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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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by Michael Kun and Kathryn McGuigan

In recent years, the alleged misclassification of employees under California’s wage and hour laws has been a hotly contested issue and the subject of a great many class actions. Faced with several appeals pending before it, the Ninth Circuit has now sought guidance from the California Supreme Court on the outside salesperson and administrative exemption tests as they apply to pharmaceutical sales representatives. Such guidance should prove invaluable to employers in the industry, and to parties to these claims.

 In D’Este v. Bayer Corporation, 07-56577 (9th Cir. 2009), a pharmaceutical sales representative brought a class action lawsuit against her employer, claiming that she had been misclassified as an exempt employee and had not been paid overtime or provided meal and rest breaks in compliance with California’s wage and hour laws. The district court granted summary judgment in favor of the employer, finding that the employee was exempt under California’s outside salesperson exemption; it declined to reach the question whether she was exempt under the administrative exemption. The employee appealed to the Ninth Circuit.

 D’Este is not the only class action on appeal to the Ninth Circuit on this issue. Three other class actions on appeal before the Ninth Circuit -- and four other class actions filed in the Central District of California -- all involve the question of whether pharmaceutical sales representatives are exempt under California’s outside salesperson and administrative exemptions.

 In light of the number of actions regarding the classification of pharmaceutical sales representatives, the Ninth Circuit certified the following two questions to the California Supreme Court:

 1. Does a pharmaceutical sales representative qualify as an “outside salesperson” under Industrial Welfare Commission’s (“IWC”) Wage Orders 1-2001 and 4-2001 if the pharmaceutical sales representative spends more than half the working time away from the employer’s place of business and personally interacts with doctors and hospitals on behalf of drug companies for the purpose of increasing individual doctors’ prescriptions of specific drugs?

 2. Is a pharmaceutical sales representative involved in duties and responsibilities that meet the requirements of a person employed in an administrative capacity as defined under IWC Wage Order 4-2001?

 The Ninth Circuit will accept the California Supreme Court’s decisions on these questions.

 The California Supreme Court’s review of these questions should provide employers with a clear understanding of the application of outside salesperson and administrative exemptions from overtime and meal and rest break requirements for pharmaceutical sales representatives employed in California. The Supreme Court’s ruling will provide invaluable guidance to employers in the industry about how to classify these persons going forward, and a clearer understanding to parties already litigating this issue. Should the ruling suggest that these persons normally fall under one or both exemption, litigation of these claims by pharmaceutical sales representatives may end. Should the ruling suggest that these persons normally fall under neither exemption, a new wave of class actions could be expected.

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 By Michael Kun

     The wage hour class action epidemic that has plagued California employers for the last decade or so appears to have no end.

    If anyone tells you otherwise, they are not paying enough attention. 

    And if they tell you the California Supreme Court is about to put an end to the epidemic, they are mistaken about that, too. 

    The California Supreme Court couldn't put an end to it even if it wanted to, at least not with the issues now before it.  And who is to say that they want to do that anyway?

    As in recent years, employers and their counsel are awaiting several important rulings from the California Supreme Court that relate to these wage hour class actions.   

    In Brinker v. Superior Court and Brinkley v. Superior Court, the Supreme Court should finally clarify whether employers must "ensure" that meal and rest periods be taken, or merely make them "available" to employees.

    In Arias v. Superior Court, the Supreme Court should finally clarify whether claims brought under the Private Attorneys General Act ("PAGA") for alleged Labor Code violations must be brought as a class action and satisfy the requirements for class treatment, or whether an employee can represent a group of employees merely by filing suit under PAGA. 

    And in Pineda v. Superior Court, the Supreme Court should finally clarify whether California's Unfair Competition Law allows employees restitutionary recovery of "waiting time" penalties.

    More than a few commentators are predicting victories for employers in all four cases. 

    Hopefully, no one is placing any bets.  Predicting what the California Supreme Court will do is, respectfully, a fool's game. 

    At the beginning of the decade, many predicted an employer friendly ruling from the Supreme Court in Sav-On v. Superior Court, anticipating that the Supreme Court would hold that wage-hour claims were not appropriate for class treatment, killing the epidemic early.  Those predictions, of course, were wrong.  Very wrong. 

    Little more than two years ago, most commentators predicted that the Supreme Court would rule that premiums for missed meal and rest breaks were "penalties," rather than "wages," and hold that they were subject to a one-year limitations period, rather than three (or four) years.  The ruling in Murphy v. Kenneth Cole, of course, was otherwise, surprising virtually everyone.  And, unless there's a signed and dated document to prove it, anyone who tells you that he or she expected that the Supreme Court was going to rule that premiums for missed breaks were somehow "wages," not "penalties," just isn't being candid with you.   

    So, what should employers expect the Court to do in Brinker, Brinkley, Arias and Pineda?

    No predictions here.

    But, reading the cases, the applicable statutes and their legislative history would suggest that employer friendly decisions should be rendered in Brinker, Brinkley and Pineda -- and, unfortunately, an employee friendly decision in Arias (largely because of missing verbiage in the statute specifiying that PAGA claims are to be brought as class claims). 

    But there's an enormous difference between should and will.

    Based on the Supreme Court's recent history in employment cases -- particularly Sav-On and Murphy --  it would seem prudent for employers to adopt the same conservative, New England-ish approach that, until recently, fans of the Boston Red Sox favored for years-- expect the worst, and be pleasantly surprised if something better arrives. 

    That said, anyone who believes that even employer friendly decisions will put an end to the wage hour class action epidemic in California is mistaken.

    These cases make far too much money for plaintiffs' lawyers, and they are not going to walk away from them without finding ways to get around any unfavorable Supreme Court decision. 

    And getting around them may not be too difficult. 

    If, for instance, the Supreme Court rules that meal and rest periods need only be made "available," not "ensured," you can be certain that plaintiff's counsel will simply change the boilerplate allegations in their complaints to say that meal and rest periods were not made "available." 

    In the few seconds it takes to make a global change in a document, even an employer friendly Supreme Court decision could effectively be undone. 

    And in the few seconds it takes to pick up the phone, calls will be placed to legislators throughout the state demanding that the laws be rewritten to provide that breaks must be "ensured," which would completely undo that Supreme Court decision.  

    Such is the life of the employer who does business in California.

    Even a victory can be taken away. 

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