Posts belonging to Category Caselaw Developments

9th Cir.: FedEx Misclassified Drivers as Independent Contractors in Alexander v. FedEx Ground

On August 27, 2014, the Ninth Circuit ruled in a pair of cases (filed in California and Oregon) against FedEx Ground Package System, Inc., that FedEx had misclassified delivery truck drivers as independent contractors, when they were in fact employees. The panel reversed a multidistrict litigation (“MDL”) court’s grant of summary judgment in favor of FedEx as to whether the drivers were employees. U.S. Circuit Judges Alfred T. Goodwin, Stephen S. Trott, and William A. Fletcher sat on the panels that considered both cases; Judge Fletcher wrote opinions for both panels. The California case is Alexander et al. v. FedEx Ground Package System Inc., Nos. 12-17458 and 12-17509 (slip opinion available here). The Oregon case is Slayman et al. v. FedEx Ground Package System Inc., case numbers 12-35525 and 12-35559 (slip opinion available here).

The California and Oregon suits, along with suits from other states, were consolidated in multidistrict litigation involving similar claims that FedEx had misclassified its drivers as independent contractors, and certified as class actions. The Indiana federal court serving as the MDL court denied plaintiffs’ motion for partial summary judgment alleging that FedEx drivers in California were employees rather than independent contractors and granted FedEx’s cross-motion for summary judgment. Additionally, the California plaintiffs had brought claims under the federal Family Medical Leave Act (“FMLA”), which the MDL court declined to certify as a class. The MDL court then remanded Alexander to the district court to resolve the plaintiffs’ claims under FMLA. After the FMLA claims were settled, the district court entered final judgment, which the plaintiffs appealed, challenging the MDL court’s grant of summary judgment to FedEx on the employment/independent contractor status issue.

The Ninth Circuit reversed, finding that under FedEx’s operating agreement, FedEx had broad authority to prescribe how the drivers carried out their deliveries. Although the agreement allowed drivers to supply their own trucks and to pay for their own uniforms, the agreement also specified the size, color, shelving, and maintenance of those trucks; drivers’ personal grooming and appearance; and the condition of the uniforms. Additionally, although FedEx did not expressly specify working hours or delivery routes, FedEx dictated that drivers pick up and deliver packages within a certain geographic area and time window, required them to follow FedEx guidelines for “Safe Driving Standards,” and provided training for drivers on job performance and interacting with customers, in order to “[f]oster the professional image and good reputation of FedEx.” Id. at 6-11. Accounting for FedEx’s broad authority and weighing it against other factors, the appeals court said, in applying the Borello “necessary control” test, FedEx’s extensive right to control the manner in which its drivers performed their work was the most important factor, and strongly favored employee status. Id. at 31. The court held that the plaintiffs were, as a matter of law, employees under California’s right-to-control test. Id.

U.S. Circuit Judge Trott concurred in the California opinion, writing “Abraham Lincoln reportedly asked, ‘If you call a dog’s tail a leg, how many legs does a dog have?’ His answer was, ‘Four. Calling a dog’s tail a leg does not make it a leg.’” Id. at 34. He concluded that “[l]abeling the drivers ‘independent contractors’ in FedEx’s operating agreement does not conclusively make them so. . . . Although our decision substantially unravels FedEx’s business model, FedEx was not entitled to ‘write around’ the principles and mandates of California Labor Law.” Id. at 35.

Herrera v. CarMax: Defendant Cannot Block Employees’ PAGA Action

U.S. District Court Judge Michael W. Fitzgerald refused to enjoin plaintiffs in a PAGA (Private Attorneys General Act) action filed in state court based on a prior ruling in the federal case ordering the plaintiffs’ wage-and-hour class action claims against CarMax to arbitration. Herrera, et al. v. CarMax Auto Superstores California, LLC, No. 5:14-cv-00776 (C.D. Cal. Aug. 27, 2014) (slip op. available here). The putative class action alleged that the used car retailer failed to sufficiently compensate non-exempt piece-rate employees, such as mechanics and detailers, for all hours worked. The court’s refusal was based in part on its finding that, by filing the state action, the plaintiffs were not attempting to circumvent the arbitration order in the federal case.

The first action was filed in state court in March 2014; CarMax removed the suit and defeated the plaintiffs’ efforts to remand the suit back to state court in June. CarMax then filed a motion to compel arbitration of the class claims, which the district court granted in July, and dismissed the case. The same plaintiffs then filed a second action in California state court in June, based on the same labor code violations as in the federal lawsuit, but only seeking civil penalties under the PAGA. The federal district court avoided rendering a decision on the merits of the res judicata issue, deferring it to the state court, and held that the injunction should not be issued under an exception to the Anti-Injunction Act. The Anti-Injunction Act (28 U.S.C. § 2283) permits a federal court to enjoin a state court action to “protect or effectuate its judgments” under the “relitigation exception.”

Although it largely deferred the res judicata issue to the state court, the federal district court noted that, because none of the substantive legal questions involved in the second action had been raised in the first action, the second lawsuit “presents the more difficult question, never considered by this Court, whether Plaintiffs’ PAGA claims may be compelled to arbitration . . . [and] never considered the merits of Plaintiffs’ underlying allegations of labor law violations.” Slip op. at 5. The district court also rejected CarMax’s argument that the plaintiffs were improperly attempting to circumvent the federal court’s arbitration ruling, finding instead that “Plaintiffs sought a state forum for their indisputably state-law PAGA claims . . . ” and acted properly to “reserve certain state law claims for resolution in the state courts.” Id. at 7 (emphasis added). Citing Iskanian v. CLS Transportation LLC (59 Cal. 4th 348 (2014)) and Arias v. Superior Court (46 Cal. 4th 969 (2009)), the court stated that “whether an order compelling arbitration of claims of labor law violations can preclude claims for PAGA remedies arising from the same violations is a particularly sensitive question of state law that has not been thoroughly addressed in the state courts. . . . [but g]iven the developments in California law on the precise contours of PAGA, these questions would be best answered by the state courts.” Id. at 6.

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.