Posts belonging to Category Caselaw Developments

Is receiving a letter from one of the “big three” credit reporting agencies identifying you as a “potential” drug trafficker or terrorist sufficiently harmful to establish a “real injury” under Article III of the U.S. Constitution? If not, how about being flagged as a “potential” child molester? Or as a racist? Or finding out that your credit score was reduced because of your race? In TransUnion v. Ramirez, No. 20-297, 594 U.S. __ (Jun. 25, 2021) (“TransUnion”)(slip op. available here) Justice Thomas, joined by three other dissenting justices of the United States Supreme Court, seriously posed these questions in a critique of the majority opinion’s take on Article III standing. Thomas, J., dissenting, slip op. at 17.

In TransUnion, Sergio Ramirez visited a Nissan dealership to buy a car. After he and his wife picked out the car and negotiated a price, the dealership ran a credit check on them. Nissan refused to sell Mr. Ramirez the car because his name was on a “terrorist list.” Slip op. at 4.

Mr. Ramirez is not a terrorist. The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) maintains a list of “specially designated nationals,” which largely includes terrorists and drug traffickers. Slip op. at 3. TransUnion’s credit check product flags anyone with the same first and last name as a person on the OFAC list, without comparing any other data. Id. at 4. The next day, Mr. Ramirez demanded a copy of his credit file. The mailing he received from TransUnion did not mention that his credit file contained the OFAC alert. In a subsequent second mailing, TransUnion informed him in a letter that his name was mentioned as a potential match to names on the list. Id. at 5.

Mr. Ramirez filed a class action alleging violations of the Fair Credit Reporting Act (“FCRA”) on behalf of himself and a class of 8,185 individuals with OFAC reports in their credit files. For 1,853 of the class members, TransUnion provided misleading credit reports to third-party businesses. The internal credit files of the other 6,332 class members were not provided to third-party businesses. Slip op. at 1-2. The United States District Court for the Northern District of California certified the class, and a jury awarded statutory and punitive damages totaling more than $60 million to the class. The Ninth Circuit affirmed, but reduced the punitive damages award, reducing the total award to approximately $40 million. 

The Supreme Court granted certiorari. The Court held that the 1,853 class members (including plaintiff) whose credit reports were provided to third-party businesses suffered a “concrete” harm and therefore had Article III standing. However, the Court held that the remaining 6,332 class members, whose credit reports were not provided to third-party businesses, did not. Slip. op. at 27. The Court analogized that for these class members “the plaintiffs’ harm is roughly the same, legally speaking, as if someone wrote a defamatory letter and then stored it in her desk drawer. A letter that is not sent does not harm anyone, no matter how insulting the letter is.” Id. at 19. The Court concluded, “[n]o concrete harm, no standing.” Id. at 27.

In the dissent, Justice Thomas retorted that “no concrete harm, no standing” “may be a pithy catchphrase, but it is worth pausing to ask why ‘concrete’ injury in fact should be the sole inquiry” in determining whether an injury is sufficient to establish standing. Thomas, J., dissenting, slip op. at 9. Justice Thomas examined how the law has historically distinguished between the enforcement of private rights and the enforcement of public rights by individuals. For example, an individual suing for violation of a private right – such as trespass on his land – needed only to allege the violation. Courts typically did not require any showing of actual damage. But an individual suing for violation of a duty owed broadly to the whole community, “such as the overgrazing of public lands,” had to show individual damage. Id. at 5. In the view of the minority, by violating the duties owed to individual class members under the FCRA, TransUnion violated the private rights of the 6,332 class members, who “thus have a sufficient injury to sue in federal court.” Id. at 8.

After all, “one need only tap into common sense to know that receiving a letter identifying you as a potential drug trafficker or terrorist is harmful,” which is “[a]ll the more so when the information comes in the context of a credit report.” Thomas, J., dissenting, slip op. at 17. This, however, was insufficient to establish a real injury for Article III standing here, which leaves one to wonder “what could rise to that level.” Id.  

Authored by:
Robert Friedl, Senior Counsel
CAPSTONE LAW APC

In 2019, the California legislature passed Assembly Bill 5 (“AB 5”), popularly known as California’s “Gig Worker Law.” The new law was designed to regulate companies that hire gig workers in large numbers, such as Uber and Lyft, by making it more difficult to classify them as independent contractors. In 2020, Uber, Lyft, and other gig economy companies responded by spending over $200 million to back Proposition 22, which sidesteps AB 5 by providing that an “app-based driver” is an independent contractor, not an employee, if the conditions of the law are met. Proposition 22 was billed as a major win for Uber and Lyft in their effort to continue classifying their drivers as independent contractors.

In Hassell v. Uber Technologies, Inc., No. 20-cv-04062-PJH (N.D. Cal. June 21, 2021) (slip op. available here), Uber attempted to bring to bear Proposition 22 to abate the plaintiff’s claims based on misclassification as an “independent contractor,” rather than an “employee,” when working as an Uber Eats driver. The district court, however, was not convinced that Uber had made its case for dismissal of the plaintiff’s claims under Proposition 22. Id. at 4.

As a matter of background, in Dynamex Operations West v. Superior Court, 4 Cal.5th 903 (2018), the California Supreme Court held that the “ABC test” applied to determine whether a worker qualifies as an “employee” or “independent contractor” for purposes of California’s wage orders. See slip op. at 6. The ABC test focuses on (a) the putative employer’s control of the worker, (b) whether the work is outside the usual course of business, and (c) whether the worker is customarily engaged in an independently established trade. Id. AB 5 codified the ABC conditions articulated in Dynamex as part of the Labor Code. Id. Proposition 22, the relevant provision of which has been codified as Business & Professions Code § 7451, provides different conditions specifically for classifying app-based drivers as independent contractors “[n]otwithstanding any other provision of law.” Id. at 7.

In Hassell, Uber argued that section 7451 “‘effectively repealed’ the ABC test ‘as to delivery people.’” Slip op. at 7. According to Uber, Proposition 22 required dismissal of the plaintiff’s claims based on misclassification both before and after the effective date of section 7451, in that plaintiff “makes no effort” to plead that the conditions for finding independent contractor status in section 7451 were not met. Id.

The district court noted that “the abatement argument appears to raise novel questions in a rapidly developing area of California law. That novelty aside, the parties’ briefing on the issues implicated by that argument falls short.” Slip op. at 4. Given that the court could not determine on the papers whether section 7451 abated the plaintiff’s claims, the court denied Uber’s motion to dismiss to the extent it was based on abatement. Id. at 16. The district court also rejected Uber’s contention that the plaintiff was required to affirmatively allege in his complaint Uber’s non-compliance with section 7451. The court observed that section 7451 does not address whether the “app-based driver” or the “network company” bears the burden of showing that the conditions of the section are, or are not, satisfied. Id. at 16.

The district court’s decision potentially sets the stage for a summary judgment motion as to whether Uber’s employment of the plaintiff met the conditions in section 7451 and whether the plaintiff’s claims based on misclassification are abated. Anticipating this, the district court helpfully detailed the deficiencies that it perceived in both Uber and the plaintiff’s positions on the issues. Slip op. at 16-23. Perhaps, with this guidance in mind, the novel issues presented by the application of Proposition 22 to the plaintiff’s claims will be resolved in the summary judgment context.

Authored by:
Robert Friedl, Senior Counsel
CAPSTONE LAW APC

Shortly after the outbreak of the COVID-19 pandemic last year, some consumers sued airlines for refusing to refund the money they spent on flights that their airlines did not provide. We had reported on some of these cases, including Bombin v. Southwest Airlines Co., No. 20-01883 (E.D. Penn., filed April 13, 2020) (“Bombin”), and Levey v. Concesionaria Vuela Compania de Aviacion SAPI de CV et al., No. 20- 02215 (N.D. Ill., filed May 8, 2020) (“Levey”). A year later, we have decided to check in on the progress of these airline refund cases.

Bombin is a typical example; in Bombin, the plaintiffs booked flights to Cuba and Arizona. The flight to Cuba was cancelled and the flight to Arizona was rescheduled three times. Both of the plaintiffs sought refunds from Southwest, and were denied. Instead, Southwest offered the plaintiffs travel credits toward future flights in lieu of refunds. The plaintiffs then filed a class action against Southwest alleging breach of contract.

The Bombin plaintiffs’ breach of contract class action recently survived a motion to dismiss. Bombin v. Southwest Airlines Co., No. 20-01883 (E.D. Penn. March 29, 2021) (slip op. available here). In its motion, Southwest argued that the claim should be dismissed because its Contract of Carriage is unambiguous and vests Southwestern with discretion to issue fare credits instead of refunds. Id. at 10. The plaintiffs argued that the Contract of Carriage is ambiguous, stating that it can reasonably be interpreted to provide customers with the right to choose a refund. The court agreed with the plaintiffs. Acknowledging “the labyrinthine nature of the Contract of Carriage,” the district court held that the plaintiffs plausibly alleged a breach of contract claim under the unclear contract because “Southwest failed to give Plaintiffs the option of a refund.” Id. at 10, 13.

The Bombin court also rejected Southwest’s argument that the plaintiffs’ breach of contract claim is preempted by the Airline Deregulation Act (“ADA”). Id. at 13. The ADA “stops States from imposing their own substantive standards with respect to rates, routes, or services, but not from affording relief to a party who claims and proves that an airline dishonored a term the airline itself stipulated.” Am. Airlines v. Wolens, 513 U.S. 219, 232-233, 115 S.Ct. 817, 130 L.Ed.2d 715 (1995). Because the plaintiffs’ claim is based on Southwest’s alleged breach of its own Contract of Carriage (i.e., “a term the airline itself stipulated”), the court held that Southwest’s preemption argument fails under Wolens.

Other courts have reached similar conclusions. In Levey, the plaintiff alleged the airline canceled flights amid the pandemic and refused to refund travelers or let them rebook their flights without penalty. The airline moved to dismiss, arguing (among other things) that it did not breach its Contract of Carriage and that the plaintiff’s claims are preempted by the ADA. As in Bombin, the district court declined to dismiss the breach of contract claim at the pleading stage, holding that it is plausible that the plaintiff was entitled to a prompt refund of her airfare under the terms of the Contract of Carriage. Levey v. Concesionaria Vuela Compania de Aviacion SAPI de CV, et al., No. 20- 02215 (N.D. Ill., March 29, 2021), at 12. The court also rejected the airline’s preemption argument, citing the “Wolens exception” to ADA preemption, discussed in Bombin. Id. at 7.

In another case filed after the onset of the pandemic, the plaintiffs alleged that British Airways breached its Contract of Carriage by failing to provide them with refunds after their flights were cancelled. Ide, et al. v. British Airways, PLC, No. 20-3542 (S.D.N.Y., March 26, 2021) at 1 (slip op. available here). First, the plaintiffs alleged that the airline offered them travel vouchers instead of refunds to which they are entitled under the contract. Second, the plaintiffs alleged that British Airways actually frustrated their attempts to obtain refunds: “[B]y removing refund claim forms from its website and channeling their refund requests through overburdened and inadequate call centers, British Airways frustrated their ability to secure refunds.” Id. at 13-14. British Airways moved to dismiss. The district court found that the plaintiffs plausibly alleged breaches of contract on both theories. Also, as in the other cases, the court rejected the airline’s preemption argument based on the “Wolens exception.” Id. at 14-15.

One year since March 2020, these airline refund cases have set the course. They have generally been successful in alleging breaches of the airlines’ Contract of Carriage and evaded preemption under the ADA based on the Wolen exception. We will check in with them again when there are further developments.

Authored by:
Robert Friedl, Senior Counsel
CAPSTONE LAW APC

In Donohue v. AMN Services, LLC, Cal. Sup. Ct., No. S253677, Feb. 25, 2021 (“Donohue”) (slip op. available here), the California Supreme Court reached two significant holdings. The Court first held that employers may not engage in the practice of rounding time punches when recording time for meal periods. Second, the Court held that an employer’s time records that show noncompliant meal periods raise a rebuttable presumption of meal period violations. In reaching this conclusion, the Court adopted the reasoning in Justice Werdegar’s concurrence in Brinker Restaurant Corp. v. Superior Court, 53 Cal.4th 1004 (2012) (“Brinker”). These holdings are significant because they clarify how employers must record employees’ time, and the role of time records in establishing a prima facie showing of meal period violations. 

In Donohue, the plaintiff’s employer AMN Services, Inc. (“AMN”) used an electronic timekeeping system called “Team Time” to track its employees’ compensable time. Employees would use Team Time to punch in and out of work at the beginning of the day, at the beginning of lunch, at the end of lunch, and at the end of the day. Team Time rounded time punches to the nearest 10-minute increment. Slip op. at 2-3. AMN relied on the Team Time punches to manage potentially non-compliant meal periods—i.e., whether a meal period was missed, shorter than 30 minutes, or taken after five hours of work. However, because the time punches were rounded, some non-compliant meal periods would have appeared as compliant meal periods on Team Time and would not have resulted in payment of premium wages. Id. at 3-4. The plaintiff alleged in her class action that AMN denied its employees compliant meal periods, improperly rounded time records for meal periods on Team Time, and failed to pay premium wages for those violations. Id. at 5.   

The Donohue Court first examined whether rounded time punches properly calculated the time for the 30-minute meal periods required by California Labor Code section 512(a). The Court made clear that the purpose of the inquiry was to determine whether AMN’s rounding policy resulted in the proper payment of premiums for meal period violations, not whether rounding practices result in employees not receiving pay for all time worked. Slip op. at 8.

Employers have long been permitted to use rounded time punches to calculate regular and overtime wages, as long as the rounding policy is neutral on its face and as applied. Slip op. at 16 (citing See’s Candy Shops, Inc. v. Superior Court, 210 Cal.App.4th 889, 907 (2012) (“Candy I”)). The reasoning in Candy I is that the rounding policy averages out for purposes of calculating wages (“counting slightly fewer wages one day can be made up by counting a few more minutes another day”). Id. at 15-16. However, that reasoning does not apply to shorter or delayed meal periods because “rounding policies are at odds with the requirement that employers pay the full premium wage for meal period violations.” Id. at 16. For example, in Donohue, AMN’s rounding policy, automatically applied by “Team Time,” would not always trigger premium pay for noncompliant meal periods. Id. at 20. This is inconsistent with Labor Code section 226.7, under which “even a minor infringement of the meal period triggers the premium pay obligation.” Id. at 12.

The Court then discussed the significance of AMN’s time records. According to the plaintiff’s expert, those time records showed over 40,000 shortened meal periods and over 6,000 delayed meal periods for which premium wages were not paid because of rounding. The Court held that the introduction of these time records would trigger a “rebuttable presumption” of meal period violations. 

This “rebuttable presumption” was first discussed in Justice Werdegar’s concurrence in Brinker. Slip op. at 21-22. Noting that “[e]mployers covered by Industrial Welfare Commission (IWC) wage order No. 5-2001 (Cal.Code Regs., tit. 8, § 11050) have an obligation both to relieve their employees for at least one meal period for shifts over five hours (id., subd. 11(A)) and to record having done so . . .,” Justice Werdegar concluded “[i]f an employer’s records show no meal period for a given shift over five hours, a rebuttable presumption arises that the employee was not relieved of duty and no meal period was provided.” Brinker, 53 Cal.4th at 1053 (conc. opn. of Werdegar, J., emphasis in original). The Donohue Court adopted this rebuttable presumption. It also clarified that “the presumption applies to records showing short and delayed meal periods as well. Providing employees with short or delayed meal periods is just as much a violation of the meal period provisions as failing to provide employees with a meal period at all.” Slip op. at 24.

Donohue is also noteworthy because it discusses the impact of technology on timekeeping issues. As for rounding, the Court recognized that the practice was developed as a means to efficiently calculate hours worked, “[b]ut technological advances may help employers to track time more precisely.” Slip op. at 21. In fact, Team Time recorded the employees’ time in unrounded punches, and then had to take an extra step to round them. The Court concluded that “[a]s technology continues to evolve, the practical advantages of rounding may diminish further.” Id.

Although Donohue was confined to rounding time for meal period violations, the question remains whether, considering today’s technology, there is any reasonable basis to round time punches in any context. The Court stated, “[t]his court has never decided the validity of the rounding standard articulated in See’s Candy I, and we are not asked to do so here.” Slip op. at 19. Does this foreshadow the eventual overruling of Candy I? Only time will tell.

Authored by:
Robert Friedl, Senior Counsel
CAPSTONE LAW APC