purchasers whose tiles actually failed could recover damages if the alleged defect (not meeting the industry standard) caused the failure.

The panel stated that although the district court was not required to certify this class action if there were other issues that make class treatment unwieldy despite any common issues, here, the lower court failed to apply the correct legal standard—“commonality of damages” is not a requirement for certification. It is too early to tell, but IKO Roofing’s holding may have positive implications for wage-and-hour class actions, if utilized in employee class certification arguments.

An array of supporters have filed amicus briefs on behalf of the plaintiffs in the Fox Searchlight unpaid intern cases, including the U.S. Department of Labor (DOL), unions such as the Service Employees International Union (SEIU), and the National Employment Lawyers Association (NELA), among others. Glatt v. Fox Searchlight Pictures, Inc., Case No. 13-4478 (S.D.N.Y.). Similar amicus briefs were also filed in a related case on behalf of ex-Hearst interns who are appealing denial of their motion for class certification in the Second Circuit, which will be heard in tandem with the Fox case. Wang v. The Hearst Corp., Case No. 13-4480 (S.D.N.Y.). At issue is the proper legal test for determining whether an intern is an “employee” entitled to wages under applicable federal and state laws or a “trainee,” who is not entitled to such pay and protections. While several of these unpaid intern cases have settled, Fox is appealing the decision by U.S. District Judge William Pauley to grant class and collective action certification to the ex-interns and the finding that the two interns who worked on the set of “Black Swan” were “employees” under New York state law and the Fair Labor Standards Act (FLSA).  

An amicus brief submitted jointly by NELA, the Economic Policy Institute, and the Writers Guild of America East (available here), was filed on July 3, 2014, supporting affirmance of the certification decision. NELA’s brief noted that employers increasingly have been using labels like “intern” to keep workers outside of the protections of employment laws like the FLSA, and that this reflects a larger trend toward greater employer use of “contingent jobs.” NELA Brief at 5. By using job titles other than “employee,” like “independent contractor” or “volunteer,” to categorize workers, companies have undermined the FLSA’s protections. Id. NELA also wrote that simply labeling someone an intern cannot convert what would be considered “entry-level paid employment” into “legitimately unpaid work,” “rather, it is the relationship between the worker and the company that matters. If workers are suffered or permitted to work, their employer must pay them.” Id. at 7. Finally, NELA’s brief states that employers who misuse unpaid interns hurt workers and law-abiding employers alike: the workers are deprived of income and while companies who properly pay their employees minimum wage, overtime, unemployment insurance, workers’ compensation, and payroll taxes are at a competitive disadvantage. Id. at 16-19.

The U.S. DOL also filed an amicus brief on July 8, 2014 (available here), stating that the limited exception for trainees under federal wage requirements does not apply to the unpaid interns who performed routine tasks that would have been performed by paid employees. Further, the DOL supported the lower court’s application of the six-part DOL trainee test rather than the “primary benefit” test urged by the defendants and agreed with the court’s holding that the interns were “employees” as broadly defined by the FLSA, 29 U.S.C. section 203(g). DOL Brief at 1. The DOL test only allows unpaid interns to be classified as trainees in limited circumstances, where the employer derives no immediate advantage from the activities of the intern, the intern is the primary beneficiary of the internship, and the interns does not displace regular employees, among other requirements. On the other hand, the primary benefit test requires an analysis of the totality of circumstances, of which a key factor is who was the “primary beneficiary” of the internship. The U.S. DOL wrote that, although “trainees” whose work is intended for their own benefit are excluded from the FLSA’s wage requirements, that exception does not apply here, partly because the interns performed work that other paid employees would have otherwise had to do. Id. at 19-20. “Nothing in the FLSA or in Portland Terminal [on which the DOL’s six-part test is based] suggests that for-profit employers should be permitted to circumvent their obligation to compensate individuals who are performing productive work by categorizing [them] as interns or trainees.” Id. at 28.

Finally, in the amicus brief filed by several unions, including the SEIU and the United Food and Commercial Workers, on July 9, 2014 (available here), the unions argue that Fox’s proposed “primary benefit” test for determining whether an intern is an employee under the FLSA would effectively “absolve them, and other for-profit employers, [of having to pay] an FLSA-required wage to any worker who receives the ‘primary benefit’ of her job.” SEIU Brief at 5. “If this court were to adopt the primary beneficiary test urged by Appellants, it would significantly narrow the scope of the FLSA and . . . increase the number of workers in the labor market who are not entitled to any pay. Doing so would not only deny productive workers the living wages they legally deserve for their labor, but would also strip them of a slew of other statutory workplace rights – concerning sexual harassment, discrimination . . ., workplace safety, and collective bargaining – that apply only to wage earners. The result would be a sweeping denial of legal protections to the struggling workers who need them most.” Id.

A hearing date for oral argument has not yet been set.

Last week, the California Supreme Court affirmed the Second District Court of Appeal’s reversal of a trial court’s decision denying certification in a case involving newspaper carriers who were misclassified as “independent contractors.” Ayala v. Antelope Valley Newspapers, Inc., No. S206874 (June 30, 2014) (slip opinion available here). The Court held that the delivery workers can be certified as a class if they are subject to a common policy, which could make it more difficult for companies to defeat motions for class certification by plaintiffs. The complaint alleged that Antelope Valley treats its carriers as independent contractors when, as a matter of law, they are actually employees, and were thus denied wage-and-hour protections to which they are entitled. The plaintiffs sought class certification, arguing that the “central question in establishing liability was whether carriers are employees, and that this question could be resolved through common proof, [such as via] the contents of the standard contract entered into between Antelope Valley and its carriers.” Slip op. at 3. Antelope Valley opposed; it disagreed that the question of employee status could be resolved on a common basis because of individual variations in how the workers carried out their deliveries.

The trial court had rejected certification, concluding that common issues did not predominate because resolution of the plaintiffs’ status as “employees,” as well as the wage-and-hour claims, would require “heavily individualized inquiries,” and thus the class action vehicle could not be superior to individual lawsuits brought by each worker. Slip op. at 3. The Second District then reversed in part, holding that even though there was evidence of variation in how the carriers performed their work and how the company’s policies affected them, the company had uniform policies affecting all carriers. Before the California Supreme Court, the carriers argued that the contents of the form agreements the defendant required them to sign were proof that the paper controlled how they carried out their work. The Court explained that the lower courts properly recognized the central legal issue: “whether putative class members are employees for purposes of the provisions under which they sue,” stating, “[i]f they are employees, Antelope Valley owes them various duties that it may not have fulfilled; if they are not, no liability can attach.” Id. at 5.

The Court affirmed, stating that the principal test for whether a worker is an employee or an independent contractor under the common law is the extent to which the hiring party retains the right of control over how the work is performed. Slip op. at 2 (citing S. G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal.3d 341, 350 (1989)). Further, “whether the hirer’s right to control can be shown on a classwide basis will depend on the extent to which individual variations in the hirer’s rights vis-à-vis each putative class member exist, and whether such variations, if any, are manageable.” Id. Because the trial court rejected certification based not on variations in the company’s right to exercise control, but rather on dissimilarities in how that right was exercised, the Court found the trial court decision could not stand. Id. Under the common law, what matters is whether the hirer retains “all necessary control” over its operations; the strongest evidence of such right to control is if an “employer” has the right discharge the worker without cause, regardless of whether or not it actually exercised that right. Id. at 6-7 (citing Borello, at 357). In addition to the right of control, the Court narrowed which “secondary” Borello factors are most significant and clarified the meaning of these additional factors.

Finally, the Court stated that after common and individual factors are identified, it must weigh the costs and benefits to determine whether the advantages of a class action to resolve a common, predominating question exceed the disadvantages created by individualized inquiries. Slip op. at 17. “Individual issues do not render class certification inappropriate so long as such issues may effectively be managed.” Id. at 17-18 (citing Sav-On Drug Stores, Inc. v. Superior Court, 34 Cal.4th 319, 334 (2004), and Duran v. U.S. Bank National Association, 59 Cal.4th 1, 29 (2014). Ayala, as a decision issued post-Duran, clarifies how the manageability of a class claims can impact class certification.