Articles from August 2014

In a published decision, the Court of Appeal overturned the trial court’s denial of class certification of 1,500 sales representatives’ claims under California Labor Code section 2802 for their employer’s failure to reimburse them for work-related calls made on their personal cell phones. Cochran v. Schwan’s Home Service, Inc., No. B247160 (2nd Dist. Div. 2 Aug. 12, 2014) (slip op. available here). The Court held without qualification that section 2802 requires reimbursement for “the reasonable expense of the mandatory use of a personal cellphone.” Slip op. at 7. The court rejected difficulties in segregating out work-related calls as a basis for refusing to impose liability, finding that even if an employee is on a family member’s plan or subscribed to a flat-rate plan, employers must still reimburse a “reasonable percentage” of employees’ work-related call expenses. Id. at 2.

The trial court had previously denied class certification, finding that an employee does not suffer an “expense or loss” under the Labor Code if the at-issue cell phone charges were paid by a third party, the employee did not purchase a different phone plan, or the employee continued using a flat-rate or unlimited plan. The Court of Appeal rejected the trial court’s reasoning, holding that regardless of the type of cell phone plan an employee has, if an employee is required to make work-related calls on his personal cell phone, he or she is incurring a business expense for the purposes of section 2802.

The lower court had also denied certification based on lack of commonality and superiority, finding that individual inquiries regarding cell phone plans and methods of payment would be necessary to determine each class member’s right to recover and to determine liability. On appeal, the plaintiff argued that Duran v. U.S. Bank National Assn. required reversal, as Duran held that statistical evidence and representative testimony can be used to prove the defendant’s liability. 59 Cal.4th 1 (2014). The Court of Appeal agreed, holding that the details of the employee’s cell phone plan do not factor into the liability analysis and “reimbursement is always required. Otherwise, the employer would receive a windfall because it would be passing its operating expenses onto the employee. . . . [Our interpretation] also prevents them from digging into the private lives of their employees . . . .” Id. at 7-8 (emphasis added). “To show liability . . ., an employee need only show that he or she was required to use a personal cellphone to make work-related calls, and he or she was not reimbursed.” Id. at 8.

The Court of Appeal remanded the case for the trial court to reconsider the plaintiff’s motion for class certification in light of the appellate court’s interpretation of section 2802 and to apply the statistical sampling principles set forth in Duran.

On July 31, 2014, President Obama signed the Fair Pay and Safe Workplaces Executive Order. According to the Fact Sheet released by the White House, the stated intent of this measure is to “crack[] down on federal contractors who put workers’ safety and hard-earned pay at risk” by imposing new obligations and requirements on companies who contract with the government. This is President Obama’s second recent executive order relating to federal contractors (an earlier measure prevents those companies from discriminating against workers based on their sexual orientation).

The terms of this executive order require companies bidding for federal contracts worth more than $500,000 to make public any previous violations of labor law from the past three years. These covered federal statutes and equivalent state laws include protections for wage and hour, safety and health, collective bargaining, family and medical leave, and civil rights. Contractors will be required to keep a record of their own mistakes; businesses will be required to self-report their labor violations and update government agencies biannually. Furthermore, contractors will be required to collect similar information from many of their subcontractors. Such measures are intended to encourage companies to settle back wage claims, improve the behavior of contractors, and promote efficient federal contracting.

Another provision of the order requires contractors to give their employees, on their paystubs, for each pay period, information concerning their total hours worked, overtime hours, pay, and any additions to or deductions made from their pay.

Finally, the order also forbids companies with federal contracts of more than $1 million from requiring their employees to sign pre-dispute arbitration agreements waiving their right to litigate workplace discrimination lawsuits, such as disputes arising out of Title VII of the Civil Rights Act or torts related to sexual assault or harassment (except where valid arbitration contracts already exist). Given the U.S. Supreme Court’s recent pro-arbitration, pro-employer decisions, this is a decidedly pro-employee move, which will allow employees to take back the rights that have been stripped away from them in recent years.

On July 14, 2014, in a unanimous decision authored by Justice Corrigan, the California Supreme Court held that employers cannot satisfy California’s compensation requirements by allocating commission wages paid in one pay period to other pay periods. Peabody v. Time Warner Cable, Inc., No. S204804 (July 14, 2014) (slip op. available here). Peabody narrowly construes the commissioned employee exemption and holds that neither California law nor Industrial Welfare Commission wage orders allows employers to decide how wages are allocated over pay periods.

The Peabody plaintiff was an account executive who alleged that because she was paid commissions only in some pay periods, she did not earn one and one-half times the minimum wage in the other pay periods, which is a requirement of the commissioned sales exemption under state law. Thus, in the weeks where she did not earn commissions, she was misclassified as exempt from overtime. The district court granted the defendant’s summary judgment motion and the plaintiff appealed to the Ninth Circuit; in 2012, the appeals court asked the state’s Supreme Court to answer the question as to whether employers could average commission payments over multiple pay periods when calculating minimum wage.

Time Warner paid commissions on the final biweekly payday of every month. It argued that the commissions could be allocated over the weeks of the preceding month to meet the exemption, but the California Supreme Court disagreed, stating that “all earned wages, including commissions, must be paid no less frequently than semimonthly.” Slip op. at 7. Further, “[w]hether the minimum earnings prong is satisfied depends on the amount of wages actually paid in a pay period. An employer may not attribute wages paid in one pay period to a prior pay period to cure a shortfall.” Id. at 7 (emphasis in original). The Court noted that requiring employers to actually pay the required minimum wages in each pay period protects employees and is consistent with the purpose of the minimum wage requirement: to mitigate the burden imposed by exempting employees from receiving overtime wages. It is also in line with the enforcement policies of the California Division of Labor Standards Enforcement which hold that employers cannot skirt the requirements of the commissioned employee exemption simply by deferring part of the wages due for one period until wages due for a later period are paid. “Although the DLSE’s enforcement policies are not entitled to deference . . . , we adopt its interpretation having independently determined that it is correct.” Id. at 9 (internal citations omitted).

The Court also dismissed the defendant’s argument that such wage attribution practices are permitted by federal law, stating that it previously warned employers against conflating federal and state labor law where the language or intent of state and federal laws are different: “[u]nlike state law, federal law does not require an employee to be paid semimonthly . . . . It also permits employers to defer paying earned commissions so long as the employee is paid the minimum wage in each pay period. In light of these substantial differences . . . , reliance on federal authorities to construe state regulations would be misplaced.” Slip op. at 9 (internal citations omitted).

Peabody will be sent back to the Ninth Circuit, which is expected to revive the putative class action and remand back to the district court.

In July, Governor Jerry Brown appointed Stanford Professor Mariano Florentino Cuéllar to the California Supreme Court to replace Justice Marvin R. Baxter, who is retiring. If confirmed, Cuéllar would start as an associate justice on January 4, 2015. Cuéllar, who is a Democrat, was born in Matamoros, Mexico. During his childhood, he crossed the U.S.-Mexico border on foot to attend school in Texas; at the age of 14, he moved with his family to California’s Imperial Valley. He went on to receive a bachelor’s degree from Harvard College, his juris doctor from Yale Law School, and a Ph.D. in political science from Stanford University.

Cuéllar focuses his research and teaching on administrative law and governance, public organizations, and transnational security. He has written on issues such as administrative law and national security, including two books, Administrative Law: The American Public Law System and Governing Security: The Hidden Origins of American Security Agencies. He has been extensively involved in public service, notably, serving as Special Assistant for Justice and Regulatory Policy for the Obama administration during 2009-2010 and as Co-Chair for Obama-Biden Transition’s Immigration Policy Working Group in 2008 and 2009. During the President Clinton’s second term, he served as Senior Advisor to the Under Secretary for Enforcement at the U.S. Department of the Treasury.

Cuéllar is married to Judge Lucy H. Koh of the U.S. District Court of the Northern District of California. After a state bar evaluation committee review, Cuéllar will go before a judicial appointments commission for confirmation, and his name will appear on the November ballot for California residents to cast their vote. Governor Brown also has another vacancy to fill, which was left by Justice Joyce L. Kennard when she retired this past April.