Class Actions Quarterly Update: Labor and Employment

Meal and Rest Breaks

Ferra v. Loews Hollywood Hotel, LLC, 2021 WL 2965438 (July 15, 2021)

On July 15, 2021, the California Supreme Court issued a long-awaited decision, Ferra v. Loews Hollywood Hotel, LLC, regarding the rate at which premium pay for meal and rest period violations must be paid in California under Labor Code Section 226.7(c). Specifically, the Court addressed the issue of whether the term “regular rate of compensation” in Labor Code Section 226.7 (c) has the same or a different meaning than “regular rate of pay” used for purposes of calculating overtime pay in California under Labor Code Section 510(a). Ultimately, the Court concluded that “regular rate of compensation” and “regular rate of pay” are synonymous, meaning that premium pay for meal and rest period violations must be calculated with regard to the employee’s bonuses, incentives, commissions, shift differential pay and other non-discretionary payments.

Reflecting a common understanding, the employer in Ferra considered payment of premium pay based only on the employee’s hourly wage. It did not factor in non-discretionary payments in addition to the hourly wage, such as quarterly incentive payments. The Court of Appeal in Ferra had ruled, 2-1, that the employer complied with the law in doing so. It concluded that paying premium pay based only on an employee’s hourly pay rate satisfied the “regular rate of compensation requirement,” which that court held was different than the “regular rate of pay” required for overtime. The majority of several federal district courts in California to consider the issue reached the same conclusion.

In its unanimous decision in Ferra, however, the California Supreme Court held that “the terms are synonymous: ‘regular rate of compensation’ under Section 226.7(c), like ‘regular rate of pay’ under Section 510(a), encompasses all non-discretionary payments, not just hourly wages.” It acknowledged that the statute and wage orders do not define “regular rate of compensation,” which “may reasonably be construed” either way. Analyzing the history, the Court concluded that the different language carries the same meaning, finding “no evidence that ‘hourly rate of compensation’ means hourly wages only.”

Despite the different wording, the Supreme Court recognized that “regular rate” is a “term of art.” It began by looking at the federal FLSA’s requirement that overtime be based on an employee’s “regular rate,” including remuneration other than just the hourly rate. According to the Court, California’s use of the term “regular rate of pay” for overtime has been understood to have the same meaning.

Looking at the history of Labor Code Section 226.7 specifically, the Supreme Court emphasized the Industrial Welfare Commission’s (“IWC”) simultaneous adoption of wage orders using the term “regular rate of compensation.” It pointed to comments by one commissioner, as well as the IWC’s Statement as to the Basis concerning its 2000 wage orders, describing the “regular rate of pay” for overtime and the “regular rate of compensation” for premium pay as having the same meanings. Going a step further, the Supreme Court determined that the Legislature had the same intention by amending AB 2509 to track the IWC’s language and amount used. Further rejecting the difference in language as carrying a different meaning, the Court asserted that the Legislature has used the terms “pay” and “compensation” interchangeably, with “regular rate” being “the operative term of art.”

Consequently, California employers thus must calculate and pay premium pay for meal and rest period violations in the same manner as with overtime. As the Supreme Court held in Ferra, the regular rate for both types of pay “encompasses not only hourly wages but all nondiscretionary payments for work performed by the employee.”

Importantly, the Supreme Court’s holding in Ferra applies retroactively, which means that employers will have to review their meal and rest period premiums for the preceding 4 years to determine if additional wages are owed to employees.

Donohue v. AMN Servs., LLC, 11 Cal. 5th 58 (2021)

A nurse recruiter for a healthcare staffing company filed a putative class action against her employer, alleging it denied compliant meal periods, improperly rounded time records for meal periods, and failed to pay premium wages for noncompliant meal periods. The California Supreme Court held that employers cannot engage in the practice of rounding time punches in the meal period context, and that time records showing noncompliant meal periods raise a rebuttable presumption of meal period violations, including at the summary judgment stage.

California law requires that employers must generally provide employees with one 30-minute meal period that begins no later than the end of the fifth hour of work and a second 30-minute meal period that begins no later than the end of the tenth hour of work. These meal periods may be waived in limited circumstances. If an employee works no more than six hours per day, the meal period may be waived by mutual consent of the employer and the employee. Labor Code § 512, subd. (a). Where an employee works more than 10 hours but less than 12 hours per day, the second meal period may be waived by mutual consent of the employer and the employee. (Id.) If a meal period has not been mutually waived by the employer and the employee, and an employee is not provided the opportunity to take a timely and uninterrupted meal period, the employee is due one hour of wages as a “wage premium.” (Id.) 

In reaching its decision, the Supreme Court expanded the definition of meal period “waiver” beyond the situations where the Labor Code and Industrial Welfare Commission wage orders have allowed waiver by mutual consent, so that an employer did not have to provide a meal period. In Donohue, the Court held for the first time that an employer asserting that an employee who voluntarily chose to forego a compliant period as provided must plead and demonstrate such an alleged waiver as an affirmative defense. In doing so, the Court adopted Justice Werdegar’s concurring opinion in Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal. 4th 1004. (Id. at 1052-1053 (Werdegar, J. concurring).

Donohue represents a major shift in the law concerning proof of meal period violations. Prior to Donohue, there had been no case in California requiring an employer to plead and prove such meal period waivers as an affirmative defense.

Overtime Calculations

Levanoff v. Dragas, No. G058480, 2021 WL 2621360, at *1 (Cal. Ct. App. June 25, 2021)

Employees of Buffalo Wild Wings brought a class action alleging that the Company violated the California Labor Code by using the rate-in-effect method of calculating overtime pay for employees who worked at different rates of pay within a single pay period (dual rate employees) as opposed to the weighted average method. After a bench trial on the issue, the trial court found no wrongdoing on the part of the Company and therefore decertified the class. Plaintiffs appealed.

The Court of Appeal affirmed the trial court’s holding, explaining that California law does not mandate the use of the weighted average method for calculating the overtime rate of pay for dual rate employees. The Court emphasized that the dual rate employees at issue overall received net greater overtime pay under the rate-in-effect method than they would have received under the weighted average method. Because there was no violation of the Labor Code, the trial court properly decertified the class.

The Levanoff decision appears to provide employers with options in calculating the overtime rate for dual rate employees. However, it must be noted that the Court did “not go so far as to decide between the two methods.” In fact, had the Court determined that the weighted average method favored the employees, it is likely that the Court would have determined that the employer violated the Labor Code by using the dual rate method.

Class Certification – Individualized Issues and Predominance

Salazar v. See’s Candy Shops, Inc., — Cal.App.5th —, 2021 WL 1852009 (Cal. App. Apr. 16, 2021)

An employee of See’s Candy Shops alleged that the employer did not provide required second meal breaks to employees who worked shifts longer than 10 hours. Although the employer’s official policy was to provide the breaks, the plaintiff employee contended that in practice, See’s consistently failed to provide the breaks because the form used to record meal breaks did not include a space for the second meal break. The trial court denied class certification on the grounds that individual issues would predominate concerning whether See’s consistently applied a practice of failing to provide second meal breaks. The trial court also noted that the named plaintiff had failed to provide a trial plan that presented a manageable method for adjudication of class-wide liability without individual inquiry. Plaintiff appealed.

The Court of Appeal affirmed the trial court’s finding. Although the plaintiff attempted to rely on the fact that the form used by the employer did not have a space for a second meal break, as well as the company’s time records, which reflected that a high percentage of shifts longer than 10 hours did not include a recorded second meal break, the trial court reached a reasonable inference that individualized testimony would be required to determine whether See’s had a consistent practice of denying second meal breaks. As such, class certification was correctly denied.

Olean Wholesale Grocery Coop., Inc. v. Bumble Bee Foods LLC, 993 F.3d 774 (9th Cir. 2021)
 

This decision arises from a multidistrict litigation concerning an alleged price-fixing scheme by producers of packaged tuna products. Plaintiffs successfully moved to certify the class under Rule 23(b)(3), relying in substantial part on statistical evidence concerning class member injuries, as presented by expert witnesses. Although the experts presented conflicting evidence regarding the statistical likelihood of injury to class members, the trial court granted class certification and punted the questions raised by the experts to the jury. The Defendants appealed the certification order to the 9th Circuit Court of Appeal.

On appeal, the Ninth Circuit focused primarily on the issue of predominance, noting as an initial matter that Rule 23 imposes “stringent requirements” for class certification, and finding therefore that a plaintiff must establish by a preponderance of the evidence that common issues predominate over individual issues in order to achieve class certification.

The Court turned next to the use of statistical evidence in class certification. While the United States Supreme Court has expressed that representative evidence may be relied upon to establish a class, it has also “declined to adopt broad and categorical rules governing” its use. In this case, because the trial court had refused to address the discrepancies between the expert testimony, it had in effect certified a class for which a large portion of the putative class members could have been without injury. Although a specific threshold for injured class members was not provided in the opinion, the Ninth Circuit suggested that a class containing uninjured members may only be certified if the number of such members is de minimis. The Ninth Circuit determined that this critical factual dispute must be resolved prior to certification and remanded the case for further consideration.

Class Certification – Adequacy of Counsel

Jin v. Shanghai Original, Inc., 990 F.3d 251 (2d Cir. 2021)

Plaintiff Jianmin Jin was a kitchen worker in a New York location of Joe’s Shanghai Restaurant. He successfully certified a class of non-managerial employees based on violations of New York labor law. However, just five days before the class trial, the district court sua sponte decertified the class on the grounds that class counsel’s representation was inadequate. In particular, the court found that class counsel’s plan to call only two class members as witnesses at trial was a “significant intervening event” prompting decertification. The individual trial went forward on Jin’s claims and he prevailed on the merits. He then appealed from the judgment in his favor, arguing that the sua sponte decertification was improper.

The Appeals Court determined that it had jurisdiction to decide Jin’s appeal, despite the fact that his individual claims had been heard and decided in his favor, because the underlying controversy remains for the other putative class members. Jin’s stake in the claims is analogous to a private attorney general, and his claims did not become moot by some voluntary action, such as settlement, which could present a greater risk that there is no longer a “self-interested party advocating” for class treatment. 

The Appeals Court further found that the lower court acted within its discretion in decertifying the class. The court noted that a “significant intervening event” is not required to decertify a class. Rather, decertification is proper if, at any time during the process, the requirements of Rule 23 are no longer met. As such, the district court acted within its discretion in decertifying the class on the ground that class counsel was no longer adequately representing the class.