Wage & Hour Defense Blog : Wage & Hour Lawyer & Attorney : Epstein Becker Green Law Firm : DOL Enforcement, FLSA Coverage

By Michael S. Kun and Aaron Olsen

You probably remember the scene in Jaws when Roy Scheider's character first sees the shark that he and his crew have been pursuing.

And you probably remember what he says: "We need a bigger boat."

Well, after the California Supreme Court's latest ruling, California employers may need a bigger boat.

Already besieged by wage-and-hour class actions, California employers now need to brace themselves for a new wave of representative actions under California’s Private Attorneys General Act ("PAGA") after the California Supreme Court has made it easier than ever for employees to pursue such claims.

In Arias v. Superior Court of San Joaquin County (Angelo Dairy), No. S155965 (June 29, 2009), the California Supreme Court concluded that representative actions for alleged Labor Code violations brought under PAGA, often referred to as the "Bounty Hunter" or "Sue Your Boss" law, need not be brought as class actions. Instead, a single employee may proceed with an action on behalf of all aggrieved employees without the need to comply with class action requirements. Although the Court also held that representative actions brought under California’s Unfair Competition Law ("UCL") must be brought as class actions, the ruling on the PAGA issue will likely lead to more employees and their counsel bringing PAGA lawsuits because they will not have to comply with the procedural burdens inherent in class actions.

That's right. Largely because the legislature left out a few words here or there in their haste to pass PAGA, the Supreme Court has held that employees may pursue the equivalent of a class action without having to actually get a class certified.

Making matters worse, employers could be forced to defend a series of individual actions alleging violations of the Labor Code that would be difficult to settle on a global basis. Although the California Supreme Court determined that, with respect to civil penalties, nonparty employees as well as the government are bound by the judgment in an action brought under PAGA, the Court made it clear that different plaintiffs could bring a series of individual lawsuits seeking other remedies. A proliferation of coordinated individual actions would be difficult to settle because the parties would not have the benefits of the class action settlement process. While class action settlements can oftentimes be complicated, the process is fairly well established. Class action settlements generally provide a procedure by which class members either "opt-in" to the lawsuit or "opt-out," leaving the parties with a great deal of certainty as to whom a settlement involves. That would not appear to be the case in a non-class action representative claim under PAGA.

Will the legislature step in to correct this matter?

That seems unlikely.

Will employees and their counsel start filing new PAGA lawsuits tomorrow?

Of course.

Employers need to brace themselves by auditing their employment practices even more vigilantly than they already were.

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Doug Weiner and Matthew Miklave recently prepared a Client Alert noting an effort underway in Congress to broaden the application of the Fair Labor Standards Act in the Health Industry.  That Alert is excerpted below.

Fifteen United States senators have stepped forward to urge the U.S. Department of Labor ("DOL") to repeal a broad exemption from the minimum wage and overtime requirements of the federal Fair Labor Standards Act ("FLSA") for home health care workers. Under current DOL regulations, home health care aides who perform companionship services for the elderly and infirm are exempt from the FLSA. The exemption applies to all workers in domestic service who provide companionship services for individuals unable to care for themselves. Domestic service is work performed within the residence of the family using the services. Companionship services are those that provide fellowship, care and protection to persons who, because of advanced age or physical or mental infirmity, cannot care for their own needs. Home health care workers, whether employed directly by the family or by an employer or agency other than the household using their services, are exempt from the FLSA's minimum wage and overtime pay requirements under Section 13(a)(15). 29 C.F.R. § 552.109(a). In 2007, the United States Supreme Court upheld the current rule against a strong legal challenge. Long Island Care at Home, Ltd. v. Coke, 549 U. S. 1105, 127 S. Ct. 853 (2007).

Recently, however, 15 senators wrote to U. S. Secretary of Labor Hilda Solis pressing the DOL to close this "loophole." Citing a $9 an hour industry-wide average wage, the senators argue in favor of extending federal wage requirements to "thousands of low-wage workers, primarily women, who are doing difficult, dangerous, yet extremely important work." Secretary Solis has already signaled that the DOL is reviewing this exemption.

Reversing the exemption may have significant consequences for individuals and companies providing or paying for home health care workers for seniors and the disabled. Coupled with an ever-increasing population in need of services, the DOL's actions could result in an additional strain on scarce resources.

We note that some state laws already narrow the federal exemption or otherwise limit its application. Pennsylvania, for example, exempts only home health care aides employed directly by a family for work performed within their home. New York requires time-and-one-half the minimum wage for overtime hours worked. Wherever a state law provides greater protection to employees than the FLSA, the state law prevails over federal law.

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by Kathryn McGuigan

Post-termination payment of bonuses and commissions is a frequent subject of wage and hour claims in California. In Nein v. Hostpro, Inc., No. B199497 (June 3, 2009), the California Court of Appeal addressed this issue, affirming summary judgment in favor of the employer, holding that the plain language of an employment agreement barred the employee’s recovery of commissions after he was terminated. Because the employment agreement contained a carefully drafted, clearly defined commission plan, the Court found in favor of the employer. Had the agreement been ambiguous or less straightforward, it would not have been enforceable.

Case Overview

In Nein, an employee salesperson entered into an agreement with his employer which provide that he would be “eligible for commission pay as set forth in this [document], so long as [plaintiff] remains employed with the Company as a Sales Representative.”  The employee and employer also agreed that the agreement could only be amended by a written agreement executed by both parties.

One and a half years later, the employer promoted the employee and the parties entered into a new oral agreement which provided that the employee would receive commissions of “20% of the up front costs’ revenues on all accounts” he brought in, either by his own efforts or through contacts. Thereafter, the employee brought a transaction to his employer.  The employee was terminated eleven months later and the transaction was consummated less than thirty days later.

The employee was not paid any commission for the transaction. He filed suit against his employer, seeking payment of commissions under the agreement because the transaction occurred through his “contacts and efforts.” He also sued for violation of California Labor Code §2926 for non-payment of wages. The Court of Appeal disagreed.

Because the employment agreement stated the employee would be eligible for commission as long as he remained employed with the employer, the Court found only one reasonable interpretation of the agreement – “once plaintiff ceased to be employed by defendant, he would no longer be eligible for commission pay.”  The written agreement precluded the employee from collecting additional commission post-termination. 

Even though the Court observed that commissions are wages, for purposes of enforcing the provisions of the Labor Code, it found that the rights of an employee to commission depend on the terms of the contract for employment. Because the employee’s rights to commission were governed by the provisions of the agreement, he was not entitled to any further commissions once he was terminated.

In a footnote, the Court cautioned employers that, while a commission agreement would be enforced, where a contract provision is unconscionable, it will  not.  Because the employee did not plead unconscionability, the Court did not consider it. 

What This Means to Employers

Disputes over commission payments are commonly brought by employees after termination. Employers who compensate their employees with commission payments should re view their plans and agreements. A well-drafted commission agreement will be enforced even if it bases payment on continued employment.

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Times are tough out there.  Company budgets are being slashed, along with the number of employees and available hours.  Many supervisors suddenly find their departments doing the same amount of work with half the people.  On the overtime front, this is a recipe for a disaster.

Under these conditions, many supervisors are trapped with little ability to approve overtime.  Hard working employees may not even request approval for overtime knowing that it will be viewed as an admission they cannot perform their job at the expected level (and thus place them at the top of the list for the next round of layoffs).   Overtime therefore goes underground - a tacit understanding exists between management and employees that no one will mention how the work gets done as long as it gets done and everyone keeps their jobs.

Of course, the above scenario is unlawful, and whatever the company saves in wages will be dwarfed by attorneys fees and damages in the class action lawsuit surely to follow.  For that reason, now is the time to remind all managers and supervisors of the importance of the company's off the clock policy.   Looking the other way to save in the short run is not a smart business move, and will inevitably come home to roost in the form of a disgruntled employee or ex-employee who reveals the practice.

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by Douglas Weiner

EpsteinBeckerGreen was well represented at the National Advanced Forum on Wage & Hour Claims and Class Actions held in New York City on May 19 and 20. EBG attorney Douglas Weiner addressed the Conference regarding his experience as a former Senior Trial Attorney for the U.S. Department of Labor, identifying emerging trends of Fair Labor Standards Act litigation, and the most expensive mistakes employers make – and how to avoid them. The second day Mr. Weiner moderated a panel of Judges experienced in presiding over wage & hour class actions who gave their insights into effective trial management techniques and settlement strategies. 

Plaintiffs’ counsel, defense counsel, former Department of Labor officials, and seasoned Judges exchanged views on:

• The latest on exemption claims, independent contractor and employee misclassifications, donning and doffing, compensable work, off-the-clock activities and other current areas of wage and hour litigation.
• Plaintiffs’ new targets, including remote access, tip pooling, and where the plaintiff’s bar is particularly active and looking at new opportunities.
• With a new sheriff in town, and the economic stimulus package requiring the payment of Davis-Bacon prevailing wage rates for covered projects, the Department of Labor’s stepped up enforcement of Government contract work.
• Motions for conditional certification, and motions for decertification with a view of recent rulings in current cases.
• Making the call whether to settle early, late or not at all: Evaluating potential exposure, risks of litigation and managing a settlement structure where appropriate.
• Plaintiffs’ counsel expressed their view that wage hour class actions were accelerating “vertically” and “horizontally”. Using California as the epicenter of such litigation, their intent is to drill into industries and business groups that have not yet been targeted, thus expanding class action lawsuits vertically. Horizontally, they expect to give employers throughout the nation the same scrutiny that has resulted in the many large judgments that are reported on a nearly daily basis. 

Defense counsel emphasized the advice EpsteinBeckerGreen gives our clients. Conduct a wage hour self-audit, and ensure compliance with applicable law, to gain the upper hand.

A similar National Forum on Wage & Hour Claims and Class Actions is scheduled to take place in San Francisco in October. We hope to see you there.

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by Kathryn McGuigan

 In Sonic-Calabasas A, Inc. v. Moreno, B204902 (May 29, 2009, Second Dist, Div. Four), the California Court of Appeals considered whether an admittedly valid employment arbitration agreement, governed by the Federal Arbitration Act (“FAA”) may be enforced to dismiss a former employee’s administrative wage claim for unpaid vacation time.

 Plaintiff and his employer had an arbitration agreement, which Plaintiff conceded was valid. The agreement required both parties to submit their employment disputes to arbitration under the FAA.  Plaintiff left his position with Defendant and thereafter Plaintiff filed his administrative wage claim with the California Labor Commissioner according to the “Berman” process provided in Labor Code §§ 98 et seq.  The employer responded with a petition to compel arbitration and to dismiss the Berman proceeding.  The superior court denied the petition as premature. The superior court stated that until there was a preliminary non-binding hearing and decision by the Labor Commissioner, the arbitration agreement was unenforceable.

The Appeals Court reviewed the agreement and found it stated that it allowed Plaintiff to file administrative proceedings only before the California Department of Fair Employment and Housing or the Equal Employment Opportunity Commission.  Because neither the Labor Commissioner nor the Division of Labor Standards Enforcement was listed among the stated exceptions, Plaintiff was barred from pursuing an administrative wage claim.  The arbitral forum provided in the arbitration agreement was adequate to allow Plaintiff to vindicate his statutory rights.  The employer’s petition to compel arbitration was granted.

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by Michael Kun

How quickly can $87 million go up in smoke?

Pretty darned quickly, especially if you are referring to the $87 million that was awarded to plaintiffs and their attorneys in a tip-pooling class action against Starbucks in San Diego.

In Chau v. Starbucks (CA4/1 D053491 6/2/09), Jou Chau, a former Starbucks barista, brought a class action against Starbucks challenging the Company's policy that permits certain service employees, known as shift supervisors, to share in tips that customers place in a collective tip box.
If you've ever been to a Starbucks, you know exactly where that tip box is. (And if you haven't been to a Starbucks, then you must be new to the country. Welcome.)

Chau alleged the Company's policy violates California's Unfair Competition Law, Bus. & Prof. Code, § 17200, based on a violation of Labor Code section 351. After certifying a class of current and former baristas and conducting a bench trial, the trial court found Chau had proved his claim, and awarded the class $87 million in restitution, plus interest and attorney's fees.

And now it's gone.

Up in smoke that smells vaguely like soy latte.

A California Court of Appeal has overturned the decision, ordering the trial court to enter judgment in Starbuck's favor.

The Court of Appeal concluded that applicable statutes do not prohibit Starbucks from permitting shift supervisors to share in the proceeds placed in collective tip boxes. The Court explained that the trial court's ruling was improperly based on a line of decisions that concerns an employer's authority to require that a tip given to an individual service employee must be shared with other employees. As the Court explained, the policy challenged in Chau presented the flip side of this mandatory tip-pooling practice as it concerned an employer's authority to require equitable allocation of tips placed in a collective tip box for those employees providing service to the customer.

This one can be chalked up as a major victory not just for Starbucks, but for the entire hospitality industry, which has been hit with an epidemic of wage-hour class actions in California. To those who represent employers in these matters, congratulations must go out now only to Starbucks' attorneys, but to Starbucks itself, for holding firm rather than paying an enormous settlement, as plaintiffs surely sought both before and after their trial court victory.

Now we can sit back and wait to see if the California Supreme Court wishes to hear the case, as plaintiff's counsel will certainly request.

While it's always a fool's game to bet on what the California Supreme Court might do, the early read on this case is that it is not a matter that the Supreme Court will have interest in.
 

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