California Court of Appeals

Co-authored by David D. Kadue and Rocio Herrera

Seyfarth Synopsis: A California appellate court has held that unless a collective bargaining agreement includes an explicitly stated, clear, and unmistakable intent to waive the right to a judicial forum for statutory claims, arbitration of those claims will not be compelled. The CBA in the case, Vasserman v. Henry Mayo Newhall Memorial Hospital, did not waive the right to a judicial forum because its “Grievance and Arbitration” section failed to specify the California Labor Code provisions that would have to be arbitrated.

The Facts

Tanya Vasserman, a registered nurse, worked for Henry Mayo Newhall Memorial Hospital, under a CBA between the Hospital and the California Nurses Association. The CBA’s “Grievance and Arbitration” section provided for grievances culminating in arbitration, and defined a grievance as any dispute “arising out of the interpretation or application of a specific Article and Section of this Agreement during the term of the Agreement … as to events or incidents arising only at the Hospital.” The CBA outlined a three-step grievance procedure. Step three required the Hospital or the California Nurses Association to “file the grievance for binding arbitration pursuant to the rules of the Federal Mediation and Conciliation Service.” The CBA included articles on compensation, including overtime, and meal and rest periods. None of these articles referred to the grievance procedure or to remedies for violations.

Instead of filing a grievance, Vasserman sued in state court for violation of the California Labor Code, including claims for a failure to pay all regular and overtime wages and a failure to provide meal and rest breaks. The Hospital moved to stay the case and compel arbitration. The Hospital argued that Vasserman and the other employees she sought to represent in her putative class action were all covered by a CBA that included a Grievance and Arbitration section that clearly required the Hospital or the union to file a grievance for mandatory arbitration at step three. The Hospital argued that the grievance procedure explicitly waived the right to pursue claims in a judicial forum and Vasserman had to arbitrate her claims. The trial court denied the Hospital’s motion to compel arbitration, and the Hospital appealed to the California Court of Appeal.

The Court of Appeal’s Decision

The Court of Appeal affirmed the trial court’s decision. It found that the Grievance and Arbitration section defined a grievance as “any complaint or dispute arising out of the interpretation or application of a specific Article or Section of this Agreement.” The section also described a three-step grievance procedure, including step three in which any unresolved grievances may be submitted to arbitration. But it also limited the power of the arbitrator. The section provided that the arbitrator “shall be without authority to decide matters specifically excluded or not included in this Agreement.”

The court held that because the Grievance and Arbitration section did not specifically refer to the California Labor Code or other state or federal statutes, or include any language suggesting that the union intended to waive employees’ rights to bring statutory claims in court, the CBA contained no explicitly stated, clear, and unmistakable waiver of a judicial forum.

The court also rejected the Hospital’s argument that the parties, by including specific articles on pay and meal and rest breaks in the CBA, clearly and unmistakably intended to submit all disputes regarding those subjects to the grievance or arbitration process. The articles on pay and meal breaks did not refer to state laws. A waiver cannot be inferred from “broad, nonspecific language … not coupled with an explicit incorporation of statutory requirements.”

What Vasserman Means for Employers

We are reminded that to preclude judicial litigation of statutory rights, CBAs should specify any statutory rights that will be subject to grievance and arbitration procedures. These grievance procedures should also be incorporated by reference in any other section of the CBA discussing statutory rights, to ensure that the parties clearly and unmistakably state their intent to submit all disputes regarding those subjects to the grievance and arbitration procedures set forth in the CBA.

California Flag.bmpBy Julie Yap and Brandon McKelvey

As this blog recently covered, in September the California Supreme Court granted review in Iskanian v. CLS Transportation Los Angeles, LLC to decide whether class action waivers in employment arbitration agreements are enforceable under California law.  This week, another Court of Appeal added its opinion on this issue, holding that despite the United States Supreme Court’s broad ruling in AT&T Mobility v. Concepcion upholding class action waivers in arbitration agreements, courts may still find such waivers unenforceable under a case-by-case approach.  Specifically, unlike at least one of its sister Courts of Appeal and a number of federal district courts, the California Court of Appeal in Franco v. Arakelian Enterprises, Inc. concluded that the California Supreme Court’s decision in Gentry v. Superior Court remains enforceable despite the United States Supreme Court’s decision in Concepcion

The Franco decision is significant because it is the clearest expression yet from an appellate court in California that Gentry remains good law after Concepcion.  While other courts have implicitly reaffirmed Gentry or avoided directly addressing the question, the Franco court is the first to go this far and develop a new theory as to why Gentry survives despite Concepcion.

In Franco, a waste hauling driver filed a class action and a Private Attorneys General Act (“PAGA”) representative action, alleging wage-hour violations against his employer.  As a condition of his employment, the driver had signed an “Employee Agreement to Arbitrate,” expressly waiving his rights to bring claims on a representative or class basis.  The trial court denied the employer’s motion to compel arbitration, and the employer appealed.  Siding with the employee and affirming the trial court, the Court of Appeal held that California courts could still decide, on a case-by-case basis, whether a representative or class action waiver in an arbitration agreement was valid or unenforceable. 

The Court of Appeal relied heavily on its assertion that Concepcion only condemned a “categorical rule that invalidates class action waivers.”  It reasoned that the California Supreme Court’s decision in Gentry set forth a multifactor test for determining the enforceability of such a waiver, not a categorical rule, and therefore, was not overruled by Concepcion.  In particular, the Franco court held that Gentry was distinguishable from Conception because it does not invalidate a class action waiver unless (1) a class action is a more effective means of vindicating employee rights; and (2) disallowance of the class action will likely lead to less comprehensive enforcement.       

When the California Supreme Court decides Iskanian, we expect the Court to address whether the holding in Gentry survived Concepcion and to clarify the enforceability of class action and representative action waivers in California employment arbitration agreements.  Until then, California employers must wait to see whether the Supreme Court will take the path that the Appellate Court took in Franco to chart a course around Concepcion or whether the Court will hold that Concepcion invalidates Gentry and a rule prohibiting class action waivers in employment arbitration agreements. 

The potential peril in attempting to navigate around Concepcion was demonstrated the very same day that Franco was decided when the United States Supreme Court vacated a decision of the Supreme Court of Oklahoma that invalidated an employee arbitration clause.  In Nitro-Lift Technologies v. Howard, the Supreme Court, citing Concepcion, held that “the FAA forecloses precisely this type of judicial hostility towards arbitration.”  As this development demonstrates, ultimately the U.S. Supreme Court may have the final word on whether California’s rule prohibiting class action waivers in employment arbitration agreements can survive Concepcion and FAA preemption. 

California Flag.bmpBy Brandon R. McKelvey, Chantelle C. Egan, and Michael A. Wahlander

Last week, the California Supreme Court agreed to decide whether class action waivers in employment arbitration agreements are enforceable under California law.  In Iskanian v. CLS Transportation Los Angeles, LLC, the Court of Appeal held that a class action waiver in an employment arbitration agreement was enforceable and that the plaintiffs could proceed only with their individual claims and not on behalf of a class.  See Opinion  The Court of Appeal held that the United State Supreme Court’s decision in AT&T v. Concepcion invalidated the California Supreme Court’s decision in Gentry v. Superior Court, which allowed class waivers to be held unenforceable in certain situations.  By granting review of the Iskanian decision, the California Supreme Court has signaled its willingness to decide whether Gentry continues to be viable after Concepcion and to resolve a split among California appellate courts on the enforceability of class action waivers in employment arbitration agreements. 

In Iskanian, a limousine driver filed a class action and a Private Attorneys General Act (“PAGA”) representative action, alleging wage-hour violations against his employer.  As a condition of his employment, the driver had signed an arbitration agreement expressly waiving the right to pursue a class or representative action.  Siding with the employer, the Court of Appeal held that the arbitration agreement mandated individual arbitration and that the driver could not bring his claims as either a class or representative action.  The Court of Appeal held that, in light of Concepcion, the Federal Arbitration Act (“FAA”) preempts all state rules that disregard the terms of an arbitration agreement, and thus, the agreement’s express waiver of class arbitration must be honored.

The Court of Appeal in Iskanian held that Concepcion “conclusively invalidates” Gentry, which held that class waivers in arbitration agreements are unenforceable if certain factors indicate that class arbitration is a more effective means of redressing the alleged wrong.  Other California appellate courts, however, have been unwilling to recognize that Concepcion invalidates Gentry, absent an express directive from the California or United States Supreme Court.  (See Truly Nolen of America v. Superior Court, Reyes v. Liberman Broadcasting, Inc., Kinecta Alternative Financial Solutions, Inc. v. Superior Court, and Nelson v. Legacy Partners Residential, Inc.).

The Court of Appeal’s decision in Iskanian was also significant because it rejected the employee’s argument that his right to pursue a PAGA representative claim could proceed despite the express terms of the arbitration agreement.  The Iskanian court acknowledged that its opinion conflicts with its sister appellate court’s decision in Brown v. Ralphs Grocery Store.  The Iskanian court explained that Concepcion’s broad holding that the FAA preempts any state law that “prohibits outright the arbitration of a particular type of claim” removes from courts the power to disregard an arbitration agreement’s express terms, even those terms that waive a public right.

The California Supreme Court’s decision to review Iskanian is significant.  Iskanian was the first California decision to conclude that Concepcion overruled Gentry.  It was also the first to apply Concepcion to representative actions under PAGA.  We expect the Supreme Court to address whether the holding in Gentry survived Concepcion and to clarify the enforceability of class action and representative action waivers in California employment arbitration agreements.

California Court of Appeals Seal2.pngCo-authored by George Preonas and Hayley Macon

On July 23, 2012, in Harris v. Superior Court (Liberty Mutual Ins. Co.), a case that the California Supreme Court previously had reversed and remanded, the California Court of Appeal stuck by its prior conclusion and held that insurance claims adjusters do not qualify for the administrative exemption from overtime pay requirements.

The Harris case involved claims for unpaid overtime by a class of Liberty Mutual insurance claims adjusters.  The claims adjusters argued that they were misclassified as administratively exempt.  After class certification, the claims adjusters moved for dismiss Liberty Mutual’s affirmative defense that they were exempt employees.  The trial court denied the motion.  On appeal, the California Court of Appeal reversed, applying the “administrative/production worker dichotomy” test set forth in two Bell v. Farmers Insurance Exchange cases—(collectively “Bell”)—and found that, because claims adjusters did not perform administrative work, they could not qualify for the administrative exemption.  The California Supreme Court granted review of the decision.

On December 29, 2011, the Supreme Court reversed the Court of Appeal’s decision, concluding that it had erred in relying on Bell because it was distinguishable.  The Supreme Court further ruled that the Court of Appeal had erred in relying primarily on the administrative/production dichotomy, instead of following the language of the relevant wage order and regulations.  The Supreme Court remanded, ordering the Court of Appeal to first apply the language of the statutes and wage order to the facts, and only then, if the statutes and wage order failed to provide sufficient guidance, look to the administrative/production dichotomy.

At issue on remand was one of the four requirements for the administrative exemption – whether the work is administrative.  Under the California Wage Order 4 and the federal regulations, administrative work must be “directly related” to the management policies or general business operations of the employer.  In order to be “directly related,” the work must be both administrative in nature and of “substantial importance” to the management policies or general operations of the employer’s business.  Harris addresses only the nature of the work.  

To consider whether the nature of the claims adjusters’ work qualified as exempt administrative work, the Court of Appeal cited the interpretative federal regulations, which provide that an employee’s work duties meet the exemption test only if they “relat[e] to the administrative operations of a business as distinguished from ‘production.’”  Relying heavily on a 1991 Third Circuit case, Martin v. Cooper Elec. Supply Co., and a federal case from Connecticut, the Court of Appeal interpreted this regulation to include only duties involving establishment of management policies or general business operations.  Under this rationale, claims adjusters cannot be exempt because they adjust individual claims, rather than set broader policy or run general business operations. 

The Court of Appeal then applied the administrative/production dichotomy test in further support of its determination that claims adjusters are non-exempt.  Again relying on Martin from the Third Circuit, the Court of Appeal held that “production” employees do not qualify as exempt employees who are performing the exempt task of “servicing the business,” because they are not formulating general policy on behalf of the business.  The Court of Appeal reasoned that claims adjusters were production employees because Liberty Mutual’s product is risk transference, and claims adjusting is an essential part of risk transference.  Although the Court of Appeal thus applied the administrative/production dichotomy with the same result achieved in Bell, the Court of Appeal denied that it was following Bell, as the Court here was considering only employee’s duties, not their role. 

The Court of Appeal expressly declined to follow other federal and administrative authority, including applicable Ninth Circuit decisions, on the grounds that it is not bound by those other federal decisions, and instead preferred to rely on the Third Circuit’s decision in Martin.

The Court of Appeal also rejected Liberty Mutual’s argument that the class was too heterogeneous to certify a class, and instead relied on its categorical conclusion that the claims adjusters did not perform duties involving management policy or general business operations, so they could not be exempt. 

What Harris Means for Employer

The Court of Appeal’s decision is highly controversial because of its application of the administrative/production dichotomy, as well as its rejection of seemingly persuasive analogous federal law, including authority in the Ninth Circuit.  The panel’s decision to essentially reinstate what the Supreme Court had just reversed is difficult to reconcile with the high court’s decision.  Indeed, the appellate justice who authored the original opinion wrote a dissent from the panel’s decision on remand.

The Court of Appeal’s decision thus creates significant uncertainty for the trial courts and for employers.  If the decision stands, then the administrative exemption in California could have very limited application.  Insurance claims adjusters and many other employees currently classified as administratively exempt might have to be reclassified as non-exempt, unless they are among that small group of employees who are primarily involved in setting company policy or running general business operations.  We anticipate strenuous efforts to seek review of this decision.



Co-Authored by: Jeffrey A. Berman and Anthony J. Musante

On July 2, 2012, the California Court of Appeal affirmed a trial court ruling denying class certification to a group of newspaper carriers claiming they were misclassified as independent contractors.  In Sotelo v. Medianews Group, Inc., the Court of Appeal concluded that plaintiffs’  proposed class of newspaper carriers could not be certified because the class was not ascertainable and common issues of law and fact did not predominate. 

The Trial Court Ruling

Plaintiffs, a group of seven newspaper carriers, sought certification of a class of all newspaper carriers who contracted with Medianews Group––newspaper publishers and conglomerates operating in California––claiming they were misclassified as independent contractors.  They argued that, as a result of the misclassification, they were entitled to the benefits of employment, and pled causes of action for, among other things, violation of California minimum wage and overtime laws, and failure to provide meal and rest breaks.

The trial court denied plaintiffs’ motion for class certification.  The court determined that the class was not ascertainable and there was not a preponderance of common issues of fact and law.  Specifically, there was no objective criteria by which class membership could be determined, because even if a person signed a contract to deliver newspapers, to ascertain whether they actually bagged and delivered newspapers during the class period would require a series of mini-hearings.  Likewise, the trial court found that individualized issues predominated because merely determining whether the newspaper carriers were misclassified as independent contractors was insufficient; plaintiffs still had to show there was a uniform policy and practice with respect to overtime and meal and rest breaks that could be established by common evidence.  Plaintiffs appealed.

The Appeal

Plaintiffs argued on appeal that the proposed class was ascertainable because it was sufficient for class members to come forward and identify themselves.  Alternatively, the class could be limited to include only those individuals who previously had been identified by defendants. 

The court acknowledged that self-identification by potential class members was appropriate in circumstances were class members had direct relationships with defendants.  Here, however, the unidentified class members had no discernable relationship with defendants because they folded and bagged newspapers for individuals who had the relationship. As such, there was a complete lack of objective evidence, such as business records, that would indicate class membership, so there was no way to notify perspective class members.  Thus, the “theoretical ability to self-identify as a member of the class” was useless where “one never receives notice of the action.” 

Plaintiffs further argued that since defendants were responsible for the difficulties in identifying putative class members because they failed to keep accurate records, they should not be permitted to defeat class certification by their own wrongdoing.  The court, however, disagreed. Noting that defendants’ obligation to track members of the class depended on the merits of the suit being brought––i.e. whether they were employees or independent contractors––the plaintiffs could not “bootstrap their action merely by assuming as true what they are obligated to prove.”

Plaintiffs’ alternative suggestion to narrow the class to include only those newspaper carriers previously identified was also rejected by the court.  While limiting the class would result in an ascertainable class because a list of putative class members had been generated during discovery, the proposed class still failed to meet the other requirements for class certification, namely predominance.

On the issue of predominance, the court reiterated that merely showing that the putative class was misclassified was insufficient, because this was only one part of the equation.  Even if plaintiffs showed that the putative class was misclassified, plaintiffs still had to provide evidence showing that there was a uniform policy or practice requiring newspaper carriers to work overtime.  Similarly, to win certification of a meal and rest break class, plaintiffs had to allege a uniform policy on defendants’ part to deny putative class members the ability to take meal and rest breaks.  It was insufficient for plaintiffs to merely claim that because they were misclassified, they were necessarily compelled to work overtime and were unable to take meal and rest breaks.

What Sotelo Means for Employers

The court’s ruling on plaintiffs’ motion for class certification is generally helpful to employers as the court made clear that to certify a class plaintiffs must show through common evidence that there was a uniform policy and practice in place.  The case, however, may have a rather limited application, arguably germane only to misclassification class actions. 

As the court notes, most class actions seeking remedies under the Labor Code will not have the same specific ascertainability and notice issues plaintiffs confronted here because employers are required to maintain business records that can identify putative class members.  The court’s ruling prohibiting the bootstrapping of an underlying claim to establish ascertainability and predominance, however, may be useful in those contexts where an employee claims a class-wide entitlement as a result of a showing on the merits.  The class action inquiry in these circumstances will consist of two parts: (1) whether the putative class member is entitled to the benefit in the first instance (i.e. was he or she properly classified); and (2) whether there was a uniform policy to deprive the class member of the benefit.  Thus, given the multi-level inquiry, employers will have additional opportunities to argue that individual issues predominate and class certification is inappropriate.

3-21 Blog.bmpAuthored by Laura Reathaford and Catherine Dacre

Plaintiffs often argue in seeking class certification that an employer’s policy applicable to all or a certain group of employees provides sufficient evidence of commonality to justify the certification of the alleged class.  In Delodder v. Aerotek, Inc., the Ninth Circuit affirmed the district court’s decision denying certification of a class of recruiters who claimed they had been misclassified as exempt from California’s overtime requirements.  In reaching its decision, the Court of Appeals agreed with the lower court that evidence of material differences in the activities that the alleged class members actually performed carried greater weight than the defendant’s uniform corporate policies and training programs.

Plaintiffs in Delodder sought certification under Rule 23(b)(3) based on the theory that Aerotek had a common policy requiring all recruiters to complete the same training and follow the same policies when performing their jobs.  Plaintiffs relied on Fair Labor Standards Act regulations incorporated by reference into the California Wage Orders.  The regulations establish that routine screening of job applicants according to predetermined criteria does not require “discretion and independent judgment,” but that the selection of qualified candidates does.

Rejecting this argument, the district court found that some Aerotek recruiters had more authority to select and recommend candidates than others and thus, were not simply operating pursuant to any predetermined criteria.  The Ninth Circuit agreed stating that evidence of corporate policies and training programs is not dispositive of the class certification issue, “for the obvious reason that training and policies may not reflect what the class members actually do.”  The Court upheld the district court’s finding that class certification was inappropriate because the question of whether a putative class member lacks the requisite discretion depends on predominantly individualized issues.

The Ninth Circuit similarly rejected Plaintiffs’ effort at certification under Rule 23(c)(4) which permits a class to be maintained with respect to a particular issue.  Plaintiffs had sought certification of a limited class action to adjudicate their claim that class members do not perform “office or non-manual work directly related to management policies or general business operations.”  The Court upheld the district court finding that all putative class members were engaged in “meeting the needs of Aerotek’s customer companies,” a role that is directly related to Aerotek’s general business operations, and therefore qualified under the administrative exemption.

The Ninth Circuit’s decision was widely anticipated after the Court agreed to hear this discretionary appeal and has been the subject of prior posts on our Seyfarth Shaw’s Workplace Class Action Blog. Class action litigators were hoping for some guidance from the Ninth Circuit for close call cases requiring a fact-intensive inquiry.

At least to some degree, the decision delivered.  The Ninth Circuit confirmed that a trial court must “make a factual determination as to whether class members are actually performing similar duties” in exemption cases, and refuted the argument that a district court’s decision to afford more weight to evidence of actual work performed (rather than to the uniform policy evidence) was a clear error of judgment.  This ruling provides employers with helpful guidance on the type and quality of evidence needed to defeat class certification in exemption cases.


California%20Court%20of%20Appeals%20Seal2.pngAuthored by Catherine Dacre

Commissioned sales is one of the few areas in which California law is arguably more favorable to employers than the FLSA or laws of other states.  Specifically, California law recognizes an exemption from overtime for sales employees in many industries, provided they are primarily engaged in sales, earn at least one and one half times the minimum wage, and more than half of their income comes from commission earnings. 

Dubbed the “inside sales exemption,” this often-overlooked exception to the obligation to pay overtime applies to sales employees who do not qualify for the outside sales exemption because they work at their employer’s place of business.  In an opinion interpreting the applicability of the exemption broadly, the court of appeal in Muldrow v. Surrex Solutions Corporation confirmed the applicability of the exemption to employment recruiters. 

The recruiters in Muldrow were paid commissions based on both the price paid for the employee placed and the cost to their employer.  Stated simply, they were paid based on profitability of the deal, not just price.  The court clarified that factoring in cost does not destroy the commissioned nature of the pay, and prior cases on the issue (most notably Keyes Motors v. DLSE) did not intend such a restriction.  

In addition, the court rejected Plaintiffs’ argument that activities such as cold calling, interviewing candidates, inputting data, and submitting resumes were not sales related, finding instead that they were essential to accomplishing the sales. 

Finally, the court upheld the plan as a bona fide commission system based on evidence of earnings across the class.  The court found that many employees (unlike the class representatives) were paid in excess of their draws and thus the plan was bona fide.  On that issue, the court observed that limiting focus to any one group of employees would reward the unmotivated or unproductive employee.   

This is a useful case for a number of reasons.  It can be relied on to support a sales-related activity theory in either and inside or an outside sales case.  In addition, it applies a broad definition of “commission” for purposes of such exemption cases.  Finally, in the class action context, it validates the notion that the court must look at the class as a whole in examining the issues, rather than focus on a few (often outlier) class representatives.

California%20Court%20of%20Appeals%20Seal2.pngCo-authored by Tim Nelson and Brandon McKelvey

The California Court of Appeal has issued a published decision holding that denial of class certification in one lawsuit may not prevent similar class action claims in a later lawsuit.  On January 18, 2012, in Bridgeford v. Pacific Health Corporation, the court expressly disagreed with a prior Court of Appeal decision from the same district that held collateral estoppel could prevent class actions that are similar to prior cases where class certification was denied.

In Bridgeford, the plaintiffs filed a class action complaint against Pacific Health Corporation and other hospitals and health care entities for various violations of California’s wage and hour laws.  The defendants demurred to the complaint on the grounds that the plaintiffs were collaterally estopped from seeking class certification because class certification was denied in a prior action that involved the same causes of action and subclasses that were similar to those in Bridgeford.  The trial court sustained the defendants’ demurrer in Bridgeford on these grounds and dismissed the plaintiffs’ complaint in its entirety. 

The Court of Appeal reversed, holding that the prior denial of class certification does not bar the claims of absent putative class members in a subsequent suit.  The court relied heavily on a recent United States Supreme Court decision, Smith v. Bayer Corporation, which held that a federal court could not enjoin a state court from considering a plaintiff’s request to approve a class action when a federal court had denied a motion for class certification in a case with similar claims brought by a different plaintiff against the same defendant.  Relying on Smith, the Court of Appeal expressly disagreed with Alvarez v. May Dept. Stores Co., a decision from a Court of Appeal in the same district.  Alvarez held that denial of class certification could collaterally estop absent class members from re-litigating class certification in a subsequent lawsuit.  Reaching the opposite conclusion, the court in Bridgeford held that the denial of class certification cannot establish collateral estoppel against unnamed putative class members on any issue because unnamed putative class members were neither parties to the prior proceeding nor represented by a party to the prior proceeding.

This decision has important implications for employers facing class actions in California.  The holding in Bridgeford will make it harder for employers to rely on the denial of class certification in a prior class action to preclude copy-cat class actions.