Posts belonging to Category Certification Rulings

On May 3, 2018, the Ninth Circuit Court of Appeals issued its ruling in Sali, et al. v. Corona Regional Medical Center, et al., 889 F.3d 623, 629 (9th Cir. 2018) (slip op. available here), a wage-and-hour class action, reversing the district court’s denial of class certification on several grounds. The Ninth Circuit found that the plaintiffs’ evidence of typicality, while not admissible at trial, should be considered for the purposes of class certification. Significantly, in reversing the denial of class certification, the panel found that the district court erred in interpreting compensable time as limited to time spent actually working. The ruling reaffirms that compensable time is both the time when an employee is under the control of the employer, regardless of whether or not the employee is engaged in work activities, as well as the time when an employee is “suffered or permitted to work, whether or not required to do so.” Slip op. at 24 (quoting Morillion v. Royal Packing Co., 22 Cal.4th 575 (2000)).

In Corona, the plaintiffs alleged that the employer failed to fully compensate a putative class of registered nurses (RNs) due to an electronic timekeeping system that did not account for their starting early and failed to pay their statutory time-and-a-half for overtime. Under Corona’s timekeeping system, a clock-in at seven minutes before or after the hour would round to the hour. But a clock-in at eight minutes or more before the hour would round back to the prior quarter hour, while those made eight minutes or more after the hour are rounded forward to the next quarter hour. The district court initially denied certification as to the plaintiffs’ rounding claim, finding that “time records are not a reliable indicator of the time RNs actually spent working because RNs frequently clock in for work and perform non-compensable activities, such as waiting in the break room, getting coffee, or chatting with their co-workers, until the start of their scheduled shift.” Slip op. at 23. The district court also rejected, on evidentiary grounds, that the plaintiffs had demonstrated typicality. Slip op. at 10. The plaintiffs appealed the district court’s denial of class certification.

The Ninth Circuit reversed the lower court’s denial of certification on several grounds, finding that the district court misapplied California’s definition of “work” because it did not decide whether Corona controlled workers after they had clocked in. Under California law, employees must be compensated for all time under the employer’s control, whether the employee is actually required to work or not. Morillion, 22 Cal.4th at 578 (quoting Cal. Code Regs., tit. 8, § 11140, subd. 2(G)). The panel found that the district court erred in suggesting that “‘non-compensable activities, such as waiting in the break room, getting coffee, or chatting with their co-workers’ are categorically not time ‘actually worked . . . ’,” meaning that this was not “time spent engaging in work activities.” Slip op. at 24. This misapplies California law. The Ninth Circuit further elaborated that that the question of whether the rounding policy was unfair required a focus on the company’s policies and practices, and whether they “restricted RNs in a manner that amounted to employer control during the period between their clock-in and clock-out times and the rounded shift-start and shift-end times,” an issue that the district court failed to consider. Id. at 26.

The Sali panel also found it to be an abuse of discretion for a district court to limit its analysis of whether class plaintiffs satisfied a Rule 23 requirement “to a determination of whether Plaintiffs’ evidence on that point was admissible.” Slip op. at 14 (quoting Ellis v. Costco Wholesale Corp., 657 F.3d 970, 982 (9th Cir. 2011)). Specifically, Sali found that the lower court committed reversible error by striking the class counsel’s paralegal’s declaration regarding Corona’s time-rounding to demonstrate the plaintiffs’ injuries, because courts cannot be limited to only evidence which is admissible at trial when deciding whether to certify a class: “Limiting class-certification stage proof to admissible evidence risks terminating actions before a putative class may gather crucial admissible evidence . . . [a]nd transforming a preliminary stage into an evidentiary shooting match inhibits an early determination of the best manner to conduct the action.” Slip op. at 13-14. Thus, inadmissibility alone is not a proper basis to reject evidence submitted in support of class certification.

Corona will be helpful for potential employee-plaintiffs because they are not restricted to presenting admissible evidence in support of their class certification motions. Further, the Ninth Circuit affirmed Morillion’s broad definition of compensable time as time when an employee is actually working or under the control of his or her employer.

Authored by:
Jordan Carlson, Associate
CAPSTONE LAW APC

With staffing agencies gaining a greater foothold in the employment market, their employees face unique challenges in trying to hold them accountable for wage-and-hour violations. The staffing business model—where employees ostensibly under the staffing agency’s control are lent out to different companies—is often deemed to preclude class certification, since the assigned positions and duties can be too varied, creating too many individualized inquiries. However, one court recently rejected this line of reasoning in a case involving nurses’ and hospital technicians’ claims for housing benefits provided by Fastaff, a travel nurse staffing agency. See Dalchau v. Fastaff, LLC, No. 17-cv-01584-WHO (N.D. Cal. April 9, 2018), Order Granting Motion for Class Certification and Denying Motion to Stay (slip op. available here). The plaintiffs avoided commonality and predominance problems by emphasizing that the defendant employer’s policy inflicted a common legal injury on the class of staffed temporary employees. This theory confounded Fastaff’s counsel, who did not even offer a defense against it. Indeed, in granting class certification, Judge William Orrick let the defendant employer know just how poorly they understood the legal thrust of the plaintiffs’ case.

In March 2017, the plaintiffs in Dalchau filed a putative class action and a Fair Labor Standards Act (“FLSA”) collective action on behalf of hourly-paid employees of defendants Fastaff and its parent company, U.S. Nursing Co. Fastaff, which provides temporary staffing for hospitals, offered housing to their employees during their assignments. Fastaff’s traveling nurses and technicians had the option of either accepting a weekly stipend or staying in company-provided housing. However, before the employee can receive the full benefit, he or she had to complete a set amount of work. If the employee did not fulfill their work requirements, Fastaff would collect the difference by either prorating the employee’s stipend or the deducting the difference from their paycheck as “charge-back.” Slip op. at 2. Under certain circumstances, Fastaff could determine, at its discretion, whether any “exceptional” personal circumstance had occurred causing the employee to not fulfill their assigned hours, and could approve an exception and not make the deduction.

The plaintiffs alleged that the value of this weekly housing stipend or supplied housing, a benefit offered by the employer, was being excluded improperly from the employees’ regular rate for purposes of calculating overtime, resulting in underpayment. Slip op. at 1. In response, Fastaff argued that certification was improper because the different methods of bestowing the housing benefit created too many individualized situations, particularly where an exception to the charge-back was granted. However, as the court clarified, the nurses did not claim commonality on a similar set of facts. Instead, the nurses claimed the company inflicted a common legal injury when it refused to include the housing benefit into their regular rate for overtime payments. Their claim focused on a widespread, uniform policy of excluding the housing benefits from their regular rate calculations resulted in illegal underpayment, not a universal set of facts (such as whether all employees received the full amount of their benefits). Further, the court stated that the commonality “does not require that class members suffer identical harm.” Slip op. at 11.

In light of the above, Judge Orrick granted the plaintiffs’ motion for class certification. Fastaff must now defend this employment practice on the merits as the case moves forward towards trial.

Authored by:
Brooke Waldrop, Associate
CAPSTONE LAW APC

On April 30, 2018, the California Supreme Court issued its long-awaited ruling in Dynamex Operations West, Inc. v. The Superior Court of Los Angeles County, No. S22732, 2018 WL 1999120 (April 30, 2018) (slip op. available here). Dynamex announced a new test under California law to determine whether workers are properly classified as independent contractors rather than employees and, in so doing, adopted the “ABC test,” a standard that should make class certification of misclassification claims more likely. The ruling will also presumably result in findings that many “independent contractors” are currently misclassified and, therefore, are entitled to the rights and benefits of California’s wage orders. These important benefits include the right to minimum wage, overtime, meal and rest breaks, and, depending on the wage order in question, reimbursement for certain business expenses.

In Dynamex, the plaintiffs alleged that Dynamex, a nationwide package and document delivery company, had improperly misclassified its delivery drivers as independent contractors rather than employees. The drivers claimed that the misclassification led to Dynamex’s violation of the provisions of Industrial Welfare Commission Wage Order No. 9, the applicable state wage order governing the transportation industry, and various sections of the Labor Code. Id. at 3. Then, the plaintiffs moved for class certification. The trial court granted certification of a class consisting of “Dynamex drivers who, during a pay period, did not themselves employ other drivers and did not do delivery work for other delivery businesses or for the drivers’ own personal customers.” Id. at 4. In certifying the class, the trial court determined that the applicable standard for determining whether the drivers were employees was the test announced in Martinez v. Combs, 49 Cal.4th 35 (2010), which held that “[t]o employ . . . under the [wage order], has three alternative definitions[:] (a) to exercise control over the wages, hours, or working conditions, or (b) to suffer or permit to work, or (c) to engage, thereby creating a common law employment relationship.” 49 Cal.4th 35, 64.

Thus, the trial court rejected Dynamex’s argument that the multi-factor test from S. G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal.3d 341 (1989), governs the independent contractor analysis rather than the Martinez test. Dynamex at 4. Dynamex had claimed that the Martinez wage order definitions are relevant only to the joint employer question that was directly presented in Martinez—namely, whether, when a worker is an admitted employee of a primary employer, another business or entity that has some relationship with the primary employer should properly be considered a joint employer of the worker and therefore also responsible, along with the primary employer, for the obligations imposed by the wage order. Id. at 5. Dynamex then appealed the trial court’s order of certification. The Court of Appeal affirmed, concluding that the wage order definitions discussed in Martinez are applicable to the “employee or independent contractor” question with respect to obligations arising out of the wage order, and not just to joint employer determinations. The Court of Appeal upheld the trial court’s class certification order with respect to all of plaintiffs’ claims based on alleged violations of the wage order. Id.

Dynamex filed a petition for review, and the California Supreme Court granted review. In rendering a unanimous decision, the court extensively analyzed the relevant wage orders and judicial decisions and announced a new test for determining whether a worker is to be classified as an employee or independent contractor. The court interpreted the “suffer or permit to work” standard in California’s wage orders as: (1) placing the burden on the hiring entity to establish that the worker is an independent contractor who was not intended to be included within the wage order’s coverage; and (2) requiring the hiring entity, in order to meet this burden, to establish each of the three factors embodied in the ABC test—namely (A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. Id. at 57, n20. Further, the court held that the hiring entity’s failure to satisfy any one of the three parts itself establishes that the worker should be treated as an employee for purposes of the wage order. Id. at 76. The court also provided guidance as to case management, commenting that a trial court is free to consider the separate parts of the ABC standard in whatever order it chooses and that, in terms of increased clarity and consistency, courts will often be best served by first considering one or both of the latter two parts of the standard (i.e., B and C) in resolving the employee or independent contractor question. Id.

Dynamex streamlines the employee/contactor analysis because only one prong may need be analyzed, simplifying the theory of liability and making certification far more probable. For example, in many cases, the plaintiff can focus on part B of the ABC test to argue that there is sufficient commonality of interest regarding the question whether the work provided by the workers is outside the usual course of the hiring entity’s business to permit the plaintiff’s claim of misclassification to be resolved on a class basis. If so, the class will be certified and the merits of the case hinge on an analysis of this single question. In fact, that is exactly how the California Supreme Court applied its new legal standard to the facts in Dynamex and accordingly affirmed the trial court’s certification order. Id. at 78-82. The state Supreme Court also analyzed part C of the ABC test and found a sufficient commonality of interest as to whether the drivers in the certified class are customarily engaged in an independently established trade, occupation, or business to permit resolution of that issue on a class basis. Id. at 81.

The significance of Dynamex on independent contractor misclassification claims in California cannot be overstated. Dynamex should also increase the likelihood that plaintiffs will prevail on the merits given that the work performed by the “contractors” is frequently part of, or even critical to, the hiring entities’ business. For example, it is now difficult to imagine that delivery drivers would not be employees for any company with a business model that centers on, or includes, the delivery of products. Whereas workers such as plumbers, electricians, and other trade workers would properly be classified as independent contractors, given that they are customarily engaged in business distinct from the hiring entity. Many companies, especially those part of the gig economy, rely on the use of independent contractors as key to their business model, since it would be much more expensive to provide benefits and rights to which an employee would be entitled. It is now clear that many of those companies will need to make dramatic changes to their workforce to comply with California law.

Authored By:
Robert Drexler, Senior Counsel
CAPSTONE LAW APC

On December 7, 2017, in a published order, the Ninth Circuit rejected dismissal of an appeal of the denial of class certification by two plaintiff employees who had settled their individual claims and preserved certain class and representative claims for appeal, because the parties’ mutual settlement for consideration did not amount to “sham tactics” to manufacture an appealable final judgment under recent Supreme Court precedent. Brown v. Cinemark USA, Inc., No. 16-15377 (9th Cir. Dec. 7, 2017) (Ms. Brown and Mr. De La Rosa are represented by Capstone Law APC) (order available here). In an unpublished memorandum filed with the order, the panel reversed the denial of class certification and the dismissal of the claim under the Private Attorneys General Act (“PAGA”), finding that the district court had erred in denying class certification based on the pleadings and had erroneously dismissed the PAGA claim for failure to exhaust administrative remedies under Williams v. Superior Court, 3 Cal.5th 531 (2017), a case decided after the district court had issued its order (memorandum available here).

Plaintiffs Brown and De La Rosa were movie theater employees who brought a wage and hour class and representative action against their employer and consolidated their case with another action. The district court denied the plaintiffs’ joint motion for class certification, which, among others, sought to certify a direct wage statement claim under Labor Code section 226(a). The district court’s ruling was based solely on the pleadings, finding the wage statement claims had been pleaded derivatively rather than directly, and provided no Rule 23 class certification analysis. The court also dismissed the direct wage statement PAGA claim for failure to exhaust administrative remedies, finding that the PAGA notice letters had not provided sufficient information. Finally, the district court denied leave to amend the complaint and the remaining individual claims were set for trial. However, prior to trial, the parties settled all remaining individual claims for consideration, reserving the right to challenge the district court’s denial of class certification and the dismissal of Ms. Brown’s PAGA claim. Order at 4. Both plaintiffs appealed the issues reserved by the settlement. Id.

Cinemark subsequently brought a motion to dismiss the appeal in light of Microsoft Corp. v. Baker, 137 S. Ct. 1702 (2017), which was issued after the notice of appeal was filed. The Ninth Circuit denied the motion to dismiss the appeal. First, the Ninth Circuit distinguished Baker, noting that in Baker, the district court had denied class certification and the Ninth Circuit had denied discretionary interlocutory review under Rule 23(f). Order at 4. Then, “rather than pursue their individual claims on the merits, the plaintiffs voluntarily dismissed their own claims with the express purpose of creating a final judgment for appeal.” Id. The Baker plaintiffs subsequently only appealed the district court’s interlocutory order denying class certification. The Supreme Court of the United States found that such a voluntary dismissal did not qualify as a “final decision” within the parameters of 28 U.S.C. § 1291 and was a tactic that would undermine section 1291’s firm finality principle. Id. Here, however, the Ninth Circuit found that “unlike Baker, where the plaintiffs openly intended to sidestep Rule 23(f) when they voluntarily dismissed their claims[,]” after the district court denied certification, the Brown plaintiffs continued litigating their remaining individual claims, some of which resolved in favor of the defendants and some resulted in settlement. Id. at 5. The Brown plaintiffs did not engage in any “sham tactics to achieve an appealable final judgment,” and “the parties’ mutual settlement for consideration in this case does not raise the same concerns.” Id.

Second, the Ninth Circuit reversed the district court’s dismissal of Ms. Brown’s PAGA claim based on a failure to exhaust administrative remedies “[g]iven the import of Williams.” Memorandum at 2. The panel found that the PAGA notice letter “pleaded facts and theories sufficient to put the Defendants and the California Labor and Workforce Development Agency [LWDA] on notice for potential investigation, which satisfies the policy goal of California Labor Code section 2699.3(a).” Id. at 2-3. Quoting the California Supreme Court’s unanimous decision verbatim, the Ninth Circuit underscored that “[h]urdles that impede the effective prosecution of representative PAGA actions undermine the Legislature’s objectives.” Id. at 3. The panel further relied on the powerful dicta in Williams setting a very modest standard for PAGA notice letter sufficiency, recognizing that “[n]othing in Labor Code section 2699.3, subdivision (a)(1)(A), indicates the ‘facts and theories’ provided in support of ‘alleged’ violations must satisfy a particular threshold of weightiness, beyond the requirements of nonfrivolousness generally applicable to any civil filing.” Id.

Third, the Ninth Circuit found the district court erred in denying class certification of the direct wage statement claim on the basis of the pleadings. Memorandum at 3. Because the district court based its decision to deny certification solely on the pleadings rather than a Rule 23 analysis, the Ninth Circuit reviewed that decision de novo rather than applying the more deferential abuse of discretion normally reserved for certification rulings. It concluded that the pleadings put the defendants on sufficient notice of wage statement violations, whether direct or derivative, and further found that the plaintiffs’ pleadings merited a Rule 23 analysis for their direct wage statement claim. Id. It thus vacated the order and remanded for the district court to conduct a Rule 23 analysis.

The import of the Brown rulings is that Baker does not necessarily preclude federal appellate review of certification orders pursuant to partial settlements for consideration, particularly when the parties continue litigation. Further, with respect to PAGA notice letters, the Ninth Circuit has demonstrated that the California Supreme Court’s recent pronouncement in Williams is key—that PAGA notice letters need not meet any “threshold of weightiness,” but need only put defendants and the LWDA on notice of potential investigations, a low bar that need only pass the requirements of “non-frivolousness.”

Authored By:
Liana Carter, Senior Counsel
CAPSTONE LAW APC