Posts belonging to Category Caselaw Developments

U.S. District Court Judge Michael W. Fitzgerald refused to enjoin plaintiffs in a PAGA (Private Attorneys General Act) action filed in state court based on a prior ruling in the federal case ordering the plaintiffs’ wage-and-hour class action claims against CarMax to arbitration. Herrera, et al. v. CarMax Auto Superstores California, LLC, No. 5:14-cv-00776 (C.D. Cal. Aug. 27, 2014) (slip op. available here). The putative class action alleged that the used car retailer failed to sufficiently compensate non-exempt piece-rate employees, such as mechanics and detailers, for all hours worked. The court’s refusal was based in part on its finding that, by filing the state action, the plaintiffs were not attempting to circumvent the arbitration order in the federal case.

The first action was filed in state court in March 2014; CarMax removed the suit and defeated the plaintiffs’ efforts to remand the suit back to state court in June. CarMax then filed a motion to compel arbitration of the class claims, which the district court granted in July, and dismissed the case. The same plaintiffs then filed a second action in California state court in June, based on the same labor code violations as in the federal lawsuit, but only seeking civil penalties under the PAGA. The federal district court avoided rendering a decision on the merits of the res judicata issue, deferring it to the state court, and held that the injunction should not be issued under an exception to the Anti-Injunction Act. The Anti-Injunction Act (28 U.S.C. § 2283) permits a federal court to enjoin a state court action to “protect or effectuate its judgments” under the “relitigation exception.”

Although it largely deferred the res judicata issue to the state court, the federal district court noted that, because none of the substantive legal questions involved in the second action had been raised in the first action, the second lawsuit “presents the more difficult question, never considered by this Court, whether Plaintiffs’ PAGA claims may be compelled to arbitration . . . [and] never considered the merits of Plaintiffs’ underlying allegations of labor law violations.” Slip op. at 5. The district court also rejected CarMax’s argument that the plaintiffs were improperly attempting to circumvent the federal court’s arbitration ruling, finding instead that “Plaintiffs sought a state forum for their indisputably state-law PAGA claims . . . ” and acted properly to “reserve certain state law claims for resolution in the state courts.” Id. at 7 (emphasis added). Citing Iskanian v. CLS Transportation LLC (59 Cal. 4th 348 (2014)) and Arias v. Superior Court (46 Cal. 4th 969 (2009)), the court stated that “whether an order compelling arbitration of claims of labor law violations can preclude claims for PAGA remedies arising from the same violations is a particularly sensitive question of state law that has not been thoroughly addressed in the state courts. . . . [but g]iven the developments in California law on the precise contours of PAGA, these questions would be best answered by the state courts.” Id. at 6.

In a published decision, the Court of Appeal overturned the trial court’s denial of class certification of 1,500 sales representatives’ claims under California Labor Code section 2802 for their employer’s failure to reimburse them for work-related calls made on their personal cell phones. Cochran v. Schwan’s Home Service, Inc., No. B247160 (2nd Dist. Div. 2 Aug. 12, 2014) (slip op. available here). The Court held without qualification that section 2802 requires reimbursement for “the reasonable expense of the mandatory use of a personal cellphone.” Slip op. at 7. The court rejected difficulties in segregating out work-related calls as a basis for refusing to impose liability, finding that even if an employee is on a family member’s plan or subscribed to a flat-rate plan, employers must still reimburse a “reasonable percentage” of employees’ work-related call expenses. Id. at 2.

The trial court had previously denied class certification, finding that an employee does not suffer an “expense or loss” under the Labor Code if the at-issue cell phone charges were paid by a third party, the employee did not purchase a different phone plan, or the employee continued using a flat-rate or unlimited plan. The Court of Appeal rejected the trial court’s reasoning, holding that regardless of the type of cell phone plan an employee has, if an employee is required to make work-related calls on his personal cell phone, he or she is incurring a business expense for the purposes of section 2802.

The lower court had also denied certification based on lack of commonality and superiority, finding that individual inquiries regarding cell phone plans and methods of payment would be necessary to determine each class member’s right to recover and to determine liability. On appeal, the plaintiff argued that Duran v. U.S. Bank National Assn. required reversal, as Duran held that statistical evidence and representative testimony can be used to prove the defendant’s liability. 59 Cal.4th 1 (2014). The Court of Appeal agreed, holding that the details of the employee’s cell phone plan do not factor into the liability analysis and “reimbursement is always required. Otherwise, the employer would receive a windfall because it would be passing its operating expenses onto the employee. . . . [Our interpretation] also prevents them from digging into the private lives of their employees . . . .” Id. at 7-8 (emphasis added). “To show liability . . ., an employee need only show that he or she was required to use a personal cellphone to make work-related calls, and he or she was not reimbursed.” Id. at 8.

The Court of Appeal remanded the case for the trial court to reconsider the plaintiff’s motion for class certification in light of the appellate court’s interpretation of section 2802 and to apply the statistical sampling principles set forth in Duran.

On July 14, 2014, in a unanimous decision authored by Justice Corrigan, the California Supreme Court held that employers cannot satisfy California’s compensation requirements by allocating commission wages paid in one pay period to other pay periods. Peabody v. Time Warner Cable, Inc., No. S204804 (July 14, 2014) (slip op. available here). Peabody narrowly construes the commissioned employee exemption and holds that neither California law nor Industrial Welfare Commission wage orders allows employers to decide how wages are allocated over pay periods.

The Peabody plaintiff was an account executive who alleged that because she was paid commissions only in some pay periods, she did not earn one and one-half times the minimum wage in the other pay periods, which is a requirement of the commissioned sales exemption under state law. Thus, in the weeks where she did not earn commissions, she was misclassified as exempt from overtime. The district court granted the defendant’s summary judgment motion and the plaintiff appealed to the Ninth Circuit; in 2012, the appeals court asked the state’s Supreme Court to answer the question as to whether employers could average commission payments over multiple pay periods when calculating minimum wage.

Time Warner paid commissions on the final biweekly payday of every month. It argued that the commissions could be allocated over the weeks of the preceding month to meet the exemption, but the California Supreme Court disagreed, stating that “all earned wages, including commissions, must be paid no less frequently than semimonthly.” Slip op. at 7. Further, “[w]hether the minimum earnings prong is satisfied depends on the amount of wages actually paid in a pay period. An employer may not attribute wages paid in one pay period to a prior pay period to cure a shortfall.” Id. at 7 (emphasis in original). The Court noted that requiring employers to actually pay the required minimum wages in each pay period protects employees and is consistent with the purpose of the minimum wage requirement: to mitigate the burden imposed by exempting employees from receiving overtime wages. It is also in line with the enforcement policies of the California Division of Labor Standards Enforcement which hold that employers cannot skirt the requirements of the commissioned employee exemption simply by deferring part of the wages due for one period until wages due for a later period are paid. “Although the DLSE’s enforcement policies are not entitled to deference . . . , we adopt its interpretation having independently determined that it is correct.” Id. at 9 (internal citations omitted).

The Court also dismissed the defendant’s argument that such wage attribution practices are permitted by federal law, stating that it previously warned employers against conflating federal and state labor law where the language or intent of state and federal laws are different: “[u]nlike state law, federal law does not require an employee to be paid semimonthly . . . . It also permits employers to defer paying earned commissions so long as the employee is paid the minimum wage in each pay period. In light of these substantial differences . . . , reliance on federal authorities to construe state regulations would be misplaced.” Slip op. at 9 (internal citations omitted).

Peabody will be sent back to the Ninth Circuit, which is expected to revive the putative class action and remand back to the district court.

The Ninth Circuit Court of Appeal recently ruled, in a precedential opinion, that the Federal Aviation Administration Authorization Act (“FAAAA”), which regulates motor carriers and the trucking industry, does not preempt California meal and rest break requirements. Dilts v. Penske Logistics, LLC, No. 12-55705 (9th Cir. July 9, 2014) (slip opinion available here). The FAAAA provides that a state “may not enact or enforce a law . . . related to a price, route, or service of any motor carrier . . . with respect to the transportation of property.” 49 U.S.C. § 14501(c)(1). Dilts is an employment class action on behalf of delivery drivers for Penske Logistics LLC. Previously, U.S. District Judge Bencivengo of the Southern District of California dismissed the certified class’ claims, holding that the application of state meal and rest break laws to these truck drivers would have a significant effect on the company’s prices, routes, and services, because the break requirements would impact the types and lengths of feasible routes. Dilts v. Penske Logistics, LLC, 819 F. Supp. 2d 1109 (2011).

The Ninth Circuit reversed, holding that “generally applicable background regulations that are several steps removed from prices, routes, or services, such as prevailing wage laws . . . , are not preempted, even if employers must factor those provisions into their decisions about the prices that they set, the routes that they use, or the services that they provide.” Slip op. at 16. The Court thus held that California meal and rest break laws are not preempted because they are “not the sorts of laws ‘related to’ prices, routes, or services that Congress intended to preempt.” Id. at 18. Instead, they are “normal background rules for almost all employers doing business in the state of California.” Id. The panel found persuasive the brief filed by attorneys from the Department of Transportation, the Federal Motor Carrier Safety Administration, and the Department of Justice, which stated that the FAAAA did not preempt state break requirements because it is “squarely within the states’ traditional power to regulate the employment relationship and to protect worker health and safety.” The Court stated that it would give some weight to the government’s interpretation and ultimately rejected all six of the defendant’s arguments as to how the laws related to routes and services, stating that motor carriers were free to hire enough drivers and stagger employees’ breaks in order to provide continuous services and that a driver briefly pulling over to stop to take breaks does not “meaningfully interfere” with a motor carrier’s ability to choose its starting points, end points, and routes. Id. at 22. The Court found that defendants submitted no evidence showing that the break laws would actually or meaningfully decrease the availability of routes.

The Ninth Circuit also issued an unpublished ruling in a related case, Campbell v. Vitran Express Inc., which involved the same meal and rest break claims as Dilts. No. 12-56250 (9th Cir. July 9, 2014) (slip opinion available here). The holdings in Dilts and Campbell are likely to curb employers’ attempts to use the FAAAA to preempt employees’ state law claims.