California Supreme Court

The Story Thus Far

As outlined in a previous blog article, the decision in Dynamex Operations v. Superior Court will be extremely important for all companies that use independent contractors, especially those in the emerging “gig economy.” Misclassifying workers can have painful consequences, involving not only liability for unpaid wages and employee benefits but also statutory penalties for each violation considered “willful.”

The Issue

In agreeing to review the case, the California Supreme Court defined the issue on appeal as whether, in a misclassification case, a class may be certified based on the expansive definition of employee as outlined in the California Wage Order language construed in Martinez v. Combs (2010), or on the basis of the common law test for employment set forth in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989). In short, the California Supreme Court focused on whether to continue using the Borello test and on what test, if any, to apply instead.

The definition of employment identified in the California Wage Orders is broader than the prior common law test. California’s Wage Orders define “employ” broadly to mean “to engage, suffer or permit to work.” In contrast, Borello focuses instead on a multi-factor balancing test that depends on the unique facts of each situation and that is more likely to recognize the existence of an independent contracting relationship.

Oral Argument

Dynamex Operations Goes First

In its opening argument, Dynamex praised the Borello test as a tried and true California rule and warned against the danger that uncertainty in the classification of workers would pose to California’s booming “gig economy.” Dynamex raised concerns with any judicial adjustment to the definition of employment that would usurp the legislature role.

Justice Kruger, however, wondered whether judicial adoption of a bright-line rule would not be more instructive for employers, and suggested, as a possibility, adopting the ABC test followed in such jurisdictions as New Jersey and Massachusetts. The ABC test says that three conditions must all concur for a worker to be an independent contractor: (1) freedom from actual control over the work, (2) work beyond the usual course of business and off company premises, and (3) engaging in an independent trade. Unless A, B, and C all concur, then the worker is an employee.

Chief Justice Cantil-Sakauye raised an additional response to Dyanamex’s plea to leave this issue to the Legislature: if the ABC test is a stricter version of the Borello test, then why should the Supreme Court be precluded from adopting a new version of the test to ensure clarity in enforcement when, after all, it was the Supreme Court that had adopted the Borello test in the first place? Finally, Justice Kruger and Dynamex had a robust discussion about adopting a modified rule, where the ABC test would govern for some Labor Code provisions, but a different test may apply to others. Dynamex opined that this result would be confusing for employers and might result in individuals being employees for some purposes but independent contractors for others.

Aggrieved Independent Contractors Respond

In their responsive argument, the workers portrayed what they saw as the sorry plight of California independent contractors. The workers called independent contracts the new “serf-class”: people who work hard while receiving none of the California Labor Code’s basic employee benefits. They argued that the court should adopt a new, broader definition of employee to protect workers from harm. The workers seemed open to several outcomes, including (a) a broader definition for some California Labor Code provisions, (b) the definition outlined in the state’s Wage Orders, or (c) any other new employment test that the California Supreme Court might come to favor.

Justice Liu seemed skeptical about a broader test. He referred to an “Amazon Analogy.” Although most people know Amazon sells goods online, many people also view Amazon Prime (with its delivery services) as within Amazon’s usual course of business. Justice Liu then asked: if the Justices were to adopt a strict interpretation of the ABC test, at what point would Amazon be considered a shipping business, meaning that all drivers who ship Amazon Prime goods would be employees of Amazon under the second ABC prong? This analogy caught the attention of Justices Cuellar and Justice Chin, who both seemed to appreciate how complicated, and blurry, a new test could be.

Dynamex Makes A (Brief) Comeback

In its rebuttal, Dynamex took up Justice Liu’s “Amazon Analogy” to argue why a flexible test is needed to ensure just results. Two justices followed up. The first was Justice Liu, who asked whether other jurisdictions have applied the ABC prongs strictly. The second was Justice Chin, who closed oral argument with a pointed question that represents the concerns of many observers: which employment test best fits the modern economy? Dynamex responded that the body of developing case law as well as the uniformity of Borello’s application has suited California well and that it provides all of the factors needed to fully determine employment relationships.

Our Crystal Ball

Although one cannot read the minds of seven justices, we sense the court will likely reject the call to leave this matter for the legislature and will lean instead toward a judicially fashioned test that, in the view of most justices, will best fit the needs of the modern economy. The court’s decision is expected within the next 90 days.

As always, we will remain vigilant and on the scene. Look for more updates about this case as they come out and in the meantime do not hesitate to reach out to your friendly neighborhood Seyfarth attorney for guidance or with any questions you might have.

Co-Authored by Sheryl Skibbe, Jon Meer, and Michael Afar

Seyfarth Synopsis: A recent court decision credited Nike’s time and motion study showing employees spent mere seconds of time in off-the-clock bag checks, finding the checks to be too trivial and difficult to capture to require payment. In contrast, the class failed to present actual evidence showing any amount of compensable time spent by the class off-the-clock while managers inspected their bags or checked their jackets.

In Rodriguez v. Nike Retail Services, Inc., Nike defeated a class action alleging that hourly retail workers were owed money for the time they spent waiting for security inspections after they had clocked out and were exiting the store.

Nike hired an expert to conduct a study of exit inspections, which showed that the average inspection takes no more than 18.5 seconds and that 60.5 percent of all exits required zero wait time. Rather than submit contradictory evidence in response to Nike’s 700 hours of video, which the court found to be representative of the class period, Plaintiff Isaac Rodriguez relied on an expert declaration attempting to poke holes in Nike’s study.

Judge Beth Labson Freeman called Plaintiff’s strategy “misguided,” rejecting “Rodriguez’s attempt to equate this situation to a battle of experts sufficient to deny summary judgment.” “[P]oint[ing] out flaws in the other side’s evidence,” was not the same as “offering any conflicting evidence for the jury to consider at trial on the relevant claim or defense.”

Evaluating Nike’s evidence under the de minimis defense, and recognizing that daily periods of up to 10 minutes have been found to be de minimis, Judge Freeman ruled that the workers hadn’t shown that their off-the-clock exit time was close to meeting that threshold. Although Rodriguez pointed to testimony from three store managers who estimated that some employees may have had a few inspections with higher wait-times, the judge found that wait-times of two or five minutes were too trivial, irregular and administratively difficult to capture.

Judge Freeman also agreed that repositioning time clocks to the front of the store so that employees could clock out after the check was not required. Taking a practical view, the court noted that “brief exit inspections are a modern business reality that most retailers, like Nike, use for the legitimate reason of reducing theft.”

Although the California Supreme Court is considering the de minimis doctrine in Troester v. Starbucks Corp., Judge Freeman declined Rodriguez’s invitation to “predict how the California Supreme Court will rule.” Instead, she noted that the court was compelled to apply existing law to the case, finding the Ninth Circuit and other courts had applied the de minimis doctrine to California claims.

For the moment, this ruling is good news for employers who can put away their stop watches when small increments of off-the-clock time are irregular and difficult to record. But keep your eye on the ball because the California Supreme Court will be making the final call on the de minimis doctrine and whether or how it applies in the state.

Co-authored by Kristen Peters and Simon L. Yang

Seyfarth Synopsis: Last month in Mendoza v. Nordstrom, Inc., the California Supreme Court addressed three questions about California’s “day of rest” statutes that prohibit employers from causing employees “to work more than six days in seven.” California employers can now rest assured that (1) employees are entitled to one day of rest during each workweek, not one day of rest in every rolling seven days; (2) an exception permits employers to require work each day of a workweek if every daily shift in that workweek is no more than six hours; and (3) while employers cannot require employees to forgo a day of rest, employees remain free to choose to work all seven days in a workweek.

California’s “Day of Rest” Provisions

In the beginning (or 80 years ago), the California legislature created the Labor Code. Sections 551 and 552 codified 19th century laws—the “day of rest” provisions—that entitle all in employment to “one day’s rest therefrom in seven” and prohibit an employer to “cause his employees to work more than six days in seven.” Later, the lawmakers said, let there be a six-hour exception, and Section 556 made the day of rest provisions inapplicable “when the total hours of employment do not exceed 30 hours in any week or six hours in any day thereof.”

The Alleged Violations in Mendoza

Two former Nordstrom employees, Chris Mendoza and Megan Gordon, occasionally were asked to fill in for other employees. As a result, they sometimes worked more than six consecutive days. During those weeks, some of their shifts were six hours or less.

Though the day of rest provisions historically lacked a private right of action, Mendoza and Gordon—enabled by California’s private attorneys general statute—sued in federal district court for alleged violations of Sections 551 and 552.

The district court initially rejected the former barista and sales associates’ claims—both because they were not required to work the fill-in shifts and because they had worked some less than six hour shifts during the at-issue weeks. The plaintiffs appealed.

Interpreting the Day of Rest Provisions

Uncertain how California courts would interpret the statutes, the Ninth Circuit asked for the California Supreme Court’s assistance. The Justices addressed and resolved three questions:

  1. Is the “day of rest” calculated by the seven-day workweek, or does it apply on a rolling basis to any seven-consecutive-day period?

A day of rest is guaranteed for each seven-day, employer-established workweek, not for any “rolling” seven-day period.

In reaching this result, the Mendoza court concluded that “the Legislature intended to ensure employees … a day of rest each week, not to prevent them from ever working more than six consecutive days at any one time.” Thus, periods of more than six consecutive days of work that stretch across more than one workweek are not per se prohibited.

Of more general interest, in adopting the workweek as the framework for counting the seven days the California Supreme Court made an observation that could be welcome to employers in future cases by indicating that this interpretation would be the one most congenial to an employer’s administration of time records.

  1. Does the Section 556 exception apply so long as an employee works six hours or less on at least one day of the applicable workweek, or does it apply only when an employee works no more than six hours on each and every day of the workweek?

The “six hour” exception applies only when an employee works no more than 30 hours in the workweek and no more than six hours on each day of the workweek.

  1. What does it mean for an employer to “cause” an employee to go without a day of rest?

“[A]n employer’s obligation is to apprise employees of their entitlement to a day of rest and thereafter to maintain absolute neutrality as to the exercise of that right.” The Court explained that an employer is not liable simply because an employee chooses to work a seventh day; rather, an employer “causes” an employee to go without a day of rest when it induces the employee to forgo an entitled day of rest. In other words, employers cannot coerce employees to forgo a day of rest, but they will not face liability if an employee, who is aware of the rest-day requirements, nonetheless chooses to work seven days in a row.

Again, employers likely appreciate the Justices’ rejection of the plaintiffs’ ambitious argument that the Labor Code should always be interpreted in such a way as to maximize liability. The Court recognized that an expansive interpretation is improper when the legislative intent indicates a narrower reading of the statute.

Moreover, the decision does protect employees and their right to choose. So on the seventh day, let them rest—or work. It’s up to them.

Lessons Learned for Employers 

Employers nonetheless should review their scheduling practices to assess whether employees (exempt and non-exempt) work all seven days in any employer-defined workweek. Employers should also ensure that their employment policies notify employees of their right to a “day of rest” so they can establish that an employee made an informed decision to forgo a day of rest. Finally, employers should consider obtaining a written waiver from an employee before agreeing to allow the employee to forgo a day of rest in a given workweek.

Authored by

Seyfarth Synopsis: In what many employers will see as a “break” from workplace reality, the Supreme Court, in Augustus v. ABM Security Services, Inc., announced that certain “on call” rest periods do not comply with the California Labor Code and Wage Orders. As previously reported on our California Peculiarities Employment Law Blog, this decision presents significant practical challenges for employers in industries where employees must respond to exigent circumstances.


On December 23, 2016, the California Supreme Court issued its long-anticipated decision in Augustus v. ABM Security Services, Inc., affirming a $90 million judgment for the plaintiff class of security guards on their rest break claim. The Supreme Court found that the security guards’ rest breaks did not comply with the California Labor Code and Wage Orders, because the guards had to carry radios or pagers during their rest breaks and had to respond if required.

The Supreme Court took a very restrictive view of California’s rest break requirements, concluding that “one cannot square the practice of compelling employees to remain at the ready, tethered by time and policy to particular locations or communications devices, with the requirement to relieve employees of all work duties and employer control during 10-minute rest breaks.” Thus, in the Supreme Court’s view, an employers may not require employees to remain on call—“at the ready and capable of being summoned to action”—during rest breaks.

See our One Minute Memo for more details on the decision and thoughts on the implications of this case for California employers. The Augustus decision presents significant practical challenges for employers, especially in industries in which employees must be able to respond to exigent circumstances.

Workplace Solution:

The holding that “on call” rest periods are not legally permissible should prompt employers to evaluate their rest-break practices. In industries where employees must remain on call during rest periods, employers should consider seeking an exemption from the Division of Labor Standards Enforcement. Lawyers in the Seyfarth California Workplace Solutions group can assist with other suggestions for responding to this decision.

Authored by Jeffrey A. Berman, Julie G. Yap, and Michael Afar

Last week, the California Supreme Court issued a ruling on a California Wage Order requirement that employers provide “suitable seats” for employees when the “nature of the work reasonably permits the use of seats.” The consolidated decision says employers have to provide seating where employee tasks performed at a particular location reasonably permit sitting, and where providing a seat would not interfere with the performance of standing tasks.

Background: Taking a Stand for Seats

Nykeya Kilby worked as a Clerk/Cashier for CVS Pharmacy, Inc. Sometimes she moved around the store, gathered shopping carts, and restocked display cases, but she spent 90% of her workday at the cash register. Kemah Henderson worked as a teller at JPMorgan Chase Bank. Sometimes she escorted customers to safety deposit boxes, worked the drive-up teller window, and checked to ensure that ATMs were working properly, but she spent the majority of her time at her teller window. Neither company provided the plaintiffs with seats. CVS’s business judgment was that standing promotes excellent customer service.

Kilby and Henderson stood up for themselves—and others—by seeking to represent CVS cashier and JPMorgan teller classes in federal district court for violation of California’s “suitable seating” requirements. But the district court denied class certification and granted summary judgment to CVS, since the “‘nature of the work’ performed by an employee must be considered in light of that individual’s entire range of assigned duties” and that “courts should consider an employer’s ‘business judgment.’”

On appeal, the Ninth Circuit sat this one out. It noted the “lack of any controlling California precedent” and that the “nature of the work,” “reasonably permits,” or “suitable seats” language was not defined. So it asked for the California Supreme Court’s interpretation.

The Decision: It Definitely Depends

The California Supreme Court addressed the undefined terms:

First, it held that the “nature of the work” refers to tasks performed at a given location for which a right to a suitable seat is claimed. In rejecting both an “all-or-nothing approach” and a “single task” approach that would be “too narrow,” it said trial courts should look to the “actual tasks performed, or reasonably expected to be performed,” rather than “abstract characterizations, job titles, or descriptions that may or may not reflect the actual work performed.”

Second, the Cal Supremes concluded that whether the nature of the work “reasonably permits” sitting is determined objectively based on the “totality of the circumstances.” An employer’s business judgment, the physical layout of the workplace, and the “feasibility” of providing seats—including “whether providing a seat would unduly interfere with other standing tasks, whether the frequency of transition from sitting to standing may interfere with the work, or whether seated work would impact the quality and effectiveness of overall job performance”—all should be considered. The court did caution that whether an employer would “unreasonably design a workspace” to deny a seat that might otherwise be reasonably suited for certain tasks also should be considered.

Third, the court effectively suggested that what would be “suitable seating” depends, by ruling that “an employer seeking to be excused from the requirement bears the burden of showing compliance is infeasible because no suitable seating exists.”

The Takeaway: What It Means for California Employers

While Kilby/Henderson provides some guidance on “suitable seating” rules, the case now requires an inquiry focusing on each particular location where an employee works—as opposed to generally analyzing an employee’s entire set of job tasks. And while the California Supreme Court validated the employer’s position that “business judgment” and store layouts must be considered, those factors are relevant, but not dispositive.

So it’s all clear: “the nature of the work” depends on any individual employee’s actual work, whether it “reasonably permits” sitting depends on a totality of work factors, and what constitutes “suitable seating” depends on what is infeasible in a particular workplace.

In the end, although the California Supreme Court may have affirmed the viability of a cause of action for suitable seating, employers might stand and rejoice. The required location-specific analysis in seating may now be so individualized that class actions across classifications and locations are no longer “suitable.”

Edited by Simon L. Yang

Co-authored by David D. Kadue and Simon L. Yang

On Tuesday, January 20, 2015, the Court declined to take the case of CLS Transportation Los Angeles, LLC v. Iskanian, in which an employer asked the Court to reverse a ruling of the California Supreme Court. At issue was whether an employee who has agreed to submit all employment-related claims to arbitration, and who has also agreed to waive participation in class and representative actions, can evade that agreement and sue the employer under California’s Private Attorney General Act (“PAGA”). The California Supreme Court in June 2014 had sided with the suing employee.

Many observers expected that the case would be the latest episode in a drama that features a complicated relationship between two supreme courts. To simplify a bit, the U.S. Supreme Court traditionally has read the Federal Arbitration Act (“FAA”) to require the enforcement of private arbitration agreements by their terms. The California Supreme Court, meanwhile, has often searched creatively for some Cal-centric reason to deny enforcement to arbitration agreements.

Recent examples of the contrasting supreme viewpoints have occurred in the context of arbitration agreements that waive the procedural right to proceed or participate in a class action. The California Supreme Court once held, in both the consumer-claim context and in the employee-claim context, that a class-action waiver in an arbitration agreement is unenforceable, because any such waiver offends the California public policy favoring class actions. But then the U.S. Supreme Court, in Concepion v. AT&T Mobility, ruled in 2011 that the FAA preempts the California ban on class-action waivers. Concepion involved a consumer complaint. For several years, California courts resisted the clear implication that Concepcion also applies to employee complaints. Finally, in Iskanian, the California Supreme Court relented, acknowledging that, under the FAA, class-action waivers in arbitration agreements are enforceable, even in California.

But even then the Iskanian court also sounded a note of resistance, based on a special Cal-peculiarity: the court held that Concepcion does not apply to a PAGA claim. The rationale for creating this PAGA exception to Concepcion was that a PAGA claim differs from a class action in that PAGA plaintiffs act as private attorneys general, on behalf of the State of California—an entity that never agreed to arbitrate. Meanwhile, a dozen or more federal district court decisions repudiated this rationale, holding that the FAA, as interpreted by Concepcion, requires courts to enforce arbitration agreements calling for individual arbitration of PAGA claims, even if that enforcement keeps the plaintiff from acting as a private attorney general.

The employer petitioned the U.S. Supreme Court for a hearing on whether the California Supreme Court, in Iskanian, has once again strayed from the FAA’s true path. In supporting this request for intervention, the employer community explained that Iskanian’s rationale does not withstand scrutiny, for several reasons. First, the injuries that PAGA addresses are Labor Code violations that have harmed the suing “aggrieved employee.” The notion that this injury is really to the State of California is an overbroad legal fiction that could apply to any statutory claim—as California presumably has an interest in compliance with all of its statutes. This legal fiction contrasts with the actual governmental injury asserted in a true qui tam claim under the False Claims Act, in which a private party, on behalf of the government, alleges fraud on the government, after notifying the government of the claim and letting the government decide whether to sue for itself. Second, PAGA differs from a true qui tam action in that the State of California plays almost no role in a PAGA action. Under the False Claims Act, the government investigates the claims and a case cannot proceed as a qui tam action unless the government expressly consents, so the government plays a true gatekeeper role. Under PAGA, by contrast, the California Labor and Workforce Development Agency (“LWDA”) has a limited chance to investigate and intervene after the aggrieved employee gives written notice of a violation, and the LWDA almost never investigates. On the contrary, unless, within 33 days, the LWDA says it will investigate (a once-in-a-blue-moon occurrence), the aggrieved employee can sue, without any government oversight, so that the aggrieved employee may unilaterally dismiss the action. Third, the State of California rarely sees the 75% share of the civil penalties that PAGA nominally promises. Settlements of Labor Code claims often involve no PAGA penalty whatsoever. The only judicial oversight is to approve any PAGA penalty sought: if no PAGA penalties are allocated, the court has nothing to approve. Individual plaintiffs can thus use PAGA claims to pressure a greater settlement of their private claims, while producing nothing for the State. In short, because individuals control PAGA actions from start to finish, enabling them to seek recovery for their own alleged injuries, there is no good reason to distinguish PAGA claims from other wage and hour claims. As to all these claims, the FAA preempts any state public policy that would interfere with the enforcement of arbitration agreements. So why should PAGA be any different?

Yet, alas, on Tuesday the U.S. Supreme Court denied the employer’s petition. We thus expect to see continuing discord between federal and California courts on whether PAGA represents an exception to the general rule that courts should enforce arbitration agreements that waive class and representative actions.

Co-authored by Colleen Regan and David Kadue

Gentry is dead.  Back in 2007, the California Supreme Court, in Gentry v. Superior Court held that California public policy favoring class actions was so important that employers cannot have employees, in arbitration agreements, waive their right to pursue a class action.  Many thought that the Gentry rule contradicted the Federal Arbitration Act, and further thought that the U.S. Supreme Court so indicated in a 2011 decision, AT&T Mobility LLC v. Concepcion.  But many California courts, post-Concepcion, continued to apply Gentry to invalidate class action waivers in arbitration agreements.  On Monday, however, the California Supreme Court confirmed that the rumors of Gentry’s death were not exaggerated after all:  in light of Concepcion, the Gentry rule really is FAA-preempted.  Iskanian v. CLS Transportation Los Angeles, LLC (Cal. Sup. Ct., filed 6/23/2014).

The Iskanian decision will be welcome news to those employers that wish to limit potential exposure to class actions by using arbitration agreements that include class action waivers.

The Iskanian court also rejected the employee’s argument that class action waivers are invalid under the National Labor Relations Act.  Only one of the seven California Supreme Court justices accepted that argument.

PAGA lives to fight another day. The plaintiff in Iskanian not only pursued a class action to prosecute allegations of Labor Code violations, but also asserted a representative action under the Private Attorneys General Act of 2004. Another important question presented in Iskanian was whether the arbitration agreement had effectively waived the employee’s right to bring a representative PAGA action.  Here, the California Supreme Court sided with the employee, holding that the PAGA claim is beyond the scope of the FAA, which addresses only private disputes.  The PAGA claim, by contrast, is brought in the name of the State of California, and thus is not a private claim.

California’s high court has notoriously been a holdout against the enforcement of mandatory arbitration agreements, notwithstanding frequent prodding by the U.S. Supreme Court.  With the Iskanian decision, it is likely that other states will reach similar conclusions.

Seyfarth Shaw LLP will be bringing you a One Minute Memo, with in-depth analysis of the decision, shortly.  Stay tuned.

Co-authored by Geoffrey Westbrook and Laura Maechtlen

With years in the making, the long-awaited decision of the California Supreme Court in Duran v. U.S. Bank has finally arrived and represents a significant victory for California employers. Duran is the first case to consider the now prevalent use of statistical evidence by class action plaintiffs to condense class certification briefing and/or trials, avoid issues of proof with individual class members, and establish class-wide liability using often one-sided and route arithmetic. In a unanimous decision, the Supreme Court imposed new restrictions on such tactics and reaffirmed the rights of employers facing class action lawsuits. Here are a few highlights from the Court’s decision:

  1. No More Cutting Corners at TrialDuran is an excellent illustration of the modern misuse and abuse of statistical evidence in class litigation. The trial court adopted a trial plan, under which a purportedly random sample of twenty class members—plus two of the named plaintiffs—would represent the entire class of 260 current and former employees. In the damages phase, the trial court implemented the determination of plaintiffs’ expert that class members worked on average 11.87 hours of overtime per week, subject to a 43% or almost double margin of error. The Supreme Court rejected the statistical model used by the trial court as flawed and “intolerable” because the sample was too small to produce reliable information about the entire class, biased in plaintiffs’ favor, and had too large a margin of error. In future cases involving statistical evidence, it can be expected that trial courts will follow the lessons of Duran and use caution before adopting a trial plan based on surveys, sampling, and/or statistics.
  2. Employers Have a Constitutional Right to Defend Their Cases – Under the lower court’s trial plan, liability for the entire class was determined solely by use of evidence concerning the 20-member sample. U.S. Bank was not permitted to present evidence that plaintiffs outside this group were properly classified as exempt employees—a key defense in a misclassification case such as Duran. The Supreme Court held that class certification is inappropriate under constitutional due process principles when a trial management plan cannot “fairly and efficiently” allow employers to present and litigate its relevant affirmative defenses. Quite simply, the trial court’s plan prevented the employer from showing that some class members were exempt and entitled to no recovery, amounting to a gross violation of U.S. Bank’s constitutional rights. Duran is an important reminder that trial management practices cannot serve as a basis to deny a party’s substantive, and in this case constitutional, rights. For more information on this particular issue, click here.
  3. Trial Courts Now Required to Give Early Attention to the Use of Statistical Evidence and Case Management Before Certifying a Class – While the Supreme Court did not wholly preclude the use of sampling and surveys in class litigation, Duran imposes new restrictions to this practice. If statistical evidence is to be used as part of a trial plan for managing complex class action, methods to be employed by class counsel must be presented, evaluated, and scrutinized early in the life of the case, and in any event no later than the hearing on class certification. Trial courts are no longer permitted to assume that the use of statistical methods will serve as a panacea to class certification and manageability issues raised early in the case. Under Duran, courts must develop plans for statistical proof and methods before certifying a class, and should further be prepared to order decertification if a proposed trial plan is ultimately unworkable. In addition, courts in California are encouraged and—based on Duran—likely required to determine, before class certification how a case will be tried. If the court cannot conduct a fair trial on the class claims, while allowing employers the ability to assert affirmative defenses as to the class, certification should be denied.

In all, Duran represents a definitive affirmation of employers’ rights in class litigation by the state’s highest court. New limitations on the use of statistical evidence and emphasis on constitutional due process concerns in class cases provide California employers with vital ammunition when defending wage and hour and other employment class actions. With jury verdicts in these matters routinely exceeding seven figures, the Duran case is welcome news to employers indeed.

Authored by Jim Harris

The California Supreme Court heard oral argument in two important cases involving employment-related class actions.  From the tenor of and comments made at the argument, it appears likely that the ultimate results will be a mixed bag for employers.

The first case, Iskanian v. CLS Transportation of Los Angeles, LLC, which we reported on late last year, presents related questions regarding the impact on California practice of the decision in Concepcion, where the High Court overruled a California Supreme Court decision under which class action waivers in certain arbitration agreements were deemed unconscionable.  The threshold issue in Iskanian is whether another California Supreme Court decision, Gentry, also must fall under ConcepcionGentry had held that a class action waiver in an arbitration agreement should not be enforced if a trial court were to determine that “class arbitration would be a significantly more effective of vindicating the rights of affected employees than individual arbitration.”  Even the most liberal member of the California Supreme Court, Justice Liu, seemed prepared to conclude that Gentry likewise is preempted by federal law because it runs head-long into Concepcion’s recognition that “requiring the availability of class-wide arbitration interferes with fundamental attributes of arbitration.”  The Justices also seemed unimpressed by Plaintiff’s contention that they could simply water-down Gentry to bring it into compliance with Concepcion.  And they appeared resistant to endorsing the National Labor Relations Board’s ruling in D.R. Horton that class action arbitration waivers violate the National Labor Relations Act, several Justices noting the chilly reception that D.R. Horton received in federal appellate courts.

The Plaintiff in Iskanian seems more likely to prevail, however, on the second issue—whether an arbitration agreement may permissibly override the statutory right to bring representative claims under PAGA, the California Private Attorneys General Act of 2004.  The argument focused mainly on the nature of PAGA’s actions.   Defense counsel argued there is no principled distinction between a PAGA representative action and a conventional employment class action.  However, the Justices who addressed this question seemed skeptical.  Justices from across the ideological spectrum seemed inclined to characterize a PAGA action as belonging to the State, although prosecuted by individual plaintiffs.  On that premise, they seem inclined to rule that an arbitration agreement may not override the State’s  statutory right.

The Supreme Court granted review in the second case, Ayala v. Antelope Valley Newspapers, to resolve questions regarding how trial courts are to determine whether common issues predominate in wage-hour cases where one issue is whether the putative class members are employees or independent contractors.   The oral argument, however, barely addressed class action procedures or rules.  Rather, the argument focused almost entirely on determining the proper substantive standard for making the employee/independent contractor determination.   The Ayala case had been litigated in the lower courts on the premise that that the common law test adopted in Borello governed this inquiry.  The employer’s position was that the multi-factored inquiry required under Borello was inherently individualized, precluding class certification.  Prior to oral argument, the Supreme Court requested supplemental briefing as to whether the far broader, and simpler, “suffer or permit” standard embodied in California wage-orders should instead govern.   Plaintiff’s counsel jumped on this suggestion, arguing that certification should be upheld under the “suffer or permit” standard.  A proxy war ensued.  Two Justices—Justices Liu and Werdegar—clearly believe the broader substantive standard should control.  Several others—Justices Baxter, Chin and Corrigan—appeared to disagree strongly.  The ultimate views of the remaining two Justices were less clear.   What does seem clear is that the ruling on the standard will determine the outcome on certification.

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.