Posts belonging to Category Caselaw Developments

Semprini v. Wedbush Securities: Advances on Commissions Are Not a “Salary” Exempting Financial Advisors, Says CA Ct. of Appeal

Does a compensation plan providing for an advance on future commissions qualify as a “salary” for purposes of the administrative exemption established in Industrial Welfare Commission Wage Order 4? In Semprini v. Wedbush Securities, Inc., Cal. Ct. App. 4th Dist., No. G067740, Nov. 5, 2020 (slip op. available here), a California court of appeals concluded that it does not.

California law requires employers to pay overtime rates to employees who work above a set number of hours, unless an exemption applies. Under the applicable wage order, an employee is exempt under the administrative exemption if that employee (1) is primarily engaged in exempt duties and (2) earns “a monthly salary equivalent to no less than two (2) times the state minimum wage for full-time employment.” (Cal. Code Regs., tit. 8, § 11040, subd. 1(A)(2)(g).)

Wedbush attempted to comply with the wage order by essentially “loaning” its employees money, so that they would receive enough compensation to qualify under the exemption. Wedbush classified its financial advisors as “exempt” and paid them solely on commission; but if a financial advisor’s commission in a given month was less than double the minimum wage, it paid the financial advisor the commission plus a “draw” on future commissions to make up the difference. Financial advisors were then required to repay the “draw.”

The court ruled that this arrangement did not satisfy administrative exception’s salary basis test because “[a]n advance is not a wage.” Slip op. at 11. The court reasoned that “[t]he salary basis test requires the employers to pay their employees at least double the minimum wage, not loan them that amount.” Id. (emphases in original). The court went on to note that Wedbush’s compensation arrangement could also violate state minimum wage requirements if an employee was forced to repay advances after termination.

The matter is being remanded to the Orange County Superior Court, where the court previously granted the plaintiffs’ motion to certify a class of approximately 150 class members.

Authored by:
Robert Friedl, Senior Counsel

Time Spent on Bag Checks Constitute “Hours Worked” Under Frlekin v. Apple, Inc.

In Frlekin, et al. v. Apple, Inc., case number 15-17382, the Ninth Circuit requested that the California Supreme Court decide, as a matter of California law, whether time spent by Apple retail employees undergoing required security checks on Apple’s premises constituted “hours worked” under Wage Order 7, even though the packages, bags and technology devices checked were brought to work purely for employees’ convenience (slip op. available here). The California Supreme Court’s answer was a resounding “yes.” Frlekin v. Apple, Inc., __ F.3d __ at p. 8 (9th Cir. Sept. 2, 2020) citing Frlekin v. Apple, Inc., 8 Cal.5th 1038, 1042 (2020).

As the California Supreme Court explained, under California law, the definition of “hours worked” has two independent parts: “time during which an employee is subject to the control of an employer” and “time the employee is suffered or permitted to work, whether or not required to do so.” In the case of the Apple employees’ security checks, the California Supreme Court needed only to address the “control clause” of the minimum wage order. Frlekin, __ F.3d __ at p. 10, n. 2.

The underpinning of the California Supreme Court’s analysis under the “control clause” was that, during the searches, Apple controlled its employees in several ways. First, it had a bag search policy that employees were required to comply with under threat of discipline. Second, employees were confined to the premises while waiting and undergoing the searches, that took anywhere from 5 to 20 minutes. Third, employees had to actively participate in the search by locating a manager or security guard, moving or removing items, unzipping containers, opening packages, and removing personal Apple devices for inspection. Frlekin, 8 Cal.5th at 1046.

The fact that the employees’ packages, bags, and technology devices were brought for the employees’ own convenience did not sway the court. As “a practical matter,” employees routinely bring such items to work including, in particular, iPhones. The irony that Apple argued (unsuccessfully) that iPhones were not necessary for its own employees was lost on the Court. Frlekin, 8 Cal.5th at 1056.

Authored by:
Robert Friedl, Senior Counsel

Friends of the Earth v. Sanderson Farms: The Detective Standard Fails

In a short but substantive opinion issued in December 2018, Judge Richard Seeborg of the Northern District of California slapped down an attempt by Sanderson Farms, Inc. to dismiss claims brought by two non-profit organizations, Friends of the Earth and the Center for Food Safety, regarding Sanderson Farms’ misleading “100% Natural” advertising of their chicken products. Friends of the Earth, et al. v. Sanderson Farms, Inc., No. 17-cv-03592-RS (N.D. Cal. Dec. 3, 2018) (slip op. available here). In a scant eleven pages, the court methodically dismantled each of Sanderson Farms’ arguments—which mainly focused on the notion that the company’s website provided context to the company’s “100% Natural” slogan, rendering it not deceptive or misleading—and sustained the plaintiffs’ third amended complaint in its entirety. This case offers a roadmap for plaintiffs seeking to defeat the kind of tactics deployed by defendants to defeat consumer claims, such as imputing knowledge of disclaimers found in the company’s website to consumers, in an effort to show that its advertising is not false or misleading.

In Friends of the Earth, the plaintiffs alleged that Sanderson Farms’ “100% Natural” advertising campaign falsely and misleadingly suggests that the poultry it produces, through purportedly “natural” farming practices, meets reasonable consumer expectations of “natural” poultry. A reasonable consumer’s expectation is that “natural” poultry would not be regularly treated with antibiotics for a majority of their lives and that the farming practices would not contribute to the spread of antibiotic-resistant bacteria.

In its motion to dismiss, Sanderson Farms argues that the full context of its advertisements, including an infographic on its “100% Natural” webpage, dispels any potential confusion arising from the slogan “100% Natural.” And Sanderson Farms “double[d] down” on its “100% Natural” webpage by pointing to a link on that page that takes consumers to a separate FAQ webpage, which acknowledges that their chicken is treated with antibiotics (contrary to their “100% Natural” advertising and undisclosed elsewhere). According to Sanderson Farms, had consumers reviewed the entire website, the “100% Natural” statement would not have been misleading in that context. Slip op. at 6. The court however, rejected such an argument: “Sanderson attempts to bootstrap case support for the need to assess a full webpage into the proposition that an entire website must be considered in determining if a statement was misleading.” Id. (emphasis added). In its rebuke, the district court stated: “[n]o authority suggests a reasonable consumer is expected to search a company’s entire website . . . to find all possible disclaimers . . . . Although the reasonable consumer standard demands that a plaintiff must show ‘more than a mere possibility’ that a challenged advertisement might conceivably mislead a few consumers, it does not ask they be a private investigator . . . .Id. at 7 (internal citation omitted) (emphasis added).

In other words, consumers should not be required to go trawl through each page of a manufacturer’s website to determine whether they are being misled by claims that are made on food packaging. This pro-consumer opinion should put corporate defendants on notice that plaintiffs are not required to piece together a puzzle of webpages in order to avoid being deceived or misled by mislabeled or falsely advertised goods.

Authored by:
Tarek Zohdy, Senior Counsel

Magadia v. Wal-Mart: Employer Loses Bid to Decertify Meal Period Class Due to Its Own Records

Last November, a California federal court rejected Wal-Mart’s effort to decertify a class of employees who took late meal breaks or missed their meal breaks and were not paid adequately by Wal-Mart. Magadia v. Wal-Mart Associates, Inc., No. 17-CV-00062-LHK (N.D. Cal. Nov. 13, 2018) (slip op. available here). The court refused to disturb the prior certification order because the employer’s records, which included codes it generated after its investigation of a missed or late meal period, enabled the court to evaluate Wal-Mart’s liability on a class-wide basis. Slip op. at 8. Plaintiff employees should note that, following this example, certain employer records can be effectively used to answer the question of why meal periods were missed and avoid the need for an individualized, factual inquiry into the violations.

Earlier, the district court had certified three classes: a meal period class, an overtime/wage statement class, and a final wage statement class. Wal-Mart sought to decertify solely the meal period class. Under California law, employers may not employ employees for a work period of more than five hours per day without providing a 30-minute meal period. Cal. Lab. Code § 512(a). Pursuant to the Labor Code, when an employer fails to provide a meal period to an employee in accordance with state law, it must pay the employee one additional hour of pay at the employee’s regular rate of compensation—a meal period premium. Cal. Lab. Code § 226.7(c). The plaintiff alleged that, while Wal-Mart pays meal period premiums for non-compliant meal periods, the premiums are inadequate because they are paid at a straight hourly rate rather than at a higher, regular rate. The district court had certified the meal period class because it found that common questions predominated over individualized inquiries with respect to Wal-Mart’s liability to class members “because Wal-Mart’s own records ‘document why each meal exception [i.e., a late or missed meal period] happened.’” Slip op. at 8. In other words, “because Wal-Mart investigates and documents why each meal exception happened, ‘it would not be difficult to determine [Wal-Mart’s] liability to individual plaintiffs.’” Slip op. at 9.

Indeed, Wal-Mart’s practice included conducting an investigation, where its managers or human resource officials met with employees to determine why the meal period exception occurred, and then issuing Exception Management System (“EMS”) codes that Wal-Mart used to categorize the meal period exceptions. For certification, the district court found that such records could be used to extrapolate “whether each meal period premium that was paid to a class member was prompted by an actual failure by Wal-Mart to provide a compliant meal period.” Slip op. at 7.

In moving for decertification, Wal-Mart claimed that its investigations of meal period exceptions focused on documenting associate allegations rather than whether a meal premium was legally required. Wal-Mart contended that its own investigation worksheets were not reliable for determining whether or not Wal-Mart prevented a proper meal period; therefore, individual inquiries would predominate. The plaintiff argued that Wal-Mart’s own testimony demonstrated that it conducted significant and detailed investigations of meal period exceptions, logging the results, and it could not discredit its own documents. Ultimately, the district court denied Wal-Mart’s motion for decertification, finding that “[t]he evidence submitted . . . continues to demonstrate that Wal-Mart’s own records—specifically, the EMS codes generated after a meal period exception investigation—enable the Court to evaluate Wal-Mart’s liability to class members ‘on a class-wide basis,’ which warrants certification.” Slip op. at 8. Wal-Mart’s records appear to answer the question of why meal periods were missed and obviate the need for any heavily factual inquiry into the particular circumstances of each class member. Slip op. at 11.

Although decertification was improper, the district court nonetheless concluded that the question of the significance of Wal-Mart’s records could be revisited at the merits stage. For now, however, the certification order stands and the class’s “claims will ‘prevail or fail in unison,’ as required by Rule 23(b)(3).’” Id. Thus, a large class of Wal-Mart employees was able to utilize the employer’s records to support their theory of liability and could continue to proceed with their claims that the employer underpaid them for non-compliant meal breaks.

Authored By:
Liana Carter, Senior Counsel