Posts belonging to Category Caselaw Developments

CA Employers Liable For Employees’ Work-Related Cell Phone Calls Even If Such Calls Cannot Be Isolated on Phone Bills

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.

Peabody v. Time Warner: CA Supreme Court Restricts Employer Commission Plans

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.

Dilts v. Penske Logistics: 9th Cir. Rules CA Break Laws Not Preempted by FAAAA

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.

7th Cir. Rules “Commonality of Damages” Not Required for Cert. in IKO Roofing

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.