Wage and Hour Class Actions

The California Supreme Court today clarified several issues under the unfair competition, or unfair business practices statute (Business and Professions Code Section 17200 et seq.), and under the Labor Code Private Attorneys General Act (Labor Code Section 2698 et seq.)("PAGA"), two commonly used statutes for pursuing alleged wage and hour violations. In the Arias v. Superior Court case, the Court held that purported representative actions brought under the unfair business practices statute must satisfy class action requirements, basing this holding on an analysis of the language and intent of Proposition 64, which tightened the standing requirements under this statute. (The concurring opinion points out some of the quirky features of Section 382 of the Code of Civil Procedure, which actually pre-dates modern class action practice, but concedes that viewing Proposition 64's reference to Section 382 more broadly than as a requirement that representative unfair business practices cases must satisfy class action rules may make little practical difference.)

In contrast to the voters' fairly clear tightening of the rules for unfair competition cases by means of Proposition 64, the court held that the PAGA contains no requirement that class action rules be satisfied. The Supreme Court was not troubled by employers' claims of due process violations when various individual plaintiffs attempt to obtain relief against an employer that will bind the employer in subsequent litigation but will not bind other plaintiffs pursuing similar relief. That is because, according to the Supreme Court, any plaintiff taking advantage of PAGA is proceeding as the "proxy or agent of the state's labor law enforcement agencies . . . ." (slip opin. at 16)

In a second case, Amalgamated Transit Union v. Superior Court, the California Supreme Court held that labor unions are not entitled to bring actions for alleged wage and hour violations under either the unfair competition statute or PAGA. A labor union has not suffered actual injury as a result of wage and hour violations, and is therefore disqualified under the Proposition 64 amendments to the unfair competition statute. A labor union is also not an "aggrieved employee" entitled to sue under PAGA for such violations.

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Mixed Motives in Age Discrimination Cases

Yesterday, the U.S. Supreme Court, in Gross v. FBL Financial Services, Inc., decided that age discrimination cases should not follow the same burden of proof analysis that the Court has applied in other kinds of discrimination cases. Specifically, in Price Waterhouse v. Hopkins, 490 U.S. 228 (1989), a case under Title VII of the Civil Rights Act of 1964, the Court had held that if an employee showed that discrimination was a motivating factor in the employer's challenged employment action, the burden of persuasion should shift to the employer to show that the employer would have taken the same action in the absence of the discriminatory motive. The Court has now held that courts should not follow this analysis in cases brought under the Age Discrimination in Employment Act, a different statute. Instead, an age discrimination plaintiff is simply required to prove that his or her age was a "but-for" cause of the challenged employment action.

Evidently the majority of the current court never cared much for the Price Waterhouse analysis, and specifically stated that it might not have adopted this analysis if the question were being considered for the first time today. (slip opin. at p. 10) Does this mean that the whole reason we now have to apply a different analysis in age discrimination cases as opposed to other discrimination cases is that Justice O'Connor has been replaced by Justice Alito? I think it does. If so, maybe we could call the appointment of Justice Alito a "but-for" cause of this latest decision.

In any case, the various burden-shifting tests developed by the Supreme Court in discrimination cases have always proved somewhat incompatible with the way cases are actually presented and understood by the trier of fact. Therefore it is probably too early to tell whether this latest explanation of the way the way burdens of persuasion are supposed to be allocated will make a large difference in practice. Further, judging from what I read in the Los Angeles Times this morning about this case, it appears likely that Congress will take action to reverse this latest Supreme Court ruling, similarly to what they did with the Lilly Ledbetter case, and clarify that age discrimination cases should be handled in a similar manner to other types of discrimination cases.

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Campaign Contributions and Due Process

The Supreme Court took a step toward recognizing the potentially corrupting influence of campaign contributions, by holding in Caperton v. A.T. Massey Coal Co. that due process required the recusal of an appellate judge who had benefited from approximately $3 million in expenditures by the chairman of Massey Coal Company, in aid of the judge's election campaign. Although there was no evidence that the judge had any direct or indirect stake in the outcome of the case, and although there was also no evidence that the judge's decision (he was the decisive vote in a 3-2 decision reversing a $50 million judgment against Massey), was influenced by this massive campaign assistance, the Court nevertheless held that the judge's decision not to recuse himself constituted a violation of due process.

So here is a case that seems to be crying out for redress: a guy spends $3 million to help elect a judge who then proceeds to overturn a $50 million judgment. Not only was the campaign expenditure shockingly enormous; but it actually seems to have been a small price to pay in view of the fabulous result he obtained on appeal. Even if he had no intention of obtaining such a result, and even if the judge had been completely uninfluenced by the campaign assistance, something still obviously smells wrong about this transaction. Yet the result may be very troublesome to apply, since the Court did not lay out a clear rule to tell judges when they must recuse themselves.

Instead the majority opinion (written by Justice Kennedy) merely took pains to emphasize that it was an extreme case. The opinion seems to suggest that the case should not have broad application. On the other hand, the Court has created an opening to view campaign contributions the same way that judges' direct financial interest in a case are viewed. The likely result is that any judge who has received substantial campaign assistance from one of the litigants in any case before that judge, must now seriously think about recusal.

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Enforcing Releases of Mis-Classification Claims

California Labor Code Section 206.5 prohibits the enforcement of releases of claims for wages due, unless payment of those wages has been made. A simplistic way of thinking about this rule is to say that you can't settle wage claims, i.e., an employer is never off the hook for paying an employee less than the wages that the employee is owed. But this section has also been held to prohibit employers from withholding compensation that is concededly due to an employee in order to obtain a settlement of additional, disputed amounts. In Chindarah v. Pick Up Stix, Inc., No. G037190 (2/26/09), however, the Fourth District Court of Appeal upheld the validity of releases settling claims of alleged mis-classification, where there was presumably a dispute as to whether the employer owed any overtime wages at all.

The case involved a proposed class action to recover overtime wages on behalf of certain managers and lead cooks employed by Pick Up Stix, who had been classified, improperly according to the plaintiffs, as exempt employees. The settling employees signed a release acknowledging that they spent more than 50% of their time performing managerial duties, and agreed not to participate in any class action by the employees who did not settle. The appeal followed a summary adjudication in favor of the employer of its cross-complaint for breach of those releases, after a number of the settling employees went ahead and joined the proposed class action despite having signed these releases.

The Court of Appeal distinguished this situation from the settlement of claims in which the employer made payment of wages concededly due to the employee conditional on settlement of other claims. The court held that this rule did not bar enforceability of the settlements, since there was a bona fide dispute as to whether overtime wages were due at all.



Classification issues are often difficult. Whether an employer may legitimately rely on exceptions for administrative or executive employees to justify treating them as exempt turns on an analysis of such issues as the nature of the employee's job duties; the extent to which that employee participates in supervision, hiring and firing of other employees; and the percentage of time that such employees spend performing executive or administrative functions. In Chindarah, the Fourth District panel approved the settlement of good faith disputes over these complicated issues. Employee advocates would probably view the decision as an opportunity to exploit workers. Employers would probably view it as an opening for the possibility of negotiating settlements of legitimate disputes with employees, instead of forcing these issues to be resolved in an adversarial manner. Since I represent both employees and employers, I would say there is some validity to both perspectives.

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