Articles from February 2015

Courts have long held that individual and varying damages calculations for putative class members does not necessarily preclude class certification. However, a shadow of doubt was cast over this well-settled principle by the United States Supreme Court’s decision in Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013). In Comcast, the Supreme Court reversed the district court and Third Circuit Court of Appeals’ certification orders because it found that the plaintiff’s expert testimony was insufficient to establish classwide damages. Predictably, defense counsel have cited Comcast to argue that individual damages issues preclude certification. If adopted, this rationale would effectively end class actions as we know them, given that most class actions involve varying individual damages.

Recently, the influential Court of Appeals for the Second Circuit weighed in on the scope of Comcast and whether it overruled the law of its Circuit, holding that class certification cannot be denied merely because damages have to be ascertained on an individual basis. Roach v. T.L. Cannon Corp., No. 13-3070-cv (2d Cir. Feb. 10, 2015) (slip op. available here). In Roach, the plaintiff alleged that T.L. Cannon, an Applebee’s restaurant franchisee, had a policy of not paying hourly employees an extra hour of pay when working a ten-hour work day as was required at the time by New York law (the “spread-of-hours” claim) and that the defendant required its managers to subtract pay for required rest breaks that the employees did not take (the rest break claim). The magistrate judge recommended that the spread-of-hours claim be certified, finding the common question of whether the company had a policy of depriving employees of an extra hour of pay predominated over individual issues, but ultimately denied certification of the rest break claim because the class representatives were inadequate. The district court, without considering whether common issues existed, denied certification of both claims on the sole basis that the presence of individualized damages precluded certification under Comcast. Slip op. at 9.

The Second Circuit disagreed with the lower court, holding that the court had misinterpreted Comcast. Id. at 26. According to the Second Circuit, Comcast did not hold that a class cannot be certified under Rule 23(b)(3) simply because damages cannot be measured on a classwide basis. Id. at 19. Rather, Comcast’s more narrow ruling was “that a model for determining classwide damages relied upon to certify a class under Rule 23(b)(3) must actually measure damages that result from the class’s asserted theory of injury.” Id. at 20. Although Comcast reiterated that the damages question should be considered at the certification stage, the fact that damages may have to be ascertained on an individual basis is only a factor to consider when determining whether common issues outweigh individual issues. Id at 22. The Roach court noted that its ruling was consistent with the five other Circuits that had applied Comcast, including the Ninth Circuit’s decision in Leyva v. Medline Indus. Inc., 716 F.3d 510 (9th Cir. 2013). The court then vacated the order denying class certification and remanded the case.

Authored by:
Robert Drexler, Senior Counsel
CAPSTONE LAW APC

On December 31, 2014, in a closely-watched case implicating substantive wage-and-hour law as well as class action law, the California Court of Appeal, Second Appellate District, reversed orders granting summary judgment and summary adjudication in favor of a plaintiff class of security guards for rest break violations under the California Labor Code, and affirmed the trial court’s grant of class certification. Augustus v. ABM Security Services, Inc., Nos. B243788 & B247392, 2014 Cal. App. LEXIS 1209 (Cal. Ct. App. Dec. 31, 2014) (available here). While the court initially issued its ruling as an unpublished decision, on January 29, 2015, the court changed the status of the opinion to “published.”

The trial court held that because ABM’s undisputed rest period policy required its security guards to remain “on call” during their breaks in order to respond to requests for tenant assistance (including for non-emergency security needs), the guards remained under ABM’s control, despite being able to engage in limited leisure activities, such as smoking cigarettes, surfing the internet, reading, or having a cup of coffee. Opinion and Order re: Cross Motions for Summary Judgment/Adjudication and Defendant’s Motion to Decertify Class, pp. 4-7, Dec. 23, 2010 (available here). The trial court reasoned that Industrial Welfare Commission (IWC) Wage Order No. 4 provides that “‘rest period time shall be counted as hours worked for which there shall be no deduction from wages.’ Time that the employee is subject to control of the employer is work time and must be paid [under Wage Order 4 and Morillion v. Royal Packing Co., 22 Cal. 4th 575 (2000)] without reference to the definition of a rest period [in section 11(A) of the Wage Order]. In order to make sense of the statutory scheme, a rest period must not be subject to employer control; otherwise a ‘rest period’ would be part of the work day for which the employer would be required to pay wages in any event.” Opinion and Order at 7. As the trial court stated, “[p]ut simply, if you are on call, you are not on break.” Augustus at *11. Because ABM failed as a matter of policy to provide any duty-free rest breaks, the trial court found it liable for rest period penalties under Labor Code section 226.7, as well as attorney’s fees and interest, in the total amount of nearly $90 million. The trial court had also certified the rest break subclass, finding that this was a “15,000-person one-issue case” that was “perfect for class treatment.” Id. at *12.

While the Court of Appeal affirmed the certification decision, it reversed the trial court’s summary judgment rulings, rejecting the trial court’s view of “on-call” rest breaks. The primary basis for the court’s decision that on-duty rest breaks are permissible was the court’s conclusion that “remaining available to work is not the same as performing work,” since the guards were freed from most of their work responsibilities during their rest breaks. Id. at *19. The court cited no authority for this distinction, but noted that its conclusion was “bolstered” by the fact that Wage Order No. 4, subdivision 11(A), which deals with meal breaks, requires that an employee be “relieved of all duty,” while subdivision 12(A), which deals with rest breaks, has no similar mandate. Id. at *17. The court found further support for this notion in the fact that the IWC requires only on-duty meal periods to be paid, while all rest breaks must be paid, suggesting that rest breaks are typically taken while on-duty and under the employer’s control. Id. at *17-18.

In the unpublished version of Augustus, the court also cited a 1993 Division of Labor Standards Enforcement (DLSE) letter that opined that simply remaining on-call is not “so inherently intrusive” as to require that an employee is compensated for such time. Augustus v. ABM Security Services, Inc., Nos. B243788 & B247392, 2014 Cal. App. Unpub. LEXIS 9287 at *28 (Cal. Ct. App. Dec. 31, 2014) (available here.) Therefore, the court concluded that, reading the various provisions together, employees cannot be made to work during rest breaks, but they need not be “relieved of all duty” such as the duty to remain on call. Augustus at *17-18.

Shortly after the Augustus unpublished opinion was issued, the California Supreme Court ruled, in Mendiola v. CPS Security Solutions, 60 Cal. 4th 833 (2015), that CPS security guards’ “on-call hours constituted compensable hours worked and, further, that CPS could not exclude ‘sleep time’ from plaintiffs’ 24-hour shifts.” Mendiola at 838. In so ruling, the Court reaffirmed that the “extent of the employer’s control” dictates “whether on-call time constitutes hours worked” and that employees could remain under the control of their employer even if they were engaged to “wait for something to happen,” reasoning that “[r]eadiness to serve may be hired, quite as much as service itself.” Id. at 840. The Mendiola Court also ruled that “the fact that guards could engage in limited personal activities [including sleeping, showering, eating, reading, watching television, and browsing the internet] does not lessen the extent of CPS’s control,” which included, inter alia, that guards “were obliged to respond, immediately and in uniform,” to dispatched calls and that they could not leave the premises if a relief guard was not available. Id. at 841-42. Thus, the Court found that all of the security guards’ on-call time, including sleep time, was “time worked” and compensable.

On January 29, 2015, the Court of Appeal changed the status of the Augustus opinion from “unpublished” to “published” and issued its Order Modifying Opinion and Denying Rehearing; Certifying Opinion for Publication (available here). Given the overlapping issues in Mendiola and Augustus, the court felt compelled to respond to the controlling Mendiola decision. In the published opinion, the court offered a new basis for its conclusion that simply being on-call is not “work” for purposes of determining whether a compliant rest break has been provided. Citing the 70-year-old Fair Labor Standards Act (FLSA) case of Tennessee Coal, Iron & R. Co. v. Muscada Local No. 123, 321 U.S. 590 (1944), the Court of Appeal reasoned that the term “work” is used as a verb in section 226.7, not as a noun as in the definition of “hours worked” in Wage Order No. 4, and that when used as a verb, it “means exertion on an employer’s behalf.” Order Modifying Opinion at 1-2. It further concluded that because “[o]n-call status is a state of being, not an action [and] 226.7 prohibits only the action, not the status,” ABM’s security guards were not “required to work” during their rest breaks in violation of section 226.7. Id. at 2. The court attempted to harmonize Mendiola’s holding by suggesting a connection between the Augustus court’s ruling that being on-call during rest periods is a status and not an action, and the Supreme Court’s observation that “‘an employer, if he chooses, may hire a man to do nothing, or to do nothing but wait for something to happen . . . . [I]dleness plays a part in all employments in a stand-by capacity.’” Id. (quoting Mendiola at 840 (quoting Armour & Co. v. Wantock (1944), 323 U.S. 126, 133)). Indeed, the Court of Appeal went further by suggesting that the Court in Mendiola “implicitly acknowledged” that “remaining available to work is not the same as performing work.” Order Modifying Opinion at 3. Finally, in its revised opinion, the Augustus court deleted any reliance on the DLSE’s 1993 opinion letter finding that on-call time is not time under the employer’s control and therefore is not compensable.

Given the broad implications of the Augustus decision for California wage-and-hour law, as well as the very substantial consequences for the litigants (a $90 million judgment was overturned, after all), a petition for review to the California Supreme Court seems inevitable. There are a number of bases on which review should be granted and/or the decision should be reversed. Several of the most compelling arguments are as follows:

1. The Plain Language of Labor Code Section 226.7 Requires that Meal and Rest Breaks Be Treated the Same – As Duty-Free and Free from Employer Control

The Augustus court’s conclusion that employees must be allowed a duty-free meal break, but need not be provided a duty-free rest break, violates Labor Code section 226.7. Section 226.7(b) provides that “[a]n employer shall not require an employee to work during a meal or rest or recovery period.” (Emphasis added.) In other words, section 226.7, the primary Labor Code section defining an employer’s obligation with respect to rest breaks, by its plain language treats meal and rest periods the same. The Augustus court’s holding, however, interprets the word “work” in the statute to mean something different for rest periods than for meal periods, to wit: that meal breaks must be duty-free, but rest breaks need only be free of some duties—i.e., only those that cause “exertion.” The unequivocal language of the statute does not permit such divergent standards. See Mendiola at 840 (if a statute’s text “’is clear and unambiguous [a court’s construction] inquiry ends’” (quoting Murphy v. Kenneth Cole Prods., Inc., 40 Cal. 4th 1094, 1103 (2007))).

2. Treating Rest Breaks as Different from Meal Breaks Ignores Controlling California Precedent Requiring that Both Meal and Rest Breaks Be “Free from Employer Control” and “Duty-Free” To Be Compliant

In 2007, the California Supreme Court observed that “being forced to forgo rest and meal periods denies employees time free from employer control that is often needed to be able to accomplish important personal tasks.” Murphy at 1113. Indeed, the Court expressly rejected the notion that employees can be required “to work” during rest periods: “If denied two paid rest periods in an eight-hour workday, an employee essentially performs 20 minutes of ‘free’ work, i.e., the employee receives the same amount of compensation for working through the rest periods that the employee would have received had he or she been permitted to take the rest periods.” Id. at 1104.

Thus, the Augustus court’s conclusion that employees may be required to work (just not exert themselves) or remain under their employer’s control during rest periods disregards controlling California Supreme Court precedent and is likewise contrary to other California appellate decisions. In Bufil v. Dollar Financial Group, Inc., 162 Cal. App. 4th 1193, 1199 (2008), the Court of Appeal acknowledged that employers must “relieve employees of all duty for 10 consecutive minutes every four hours in order to accommodate lawful rest breaks.” In Faulkinbury v. Boyd & Associates, Inc., 216 Cal. App. 4th 220 (2013), the Court of Appeal reasoned that rest breaks must be “duty-free” based, in part, on the DLSE’s Opinion Letters, one of which stated that “there must be a net 10 minutes of rest provided in each ‘work period’ and the rest period must be, as the language [of Wage Order No. 4-2001] implies, duty-free.” Faulkinbury at 237 (citing Dept. of Industrial Relations, DLSE, Acting Chief Counsel Anne Stevason, Opn. Letter No. 2002.02.22, Rest Period Requirements (Feb. 22, 2002)). Indeed, the Faulkinbury court concluded from the plain language in Subdivisions 11 and 12 of Wage Order 4 that “[t]here does not appear to be an on-duty rest break exception as there is with meal breaks.” Id.

Put simply, the Augustus court’s approval of on-duty rest periods is irreconcilable with well-settled California law.

3. Augustus Adopts a Definition of “Work” Meaning “Physical Exertion” that Has Long Been Repudiated by Other Courts, and that Will Wreak Havoc on Numerous DLSE Standards, IWC Regulations, and Labor Code Provisions that Turn on the Definition of “Work”

The Augustus court concluded that on-call rest periods are permissible because the “work” that section 226.7 of the California Labor Code prohibits—with respect to rest breaks only—must involve “active exertion.” But its only support for this interpretation of the word “work” in section 226.7 is a nearly 70-year-old United States Supreme Court case that defined “work” under the FLSA as “physical or mental exertion.” Augustus Order at 1-2 (citing Tennessee Coal, Iron & Railroad Co. v. Muscoda Local No. 123, 321 U.S. 590, 598 (1944)). Aside from the fact that the California Supreme Court has repeatedly “cautioned against confounding federal and state labor law” and relying on federal labor law or statutory interpretations to construe California labor statutes (Mendiola at 843), the Augustus court’s reliance on Muscoda’s definition of “work” as “physical exertion” is misguided. The United States Supreme Court abandoned that definition of “work” the same year the Muscoda decision issued. Indeed, in Armour & Co. v. Wantock, 323 U.S. 126, 133 (1944), the Court clarified that “exertion” was not in fact necessary for an activity to constitute “work” under the FLSA. See IBP v. Alvarez, 546 U.S. 21, 24-25 (2005) (discussing the progression of the case law). In abandoning the earlier “exertion” definition of work, the Armour Court pointed out that “an employer, if he chooses, may hire a man to do nothing, or to do nothing but wait for something to happen.” Armour, 323 U.S. at 133. And just two years later, the Court defined the “statutory workweek” to “includ[e] all time during which an employee is necessarily required to be on the employer’s premises, on duty or at a prescribed workplace.” Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680, 690-91 (1946). Thus, the “exertion” definition of “work” has been thoroughly repudiated.

Moreover, defining work as “exertion” could create havoc if applied to other provisions of the Labor Code and Wage Orders. For instance, the wage orders use the word “work” as both a noun and a verb in Subdivision 3, in defining when an employer is obligated to pay overtime and how overtime pay is to be calculated. Wage Order 5-2001, Subdivision 3(A)’s Daily Overtime – General Provisions, provides that an “employee[] with direct responsibility for children . . . who works in excess of 40 hours in a workweek shall be compensated at one and one-half (1 ½) times such employee’s regular rate of pay for all hours worked over 40 hours in a workweek.” (Emphasis added.) Under Augustus’s noun-verb distinction, a childcare worker would not be entitled to overtime pay for a workweek of more than 40 hours unless the work involved “physical exertion”; clearly this was not the intent of IWC. The confusion is further compounded when, using the same overtime example, one considers that Labor Code section 510, which defines an employer’s obligations with respect to overtime pay, uses “work” only as a noun. Surely this cannot be the law, as the Wage Order and Labor Code are entitled to equal dignity, but would yield different results.

Finally, a great number of occupations consist mostly, or even entirely, of time spent “waiting for something to happen,” but not actually “exerting” any effort at all. Among innumerable examples are a toll booth operator working in some remote place or a receptionist for certain businesses. These employees might spend an entire shift waiting for something to happen (for a car to come by, or for the phone to ring) without ever having to “exert” any effort. Yet under Augustus, they would not be entitled to actual “rest breaks” because such breaks would be indistinguishable from the rest of their shift time. Again, this cannot be the law.

In Murphy, the California Supreme Court recognized that freedom from employer control is the very purpose of both meal and rest periods and is essential to an employee’s ability to effectively use their breaks for their own purposes. See Murphy at 1113; see also Mendiola at 842 (“The fact that guards could engage in limited personal activities does not lessen the extent of CPS’s control.”); Morillion at 586 (finding time on the employer’s bus to the work-site compensable because “plaintiffs could not drop off their children at school, stop for breakfast before work, or run other errands . . . [; and,] [a]llowing plaintiffs the circumscribed activities of reading or sleeping does not affect” or eliminate the employer’s control). In short, an employee cannot use their rest periods for their own purposes if their employer requires them to stand by, ready to perform his or her duty, if called to do so.

Selecting an abrogated, decades-old Supreme Court case decided under federal law to supply the critical definition of “work” upon which the determination of the case’s ultimate issue depended appears to have been precisely the type of “needless policy determination” that the Supreme Court recently warned against in Mendiola. See Mendiola at 847-48 (noting that the Supreme Court “in Morillion instructed courts not to engage in needless policy determinations regarding wage orders the IWC promulgates.”).

4. Only the DLSE, Pursuant to Section 17 of the Wage Orders, Has the Authority to Exempt Employers from Their Obligation to Provide Duty-Free Rest Breaks

Section 17 of the Wage Orders gives the DLSE the discretionary authority to issue exemptions from certain provisions of the Wage Orders, including the rest period provision, if enforcement of the provision “would not materially affect the welfare or comfort of employees and would work an undue hardship on the employer.” Indeed, ABM had actually obtained an exemption from the DLSE for duty-free rest periods after the Augustus suit was filed, but decided not to renew the exemption thereafter. (The Augustus plaintiff actually excluded the year during which the exemption was in place from the lawsuit.) The Augustus decision, however, effectively renders this exemption power a nullity. If rest breaks need not be duty-free, it follows that employers would not need to seek the DLSE’s permission to institute on-duty rest breaks.

It remains to be seen how California courts will reconcile the holding in Augustus with that of Mendiola in future cases alleging rest break violations. With the Augustus court’s January 29th issuance of its order modifying the opinion and certifying it for publication, the deadline for plaintiffs to file a Petition for Review to the California Supreme Court is now March 10, 2015.

Authored by:
Glenn Danas, Partner
Melissa Grant, Senior Counsel
CAPSTONE LAW APC

In an unpublished opinion issued last week, the California Court of Appeal found that a lower court incorrectly denied class certification in a proposed class action involving the collection of consumers’ ZIP codes at Party America retail stores. Aguirre v. Amscan Holdings, Inc., No. C073059 (Cal. Ct. App. Feb. 11, 2015) (slip op. available here). The plaintiff alleged that Amscan, d/b/a Party America, collected and recorded customers’ ZIP codes at the point of sale, in violation of the Song-Beverly Credit Card Act.

The trial court examined the criteria for class certification and denied the plaintiff’s motion based on lack of ascertainability, because the plaintiff could not “clearly identify, locate and notify class members through a reasonable expenditure of time and money.” Slip op. at 13. However, this is a much stricter definition of ascertainability than is generally imposed on class action plaintiffs, and the appellate court categorically rejected the trial court’s conclusion, stating that “the representative plaintiff need not identify, much less locate, individual class members to establish the existence of an ascertainable class.” Slip op. at 11-12 (relying on Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 706).

The Amscan court found that an ascertainable class exists, since the class definition “describes a set of common characteristics sufficient to allow a member of that group to identify himself or herself as having a right to recover based on the description.” Slip op. at 19 (citing Bartold v. Glendale Federal Bank (2000) 81 Cal.App.4th 816, 828). The case was remanded back to the trial court with instructions to reevaluate their class certification determination in light of the appellate court’s finding of an ascertainable class.

On February 3, 2015, Judge Edward Chen of California’s Northern District issued an order in Hernandez v. DMSI Staffing LLC, No. C-14-1531 EMC (N.D. Cal Feb. 3, 2015) (slip op. available here), denying DMSI’s motion to compel arbitration to the extent it sought to enforce a waiver of the plaintiff’s representative claims under California’s Private Attorneys General Act (PAGA), following the reasoning of the California Supreme Court in its landmark ruling in Iskanian v. CLS Transportation. In Iskanian, the California Supreme Court held that an arbitration agreement precluding representative claims under PAGA is invalid as a matter of California public policy, and moreover that California’s rule against forced waivers of PAGA enforcement actions is not preempted by the Federal Arbitration Act (FAA). The Court emphasized that PAGA disputes—like qui tam actions—are between the state and the employer, and not between two contracting private parties.

Judge Chen’s recent ruling in Hernandez follows Iskanian’s reasoning, analogizing PAGA actions to qui tam actions, insofar as under PAGA a private citizen files suit in court to enforce the California Labor Code on behalf of the government. In Hernandez, the plaintiff sought civil penalties under PAGA for violations of the Labor Code, including: failure to pay minimum wage, failure to pay wages for all hours worked, failure to pay overtime, failure to pay wages timely upon termination, and failure to provide accurate and compliant wage statements. Defendants DMSI and Ross Stores sought to compel arbitration of the plaintiff’s individual claims, and to have the district court dismiss the plaintiff’s representative claims under PAGA. The court rejected the defendants’ arguments in support of enforcing the PAGA waiver, focusing on the enforceability of PAGA waivers under state law and on whether the state non-waiver rule is preempted by the FAA.

First, Judge Chen examined the issue of enforceability of PAGA waivers under state law. The court likened PAGA representative actions to qui tam actions, since they are both fundamentally law enforcement actions in which the real party in interest is the government, but where a private citizen plaintiff is authorized to bring the suit. The opinion went on to state that FAA preemption of the ban on PAGA waivers would not only “hinder the state’s ability to enforce its laws through qui tam actions” but would also “disable one of the primary mechanisms for enforcing the Labor Code.” (slip op. at 15, quoting Iskanian, 59 Cal. 4th 348 at 384.) Judge Chen expressed concern that compelling arbitration of a PAGA claim could “entirely waiv[e] a state agency’s statutory remedy,” since a PAGA action is invariably a “representative” action, and would thus be entirely extinguished by enforcing a “representative action” waiver. (Slip op. at 15.)

Second, Judge Chen analyzed whether the state law non-waiver rule is preempted by the FAA. The court noted that whether the FAA preempts the California rule announced in Iskanian is an issue of federal law, as to which the federal district courts are not bound by Iskanian. (Id. at 9.) Nonetheless, the court found Iskanian persuasive. The court further reasoned that the United States Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), only bars state rules that “interfere with fundamental attributes of arbitration,” such as efficiency, informality, and expeditiousness, and “[t]he Iskanian rule against waiver of PAGA claims does not threaten to undermine the fundamental attributes of arbitration” because PAGA actions need not adhere to the time-intensive formalities of a Rule 23 class action, such as class certification and notice to absent plaintiffs. (Slip op. at 10-11, discussing Baumann v. Chase lnv. Servs. Corp., 747 F.3d 1117 (9th Cir. 2014).)

The court also rejected the defendant’s reliance on Ferguson v. Corinthian Colleges, Inc., 733 F.3d 928 (9th Cir. 2013), which held that the FAA preempts the Broughton-Cruz rule. In Broughton-Cruz, a plaintiff seeking broad injunctive relief under various consumer statutes could not be compelled to arbitrate those claims; in Ferguson, the court determined that a state law that precludes arbitration of a particular type of claim must be preempted by the FAA. Judge Chen distinguished PAGA actions from the consumer claims addressed in Broughton-Cruz and Ferguson, reiterating the qui tam nature of PAGA actions—a PAGA action is not a dispute between two private parties, but brought on behalf of the state, which retains the majority of the penalties collected. On this point, the Hernandez court flatly disagreed with the several federal district courts that have refused to follow Iskanian, holding that these courts are simply incorrect because they fail to distinguish between the public law enforcement aspect of PAGA and the private enforcement actions for injunctive relief at issue in Ferguson.

Finally, and perhaps most importantly, the Hernandez court noted that principles of federalism support the court’s conclusion of no preemption, reasoning that labor law enforcement traditionally falls within a state’s police powers, and state sovereignty depends on a state’s authority over its law enforcement. Thus, “state laws dealing with matters traditionally within a state’s police powers are not to be preempted unless Congress’s intent to do so is clear and manifest.” (Slip op. at 14, citing Californians For Safe & Competitive Dump Truck Transp. v. Mendonca, 152 F.3d 1184, 1186 (9th Cir. 1998).)

In any event, given the firm rejection of the federal district courts that have refused to follow Iskanian, an eventual showdown in the Ninth Circuit Court of Appeals seems likely.