Class Actions Quarterly Update: Labor and Employment

Garner v. Inter-State Oil Co., 52 Cal.App.5th 619, Cal. App. 3 Dist., June 26, 2020, as modified (Jul 23, 2020)

Plaintiff filed a class action alleging that his employer, Inter-State Oil Co., violated a variety of wage and hour laws. The employer petitioned to compel arbitration of the individual claims and sought dismissal of the class claims entirely. Plaintiff argued that the agreement’s plain language gave him the right to pursue his class claims in arbitration. The trial court disagreed, holding that the language of the agreement indicated Plaintiff waived his right to class claims across the board and granting the employer’s petition to compel.

On appeal, the California Court of Appeal reversed in part, carefully considering the plain language of the agreement. It called out two particular sentences. The first stated that the parties agreed to mandatory arbitration for “all claims arising out of or related to [] employment that could be filed in a court of law.” That sentence listed a series of claims subject to arbitration, including class actions. Read in isolation, the Court held this sentence meant the parties agreed to arbitrate any of the listed claims — including class actions. The second sentence stated that the agreement served as a “waiver of all rights to a civil jury trial or participation in a civil class action lawsuit.” Although the employer argued this provision waived all class claims, the Court of Appeal interpreted “lawsuit” to mean a court action, not an arbitration. The employee waived only his right to bring class claims in Court but not to arbitrate them. 

This was a case of imprecise drafting, and the decision should serve as a reminder to employers to carefully review their arbitration agreements to ensure that they are properly releasing the signatories’ rights to bring class claims in Court or in arbitration.

Canela v. Costco Wholesale Corp., 971 F.3d 845 (9th Cir. July 9, 2020)

Plaintiff brought a state court action against his employer, Costco Wholesale Corp. (Costco), under the California Private Attorneys General Act (PAGA). Costco removed the case to the United States District Court for the Northern District of California based on diversity jurisdiction and the Class Action Fairness Act of 2005 (CAFA). Costco then moved for partial summary judgment arguing that Plaintiff lacked Article III standing to represent absent aggrieved employees and could not represent absent aggrieved employees under Rule 23 of the Federal Rules of Civil Procedure. The district court denied Costco’s motion, but certified an interlocutory appeal raising two questions: (1) whether, absent class certification, a PAGA plaintiff in federal court has Article III standing to represent absent aggrieved employees, and (2) whether a PAGA plaintiff in federal court can represent absent aggrieved employees without qualifying for class certification under Rule 23.

The Ninth Circuit Court of Appeals did not address either question, holding instead that the district court did not have jurisdiction over the case and remanded the action to state court. First, the Ninth Circuit held that the amount in controversy did not meet the statutory threshold at the time of removal because PAGA civil penalties cannot be aggregated for this purpose. Second, the Court determined that PAGA actions are not sufficiently similar to Rule 23 class actions to trigger CAFA jurisdiction. CAFA relaxed the diversity requirements for a putative “class action,” or any civil action filed under Rule 23 or a state statute or rule that closely resembles Rule 23. PAGA does not closely resemble Rule 23 because, unlike Rule 23, PAGA contains no numerosity, commonality, or typicality requirement, has no notice requirement for unnamed aggrieved employees, nor may such employees opt-out of a PAGA action. The Court also noted that while non-party aggrieved employees are bound by the judgment concerning the recovery of civil penalties, they retain all rights to pursue or recover other remedies available under state or federal law. For this reason, the PAGA claim was not, and could not have been, brought as a “class action” under CAFA. 

This case further solidifies the fact that a PAGA action, while a representative action, is not a “class action” for purposes of federal law. Employers who prefer to litigate in federal court may not be able to do so unless the plaintiff makes actual class claims.

Aixtron, Inc. v. Veeco Instruments Inc., 52 Cal.App.5th 360 (July 16, 2020)

An employee resigned from his position with Veeco Instruments, Inc. (Veeco) and went to work for Aixtron, Inc. (Aixtron), a competitor. Veeco then initiated an arbitration proceeding against its former employee alleging breach of contract, breach of the duty of loyalty, and conversion, including alleged data theft. During the discovery phase of the action, the arbitrator granted Veeco’s application for a pre-hearing discovery subpoena for Aixtron’s business records, including a demand that any computers the employee used to be submitted for forensic examination by an agreed-upon third-party neutral expert. Over Aixtron’s objection, the arbitrator granted Veeco’s motion to compel. Aixtron petitioned the trial court seeking judicial review, and Veeco filed a separate petition to enforce the arbitrator’s discovery order. Veeco’s petition was granted, while Aixtron’s petition was denied. Aixtron appealed both orders. 

The California Court of Appeal reversed. The Court of Appeal initially noted that it was unnecessary to resolve the parties’ dispute over whether the Federal Arbitration Act (“FAA”) or the California Arbitration Act (CAA) applied because neither statutory scheme gave the arbitrator the authority to issue a discovery subpoena under the circumstances of this case. The Court of Appeal agreed with federal precedent that the FAA did not grant arbitrators implicit powers to order document discovery from non-parties prior to a hearing. Similarly, the Court determined that the CAA likewise does not grant an arbitrator the authority to issue pre-hearing discovery subpoenas unless the parties have provided for such authority in their agreement. 

Businesses should review their arbitration agreements to ensure they provide for the type and amount of discovery they may wish to have available to them in arbitration.

Robinson v. Southern Counties Oil Co., 53 Cal.App.5th 476 (Aug. 13, 2020)

Richard Robinson was a former truck driver for Southern Counties Oil Co. (Southern Counties) between February 2015 and June 2017. Robinson filed his lawsuit against Southern Counties in August 2018. His lawsuit contained PAGA claims only; he did not have any individual claims. His lawsuit’s thrust was that Southern Counties did not provide him with an adequate meal and rest breaks. In February 2019, a judge in the San Diego County Superior Court approved a class action and PAGA settlement in Gutierrez v. Southern Counties Oil Co., Case No. 37-2017-00040850-CU-OE-CTL. The Gutierrez settlement covered all the claims brought in Robinson between March 2013 and January 2018. Robinson and three other employees opted out of the Gutierrez settlement. In a First Amended Complaint, Robinson purported to represent the three opt-outs from Gutierrez and all Southern Counties employees after January 2018. The Contra Costa County Superior Court sustained Southern Counties’ demurrer to Robinson’s First Amended Complaint, concluding that claim preclusion applied to Robinson’s PAGA-only lawsuit based on the PAGA settlement in Gutierrez.

In affirming the trial court, the Court of Appeal made two key holdings. First, it held that claim preclusion prevented Robinson from pursuing a PAGA-only suit against Southern Counties on behalf of the three other employees who opted out of Gutierrez. The Court recognized that the government is always the real party for a PAGA claim, and “there is no mechanism for opting out of the judgment entered on the PAGA claim.” Non-parties and the government are always bound by a judgment brought under PAGA. Because Gutierrez resolved the state’s interest against Southern Counties for certain wage and hour violations between March 2013 and January 2018, Robinson could not represent the state in another PAGA action, based on the same claims, against Southern Counties covering that same period.

Second, the Court held that Robinson could not represent employees following the  Gutierrez settlement period’s close—i.e. after January 2018. Robinson stopped working for Southern Counties in June 2017. Therefore, Robinson did not have standing to serve as a PAGA representative after January 2018. The Court explained that to serve as a PAGA representative, one must be an “aggrieved employee.” However, one cannot be an “aggrieved employee” if he or she was not affected by the conduct raised in the complaint. Because Robinson was not affected by Southern Counties’ post-January 2018 conduct, he was not an “aggrieved employee” under PAGA and did not have standing to pursue those claims.

Robinson will help foreclose serial PAGA claims from different employees covering the same period and same claims may now attack the later-filed claim head-on on claim preclusion grounds. Further, former employees are precluded from serving as PAGA representatives if their claims arose exclusively after their employment ended with the company.

Davidson v. O’Reilly Auto Enterprises, LLC, 968 F.3d 955 (9th Cir. 2020)

Kia Davidson brought a class action against her employer, O’Reilly Auto Enterprises (“O’Reilly”), alleging, among other things, that O’Reilly failed to provide rest breaks compliant with California law. California law requires employers to provide a 10-minute rest break for every four hours worked or major fraction thereof. The rest break claim was based on O’Reilly’s facially defective written rest break policy, which did not contain the phrase “or major fraction thereof.” Davidson argued that the omission created a classwide issue that O’Reilly failed to provide legally compliant rest breaks. The district court denied Davidson’s motion to certify the rest break class. It explained that although O’Reilly’s written policy was inconsistent with California law, Davidson did not provide evidence that the policy was consistently applied across the entire class such that common questions predominated. The district court noted that Davidson’s declaration did not state that she had been denied a proper rest break. On the other hand, O’Reilly provided declarations from 310 employees, stating that they received proper rest breaks under California law.

The Ninth Circuit Court of Appeals affirmed. One of the requirements for class certification is that “there are questions of law or fact common to the class.” To satisfy this commonality requirement, a plaintiff must demonstrate that the class members have suffered the same injury. The Court held that Davidson failed to establish commonality because she failed to show that the putative class members suffered a common injury. Although O’Reilly’s written rest break policy was inconsistent with California law because it did not have the phrase “or major fraction thereof” Davidson did not show the policy was consistently applied in a way that violated the law and injured putative class members. Therefore, there was no evidence that all of the class members suffered the same injury. The mere existence of a facially defective policy without evidence that it was implemented is insufficient to meet the federal class certification standards.

Starks v. Vortex Industries, Inc, Nos. B288005, 53 Cal.App.5th 1113 (Aug. 25, 2020) 

Under PAGA, an employee aggrieved by his or her employer’s Labor Code violations may be authorized to act as an agent of the LWDA to recover such penalties in a civil action. In the cases underlying these consolidated appeals, Plaintiffs Starks and Herrera, each acting as the LWDA’s agent, separately filed substantially identical PAGA actions against their former employer, Vortex. Starks eventually settled with Vortex, and Herrera moved to vacate the judgment and intervene in the Starks action.

The Court of Appeal held that the trial court did not abuse its discretion when it determined that Herrera’s motion to intervene in the Starks action was untimely. The Court also held that, because the LWDA accepted the proceeds from the judgment in the Starks action, Herrera, as the LWDA’s agent, cannot attack that judgment. The Court affirmed the grant of summary judgment in the Herrera action because Herrera’s PAGA claim, in substance, is encompassed within the Starks judgment, and thus its maintenance is barred by the LWDA’s acceptance of the benefits of the Starks judgment.

By holding that the LWDA’s cashing of a settlement check precludes an aggrieved employee from contesting a PAGA settlement’s fairness, the majority effectively insulated PAGA settlements from judicial review. The decision underscores the differences between settlements of PAGA representative actions and class actions.

Sanchez v. Martinez, 54 Cal.App.5th 535 (Sept. 11, 2020)

Plaintiffs in this case were five farm laborers who pruned grapevines at a piece rate. In January 2009, Plaintiffs filed a suit against their former employer based on alleged violations of various labor laws, including a rest-period claim. Following a trial on the merits, the trial court found in favor of the employer on all causes of action. Plaintiffs appealed to the California Court of Appeal, which reversed the trial court’s judgment as to Plaintiffs’ rest-period claim and derivative cause of action under the California Labor Code Private Attorneys General Act (“PAGA”). On remand, the trial court entered judgment in favor of Plaintiffs on their rest-break claim and PAGA claim and awarded Plaintiffs $416 in unpaid minimum wages for actual time worked during rest breaks and $17,775 in civil penalties. Plaintiffs again appealed, claiming they were entitled to be paid the minimum wage for the actual time that they took rest breaks without pay (the “Bluford theory of recovery”) and an “additional hour of pay” under California Labor Code section 226.7 (the “226.7 theory of recovery”). The employer cross-appealed, claiming there was insufficient evidence to support the trial court’s damages calculation. 

The California Court of Appeal affirmed. The Court found both of Plaintiffs’ theories of recovery to be legitimate—notably, acknowledging that the plain language of section 226.7 covers claims for unpaid rest periods. However, the Court then explained that since Plaintiffs had already recovered the minimum wage for the actual time they took rest breaks without pay, both the rule against double recovery and the California Supreme Court’s decision in Murphy v. Kenneth Cole Productions, Inc., 40 Cal. 4th 1094 (2007), dictated that they were not also entitled to a statutory pay premium equal to one hour of pay under section 226.7. The Court ultimately found none of the parties’ claims warranted reversal.

This case is an important reminder that employers of piece-rate employees should carefully review their rest-break policies to ensure compliance with California law.

Laver v. Credit Suisse Securities (USA), LLC, 976 F.3d 841 (9th Cir. 2020)

The Ninth Circuit affirmed the district court’s dismissal of a putative class action against Credit Suisse Securities (CSSU) in favor of arbitration. After Plaintiff filed suit alleging that he was owed deferred compensation, CSSU moved to dismiss based on an arbitration clause and general class waiver set forth in an Employee Dispute Resolution Program.

The panel rejected Plaintiff’s argument that FINRA Rule 13204(a)(4) invalidates the Program’s class waiver. Because the class waiver survives, the panel held that Plaintiff relinquished his right to bring class claims in any forum, and because he is left with only individual claims, Rule 13204(a)(4) ’s prohibition on enforcing arbitration agreements directed at putative or certified class claims has no application here. The panel further held that the district court correctly ordered the parties to arbitrate Plaintiff’s remaining individual claims and aligned itself with the Second Circuit’s decision in Cohen v. UBS Fin. Servs., Inc., 799 F.3d 174 (2d Cir. 2015).

Provos v. YourMechanic, Inc., - Cal.Rptr.3d - 2020 WL 6074632 (Cal. Ct. Appeal Oct. 15, 2020)

Defendant YourMechanic, Inc. sought to compel plaintiff Jonathan Provost to arbitrate whether he was an “aggrieved employee” within the meaning of the California Labor Code before he could proceed under the Private Attorneys General Act of 2004 (PAGA) with his single-count representative action alleging various Labor Code violations against company. The Court of Appeal determined that requiring Provost to arbitrate whether he was an “aggrieved employee” with standing to bring a representative PAGA action would have required splitting that single action into two components: an arbitrable “individual” claim and a nonarbitrable representative claim. The Court concluded that a PAGA-only representative action was not an individual action at all, but instead was one that was indivisible and belonged solely to the state. Therefore, YourMechanic could not require Provost to submit by contract any part of his representative PAGA action to arbitration, and the trial court denied YourMechanic’s motion.