Posts belonging to Category Caselaw Developments

A California Court of Appeal issued a published decision holding that a corporate parent could be found liable for its subsidiary’s nonpayment of overtime and minimum wages, where the parent not only wholly owned the subsidiary, but also exercised control over the subsidiary’s operations and employees. Castaneda v. Ensign Group, Inc., No. B249119 (2nd Dist. Div. 6 Sept. 15, 2014) (slip op. available here).

A putative class of certified nursing assistants filed suit against The Ensign Group, a parent company that owns a cluster or portfolio of rehabilitation and nursing care facilities like Cabrillo (where the plaintiff had worked). Ensign contended that because Cabrillo was an independent entity (albeit 100% owned by Ensign) that hired and paid the plaintiff and set his daily work schedule, Ensign could not be considered the plaintiff’s employee, as a matter of law. The trial court agreed, and granting Ensign’s motion for summary judgment and dismissing them from the wage-and-hour action.

The Court of Appeal reversed, ruling that there were triable issues of fact as to whether Ensign was the plaintiff’s employer. Citing the California Supreme Court’s decision in Martinez v. Combs, 49 Cal.4th 35 (2010), and the Court of Appeal decision’s in Guerrero v. Superior Court, 213 Cal.App.4th 912 (2013), the Court explained that an “entity that controls the business enterprise may be an employer even if it did not ‘directly hire, fire or supervise’ the employees.” Slip op. at 3 (citing Guerrero). Holding that “[t]he basis of liability is the owner’s failure to perform the duty of seeing to it that the prohibited condition does not exist,” the court found enough evidence that Ensign exercised structural and managerial control over Cabrillo, and thus could have ensured that its subsidiaries’ practices were in compliance with California labor laws. Slip op. at 4 (citing Martinez, italics added). Among other factors, evidence noted by the court included the fact that Ensign was involved in the recruitment and interviewing of Cabrillo employees, Ensign offered and performed essential, centralized services to its affiliates; there was a seamless flow of corporate officers between Ensign and its subsidiaries; Cabrillo employees were required to use Ensign forms and templates; and Ensign controlled the manner in which employees clocked in and out for shifts.

Although a written agreement stated that “the members of the facility staff are Cabrillo’s ‘own’ employees,” the court chose to ignore such labels when evidence of the entities’ actual conduct establishes a different relationship. Slip op. at 5 (internal citations omitted). The court also considered the facts that Ensign’s logo and signs were posted at the Cabrillo facility, employees at the facility believed they were Ensign employees, employees were assigned “@ensigngroup.net” email addresses, and Ensign controlled their employee benefits. The plaintiff had presented facts that the parent had the ability to correct the allegedly unlawful policy in effect at its wholly-owned subsidiary, and thus the Second Appellate District reversed.

In one of the first appellate decisions to apply the California Supreme Court’s landmark Iskanian decision, the California Court of Appeal affirmed the trial court’s decision to deny J.C. Penney’s motion to compel an ex-employee’s suitable seating action to arbitration. Jones v. J.C. Penney Corp., Inc., No. B246674 (2nd Dist. Div. 4 Sept. 5, 2014) (slip op. available here). 

The plaintiff in Jones was a sales associate/cashier at J.C. Penney from November 2007 to January 2008, and then again from November 2009 to December 2009.  Jones’ complaint alleged failure to provide suitable seating, in violation of Labor Code section 1198 and California Code of Regulations, title 8, section 11070, because J.C. Penny did not allow cashiers to sit in chairs while working.  Jones also sought civil penalties under PAGA for the seating violations.  As a condition of her employment, Jones signed an arbitration agreement that covered disputes “arising from, relating to, or asserted after the termination of . . . employment.”  Slip op. at 2 (quoting the arbitration agreement). The agreement contained a class and representative actions waiver.

In a unanimous, unpublished decision authored by Justice Lee Ann Edmon, the Second Appellate District denied the defendant’s petition to compel arbitration of the plaintiff’s seating claims under PAGA. Applying Iskanian, the court held that agreements such as J.C. Penney’s that waive an employee’s right to bring a representative PAGA action are unenforceable. The court also rejected J.C. Penney’s request to stay the appeal until after the U.S. Supreme Court decides on the Iskanian defendant’s petition for a writ of certiorari. J.C. Penney argued that Iskanian conflicts with U.S. Supreme Court precedent, but the court found that the defendant had already conceded in its brief that “[u]nless employers were to ask the LWDA [Labor and Workforce Development Agency] to sign arbitration agreements, and the LWDA was to sign them, there can be no circumstances under which an aggrieved employee could arbitrate any action for PAGA penalties.” Slip op. at 12 (internal citations omitted). “Without considering whether an arbitration agreement could ever be crafted that would permit arbitration of PAGA claims, we conclude that no such arbitration agreement was crafted here.” Id. at 12-13.

Earlier this month, the Ninth Circuit Court of Appeal affirmed the California district court’s order certifying a class of approximately 800 claims adjusters who alleged that Allstate denied them overtime pay, ruling the class met the commonality requirement. Jimenez v. Allstate Insurance Co., No. 12-56112 (9th Cir. Sept. 3, 2014) (slip op. available here). Stating that the use of statistical sampling testimony to show classwide liability did not contradict the U.S. Supreme Court’s ruling in Wal-Mart Stores Inc. v. Dukes, 131 S. Ct. 2541 (2011), the court found that it and its sister circuit courts have regularly found that statistical sampling and representative testimony are acceptable ways to show liability. Moreover, the lower court had preserved the defendant’s ability to raise any individualized defenses it might have at the damages stage, and thus the certification order did not violate its due process rights.

Claims adjuster Jimenez filed this putative class action in 2010, on behalf of all Allstate claims adjusters in California working since Sept. 29, 2006. After Allstate reclassified its California claims adjusters from exempt positions to hourly status in 2005, the plaintiffs alleged that the defendant did not pay them overtime wages or for missing meal breaks. In April 2012, U.S. District Court Judge Kronstadt certified the overtime class, ruling that if Allstate had a common practice of disregarding its own written policies and discouraging employees from reporting overtime, then the employees meet the requirements for commonality. Meal and rest break claims were denied, however, because they were too individualized.

The Ninth Circuit agreed with the lower court’s order finding that the plaintiffs had raised at least three common questions: whether the class was forced to work unpaid overtime due to the defendant’s unofficial policy of deterring employees from reporting overtime (among other reasons), whether the defendants knew or should have known that the class members were working unpaid overtime, and whether the defendants “stood idly by.” Citing Dukes, the court opined that the lower court did not abuse its discretion in determining that these three common questions contained the ‘glue’ necessary to say that ‘examination of all the class members’ claims for relief will produce a common answer to the crucial question[s]’ raised in the plaintiffs’ complaint. Slip op. at 11 (internal citations omitted). The panel also rejected Allstate’s argument that statistical sampling violates due process during the liability phase of class action proceedings. “[S]tatistical sampling and representative testimony are acceptable ways to determine liability so long as the use of these techniques is not expanded into the realm of damages.” Id. at 12.

On August 27, 2014, the Ninth Circuit ruled in a pair of cases (filed in California and Oregon) against FedEx Ground Package System, Inc., that FedEx had misclassified delivery truck drivers as independent contractors, when they were in fact employees. The panel reversed a multidistrict litigation (“MDL”) court’s grant of summary judgment in favor of FedEx as to whether the drivers were employees. U.S. Circuit Judges Alfred T. Goodwin, Stephen S. Trott, and William A. Fletcher sat on the panels that considered both cases; Judge Fletcher wrote opinions for both panels. The California case is Alexander et al. v. FedEx Ground Package System Inc., Nos. 12-17458 and 12-17509 (slip opinion available here). The Oregon case is Slayman et al. v. FedEx Ground Package System Inc., case numbers 12-35525 and 12-35559 (slip opinion available here).

The California and Oregon suits, along with suits from other states, were consolidated in multidistrict litigation involving similar claims that FedEx had misclassified its drivers as independent contractors, and certified as class actions. The Indiana federal court serving as the MDL court denied plaintiffs’ motion for partial summary judgment alleging that FedEx drivers in California were employees rather than independent contractors and granted FedEx’s cross-motion for summary judgment. Additionally, the California plaintiffs had brought claims under the federal Family Medical Leave Act (“FMLA”), which the MDL court declined to certify as a class. The MDL court then remanded Alexander to the district court to resolve the plaintiffs’ claims under FMLA. After the FMLA claims were settled, the district court entered final judgment, which the plaintiffs appealed, challenging the MDL court’s grant of summary judgment to FedEx on the employment/independent contractor status issue.

The Ninth Circuit reversed, finding that under FedEx’s operating agreement, FedEx had broad authority to prescribe how the drivers carried out their deliveries. Although the agreement allowed drivers to supply their own trucks and to pay for their own uniforms, the agreement also specified the size, color, shelving, and maintenance of those trucks; drivers’ personal grooming and appearance; and the condition of the uniforms. Additionally, although FedEx did not expressly specify working hours or delivery routes, FedEx dictated that drivers pick up and deliver packages within a certain geographic area and time window, required them to follow FedEx guidelines for “Safe Driving Standards,” and provided training for drivers on job performance and interacting with customers, in order to “[f]oster the professional image and good reputation of FedEx.” Id. at 6-11. Accounting for FedEx’s broad authority and weighing it against other factors, the appeals court said, in applying the Borello “necessary control” test, FedEx’s extensive right to control the manner in which its drivers performed their work was the most important factor, and strongly favored employee status. Id. at 31. The court held that the plaintiffs were, as a matter of law, employees under California’s right-to-control test. Id.

U.S. Circuit Judge Trott concurred in the California opinion, writing “Abraham Lincoln reportedly asked, ‘If you call a dog’s tail a leg, how many legs does a dog have?’ His answer was, ‘Four. Calling a dog’s tail a leg does not make it a leg.’” Id. at 34. He concluded that “[l]abeling the drivers ‘independent contractors’ in FedEx’s operating agreement does not conclusively make them so. . . . Although our decision substantially unravels FedEx’s business model, FedEx was not entitled to ‘write around’ the principles and mandates of California Labor Law.” Id. at 35.