Jan 09 2011
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Class Actions, Demurrer/Motion to Dismiss

Second District Court of Appeal Holds That “in the vast majority of wage and hour disputes, class suitability should not be determined on demurrer.”

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This next case highlights the difficulty of successfully eliminating a wage and hour class action in California at the demurrer stage.  After 3 bites at the apple, the trial judge in Gutierrez v. California Commerce Club, Inc., 2010 WL 2991875 (Cal. Ct. App. 2d Dist. August 02, 2010) (not reported) sustained without leave to amend the defendant California Commerce Club, Inc.’s (“Club”)  demurrer to plaintiff’s third amended complaint on the ground the plaintiffs had failed to show the existence of a class, and dismissed the action as to all representative claims.  In a 3-0 opinion, Justice Jeffrey J. Johnson, writing for the Second District Court of Appeal, reversed the trial court’s order.

Putative class representatives Sergio Gutierrez and Hector Salazar filed the operative third amended class action complaint against the Club, alleging, among other things, that they and other similarly situated members of the putative class were injured by the Club’s unlawful policy and practice of denying meal and rest breaks to certain hourly, non-union employees.

The Court of Appeal held that “In this action, as in the vast majority of wage and hour disputes, class suitability should not be determined on demurrer.”

Plaintiffs alleged that, pursuant to a Club policy or practice, they and similarly situated hourly, non-union employees have been denied meal and rest breaks to which they are legally entitled, or compensation therefor.  The Court reasoned that “[o]n these allegations, it is clear that the Club liability, if any, to the class as a whole, can be determined by reviewing a single or set of facts common to all.” Id. *6.  The Court wrote:

We return again to and rely upon the well-established principle, that “only in mass tort actions (or other actions equally unsuited to class action treatment) [should] class suitability … be determined at the pleading stage. In other cases, particularly those involving wage and hour claims, [such as the instant action,] class suitability should not be determined by demurrer.” ( Prince, supra, 118 Cal.App.4th at p. 1325, italics added; see also Tarkington, supra, 172 Cal.App.4th at p. 1512.).  Id.

We will reverse the order dismissing the action following the sustaining without leave to amend of the demurrer to the TAC based on the trial court’s finding that the pleading failed “to allege facts sufficient to show the existence of a class.” It was premature for the trial court to make determinations pertaining to class suitability on demurrer. The allegations of the operative complaint are sufficient to move the action beyond the pleading stage.

Id. *6.

The appeal was taken from an order of Judge Aurelio Munoz of the Superior Court of Los Angeles County. (Judge Munoz is a retired judge of the L.A. Sup. Ct. assigned by the Chief Justice pursuant to art. VI, § 6 of the Cal. Const.).  Matthew J. Matern and Thomas S. Campbell appeared for Plaintiffs and Appellants.  Anna Segobia Master and Jennifer Rappoport appeared for Defendant and Respondent.

By CHARLES H. JUNG

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Jan 09 2011
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News

Judge Vaughn Walker Strikes Down Proposition 8

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Judge Vaughn R. Walker of the Northern District of California issued his much anticipated ruling today in Perry, et al. v. Shwarzenegger, et al., Case No. C09-2292 VRW.  Judge Walker struck down the so-called gay marriage ban, Proposition 8, concluding that “Plaintiffs have demonstrated by overwhelming evidence that Proposition 8 violates their due process and equal protection rights and that they will continue to suffer these constitutional violations until state officials cease enforcement of Proposition 8.”   The case involved a challenge to the November 2008 voter-enacted amendment to the California Constitution (“Proposition 8” or “Prop 8”).  Cal. Const. Art. I, § 7.5.

The Court concluded that:

Proposition 8 fails to advance any rational basis in singling out gay men and lesbians for denial of a marriage license. Indeed, the evidence shows Proposition 8 does nothing more than enshrine in the California Constitution the notion that opposite-sex couples are superior to same-sex couples.Because California has no interest in discriminating against gay men and lesbians, and because Proposition 8 prevents California from fulfilling its constitutional obligation to provide marriages on an equal basis, the court concludes that Proposition 8 is unconstitutional.

Plaintiffs have demonstrated by overwhelming evidence that Proposition 8 violates their due process and equal protection rights and that they will continue to suffer these constitutional violations until state officials cease enforcement of Proposition 8. California is able to issue marriage licenses to same-sex couples, as it has already issued 18,000 marriage licenses to same-sex couples and has not suffered any demonstrated harm as a result, see FF 64-66; moreover, California officials have chosen not to defend Proposition 8 in these proceedings.

The Court ordered the following:

Because Proposition 8 is unconstitutional under both the Due Process and Equal Protection Clauses, the court orders entry of judgment permanently enjoining its enforcement; prohibiting the official defendants from applying or enforcing Proposition 8 and directing the official defendants that all persons under their control or supervision shall not apply or enforce Proposition 8. The clerk is DIRECTED to enter judgment without bond in favor of plaintiffs and plaintiff-intervenors and against defendants and defendant-intervenors pursuant to FRCP 58.

By CHARLES H. JUNG

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Jan 09 2011
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Legislation

Gov. Schwarzenegger Vetoes Agricultural Employees Overtime Bill

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Gov. Arnold Schwarzenegger vetoed a bill Wednesday that would have made California’s hourly agricultural employees the only farmworkers in the nation to receive overtime pay after 40 hours a week or eight hours a day.  As reported in the San Francisco Chronicle:

In vetoing the measure, Schwarzenegger cited the fragile economy and said that extending overtime protections could put farms out of business, or result in lower paychecks for agricultural workers because farmers would hire more people and cut hours to avoid paying overtime.

The bill’s author, Sen. Dean Florez, D-Shafter (Kern County), blasted the veto. In a statement released by his office, Florez said the Republican governor sided “with a labor practice derived from the segregationist South,” and that the veto means it is “acceptable to treat one class of people differently from all others.”

By CHARLES H. JUNG

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Jan 09 2011
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Statute of Limitations

Sixth District Reverses Grant of Summary Adjudication of UTSA Claim on Equitable Estoppel Grounds

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In Insyst Ltd. v. Applied Materials, Inc., 2010 WL 2892712 (Cal. Ct. App. Jul. 22, 2010) (unpublished), the California Sixth District Court of Appeal reversed the trial court’s grant of summary adjudication of plaintiff’s misappropriation of trade secrets cause of action. The trial court granted summary adjudication based on the lapse of the statute of limitations. The Court of Appeal reversed on equitable estoppel grounds. Defendant “effectively concedes that in its motion it presented no evidence of plaintiff’s conduct after December 2002 apart from the filing of the complaint on July 30, 2004. Instead, in its reply defendant simply challenged plaintiff to present evidence of its diligence, arguing that plaintiff made no showing of diligence. This is not how a party should be able to obtain a summary adjudication.”
By CHARLES H. JUNG

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Jan 09 2011
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23(b)(3) Class, Class Actions, Employee/Independent Contractor

S.D. California Certifies 23(b)(3) Class of Newspaper Home Delivery Carriers

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In another case involving an employer’s attempt to contract around a putative employer/employee relationship, the Southern District of California certified a 23(b)(3) class of newspaper home delivery carriers. Dalton v. Lee Publications, Inc., 2010 WL 2985130 (S.D. Cal. July 27, 2010) (slip op.).
Defendant Lee Publications, doing business as North County Times (“NCT”), operates the North County Times, a newspaper of general circulation in the San Diego area. Plaintiffs are current and former home-delivery newspaper carriers for NCT.
The class was defined as “[a]ll persons presently and formerly engaged as newspaper home delivery carriers by LEE PUBLICATIONS, INC. and for the North County Times newspaper in the State of California during the period from and including April 18, 2004, through and including the date of trial set for this action, and who, as a condition of such engagement, signed a written agreement for the home delivery of newspapers, which categorized them as independent contractors and not employees.” Id. at *1, n.1.
Each class member has signed contracts with NCT that contained provisions regarding the carriers’ primary duties, rate of pay, liabilities, penalties, and expense reimbursement, among other things. All the contracts stated that the carrier “is an independent contractor, is not an employee or agent of the Company, and is not subject to the Company’s direction or control.” And either party may terminate the contract without cause with thirty-days notice, or for cause without notice. The Court examines the contracts in more detail below.
The Court described the Plaintiff’s Tasks as follows:

Plaintiffs deliver the North County Times to the homes of subscribers. Each morning, the newspaper carriers arrive at one of several distribution centers in San Diego County. The carriers arrive at different times. Although they generally arrive between 1:00 a.m. and 4:00 a.m., some arrive earlier or later. The arrival time varies depending on the day of the week.
The carriers are contractually obligated to deliver the assembled newspapers by 6:00 a.m. each weekday and 7:00 a.m. on Saturday and Sunday.
Upon arrival, the carriers are responsible for assembling the newspapers. Some assemble the papers at the distribution center-those that use the distribution center pay a rental fee-and others assemble the papers elsewhere. Assembling the newspapers may involve folding or inserting the following: newspaper inserts, sections, pre-prints, samples, supplements and other products at NCT’s direction. The carriers pay for their own rubber bands and plastic bags used to assemble the papers. Some carriers buy the rubber bands and bags from Defendant, and others purchase them elsewhere. The carriers also pay for their own gas and automobile expenses they incur delivering the newspapers. 

Id. at *1.

In analyzing whether the primary factor in determining the employee-employer relationship, the right to control, is susceptible to common proof, the court found that the class members are all home-delivery newspaper carriers who work, or used to work, for Defendant. They all did the same job. Although there are differences between them, which Defendant lists in detail, whether they are independent contractors or employees is still susceptible to common proof. Thus, the Court found that common questions predominate on this issue.
Defendant argued that calculating damages on each of Plaintiffs’ causes of action would require individualized proof. The court rejected this argument stating that “although calculating damages is generally an individualized task, the Court finds that calculating them here would not require so much individualized analysis to defeat certification. That is mainly because Defendant has kept extensive records.” Id. at *7. The Court concluded that the “calculation of the [damages] for each individual [carrier], if necessary, will likely be fairly mechanical.” Id. at *8.
Thus, the Court certified the Rule 23(b)(3) class.
By CHARLES H. JUNG

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Jan 09 2011
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Legislation

Rep. Linda Sanchez Introduces Legislation to Extend Minimum Wage and Overtime Protections to Home Care Workers

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This week, Rep. Linda Sanchez (D-CA) introduced legislation that would extend the federal minimum wage and overtime protections of the Fair Labor Standards Act (FLSA) to most home care workers.  See the report from The Hill.

By CHARLES H. JUNG

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Jan 09 2011
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Uncategorized

Former General Motors Employee Indicted for Conspiring to Steal Hybrid Technology Secrets

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On Thursday, a former employee at General Motors and her husband were indicted in federal court in Detroit for allegedly conspiring to steal secrets from G.M. relating to hybrid technology.  Read the article here.  A press release by the U.S. Attorney’s Office in the Eastern District of Michigan states that Shannon Du and her husband, Yu Qin conspired to “possess trade secret information of General Motors Company relating to hybrid vehicles, knowing that the information had been stolen, converted, or obtained without authorization.”  “The indictment alleges that DU, while employed with GM, provided GM trade secret information relating to hybrid vehicles to her husband, QIN, for his benefit and for the benefit of a company, Millennium Technology International Inc. (MTI), that the defendants owned and operated.”

By CHARLES H. JUNG

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Jan 09 2011
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Uncategorized

Ninth Circuit Holds That Contracts Expressly Acknowledging Independent Contractor Status “Simply Not Significant” Under California’s Test of Employment”

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In Narayan v. EGL, Inc., — F.3d —-, 2010 WL 2735708 (9th Cir. July 13, 2010), the Ninth Circuit decided whether, assuming the existence of an employer-employee relationship in California, the employer may avoid its obligations under the Labor Code by inserting a clause in an employer-drafted pre-printed form contract in which: (1) the employee acknowledges that he is an independent contractor and (2) agrees that the contract would be interpreted in accordance with the laws of another jurisdiction where such an agreement is generally enforceable.  Judge Ronald M. Whyte of the Northern District of California found that declarations in the underlying agreements stating that the drivers were independent contractors rather than employees compelled the holding that the plaintiffs were indeed independent contractors as a matter of law.  Id. at *2.  Consequently, the district court granted the employer’s motion for summary judgment.  The Ninth Circuit reversed.

EGL, the employer, is a global transportation, supply chain management and information services company incorporated under the laws of Texas and headquartered in Texas.  EGL’s services include, inter alia, “air and ocean freight forwarding, customs brokerage, [and] local pickup and delivery service.” Plaintiff drivers (the “Drivers”) were residents of California who were engaged to provide freight pick-up and delivery services for EGL in California. All three Drivers signed agreements with EGL for “Leased Equipment and Independent Contractor Services” (the “Agreements”). The Agreements provided that the “intention of the parties is to … create a vendor/vendee relationship between Contractor and [EGL],” and acknowledged that “[n]either Contractor nor any of its employees or agents shall be considered to be employees of” EGL. The terms of the Agreements provide, inter alia, that the Drivers “shall exercise independent discretion and judgment to determine the method, manner and means of performance of its contractual obligations,” although EGL retained the right to “issue reasonable and lawful instructions regarding the results to be accomplished.”  Id. at *1.

The Ninth Circuit noted the difficultly in overcoming the  Drivers’  prima facie case that the relationship was one of employer/employee. “This hurdle is particularly difficult for EGL to overcome in light of the second special consideration in this case, namely, the multi-faceted test that applies in resolving the issue whether the Drivers are employees.”  Id. at *4.

The Ninth Circuit described the multifactor approach to evaluating the:

indicia of an employment relationship, the most important of which is the “right to discharge at will, without cause.” Borello, 256 Cal.Rptr. 543, 769 P.2d at 404 (quoting Tieberg v. Unemployment Ins.App. Bd., 2 Cal.3d 943, 88 Cal.Rptr. 175, 471 P.2d 975, 979 (Cal.1970)). Borello endorsed other factors derived from the Restatement (Second) of Agency that may point to an employment relationship:  (a) whether the one performing services is engaged in a distinct occupation or business; (b) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision; (c) the skill required in the particular occupation; (d) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work; (e) the length of time for which the services are to be performed; (f) the method of payment, whether by the time or by the job; (g) whether or not the work is a part of the regular business of the principal; and (h) whether or not the parties believe they are creating the relationship of employer-employee.

Id. at *4.

The Court concluded that the “fact that the Drivers here had contracts ‘expressly acknowledging that they were independent contractors’ is simply not significant under California’s test of employment.” Id. at *8 (citing Borello, 256 Cal. Rptr. 543, 769 P.2d at 403 (“The label placed by the parties on their relationship is not dispositive, and subterfuges are not countenanced.”)).

The Court evaluated the various indicia of employment and concluded that:

Ultimately, under California’s multi-faceted test of employment, there existed at the very least sufficient indicia of an employment relationship between the plaintiff Drivers and EGL such that a reasonable jury could find the existence of such a relationship. Indeed, although it plays no role in our decision to deny summary judgment, it is not without significance that, applying comparable factors to those that we apply here, the Internal Revenue Service (at EGL’s request) and the Employment Development Department of California (at Narayan’s request) have determined that Narayan was an employee for federal tax purposes (applying federal law) and California Unemployment or Disability Insurance (applying California law), respectively.

Id. at *8.

UPDATE:

On August 5, 2010, the Ninth Circuit amended its holding, highlighted above.

By CHARLES H. JUNG

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Jan 09 2011
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Attorneys' Fees, Meal and Rest Breaks

Third District Holds that Employer May Recover Fees for Defense Against Allegation of Wrongly Denied Rest Periods

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In a case with serious implications for Plaintiff’s wage & hour attorneys, the Third District Court of Appeal held that an employer may recover its attorneys fees in a case alleging wrongful denial of rest breaks.  In Kirby v. Immoos Fire Protection, Inc., 2010 WL 2910075 (Cal. Ct. App. 3 Dist. July 27,2010) two former employees challenged an award of attorney’s fees to an employer who successfully defended against allegations of labor law violations. Plaintiff-Appellants Anthony Kirby and Rick Leech, Jr. sued Respondent-Defendant Immoos Fire Protection, Inc. as well as 750 Doe defendants for violating various labor laws as well as the unfair competition law (Bus. & Prof.Code, § 17200 et seq.). Plaintiff dismissed the case after the trial court denied class certification.

Judge Loren McMaster of the Sacramento Superior Court subsequently awarded $49,846.05 in attorney’s fees to Defendant for its defense of the first, sixth and seventh causes of action.  The first cause of action sought recover for violations of the UCL.  The third cause of action alleged that Immoos failed to pay overtime compensation, as required by sections 204.3, 510, and Industrial Wage Commission Order No. 16-2001 (Order No. 16-2001).  The sixth cause of action alleged that Immoos failed to provide Kirby with rest periods as required by Order No. 16-2001.  The Third District Court of Appeal reversed, allowing reasonable fees for the sixth cause of action only.

Defendant moved to recover attorney’s fees from Plaintiff pursuant to Labor Code section 218.5. Plaintiff opposed the motion arguing, in part, that the unilateral fee-shifting provision in favor of plaintiffs provided by Labor Code section 1194 barred an award of fees to Immoos.

Section 218.5 provides in pertinent part: “In any action brought for the nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions, the court shall award reasonable attorney’s fees and costs to the prevailing party if any party to the action requests attorney’s fees and costs upon the initiation of the action…. [¶] This section does not apply to any action for which attorney’s fees are recoverable under Section 1194.”

Section 1194 provides in relevant part: “Notwithstanding any agreement to work for a lesser wage, any employee receiving less than the legal minimum wage or the legal overtime compensation applicable to the employee is entitled to recover in a civil action the unpaid balance of the full amount of this minimum wage or overtime compensation, including interest thereon, reasonable attorney’s fees, and costs of suit.”

The trial court concluded that it is “apparent from the express language of … section 218.5, that only section 1194 can defeat a prevailing party employer’s entitlement to attorneys’ fees under that statute, under the rule of statutory construction, expressio unius est exclusio alterius-the expression of one thing is the exclusion of another.”  “As only [section] 1194 is named as an exception to 218.5, no other Labor Code sections may be implied to defeat a prevailing party employer’s entitlement to attorneys’ fees under that section.”

In addition to the fees allowed for defense against the complaint, the trial court awarded Immoos fees for bringing the motion for attorney’s fees.  Altogether, attorney’s fees were awarded to Immoos in the amount of $49,846.05.

The Court of Appeals concluded that the trial court did not err in awarding fees to Defendant for the sixth cause of action.  However, the court erred in awarding attorney’s fees for defense against claimed violations of section 2810 as set forth in the first and seventh causes of action.

Plaintiff argued that fees should not be awarded since section 218.5 includes an express exception to its bilateral fee-shifting provision, which states: “This section does not apply to any action for which attorney’s fees are recoverable under Section 1194.” Arguing that an “action” refers to an entire case, Kirby concluded that the inclusion of causes of action subject to section 1194 bars Immoos’s recovery of any attorney’s fees in this case.  The Court rejected the argument.

The Court construes the “section 1194 exception as applying only to causes of action for unpaid minimum and overtime wages.”  Id. at *6. “To adopt Kirby’s statutory construction would allow the exception of section 1194 ‘s unilateral fee shifting to eviscerate the rule of section 218.5.”  Id.

We harmonize sections 218.5 and 1194 by holding that section 218.5 applies to causes of action alleging nonpayment of wages, fringe benefits, or contributions to health, welfare and pension funds. If, in the same case, a plaintiff adds a cause of action for nonpayment of minimum wages or overtime, a defendant cannot recover attorney’s fees for work in defending against the minimum wage or overtime claims. Nonetheless, the addition of a claim for unpaid minimum wages or overtime does not preclude recovery by a prevailing defendant for a cause of action unrelated to the minimum wage or overtime claim so long as a statute or contract provides for fee shifting in favor of the defendant.

Id.

Since Plaintiff’s sixth cause of action alleged that Plaintiff was “owed an additional one hour of wages per day per missed rest period” the court concluded that it was a claim seeking additional wages.  Therefore section 218.5’s provision of attorney’s fees for “any action brought for the nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions…” applied.  Id. **7-8.

It is now common practice to include a rest break claim in wage & hour complaints.  Plaintiffs attorneys will need to seriously reconsider whether they will continue this practice or risk bearing defendant’s fees in an unsuccessful claim.

By CHARLES H. JUNG

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Jan 09 2011
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Employment News

Third Circuit Upholds Injunction: Twinkies Will Not Yet Be Crunchy on the Outside and Soft in the Middle

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The federal Third Circuit Court of Appeals upheld an injunction yesterday blocking an expert on nooks on crannies from jumping to rival Hostess Brands, Inc.  The case is Bimbo Bakeries USA Inc v. Botticella, U.S. 3rd Circuit Court of Appeals, No. 10-1510.   Michael L. Banks of Morgan, Lewis & Bockius LLP and Joseph Anclien of Schnader Harrison Segal & Lewis LLP appeared for oral argument.

By CHARLES H. JUNG

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