JUDICIAL DEVELOPMENTS

Federal Decisions

Northern District of California Stays FLSA Class Action Regarding Compensability of Security Screenings Pending U.S. Supreme Court’s Decision in Busk v. Integrity Staffing Solutions, Inc.

Frlekin v. Apple, Inc., 2014 U.S. Dist. LEXIS 74226 (N.D. Cal. May 30, 2014)

A nationwide class of retail store employees brought suit against their employer seeking compensation for time spent waiting in line to undergo off the clock security bag searches and clearance checks.  The employees contend they spend 10 to 15 minutes per day awaiting security clearance before taking meal breaks or leaving at the end of their shifts.  The employer argued that time spent undergoing security screening is not “hours worked” under the FLSA and California law.  The Ninth Circuit Court of Appeals in Busk v. Integrity Staffing Solutions, Inc., 713 F.3d 525 (9th Cir. 2013) held that time spent by hourly-paid employees in mandatory security screenings is compensable under the FLSA.  The Northern District of California stayed its decision pending the Supreme Court’s review, which is anticipated in 2015. 

California Decisions

Statistical Sampling Inappropriate in Wage and Hour Misclassification Class Action

Duran v. U.S. Bank Nat. Assn., 2014 Cal. LEXIS (Cal. May 29, 2014)

Former banking officers brought a wage and hour class action claiming they were misclassified by defendant employer as outside sales personnel exempt from California’s overtime laws and, therefore, unlawfully denied overtime pay.  The trial court relied upon evidence from a random witness group (RWG) of 21 out of the 260 class members to find class-wide liability and restitution, and entered a $15 million judgment in favor of the employees.  The employer appealed.

The court of appeal reversed the judgment.  Specifically, the appellate court found the trial court’s trial management plan deprived the employer of its constitutional due process rights in that the employer was prevented from raising individualized challenges to the absent (i.e., non-RWG) class members’ claims.  Moreover, the appellate court concluded that the case had to be decertified because the trial court erroneously extrapolated findings from the RWG to the entire class.  The employees sought review.

The California Supreme Court affirmed the court of appeal’s judgment in its entirety.  The Court held a trial plan that relied on statistical sampling had to be developed with expert input and had to afford the defendant an opportunity to impeach the model or otherwise show its liability was reduced.  Here, the trial court’s approach to statistical sampling was fatally flawed because it prevented the employer from showing some class members were, in fact, exempt and entitled to no recovery.  Not only did the trial court fail to employ a valid statistical model, but it then improperly extrapolated liability findings from the RWG (a small, skewed sample group) to the entire class.  Moreover, the trial court refused to admit relevant evidence relating to banking officers outside the RWG, thereby significantly hampering the employer’s ability to present a defense.  Having determined that the trial court’s findings on liability and damages would have been different absent its erroneous exclusion of evidence and reliance on faulty statistical methodology, the Court reversed both aspects of the trial court’s judgment.

The Court left open the potential use of statistical sampling as a means of proving liability and damages in some wage and hour class actions, although employers had hoped the Court would put an end to this practice entirely. As mentioned, any trial plan that relies on statistical sampling needs to be developed with expert input and allow an opportunity for the defendant to impeach the model.  The Court also made clear that any class action trial must allow for the litigation of affirmative defenses, even in a class action case where the defense touches upon individual issues.

The Court also advised trial courts to “pay careful attention to manageability when deciding whether to certify a class action.”  In particular, the Court said that manageability of individual issues was just as important a consideration at the class certification stage as the existence of common questions uniting the proposed class.  Also, trial courts must decertify classes if they later determine that individual issues will unmanageable.  And, if statistical evidence will comprise part of the proof on class action claims, a trial court should consider at the certification stage whether a trial plan has been developed to address its use, and not merely accept assurances that a plan will eventually be developed.  Advising trial courts to consider at the class certification stage whether a class would be manageable for trial purposes is a significant development which creates an additional hurdle for litigants seeking to have classes certified.

California Court of Appeal Reinstates Suitable Seating Class Action

Hall v. Rite Aid Corp. (2014) 226 Cal.App.4th 278

Section 14 of the California Wage Orders states “All working employees shall be provided with suitable seats when the nature of the work reasonably permits the use of seats.”  Current and former cashiers at a large retailer sought penalties against their employer for failing to provide suitable seating in violation of this wage order.  

Upon motion by the employer, the trial court decertified the class prior to trial on the grounds that individualized issues predominated as to whether the “nature of the work” of a cashier reasonably permits the use of a seat, and explained that any analysis of the Wage Order’s suitable seating requirement depends upon the job as a whole. 

The California court of appeal reversed, holding that in determining class certification, the trial court should focus on the policy itself and address whether the plaintiff's theory as to the illegality of the policy can be resolved on a

class-wide basis.  Applying this rule to the facts of this case, the court noted that the employee’s theory of liability is tht the uniform policy of not providing seats for cashiers is unlawful, because the nature of the work involved in performing check-out functions reasonably permits the use of seats.  In other words, regardless of the amount of time any particular cashier might spend on duties other than check-out work, the employer’s policy violates Section 14 of the California Wage Orders.  The court noted that whether the nature of the work in performing check out functions would reasonably permit the use of seats is amendable to class-wide treatment.   

California Court of Appeal Upholds Arbitration Provision Delegating to the Arbitrator Issues Regarding the Agreement’s Enforceability

Tiri v. Lucky Chances, Inc. (2014) 226 Cal.App.4th 231

After five years of employment, an employer requested employee sign a mutual agreement to arbitrate claims relating to her employment.   After being released by the company, the employee filed a civil complaint for wrongful discharge and the employer filed a motion to compel arbitration.  While opposing the motion, the employee claimed the agreement was unconscionable because she “felt [she] had to sign it as a condition of continued employment” and she believed she would be fired if she did not sign it.  In response, the employer argued that the agreement specifically provided for the arbitrator to determine issues of enforceability (i.e. “delegation clause”), thus, this was a decision to be made by the arbitrator and not the court.  The trial court disagreed, found the agreement substantively and procedurally unconscionable and denied the motion to compel.

On appeal, the court of appeal overruled the trial court.   It noted courts may consider enforceability challenges specific to delegation clauses.  However, the court of appeal reasoned, if the delegation clause was valid, the arbitrator is to consider challenges to the arbitration agreement as a whole.  Evaluating the delegation clause, the court of appeal agreed the arbitration agreement was offered on a “take it or leave” basis, rendering it procedurally unconscionable.  On the other hand, since the delegation provision was clearly stated within the agreement it was not substantially unconscionable.   Accordingly, the delegation clause was valid and the trial court lacked the authority to rule on the enforceability of the agreement. 

Delay in Filing Petition to Compel Arbitration and Participation in Litigation Proceedings Alone Does Not Waive the Right to Arbitrate Without Sufficient Showing of Prejudice to the Opposing Party 

Gloster v. Sonic Automotive, Inc. (2014) 226 Cal.App.4th 438

In a case alleging various employment related claims, an employee argued his former employer and other defendants had waived their right to arbitration by petitioning to compel arbitration a year after the complaint was filed.  The trial court denied the petition, reasoning defendants had waived the right to arbitration by their delay and the joinder of a third party (not a party to the arbitration agreement) created a risk of inconsistent rulings.  The court of appeal reversed the denial of the arbitration petition finding that (1) specific language contained in the agreement provided arbitration would not be stayed even if the claims involved non-parties to the arbitration agreement and (2) the delay did not waive defendants’ right to arbitrate because there was insufficient evidence of prejudice to the employee.  The court held that “answering a complaint and participating in litigation” alone do not amount to a waiver.  Defendants had consistently asserted their intention to arbitrate, including through pre-litigation communications, their affirmative defenses and in series of case management statements.  Since defendants’ dispositive motion addressed only procedural issues, not the merits of the claims, it too could not be construed as inconsistent with the intent to arbitrate.

Failure to Perform Job Duties Sufficient to Support Termination of Employee, Even Though Failure Did Not Ultimately Result in Harm to Employer

Serri v. Santa Clara University, et. al  (2014) ___ Cal.App.4th ___, 2014 Cal. App. Lexis 467

Employee worked as the Director of Affirmative Action for a state university.  Although part of her job duties included preparing an annual affirmative action plan, a plan required by many of the employer’s contracts with government and state agencies, employee failed to prepare the plans for at least three years.  When the failure was discovered, employee attempted to cover it up by making misrepresentations about the status of the plans.  Eventually, employer terminated employee for failing to prepare the plans, for failing to disclose to her supervisors that the plans did not exist, and for making misrepresentations about the status of the plans.

Employee argued that her termination was discrimination based on her race and gender, and in retaliation for complaints she made about her treatment and pay. In appealing the grant of summary judgment in the employer’s favor, the employee argued summary judgment was inappropriate because, in opposing summary judgment, she provided a declaration from her expert stating that the employer did not suffer any actual harm as a result of employee’s failure to prepare the affirmative action plans. Specifically, the expert opined that the employer did not suffer any audits or loss of contracts due to its failure to prepare the required plans.  The appellate court found that whether the employer suffered any concrete harm as a result of the employee’s failure to perform her job as expected did not create an issue of fact as to whether her termination was discriminatory.  The employer produced evidence of a good faith basis for the termination, and the employee failed to produce evidence that the stated reason for her termination was pretext. 

Disparate Impact Theory May Not Be Raised For First Time at Trial

Rosenfeld v. Abraham Joshua Heschel Day School,  (2014) ___ Cal.App.4th ___, 2014 Cal. App. Lexis 465

Employee alleged she was constructively terminated through a systematic reduction in her hours because of her age.  After the close of discovery, and on the eve of trial, employee announced her intention to seek damages based on a disparate impact theory.  Before that, employee had only pursued the theory of disparate treatment, that is, she was intentionally discriminated against based on her age.  The court held that an employee must make clear her intention to pursue a disparate impact theory before the close of discovery.  Since disparate impact and disparate treatment claims involve very different evidence and defenses, it would be prejudicial to a defendant to be forced to defend a new claim on the eve of trial, when the defense had previously been focused on a very different claim.