Articles from October 2016

Uber drivers suing the ride-hailing company have urged an en banc review of the Ninth Circuit panel’s recent decision that drivers must arbitrate their claims, including any challenges to that they might have to the arbitration agreements themselves. Plaintiffs-Appellees’ Petition for Rehearing En Banc, Mohamed v. Uber Technologies, Inc., et al., 15-16178, Gillette v. Uber Technologies, Inc., 15-16181, and Mohamed v. Hirease, LLC, 15-16250 (9th Cir. Sept. 7, 2016) (available here). The request to re-examine the decision stems from appeals by Uber in three proposed class actions in which drivers alleged that Uber misclassified them as independent contractors, rather than as employees, and violated the Fair Credit Reporting Act and analogous state statutes by running criminal background and credit checks on drivers without proper authorization and then improperly utilizing their consumer credit reports. The at-issue arbitration agreements were contained in two driver agreements, a 2013 agreement and a 2014 agreement, both of which contained opt-out clauses that none of the plaintiffs had utilized.

On September 7, 2016, a three-judge panel partly reversed U.S. District Judge Edward M. Chen’s June 2015 ruling that Uber’s arbitration agreements were unenforceable, and clarified that the 2013 and 2014 contracts clearly delegated the question of arbitrability to the arbitrator. Mohamed, at 6-7 (slip op. available here). The panel found that “[t]he 2013 agreement clearly and unmistakably delegated the question of arbitrability to the arbitrator except as pertained to the arbitrability of class action, collective action, and representative claims.” Id. at 14. Furthermore, “the 2014 agreement clearly and unmistakably delegated the question of arbitrability to the arbitrator under all circumstances.” Id. at 11. The panel also held that neither delegation provision was unconscionable, because the ability to opt-out of both agreements within 30 days essentially rendered both agreements procedurally conscionable, per se. Id. at 18. Indeed, although the panel acknowledged that it was likely more burdensome to opt out of the arbitration provision by overnight delivery service or in person (as required by the 2013 agreement) than it would have been by email (as allowed by the 2014 agreement), “there were some drivers who did opt out and whose opt-outs Uber recognized. Thus, the promise was not illusory.” Id. at 17. Accordingly, the court rejected Judge Chen’s finding that Uber’s arbitration provision was procedurally and substantively unconscionable on these grounds. Id. at 17-18.

In their petition for rehearing, the drivers first argue the panel’s ruling unlawfully permits otherwise unconscionable arbitration agreements to be upheld, so long as the agreement contains a “meaningful” opt-out clause, even where the terms of the clause are difficult to comply with or are purposely buried in the fine print to prevent an individual from opting out. Petition for Rehearing, at 4-7 (internal citations omitted). Second, they contend that the panel’s finding that questions of arbitrability be decided by an arbitrator conflicts with the U.S. Supreme Court’s requirement that valid delegations of arbitrability be “clear and unmistakable,” insofar as the at-issue delegation provisions contained exceptions, conflicted with other arbitration terms, and were generally ambiguous. Id. at 7-10 (internal citations omitted). Third, the drivers argue that the panel’s holding that the presence of opt-out clauses renders the agreements’ class action waivers lawful under federal labor laws is incorrect and conflicts with contrary holdings of the Seventh Circuit. Id. at 10-12. Specifically, in Morris v. Ernst & Young, No. 13-16599, 2016 WL 4433080 (9th Cir. Aug. 22, 2016), the Ninth Circuit recently held that class action waivers violate employees’ right to engage in “concerted action” under the National Labor Relations Act (NLRA). However, this panel (in Mohamed) held that the availability of limited and burdensome opt-out provisions rendered the class action waivers non-mandatory, and thus lawful. Mohamed, slip op. at 18 n.6. The plaintiffs point out that this conclusion conflicts with the Seventh Circuit’s ruling in Lewis v. Epic Sys. Corp., 823 F.3d 1147, 1155 (7th Cir. 2016), where the court held that an employee cannot prospectively waive the right to engage in protected concerted action under the NLRA, notwithstanding an opt-out provision. Finally, the drivers argue that the panel’s determination that a cost-sharing provision that would require drivers to pay substantial fees was negated by Uber’s mid-litigation offer to pay such costs, runs contrary to Sixth Circuit precedent which held such a provision unenforceable if it “deter[s] potential litigants, regardless of whether . . . the employer agrees to pay a particular litigant’s share of the fees and costs to avoid such a holding.” Petition for Rehearing, at 12-15 (citing Morrison v. Circuit City Stores, Inc., 317 F.3d 646, 676-77 (6th Cir. 2003) (en banc)).

It remains to be seen whether the Ninth Circuit will accept this petition for rehearing en banc.

Authored by:
Natalie Torbati, Associate
CAPSTONE LAW APC

In Laffitte v. Robert Half International Inc., No. S222996 (Cal. Aug. 11, 2016) (slip op. available here), the California Supreme Court joined “the overwhelming majority” of the nation’s courts in holding that judges may award fees in class actions as a percentage of a common fund created for the class’ benefit (the “percentage of the recovery method”). Slip op. at 27. Prior to Laffitte, some litigants—often class settlement objectors—had argued that the high court’s earlier ruling in Serrano v. Priest required judges to use only the “lodestar method” for calculating fees: “The starting point of every fee award . . . must be a calculation of the attorney’s services [measured by] the time he has expended on the case.” Serrano v. Priest, 20 Cal.3d 25, 26 (1977) (“Serrano III”). However, the California Supreme Court had not directly addressed on the issue before Laffitte.

Laffitte involved a $19 million common fund that was established to settle the claims of a class of staffing professionals who had been misclassified by their staffing agency, Robert Half, as exempt under the Labor Code, and thereby were disentitled to overtime, meal breaks, rest breaks, and other benefits guaranteed to non-exempt employees. As part of the settlement, plaintiffs’ counsel requested one-third of the common fund ($6,333,333) as a contingency fee. One class member, David Brennan, filed several objections to the settlement, including an objection to the requested fee. Brennan claimed that the fee request was unreasonable because it exceeded the contingency fee plaintiffs’ counsel would be entitled to under the lodestar method (counsel’s lodestar was $2,968,620).

The trial court overruled Brennan’s objections to the settlement. With respect to fees, the court found that the requested contingency fee was reasonable under both the percentage of the recovery and lodestar methods. On appeal, Brennan claimed that the trial court had erred by using the percentage of the recovery method to calculate the fee, and made mistakes in its application of the lodestar method, such as relying only on summaries of counsel’s billing records (rather than the actual billing records) and by awarding more than double counsel’s lodestar. The California Court of Appeal rejected these arguments, finding that the trial court had not abused its discretion by awarding a percentage of the common fund in attorneys’ fees, nor by performing a lodestar calculation based on the declarations of counsel to confirm the reasonableness of the fee as a percentage of the recovery.

On appeal to the California Supreme Court, Brennan again argued that calculating the fee award as a percentage of the settlement ran afoul of Serrano III. The court disagreed, finding that Serrano III was factually distinguishable:

The quoted text [from Serrano III] . . . concern[s] calculation of a fee awarded under the private attorney general theory. In Serrano III, this court simply did not address the question of what methods of calculating a fee award may or should be used when the fee is to be drawn from a common fund created or preserved by the litigation. For this reason, the passages quoted cannot fairly be taken as prohibiting the percentage method’s use in a common fund case . . . . Since Serrano III, we have several times, in fee shifting cases, endorsed the lodestar . . . method of calculating an attorney fee award; none of our decisions involved a case where the fee was to be awarded from a common fund created or preserved by the litigation.

Id. at 20-22 (internal citations omitted; emphasis in original).

The California Supreme Court ultimately found that “whatever doubts may have been created by Serrano III,” use of the percentage method to calculate a fee in a common fund case, where the award serves to spread the attorney fee among all the beneficiaries of the fund, does not in itself constitute an abuse of discretion. “The recognized advantages of the percentage method . . . convince us [that it] is a valuable tool that should not be denied our trial courts.” Id. at 27 (internal citations omitted). Turning to the facts of the case, the California Supreme Court held that the trial court had not abused its discretion by awarding one-third of the common fund as a contingency fee, nor by double-checking the reasonableness of the percentage fee through a lodestar/multiplier calculation based on billing summaries, stating, “[a] lodestar cross-check [] provides a mechanism for bringing an objective measure of the work performed into the calculation of a reasonable attorney fee. If a comparison between the percentage and lodestar calculations produces an imputed multiplier far outside the normal range, . . . the trial court will have reason to reexamine its choice of a percentage.” Id. at 28-29 (internal citations omitted).

Of particular interest for practitioners is the California Supreme Court’s ruling that the lodestar cross-check “does not override the trial court’s primary determination of the fee as a percentage of the common fund and thus does not impose an absolute maximum or minimum on the potential fee award.” Id. at 30. Rather, “[i]f the multiplier calculated by means of a lodestar cross-check is extraordinarily high or low, the trial court should consider whether the percentage used should be adjusted so as to bring the imputed multiplier within a justifiable range, but the court is not necessarily required to make such an adjustment.” Id. In so holding, Laffitte ensures that the application of the lodestar method to cross-check the percentage fee will not undercut the reasons for applying the percentage of the recovery method in the first instance; namely, the “alignment of incentives between counsel and the class, a better approximation of market conditions in a contingency case, and the encouragement it provides counsel to seek an early settlement and avoid unnecessarily prolonging the litigation.” Id. at 27.

Authored by: 
Eduardo Santos, Associate
CAPSTONE LAW APC

In recent years, one of the most active areas in wage-and-hour litigation has been “off-the-clock” cases, in which retail employees are required to perform certain job-related tasks, such as closing down the store or undergoing a security check before exiting the store, but after clocking out. Plaintiffs’ lawyers generally take the position that, since these tasks occur off-the-clock, but under the control of and for the benefit of the employer, employees are entitled to compensation for the time spent performing these job-related activities. Defense counsel generally argue that the time spent on these tasks is “de minimis” and therefore non-compensable. The de minimis doctrine emerged in federal actions under the FLSA, and provides that when the time spent off-the-clock is so brief that recording it is impractical, the employee need not be compensated for it. See Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680, 692 (1946); Lindow v. United States, 738 F.2d 1057, 1063 (9th Cir. 1984).

On July 3, 2016, the California Supreme Court granted a request from the Ninth Circuit Court of Appeals to decide whether the de minimis doctrine applies to cases brought under the California Labor Code. In Troester v. Starbucks Corp., the plaintiff, suing under California law, alleged that he was not compensated for the time he and other employees spent performing “closing” tasks at the end of the day after clocking out, such as electronically sending the “close out” data to corporate headquarters, setting the store alarm, putting away patio furniture, and walking co-workers to their cars or staying with them until their rides arrived, per Starbucks’ safety policy. No. 14-55530 (9th Cir. June 2, 2016) (slip op. available here). Applying the FLSA standards from Lindow, 738 F.2d 1057, 1063 (9th Cir. 1984), in which a court determines the applicability of the de minimis doctrine based on “(1) the practical administrative difficulty of recording the additional time; (2) the aggregate amount of compensable time; and (3) the regularity of the additional work,” the district court granted summary judgment in Starbucks’ favor, finding that the plaintiff’s claim for unpaid wages failed because the time spent in or around the store after clocking out was de minimis (id. at 4-5). The plaintiff appealed, arguing that the de minimis doctrine does not apply to claims brought under California wage-and-hour law. The Ninth Circuit responded by certifying the issue to the California Supreme Court in an unpublished order, requesting that it answer the following question: “Does the federal Fair Labor Standards Act’s de minimis doctrine, as stated in Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680, 692 (1946) and Lindow v. United States, 738 F.2d 1057, 1063 (9th Cir. 1984), apply to claims for unpaid wages under the California Labor Code sections 510, 1194, and 1197?” Slip op. at 3.

In its request, the Ninth Circuit stated that the California Supreme Court has not yet addressed this particular question. The Troester federal appellate panel noted that, although different panels of the Ninth Circuit and California Court of Appeal have occasionally applied the federal de minimis standard to state law claims, it has not been squarely or definitively decided. “The California Supreme Court has long held that state wage and hour laws, ‘although at times patterned after federal regulations, also sometimes provide greater protection than is provided under federal law in the Fair Labor Standards Act and accompanying federal regulations,’” the panel wrote. Slip op. at 8-10 (internal citations omitted). Thus, “[t]he federal de minimis rule could be seen as less employee-protective than California’s wage-and-hour laws and, therefore, at odds with those laws.” Id. at 9. Indeed, the panel noted that very recently, in Mendiola v. CPS Sec. Solutions, Inc., 60 Cal.4th 833, 842-43 (2015), the California Supreme Court had held that FLSA regulations did not apply to California Labor Code claims, distinguishing California’s wage laws from federal regulations. Id. at 8.

The California Supreme Court is unlikely to find in the defendant’s favor. First, it is not administratively difficult to capture the off-the-clock time; for instance, employers could simply move the timekeeping systems to a location where the employee may clock-out after performing all necessary duties, such as near the store exit. Second, even though the time spent on off-the-clock tasks is often brief, the tasks occur regularly. Accordingly, because the off-the-clock tasks are not an occasional, but a regular occurrence, the aggregate amount of unpaid compensable time can be substantial. If the California Supreme Court were to rule that the de minimis doctrine does not apply, that decision will have important consequences for employers. Specifically, employers may need to rethink where and how employees may clock out, and consider introducing procedures through which employees may manually record additional time worked after clocking out. If employers fail to do so, they risk exposing themselves to substantial damage awards, not only for off-the-clock work, but also to derivative claims under Labor Code section 203 (failure to pay wages on termination) and section 226 (inaccurate wage statements) as well as penalties under the Private Attorneys General Act, Labor Code section 2698, et seq.

Authored By:
Stan Karas, Senior Counsel
CAPSTONE LAW APC