CEVA Logistics US Inc., a delivery company, agreed to pay $1.75 million to settle a class action brought by 65 drivers for unpaid minimum wages, unpaid overtime, and business expenses premised on misclassification of the drivers as independent contractors. Cifuentes v. CEVA Logistics U.S., Inc., No. 3:16-cv-01957-H-DHB (S.D. Cal.), see Order Granting Preliminary Approval and Order Granting Final Approval of Class Settlement here and here, respectively. The final approval of the settlement comes approximately 14 months after Plaintiff Cifuentes commenced his suit in the Southern District of California. Cifuentes brought the wage-and-hour class action “on behalf of all individuals who have performed one or more deliveries in California for CEVA, while being classified as an independent contractor.” Preliminary Approval Order, at 2. The plaintiff claimed that the delivery company “improperly categorized class members as independent contractors, rather than as employees, and as a result denied them the rights and protections afforded by the California Labor Code,” which include meal and rest periods, accurate and itemized wage statements, and reimbursements for reasonable business expenses. Id. Cifuentes also claimed that CEVA “failed to compensate class members for all hours worked, overtime, and full wages upon departure from the company.”  Id.

The CEVA settlement translates to an average recovery of $15,855.26 for each of the 65 drivers and checks are issued automatically, without any requirement for a claim form. The court noted that the “settlement is outstanding when compared with other wage and hour settlements approved in recent years by federal courts sitting in California.” Final Approval Order, at 9. In finding that the settlement class met the predominance and superiority requirements of Rule 23(b)(3), U.S. District Judge Marilyn L. Huff held that the “common question of whether the class members were misclassified as independent contractors predominates over all individual issues, because once that issue is determined on a class-wide basis, the only remaining issues would be determining the amount of damages that each class member is entitled to.” Id. at 7. The court also found typicality and numerosity requirements satisfied because the settlement class consists 65 individuals, all of whom “held the same position with CEVA and claim the same injuries.” Id. at 6. Further, the court found the adequacy requirement satisfied and awarded class counsel $583,333 in fees, which represents approximately three times the anticipated lodestar, finding that a “multiplier of three is well within the accepted range for common fund cases where class counsel has taken the case on a contingency fee arrangement.” Id. at 12-13. Finally, the named plaintiff was awarded $7,500 incentive payment for his services as a class representative.

The settlement joins a growing number of settlements reached in California class actions brought by misclassified delivery drivers alleging wage-and-hour violations. This line of cases and plaintiff-favorable results suggest that, in California, companies must use great caution in classifying, or continuing to classify, their drivers as independent contractors. In addition, this should encourage independent contractors and workers in other industries and positions that share similar characteristics to come forward to assert their rights and protections under the California Labor Code.

Authored by:
Suzy Lee, Associate
CAPSTONE LAW APC

In September, the California Court of Appeal reversed a summary judgment ruling that applied the “knowing and intentional” standard of Labor Code section 226(e) to a Private Attorneys General Act (“PAGA”) claim for violation of section 226(a), the provision that requires employers to issue wage statements to employees containing certain information. The court held that PAGA claims based on wage statement violations are not subject to the statutory penalty requirements of section 226(e)(1). See Lopez v. Friant & Assocs., LLC, No. A148849, 15 Cal. App. 5th 773 (1st District Div. 1, Sept. 26, 2017) (slip op. available here). This is helpful clarification for employees seeking redress of wage statement violations through PAGA rather than through a private right of action.

The plaintiff in Lopez sought civil penalties on behalf of himself and other aggrieved employees through PAGA. PAGA affords private individuals, who allege violations of the Labor Code committed by an employer, to step into the shoes of California state labor enforcement agencies to collect civil penalties that otherwise could only be pursued by the state. As explained in Lopez, PAGA was designed to incentivize the enforcement of Labor Code provisions for which there was no private right of action, and to supplement the limited resources of state enforcement agencies. The plaintiff in Lopez’s PAGA claim was based on a violation of Labor Code section 226(a)(7), which requires the issuance of wage statements that include either the last four digits of the employee’s social security number, or some other employee identification number. The defendant moved for summary judgment against that predicate violation, arguing that the employer’s failure to include an identification number was not “knowing and intentional” as required for statutory damages or penalties under section 226(e)(1). The trial court granted summary judgment in favor of the defendant. The plaintiff appealed.

The plaintiff’s primary argument on appeal was that the “knowing and intentional” requirement under section 226(e) does not apply to a PAGA action based on a wage statement violation under section 226(a). The Court of Appeal began by examining the plain language of the relevant statutes, pointing to the “important distinction between the ‘civil penalties’ available under PAGA, and ‘statutory penalties’ recoverable by individual plaintiffs before PAGA was enacted.” Slip op. at 6. The penalties afforded by section 226(e) have always been available in private rights of action, and therefore constitute “statutory” penalties, whereas the penalties sought under PAGA for violations of section 226(a) are civil penalties, which are regulatory and not available to private plaintiffs outside of a PAGA suit, and thus are not bound by the same rules. Id. This interpretation was also supported by the relevant legislative history. Id. at 7-10. Lastly, the Court of Appeal noted that while section 226(a) is enumerated as one of the available predicate violations for a PAGA claim under section 2699.5, section 226(e) is not. Accordingly, the appellate court held: “Because section 226(e)(1) sets forth the elements of a private cause of action for damages and statutory penalties, its requirement that a plaintiff demonstrate “injury” resulting from a “knowing and intentional” violation of section 226(a) is not applicable to a PAGA claim for recovery of civil penalties.” Id. at 16.

In a footnote, the Court of Appeal also teased the issue of which civil penalty should apply to a PAGA claim predicated on a section 226(a) violation. Indeed, “various federal courts have taken different positions on this issue.” Slip op. at 11, n.6. PAGA ordinarily adopts whichever civil penalty is specifically defined by statute, and otherwise uses the default penalty amount under section 2699. And, while section 226.3 defines a civil penalty for wage statement violations, some courts have interpreted it as only providing the civil penalty for a failure to provide any wage statement at all—not one that was only missing some of the nine required elements. So does an incomplete wage statement fail to meet the definition of a “wage statement” provided? Should the section 226.3 civil penalty therefore apply? Or should the default penalty apply? Unfortunately, since that issue was neither directly raised nor sufficiently briefed, the Court of Appeal left the question unanswered.

Though many in the plaintiffs’ bar had already been operating under the interpretation that section 226(e) requirements do not apply to section 226(a) violations in the PAGA context, Lopez now makes this interpretation binding on all California trial courts. And, without the need to satisfy section 226(e), this makes wage statement claims much simpler to prosecute through PAGA than through a regular cause of action.

Authored by:
Jonathan Lee, Associate
CAPSTONE LAW APC

Complaining that California “leads the field” in circumventing United States Supreme Court’s pro-arbitration precedent Concepcion, Prudential Overall Supply petitioned for certiorari on August 15, 2017, seeking review of California’s Fourth Appellate District’s ruling that claims under California’s Private Attorneys General Act (“PAGA”) cannot be arbitrated. Betancourt v. Prudential Overall Supply, No. E064326 (4th District Div. 2, March 7, 2017) (slip op. available here) (petition for writ of certiorari available here). In April 2015, Betancourt filed a representative action suit solely based on PAGA against his employer, Prudential Overall Supply. Within the single PAGA claim, the plaintiff alleged violations of overtime and minimum wage law, meal and rest period requirements, timely pay and final pay requirements, and recordkeeping and wage statement requirements, among other claims. In a March 7, 2017 decision, the Court of Appeal affirmed the trial court’s denial of Prudential’s motion to compel arbitration of the plaintiff’s claim for penalties under PAGA. Slip op. at 2.

First, Prudential argued that Betancourt had already agreed to arbitrate the PAGA claim and that an arbitrator would decide the scope and application of the agreement. Id. at 10-11. Additionally, Prudential claimed since the “representative claims” portion of the agreement could be severed, Betancourt could be compelled to arbitrate his claims. Id. at 11. Prudential further asserted that if Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 5th 348 (2014), is interpreted as prohibiting arbitration of all PAGA claims, then the state law prohibiting arbitration is preempted by the Federal Arbitration Act (FAA). Id. at 12. Finally, Prudential, citing Sakkab v. Luxottica Retail North America, Inc. (2015 9th Cir.) 803 F.3d 425, contended that California law permits arbitration of PAGA claims. Id. at 12-13. Repeatedly citing Iskanian, the appellate court rejected each of these arguments, holding that Prudential could not “rely on a predispute waiver by a private employee to compel arbitration in a PAGA case, which is brought on behalf of the state . . .” because “[t]he state is not bound by Betancourt’s predispute agreement to arbitrate.” Id. at 8; see also id. at 9-13 (applying Iskanian in greater detail) (internal citations omitted). Further, the Court of Appeal noted that a state rule prohibiting arbitration of PAGA claims is not preempted by the FAA because it falls outside of the scope of the FAA, as PAGA “is not a dispute between an employer and an employee arising out of their contractual relationship. It is a dispute between an employer and the state . . . .” Slip op. at 10 (citing Iskanian, at 386-87, emphasis in original).

The Court of Appeal also rejected the defendant’s other argument, which was based on an alleged defect in the pleadings. The defendant argued that because Betancourt had sought non-PAGA remedies in the prayer for relief, e.g., for unpaid wages, business expenses, interest, and attorney’s fees, in addition to civil penalties, the action was not actually a PAGA action and that the plaintiff was trying to disguise a standard wage-and-hour action in order to evade arbitration. Slip op. at 4, 8-9. Yet, the trial court had found and the appellate court agreed, such a challenge is a challenge against the pleadings, and should have been brought as a motion to strike—not as a motion to compel arbitration. Id. at 9. As the Court of Appeal aptly noted, “Prudential accuses Betancourt of attempting to make an ‘end run around arbitration’ by incorrectly labeling his claims as a PAGA matter. It appears to this court that Prudential may be attempting to make an ‘end run” around a demurrer or motion to strike . . . .” Id. at 9.

Overall, the Court of Appeal’s Betancourt opinion makes a strong case for PAGA claims being inarbitrable, based on the fact that the state—the real party in interest in every PAGA action—is not a party to an employee’s bilateral agreement to arbitrate his or her employment claims, and thus cannot be bound by that agreement. Whether the United States Supreme Court will break its streak of rejecting cert petitions based on PAGA issues in Betancourt remains to be seen.

Authored By:
Jennifer Bagosy, Senior Counsel
CAPSTONE LAW APC

In early September, Judge Jeffrey S. White preliminarily approved a nearly $9 million settlement for couriers of Postmates Inc., the on-demand delivery service, bringing the parties one step closer to resolving the proposed class action that alleged that the company misclassified couriers as independent contractors and failed to pay them minimum wages. See Singer, et al. v. Postmates, Inc., Case No. 4:15-CV-01284-JSW (N.D. Cal. Sept. 1, 2017), Order Granting Plaintiff’s Motion for Preliminary Approval of Class Action Settlement (slip op. available here). The action is another in a recent spate of misclassification cases brought about by the “gig economy,” in which temporary, flexible jobs are commonplace and workers are often asked to sacrifice certain benefits for purported freedom from the traditional workplace.

On March 19, 2015, couriers across the country sued Postmates in the United States District Court, Northern District of California. In Singer, the plaintiff and other couriers alleged that, in treating them as independent contractors, Postmates violated the federal Fair Labor Standards Act (“FLSA”), 29 U.S.C. §§ 201, et seq., by failing to pay them minimum wage or overtime for all hours worked in excess of forty per week. The suit further alleged violations of  California’s labor statutes (minimum wage, wage statement, and expense reimbursement laws), the Private Attorneys General Act (“PAGA”), and New York overtime and minimum wage laws, as to couriers who made deliveries in California and New York and personally bore necessary business-related expenses and costs without reimbursement from Postmates.

Although classified as independent contractors by Postmates, the couriers argued they are actually employees, given that they are required to follow detailed requirements imposed on them by Postmates, are graded or evaluated by Postmates, and are subject to termination based on Postmates’ discretion and/or their failure to adhere to those requirements (such as rules regarding their conduct with customers, their timeliness in picking up items and delivering them to customers, and the accuracy of their orders). By being misclassified as independent contractors, Postmates’ couriers alleged they were not paid proper compensation for hours worked and were required to bear many of the expenses of their employment, including those for their vehicles and bicycles, gas, and phone and data plans, without reimbursement.

In recognizing that no California court has conclusively determined whether the gig workers are, in fact, employees or independent contractors, and that both parties faced substantial risks of further litigation, Judge White preliminarily approved the $8.75 million deal, which provides reimbursement for mileage and travel expenses to couriers who submit claims. The non-reversionary settlement also provides non-monetary relief whereby Postmates will modify the terms of its Independent Contractor Agreement to permit termination of couriers only for specified material breaches of the agreement, permit couriers to appeal contract terminations through a neutral arbitration process at Postmates’ expense, provide couriers access to accident insurance at negotiated group rates, and establish a forum for receiving feedback from couriers regarding proposed changes to its business practices. The proposed settlement class includes approximately 88,000 California couriers, 28,000 New York couriers, 3,000 couriers in Massachusetts, 8,000 couriers in Washington, D.C., and 107,000 couriers throughout the remainder of the country.

The Postmates settlement is one of other similar deals either already approved or currently being considered by judges presiding over misclassification suits brought by gig economy workers.[1] Recently, several state and federal agencies—including the Internal Revenue Service—have cracked down on companies claiming to use independent contractors who perform work like employees of the company. Despite pressure from public agencies and private actions intent on curbing corporate misuse of independent contractor models similar to Postmates’, companies will likely continue to pass operating costs onto workers in the gig economy until California courts definitively decide whether gig workers are employees or independent contractors.

[1] See, e.g., grocery delivery drivers (Casey Camp, et al. v. MapleBear, Inc., dba Instacart, Los Angeles County Superior Court, Case No. BC652216); rideshare drivers (Steven Price v. Uber Technologies, Inc., et al., Los Angeles County Superior Court, Case No. BC554512; Patrick Cotter, et al., v. Lyft, Inc., N.D. Cal., Case No. 3:13-cv-04065-VC); parcel delivery drivers (FedEx Ground Package System, Inc. Employment Practices Litigation, N.D. Ind., Case No. 3:05-md-00527); call center workers (Norman, et al., v. Dell Inc., et al., D. Ore., Case No. 07-cv-06028); and exotic dancers (Roe v. SFBSC Management, LLC, N.D. Cal., Case No. 14-cv-03616).

Authored by:
Ari Basser, Associate
CAPSTONE LAW APC