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California’s highest court recently issued a unanimous decision in the closely-watched Troester v. Starbucks, holding that the coffee behemoth must compensate employees for “all hours worked,” including brief periods of off-the-clock work. No. S234969 (July 26, 2018) (slip op. available here). This decision comes after the California Supreme Court agreed to answer the Ninth Circuit’s request to clarify whether the Fair Labor Standards Act’s (FLSA) de minimis doctrine applies to claims for unpaid wages under California Labor Code sections 510, 1194, and 1197.

In Troester, Starbucks argued that the 4 to 10 minutes spent on closing procedures each night that the plaintiffs assert was uncompensated off-the-clock work is so inconsequential that employers need not record nor provide compensation. Starbucks relied on the de minimis doctrine, an ancient adage defined in the California Civil Code as “the law disregards trifles.” The FLSA specifically adopts this doctrine, and courts have found that up to ten minutes of off-the-clock work can be considered de minimis and therefore non-compensable. Slip op. at 7.

The California Supreme Court, however, rejected the de minimis doctrine as a defense to off-the-clock claims under California law. The court first reasoned that California employers must follow IWC wage orders dictating conditions of employment in various industries, which is often more protective of workers than is federal law. Slip op. at 4. For instance, Wage Order 5, governing the “public housekeeping industry” (which includes food and beverage establishments like Starbucks), requires that employees be paid for “all hours worked,” with no explicit nor implicit exception for de minimis time. Id. at 9-11. Because the wage order required full compensation, and Starbucks provided no statutory or regulatory history supporting their contrary position, the court held that the de minimis doctrine had not been incorporated into California labor law or wage orders. Id. at 10. The court also pointed out that timekeeping technology has advanced to the point where employers can no longer claim that recording all time worked is inconvenient or cumbersome, which was one of the key rationales for the de minimis doctrine. Slip op. at 18.

While statutory interpretation is largely an academic exercise, the California Supreme Court emphasized the policy of protecting workers. It observed that “a few extra minutes of work each day can add up” for hourly workers and “[w]hat Starbucks calls ‘de minimis’ is not de minimis at all to many ordinary people who work for hourly wages.” Slip op. at 20. The court also underscored the need for class actions in such circumstances, since “[t]he very premise of such suits is that small individual recoveries worthy of neither the plaintiff’s nor the court’s time can be aggregated to vindicate an important public policy.” Id. at 17. In other words, absent the class action mechanism, large companies such as Starbucks would be free to exploit their employees, a few minutes at a time.

Starbucks recently petitioned for reconsideration of the decision. On August 29, 2018, the California Supreme Court rejected a request by Starbucks to reconsider its ruling; the Troester ruling will stand. Within a few weeks after the decision, a California federal judge cited Troester when certifying a class of nearly 11,000 H&M employees suing for off-the-clock time spent waiting to go through security searches at the end of their shifts. Lao v. H&M Hennes & Mauritz, No. 5:16-cv-00333 (N.D. Cal. Aug. 8, 2018).

Authored by:
Robin Hall, Associate
CAPSTONE LAW APC

In an unpublished decision, the Ninth Circuit Court of Appeals recently determined that The Finish Line, Inc., an athletic retailer, cannot arbitrate a former associate’s pregnancy discrimination claim, finding the company’s arbitration agreement to be both procedurally and substantively unconscionable. Capili v. The Finish Line, Inc., No. 15-16657 (9th Cir. July 3, 2017) (slip op. available here).

Capili alleges that she was fired by the company because she took a leave of absence to manage her pregnancy-related health issues. Upon hire in 2013, Capili was required to sign an arbitration agreement that required her to arbitrate any future employment-related disputes with Finish Line. On July 22, 2015, U.S. District Court Judge Haywood S. Gilliam denied Finish Line’s motion to compel arbitration in the suit, finding the cost-sharing provision in Finish Line’s arbitration agreement unconscionable. Capili v. The Finish Line, Inc., No. 3:15-cv-01158-HSG (N.D. Cal. July 22, 2015). The defendant appealed this decision. On July 3, 2017, the Ninth Circuit affirmed Judge Gilliam’s order.

Under the agreement, the plaintiff, a retail employee earning $15 per hour, would have to pay up to $10,000 at the outset of arbitration, not including fees and costs for legal representation—a provision that the three-judge panel found to be “substantively unconscionable.” The court determined that the provision imposes substantial non-recoverable costs on entry-level employees just to get their foot in the door in arbitration, essentially foreclosing vindication of employees’ rights. Slip op. at 3.

The court further concluded that the arbitration agreement allowed the company, but not Capili, to seek judicial resolution of certain claims, another provision that the panel found unconscionable. While judicial carveouts alone are not necessarily unconscionable, “exemptions must still have a modicum of bilaterality,” the panel stated. Slip op. at 3-4. While Capili acknowledged that her claims fell under the scope of Finish Line’s arbitration agreement, the plaintiff argued that the agreement itself was “an unenforceable contract of adhesion” and both procedurally and substantively unconscionable. The Ninth Circuit panel agreed, determining the agreement was “adhesive” because it was offered “on essentially a ‘take it or leave it’ basis.” Id. at 2-3.

While both elements of procedural and substantive unconscionability must be present for the court to find unconscionability, they need not be present in the same degree. Slip op. at 2. And while the Federal Arbitration Act endorses the enforcement of arbitration agreements, “employers may not stack the deck unconscionability in their favor to discourage claims.” Id. at 5. Thus, the Ninth Circuit affirmed, holding that the lower court had properly denied the employer’s motion to compel arbitration.

Authored by:
Natalie Torbati, Associate
CAPSTONE LAW APC

On January 15, 2016, the U.S. Supreme Court granted Microsoft’s petition for a writ of certiorari in Baker, et al. v. Microsoft Corporation, a Ninth Circuit Court of Appeals decision which allows plaintiffs in a class action lawsuit to appeal an order denying class certification after the named plaintiffs voluntarily dismiss their claims with prejudice. See No. 12-35946, 797 F.3d 607 (9th Cir. 2015) (slip op. available here). Following the passing of Justice Antonin Scalia, oral argument in Baker was postponed until next term, possibly in an effort to avoid issuing a ruling with an eight-Justice Supreme Court.

In Baker, the plaintiffs alleged that a design defect in the Xbox caused game discs to become scratched from movements of the Xbox during game play. Slip op. at 6. U.S. District Court Judge Richard Martinez deferred to the earlier class certification denial order in a consolidated case in the same district court, In re Microsoft Xbox 360 Scratched Disc Litig., No. C07-1121 (W.D. Wash. Oct. 5, 2009), which had denied the plaintiffs’ motion for class certification (reasoning that individual questions of causation and damages precluded certification) and granted Microsoft’s motion to strike the class allegations based on comity. Slip op. at 10-11. The Baker plaintiffs sought permissive review under Federal Rule of Civil Procedure (FRCP) 23(f) which was denied by the Ninth Circuit. The plaintiffs then voluntarily dismissed their individual claims, and filed a notice of appeal pursuant to 28 U.S.C. § 1291.

The Ninth Circuit reversed the district court, reasoning that while individual factors may affect when disc damage occurred and how extensive it was, they do not affect whether the Xbox was sold to consumers with a design defect. Slip op. at 15. More significantly, the court found appellate jurisdiction under 28 U.S.C. § 1291 existed, distinguishing a stipulated, voluntary dismissal of an individual claim from a failure to prosecute claims, as in Huey v. Teledyne, Inc., 608 F.2d 1234 (9th Cir. 1979), finding that a plaintiff who engages in the former has given up a valuable right and created “an adverse and appealable final judgment,” whereas a plaintiff engaged in the latter has forfeited their right to appeal the denial of class certification. Id. at 12-13, n.4. Exercising mandatory appellate jurisdiction, the appeals court remanded to the district court for further proceedings. Microsoft petitioned the Ninth Circuit for rehearing en banc, which was denied on July 20, 2015.

The Ninth Circuit’s decision provided a much-needed shortcut to the appeals process for class action plaintiffs, who would otherwise have to seek an interlocutory appeal under FRCP 23(f), which appellate courts grant sparingly, or wait for a final judgment, effectively ending any meaningful right to appeal class certification in many cases. Some see the Ninth Circuit decision as a revival of the “death knell” doctrine that some federal appellate courts recognized as grounds for appeal under 28 U.S.C. § 1291 several decades ago, which allowed appeals for denial of class certification when the denial would “end the lawsuit for all practical purposes.” Eisen v. Carlisle & Jacquelin, 370 F.2d 119, 120 (2d Cir. 1966). However, the doctrine was abandoned in Coopers & Lybrand v. Livesay, 437 U.S. 463 (1978), where the Supreme Court found orders regarding class certification not independently appealable prior to judgment under 28 U.S.C. § 1291. Congress then responded to the Coopers & Lybrand decision by allowing the Supreme Court to provide for appeals to interlocutory decisions under 28 USC § 1292(e), and, in 1998, the Supreme Court adopted FRCP 23(f). However, due to the infrequent usage of Rule 23(f), Congress’ attempt to fill the void of the “death knell” doctrine was largely ineffective until the Baker case.

Instead of creating grounds for interlocutory appeal, Baker allows plaintiffs to appeal class certification upon voluntarily dismissing their claims, effectively replacing one way of demonstrating the case had ended for all practical purposes with another. Slip op. at 12 (citing Berger v. Home Depot USA, Inc., 741 F.3d 1061, 1065 (9th Cir. 2014)). Circuit courts are split on this issue, as there is case law forbidding voluntary dismissal as a vehicle for appellate review in the Third, Fourth, Seventh, Tenth, and Eleventh Circuits, but case law permitting such dismissal as a vehicle for appellate review in the Second and Ninth Circuits. It is difficult to predict how the Supreme Court will rule, especially after the passing of Justice Scalia, who historically had been hostile towards class actions. Both plaintiffs’ and defense counsel will have to await oral argument next term for an indication of the direction the Supreme Court may take.

Authored by: 
Ishan Dave, Associate
CAPSTONE LAW APC

Volkswagen’s (VW) recent admission that its “clean diesel” vehicles are not-so-clean has led to a proliferation of what some characterize as “no-injury” lawsuits, in that proponents of this view allege that the vehicles did not physically or emotionally harm consumers, nor did it cause them economic loss (other than the purchase price of the vehicle). This “no-injury” argument has been closely tied to the Spokeo case currently pending before the United States Supreme Court, in which the defendant has urged the Court to hold that that there is no Article III standing unless the plaintiff has suffered an “actual injury.” Robins v. Spokeo, Inc., 742 F.3d 409 (9th Cir. 2014), cert. granted, 2015 U.S. LEXIS 2947 (U.S. Apr. 27, 2015) (No. 13-1339) (previously covered on the ILJ here). However, Spokeo involves the Fair Credit Reporting Act (FCRA), a consumer law that requires no actual transactions between the parties. While the Spokeo FCRA violations undoubtedly result in injuries, they are a different animal than those presented in the VW scandal.

An injury is defined as “[t]he violation of another’s legal right, for which the law provides a remedy; a wrong or injustice.” INJURY, Black’s Law Dictionary (10th ed. 2014). The Volkswagen debacle unequivocally involves injury. First, each consumer purchased a VW vehicle that was not as they expected. In other words, consumers paid Volkswagen for a vehicle that complied with governmental regulations and legally could be driven on American roadways, but consumers did not receive what they paid for because they are now stuck with vehicles that violate state and federal clean air requirements, including the Clean Air Act. Further, Volkswagen priced its vehicles at the market value of a clean diesel engine vehicle, which is substantially higher than a standard gasoline engine, but it fraudulently advertised and sold a vehicle that did not meet that market definition. Essentially, customers paid for a vehicle of a certain value, but actually received a vehicle that was of lower value. In the process, VW profited from this deception at the consumers’ expense.

However, consumers sustained additional injuries in the VW matter. Until repaired, the vehicles themselves may actually be worthless to many owners. For example, in California, each vehicle must be “smogged,” i.e. comply with stringent emissions standards, in order to be registered and driven on public roads. Volkswagen admits that these vehicles do not meet these standards, which could render the vehicles “un-merchantable” pursuant to California’s Song-Beverly Consumer Warranty Act. Cal. Civ. Code §§ 1791.1 and 1792, et seq. If that is so, the “injury” would be the entire transaction or price of the vehicles. Another potential injury sustained by purchasers of VW’s “clean diesel” cars is to the environment, consumers’ health, and the public as a whole. According to a recent joint study by Harvard and MIT, which was published in the journal Environmental Research Letters, VW’s deception in connection with the existing clean diesel vehicles (model years 2009-2015) is estimated to cause or have caused, by the end of 2015, sixty premature deaths in the U.S. as a result of the emissions. If not fixed, the emissions ultimately could lead to an additional 140 deaths by the end of 2016. See Barrett, et al., Environmental Research Letters, “Impact of the Volkswagen emissions control defeat device on US public health,” available here. The excess emissions are also estimated to contribute directly to 31 cases of chronic bronchitis and 34 hospital admissions involving respiratory and cardiac conditions. Id.

Injuries continue to materialize due to Volkswagen’s deceptive conduct: its violation of the consumers’ right to know what they are getting when they purchase a “clean diesel” vehicle, overvaluation of the vehicles, and health-related harms to the public, including injuries and possibly death, and the environment.

Authored by: 
Tarek Zohdy, Associate
CAPSTONE LAW APC