McDonald’s Corporation has agreed to pay $3.75 million to settle a certified wage-and-hour class action lawsuit in Ochoa, et al. v. McDonald’s Corp., et al., No. 3:14-cv-02098-JD (ND. Cal.). See Plaintiff’s Motion for Preliminary Approval of Class Action Settlement (Oct. 28, 2016) (available here). According to the motion seeking preliminary approval of the deal, the settlement marks the first of its kind in the fast food giant’s history between McDonald’s and a certified class of non-exempt “crew members” at a franchisee-operated restaurant.

In Ochoa, the plaintiffs sued McDonald’s and a franchisee alleging that the franchisee had violated various provisions of California’s Labor Code by miscalculating wages, incorrectly reporting timecards, failing to pay overtime and premium payments for noncompliant meal and rest breaks, failing to reimburse employees for the time and expense of maintaining uniforms, and issuing inaccurate wage statements. McDonald’s was named as a co-defendant on a theory of direct and vicarious liability. In August 2016, the court orally granted final approval to the plaintiffs’ settlement with the franchise owner, The Edward J. Smith and Valerie S. Smith Family Limited Partnership, leaving the claims against McDonald’s Corporation pending.

Certain preliminary rulings in the case were crucial to the first-ever settlement of its kind in McDonald’s history. In September 2015, Judge Donato of the United States District Court for the Northern District of California partially granted summary judgment in favor of McDonald’s, rejecting the plaintiffs’ claims that McDonald’s directly employs the plaintiffs and the putative class. Ochoa, No. 3:14-cv-02098-JD (N.D. Cal. Sept. 24, 2015) (slip op. available here). Critically, however, the district court denied summary judgment as to whether McDonald’s is potentially liable as a joint employer under an agency theory. The court held that the plaintiffs’ evidence demonstrating their belief that McDonald’s was their employer (being required to wear McDonald’s uniforms, serving McDonald’s food in McDonald’s packaging, receiving paystubs and orientation materials marked with McDonald’s name and logo, and applying for the job through McDonald’s website) was sufficient to follow a line of cases that found ostensible agency on similar facts. Further, the court found “that the ostensible agency theory would appear to apply with equal force against both McDonald’s USA and McDonald’s, Inc., despite the fact that the latter has no contractual relationship with Smith [the franchisee], because the plaintiffs and putative class may well not distinguish between McDonald’s corporate entities.” Slip op. at 15.

Almost a year after ruling on the summary judgment motion, in July 2016, the court handed another victory to the plaintiffs by certifying their “miscalculated wages claims, overtime claims and maintenance-of-uniform claims, and any claims that are derivative of those claims.” Ochoa, at 15, No. 3:14-cv-02098-JD (N.D. Cal. July 7, 2016) (slip op. available here). In rejecting McDonald’s argument challenging the plaintiffs’ agency theory as incapable of class-wide resolution due to individualized questions of personal belief and reasonable reliance, the court found that the “[p]laintiffs have tendered substantial and largely undisputed evidence that the putative class was exposed to conduct in common that would make proof of ostensible agency practical and fair on a class basis.” Id. at 5. That evidence included declarations showing that the plaintiffs “were required to wear McDonald’s uniforms, packaged food in McDonald’s boxes, received paystubs, orientation materials, shift schedules and time punch reports all marked with McDonald’s name and logo, and in most cases applied for a job through a McDonald’s website.” Id. The court also noted the fact that employees “spent every work day in a restaurant heavily branded with McDonald’s trademarks and name,” and found that “[t]hese facts are shared in common across the proposed class and make classwide adjudication of ostensible agency against McDonald’s a suitable and appropriate procedure.” Id.

These preliminary rulings on summary judgment and class certification are significant both because they yielded the first settlement of its kind in McDonald’s history, and because Ochoa may portend future findings of joint employer liability across franchisee and franchisor. Only time will reveal Ochoa’s true impact, but it is clear that courts will start to look past the franchisee to the franchisor as the source of violative practices that result in wage-and-hour violations.

Authored by:
Suzy Lee, Associate
CAPSTONE LAW APC

Last month, the California Supreme Court issued Augustus, et al. v. ABM Security Services, Inc., __ Cal. 4th __, 2016 WL 7407328 (Cal. Dec. 22, 2016) (slip op. available here), a much-anticipated decision that clarified that employers may not require employees to take on-duty and/or on-call rest periods. Instead, the California Supreme Court held “employers [must] relinquish any control over how employees spend their break time, and relieve their employees of all duties—including the obligation that employees remain on call. A rest period, in short, must be a period of rest.” Slip op. at 21. This opinion is likely to spur further litigation regarding employers’ rest break policies.

The Augustus case arose out of the defendant ABM’s practice of requiring its security guard employees to leave their pagers and radio phones on during their rest breaks, while also remaining “vigilant” and responding to certain needs as they arose during their breaks. Slip op. at 1. In 2005, the plaintiffs filed a class action complaint alleging that this practice violated ABM’s legal obligation to provide duty-free rest breaks to its employees. After several years of litigation, the trial court granted plaintiffs’ motion for summary judgment and awarded the class approximately $90 million, reasoning that every instance when a class member carried a communication device during a rest break constituted a violation of the law. The Court of Appeal reversed. Although the appellate court agreed that the defendant did not relieve guards of all duties during rest periods and instead required that they remain on call, it concluded that state law does not require employers to provide off-duty rest periods, and, moreover, that simply being on call does not constitute performing work.

The California Supreme Court reversed again. After noting the long-standing policy of interpreting the Labor Code and Wage Orders in favor of employees, the court held that a rest period must be just that: a period of rest. Specifically, the court stated “a rest period during which an employer may require that an employee continue performing duties seems to place too much semantic emphasis on ‘period’—and too little on ‘rest.’” Slip op. at 8. The court also noted that its holding is consistent with several Division of Labor Standards Enforcement (DLSE) opinion letters. Further, the court declined the defendant’s suggestion to define a rest break violation in terms of whether the employer’s policy “unreasonably” interfered with the employees’ rest break rights because it would introduce uncertainty to the law. Id. at 18. The court also noted that the Industrial Welfare Commission could and did authorize on-call rest periods, such as in Wage Order 5, which applies to caretakers of children or infirm, but failed to do so in Wage Order 4, which applied to the class members here. Id. at 11-12.

The court then turned to the question of whether an employer may require employees to remain on call during rest periods. The court held that “one cannot square the practice of compelling employees to remain at the ready, tethered by time and policy to particular locations or communications devices, with the requirement to relieve employees of all work duties and employer control during 10-minute rest periods.” Slip op. at 15. The court explained that having to carry a communications device during a rest period and to respond to employer inquiries while on a rest break is “irreconcilable with employees’ retention of freedom to use rest periods for their own purposes.” Id. at 16. Emphasizing the protective nature of the Labor Code and Wage Orders, the court held that the employer’s power to call on employees to perform work during their rest breaks constituted “a broad and intrusive degree of control.” Id. at 16-17.

Justice Kruger issued a concurrence and a dissent. She concurred with the majority’s opinion that employers must provide off-duty rest periods to nonexempt employees. However, she disagreed that the mere requirement that an employee carry a communication device during the rest period constitutes a violation of the law. In particular, she emphasized that despite the trial court’s award of approximately $90 million to the class, the record was devoid of any evidence that any of the class members’ rest periods were actually interrupted. Slip op., Kruger concurring and dissenting op. at 3. Accordingly, Justice Kruger concluded that the court should instead reverse the Court of Appeal’s opinion and remand for consideration of whether the defendant’s on-call policy actually interfered with its employees’ ability to use their rest periods as periods of rest. Id. at 12-13.

The Augustus decision is an important clarification of the employers’ obligation to provide work-free rest periods. This decision, however, does not mean that employers with on-call policies will have to change them radically. As the California Supreme Court noted, employers that end up having to interrupt an employee’s rest period may simply provide the employee with another rest period or pay the premium of one hour’s wages pursuant to Labor Code Section 226.7. Slip op. at 19. Alternatively, the employer may apply to the DLSE for an exemption. Id. at 19 n.14.

Authored By:
Stan Karas, Senior Counsel
CAPSTONE LAW APC

A few months ago, the United States District Court for the Southern District of Iowa (Chief Judge John A. Jarvey, presiding) issued an order denying the defendant’s request for a new trial in Bouaphakeo v. Tyson Foods, Inc. on remand from the United States Supreme Court. No. 5:07-cv-04009-JAJ (Oct. 5, 2016) (slip op. available here). The ILJ has previously covered the Tyson Foods litigation here and here.

On March 22, 2016, the Supreme Court affirmed the district court’s order granting class certification of a claim under the Fair Labor Standards Act for uncompensated time meat processing plant employees spent donning and doffing required protective gear. Tyson Foods v. Bouaphakeo, 136 S. Ct. 1036 (2016). A jury issued an award for the class after a non-bifurcated trial. The Supreme Court rejected Tyson’s arguments that class certification should be overturned and remanded the matter to the district court to determine how to distribute the award, expressly “noting Tyson ‘may raise a challenge to the proposed method of allocation when the case returns to the District Court.’” Slip op. at 1.

On remand, the plaintiffs argued that the award could be distributed in two ways, both of which would be consistent with the trial court’s jury verdict and with the Supreme Court’s ruling. The first method limited the distribution to the weeks in which each injured class member had worked more than 40 hours without adding any extra minutes for donning and doffing from an expert’s time study, and the second limited distribution to the weeks in which each injured class member had worked more than 40 hours, including weeks in which those extra minutes are added that are consistent with the jury’s verdict (i.e. donning and doffing minutes but excluding any time attributable to meal period-adjacent donning and doffing, as the jury did not allocate damages for that particular time). Tyson objected to the jury verdict and the plaintiffs’ two proposed alternate methods of disbursement, and requested a new trial because the Supreme Court had instructed the trial court to “determine . . . whether there are uninjured class members who are not entitled to recover damages, such that the jury’s verdict cannot stand.” Slip op. at 5. Tyson argued that there are multiple different ways in which the jury could have reached its verdict, and there it is therefore “impossible to ensure only injured plaintiffs participate in the aggregate award.” Id. Tyson further argued that damages and liability are so intertwined in this case that the court should award a new jury trial on both liability and damages. Id. The district court reached three primary conclusions in its order denying Tyson’s request.

First, the court held that the jury’s aggregate award did not, despite Tyson’s arguments, include uninjured individuals. The district court noted that the parties had agreed to certain limitations to ensure that uninjured individuals would not receive any damages. The parties had agreed to exclude from the award those employees who did not work 40 hours in a week without the additional donning and doffing time and also those who, despite having worked 40 hours in a week, were owed less than $50. Slip op. at 6. Further, the jury had been instructed that damages only be awarded as to injured individuals and nonetheless chose to award damages. Id.

Second, the district court held that Tyson invited any uncertainty that may exist. Slip op. at 6. The district court acknowledged that the combined circumstances of a non-bifurcated trial and the use of an aggregate jury award based on dollars rather than time worked “has lessened the precision with which the Court is able to distribute damages. But, as recognized by the Supreme Court, Tyson invited both problems by opposing bifurcation of the original trial and by its failure to keep complete records. Neither the lack of records . . . nor the use of a non-bifurcated trial should be held against Plaintiffs.” Id. at 6-7.

Third, the district court ordered distribution according to one of the methods the plaintiffs’ expert proposed, which limits distribution to weeks during which the injured class member worked more than 40 hours without any extra time attributed for donning and doffing. Slip op. at 7. The court found that this method, along with the requirement that the individual must have earned at least $50 in damages, “resolves any uncertainties in favor of upholding the jury’s verdict.” Id.

Authored by:
Katherine Kehr, Senior Counsel
CAPSTONE LAW APC

The 2nd District Court of Appeal recently affirmed a ruling by Los Angeles Superior Court Judge Jane Johnson in Perez v. U-Haul Co. of California, denying the defendant company’s move to compel its workers to arbitrate their representative Private Attorney General Act claims for wage-and-hour violations. Perez, No. B262029 (2nd Dist. Div. 7 Sept. 16, 2016) (slip op. available here). Following the California Supreme Court’s decision in Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348 (2014), the three-judge appellate panel rejected U-Haul’s argument that it could force employees first to arbitrate whether they have individual standing to bring a PAGA claim.

While the California Supreme Court in the prominent Iskanian decision upheld the enforceability of class action waivers, it held that waiver of PAGA claims through a similar “representative action” waiver is unenforceable. In Perez, U-Haul attempted to circumvent this distinction by arguing that the issue of whether the plaintiffs were “aggrieved employees” as defined by the PAGA statute was a severable “threshold question” that should proceed to arbitration first, to determine standing. The appellate court disagreed, stating that “[g]iven that the parties did not agree to arbitrate representative claims, and that a PAGA action is by definition a form of representative claim, we conclude that PAGA claims are categorically excluded from the arbitration agreement.” Slip op. at 11. U-Haul’s lawyers tried to convince the court that the defendant was not seeking to prevent the plaintiffs from pursuing their PAGA claims entirely, but rather that it simply wanted to enforce its arbitration agreements to determine the plaintiffs’ “underlying employment claims” which could ultimately render the PAGA claims moot. However, the Court of Appeal held that the arbitration agreement did not contain any language suggesting that the parties had agreed to arbitrate whether the plaintiff had standing to bring a representative claim in court. Id. The court also added that, even if the agreement did contain such a provision, it would be unenforceable under California law since there is no authority supporting that a PAGA action can be split into individual “underlying claims” brought in arbitration and separate “representative” claims brought in court. Id. at 11-14.

PAGA is a vital enforcement mechanism for employees in California who work for companies that have implemented arbitration agreements banning class actions. Perez is another in the growing line of cases that shut down employers’ attempts at implementing arbitration agreements that seek to impede employees’ ability to bring PAGA claims.

Authored By:
Rebecca Labat, Partner
CAPSTONE LAW APC