Posts belonging to Category Caselaw Developments

Integrity Staffing v. Busk: Security Checks Not Compensable Under FLSA

On December 9, 2014, the United States Supreme Court ruled in a 9-0 decision that hourly warehouse workers at two warehouses in Nevada are not entitled to compensation under the Fair Labor Standards Act (“FLSA”) for time spent waiting to undergo and going through security screens at the end of their shifts. Integrity Staffing Solutions Inc. v. Busk, 574 U.S. __, No. 13-433 (2014) (slip op. available here). The Court reversed the Ninth Circuit Court of Appeals’ decision which held that the half hour at the end of each workday that employees spent waiting to go through the antitheft security checks could be compensable under the FLSA because the screens were “necessary” to the employees’ primary work as warehouse employees and done solely for the benefit of Integrity Staffing, the employer. Busk v. Integrity Staffing Solutions Inc., 713 F.3d 525 (9th Cir. 2013).

Justice Clarence Thomas, writing for the Court, reasoned that the security screens were neither “integral” nor “indispensable” to the employees’ principal work activities of packing goods for shipment, and thus did not under the FLSA, as amended by the Portal-to-Portal Act. Slip op. at 5 (internal citations omitted). The Court held that an activity is not integral and indispensable to an employee’s principal activities “unless it is an intrinsic element of those activities and one with which the employee cannot dispense if he is to perform those activities.” Slip op. at 6. Applying that standard to the case before it, the Court held that the security screenings were not an “intrinsic element” of retrieving products from warehouse shelves or packaging them to be shipped, stating that Integrity Staffing “could have eliminated the screenings altogether without impairing the employees’ ability to complete their work.” Id. at 7. The Court also noted that its conclusion is consistent with the Department of Labor’s (“DOL”) regulations, and its 1951 Opinion Letter, which found non-compensable pre-shift security checks at a rocket-powder plant for employees carrying matches and other items that had direct bearing on the safety of the employees (the DOL had also argued as an amicus for Integrity Staffing).

In a concurring opinion joined by Justice Elena Kagan, Justice Sonia Sotomayor noted the DOL reached the same conclusion regarding similar security screenings shortly after Congress amended the FLSA by enacting the Portal-to-Portal Act in 1947 and stated that the Court owes deference to the DOL’s determination. Though the concurrence omitted the “intrinsic element” language, it defined an “indispensable activity” as “one where an employee could not dispense with it without impairing his ability to perform the principal activity safely and effectively” (emphasis added). Slip op., Sotomayor concurring op. at 1. The concurrence stated that the security searches were merely “part of the process by which the employees egressed their places of work, akin to checking in and out and waiting in line to do so—activities that Congress clearly deemed to be preliminary or postliminary [under the Portal-to-Portal Act].” Id. (internal citations omitted).

Because it is based entirely on the FLSA and the Portal-to-Portal Act, Busk should have little to no effect on lawsuits brought under the California Labor Code or related regulations or rules. Indeed, unlike the FLSA, California’s wage and hour laws expressly provide that all time during which an employee is “subject to the control of an employer” is compensable. California Industrial Welfare Commission Order 9. 

CA Ct. of App. Follows 6th Cir.’s Reed Elsevier Ruling re Class Arbitration

In November, the California Court of Appeal, Fourth Appellate District, ruled unanimously in a wage-and-hour action involving Garden Fresh (owner and operator of Souplantation & Sweet Tomatoes restaurants) that courts, not arbitrators, decide whether an agreement to arbitrate disputes between parties authorizes class or representative arbitrations, where an agreement is silent as to the availability such non-individual arbitrations. Garden Fresh Restaurant Corp. v. Superior Court of San Diego County, No. D066208 (Fourth Dist. Div. 1 Nov. 17, 2014) (slip op. available here). Citing the Sixth Circuit’s decision in Reed Elsevier Inc. v. Crockett, 734 F.3d 594 (6th Cir. 2013), the court held that, where an arbitration agreement does not “clearly and unmistakably” provide for class and/or representative arbitration, a “gateway issue” for the court to determine is whether a collective arbitration is allowed. Slip op. at 14.

In 2013, the plaintiff, former employee Moreno, filed a class and representative action under the Private Attorney General Act (PAGA) against Garden Fresh, alleging violations of the California Labor Code, PAGA, and California Unfair Competition Law. Garden Fresh moved to compel to arbitration the plaintiff’s individual claims since plaintiff had signed arbitration agreements, and moved to dismiss the class and PAGA claims, arguing that the arbitration agreements did not address the arbitration of such claims. A trial court granted the motion to compel, but referred the claims to an arbitrator, deferring to the arbitrator to determine whether the parties’ agreements contemplated class and/or representative arbitration.

Citing Reed Elsevier, where the Sixth Circuit had stated that the Supreme Court had “given every indication that classwide arbitrability is a gateway issue” because resolving the question is fundamental to how the parties will resolve their dispute, the court stated, “[f]or similar reasons, we conclude that a court, not an arbitrator, should also decide whether the parties agreed to arbitrate representative claims, such as the [PAGA] claim in this case . . . .” Slip op. at 11-12. The United States Supreme Court has repeatedly left the question open, but has stated in the past that class proceedings change the scope and nature of arbitration so fundamentally that it cannot be assumed that the parties agreed to it implicitly, even though they entered into an arbitration agreement. The panel cited Concepcion, which held that class arbitration was inconsistent with arbitration under the Federal Arbitration Act, to support expanding its conclusions to representative claims in addition to classwide claims. Ultimately, the ruling vacated part of the trial court’s order and directed it to answer the question as to whether the parties agreed to arbitrate class and/or representative claims and to determine whether the PAGA claims should be bifurcated and handled outside of arbitration. 

IntelliGender: California Precluded from Seeking Restitution, But Not Penalties or Injunctive Relief

Last month, the U.S. Court of Appeals for the Ninth Circuit ruled that, although the state of California was barred by res judicata (based on a prior class action settlement) from seeking restitution for purchasers of IntelliGender Prediction Test, it could seek civil penalties and injunctive relief on behalf of those purchasers. Writing for the court, Judge Kim McLane Wardlaw stated, “[b]ecause the State’s action is designed to vindicate broader governmental interests than the class action, the settlement agreement in the CAFA class action does not create privity sufficient to warrant enjoining the entire action.” The People of the State of California v. IntelliGender, LLC, No. 13-56806 (9th Cir. Nov. 7, 2014) (slip op. available here), slip op. at 4. This holding follows the Supreme Court’s recent decision in Mississippi ex rel. Hood, Attorney General v. AU Optronics Corp., et al., where the Court held that a parens patriae suit brought solely by a state on behalf of its injured citizens cannot be removed to federal court under CAFA. 134 S. Ct. 436 (2014).

In 2010, the plaintiff, Gram, filed a nationwide consumer class action against IntelliGender in federal court, invoking its jurisdiction under CAFA, for falsely advertising that the test could predict, from the mother’s urine sample, the gender of her fetus. In 2012, a California district court approved a settlement on behalf of purchasers of the gender prediction test. The class released its claims under the California Unfair Competition Law (UCL) and False Advertising Law (FAL) in exchange for payment by IntelliGender of $10 per approved claim and a promise to modify its advertising. Later in 2012, the state, by and through the San Diego City Attorney, filed suit against the company also for claims under the UCL and FAL, seeking injunctive relief, civil penalties, and restitution. The company moved to enjoin the state’s entire enforcement action and, separately, to enjoin the state’s restitution claims because they were barred by res judicata. Both motions were denied by the district court.

For res judicata to bar a later suit, the earlier suit must involve identical parties or parties in privity with one another. The Ninth Circuit found that there was insufficient privity between the state and the class members to warrant res judicata as to the defendant’s motion to enjoin the state’s enforcement action in its entirety. The court stated because the state’s action was brought on behalf of the people of California, thereby implicating public, in addition to private, interests. Slip op. at 17. The earlier class action settlement therefore did not bar the state in its sovereign capacity from seeking “remedial provisions [that] sweep much more broadly.” Id. Thus, the state may seek civil penalties and broad injunctive relief against IntelliGender. However, the panel held that the state’s action must be enjoined to the extent that it seeks restitution for individual class members, because, as to that relief, there was privity between the interests of the state and class members. The court held that the state’s restitutionary claims had to be barred both to preclude a double recovery and to ensure the finality of class settlements. Since the state had chosen not to participate when it was provided notice by the defendant under CAFA’s notification requirement (28 U.S.C. § 1715), the court held that the state was precluded from seeking the same relief as the CAFA class action.

Cal Ct. of Appeal Reverses Denial of Cert in Joe’s Crab Shack Managers’ Case

Earlier in November, the California Court of Appeal revived a proposed overtime class action brought by Joe’s Crab Shack managers against their employer, reversing the trial court’s denial of class certification. Martinez v. Joe’s Crab Shack Holdings, No. B242807 (Second Dist. Div. 7 Nov. 10, 2014) (slip op. available here). The court initially had remanded the case back to the lower court to reconsider issues regarding the commonality of the managers. Martinez v. Joe’s Crab Shack Holdings, No. B242807 (Second Dist. Div. 7 Nov. 12, 2013). The prior decision was issued while Duran v. U.S. Bank National Assn. (59 Cal.4th 1 (2014)) was pending before the California Supreme Court; following the Duran decision, the Martinez matter was transferred back to the court of appeal for reconsideration in light of the case.

The court of appeal again remanded because it found the trial court had erred in denying certification because it had failed to adequately analyze the adequacy and typicality of the plaintiffs, as well as the commonality and predominance prongs under Brinker Rest. Corp. v. Superior Court (273 P.3d 513 (2012)), Duran, and Ayala v. Antelope Valley Newspapers, Inc. (59 Cal. 4th 522 (2014)). It reaffirmed that classwide relief remains “the preferred method” for resolving wage-and-hour claims, even in cases with difficult issues of proof, such as misclassification. Slip op. at 23. The court concluded, “[b]y refocusing its analysis on the policies and practices of the employer and the effect those policies and practices have on the putative class, as well as narrowing the class if appropriate, the trial court may in fact find class analysis a more efficient and effective means of resolving plaintiffs’ overtime claim.” Id.

The employees alleged that they worked overtime, were denied uninterrupted meal and rest breaks, and were misclassified as exempt despite having spent a majority of their time performing non-exempt “utility” tasks. The trial court had denied class certification, holding that, because the employees were unable to accurately estimate how much time they had spent doing exempt versus non-exempt tasks, individual inquiries were necessary. This finding meant that common issues did not “predominate” over individual issues, and that class treatment would not be the superior method for resolving the claims. Slip op. at 2.

The court of appeal’s second opinion in this case followed the California Supreme Court’s decision in Duran, a class action filed by former bank salespersons who alleged they had been misclassified. The Duran opinion addressed issues of class action manageability, ruling that individual issues do not necessarily overwhelm common issues when a case involves overtime exemptions premised on how employees spend the workday. Citing Duran, the Martinez court found that “courts in overtime exemption cases must proceed through analysis of the employer’s realistic expectations and classification of tasks rather than asking the employee to identify in retrospect whether, at a particular time, he or she was engaged in an exempt or nonexempt task.” Slip op. at 21.