By Daniel Whang
In plaintiff-friendly California, it may be surprising to learn that the California Supreme Court threw a few bones to employers during 2014. First, although lower courts seem determined to make it easier for plaintiffs to obtain certification in wage and hour class actions, the California Supreme Court’s decision in Duran v. U.S. Bank signaled that certification of wage and hour claims has become too perfunctory.
The Duran decision, covered in far more detail in a client alert, requires trial courts to consider an often neglected requirement for class certification: that the trial of the certified claims would be manageable. Duran is one of the few wage and hour class actions that went to trial, and the disastrous consequences of a poorly planned trial provided a powerful lesson that courts need to be far more careful in certifying class actions.
If Duran provided a useful weapon to oppose class certification, the California Supreme Court threw employers another bone by solidifying an employer’s ability to enforce class action waivers in arbitration agreements. In Iskanian v. CLS Transportation Los Angeles, LLC, the California Supreme Court acknowledged that, under the United States Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, class action waivers in arbitration agreements are enforceable.
But this was not a total employer victory. The California Supreme Court also held that claims under the Private Attorneys General Act of 2004 (“PAGA”) are not subject to mandatory arbitration, because the State (and not the employee) is the real party in interest and the State is not a party to an employer’s arbitration agreement. While employers were hopeful that the United States Supreme Court would grant the petition to review the PAGA exception that the California Supreme Court had created, the U.S. Supreme Court declined to hear the petition, leaving Iskanian good law for now, and permitting employees to pursue PAGA claims in court even if they have signed arbitration agreements that waive the right to pursue class and representative actions.
A third important employment case the California Supreme Court addressed in 2014 involved a commonly asserted theory of recovery in class actions – that the employer has misclassified employees as independent contractors. In Ayala v. Antelope Valley Newspapers, the Supreme Court clarified that the relevant inquiry at the class certification stage in independent contractor misclassification cases is not the actual control exercised by the defendant, but the defendant’s right of control over the work of individuals classified as independent contractors. Thus, even if relationships between the defendant and the class members vary, class certification would nevertheless be appropriate so long as “the degree of control [each contract] spells out is uniform across the class.”
In a fourth major employment case, Patterson v. Domino’s Pizza, LLC, the California Supreme Court refused to hold a franchisor liable for acts committed by its franchisee’s supervisor. There was no joint employment relationship between the franchisor and the franchisee’s employee because the franchisor did not exercise the level of day-to-day control over the franchisee’s operations or employment practices to create an employment relationship. Since the Supreme Court relied heavily on the franchise agreement, companies in the franchise industry should carefully review their franchise agreements to ensure that they, at a minimum, include the provisions the Supreme Court cited in the Patterson decision.
It would not be a year in California employment law, however, without at least one adverse decision from our high court. The major loss for employers here involved the “commissioned employee” exemption from overtime under various Wage Orders. The California Supreme Court’s decision in Peabody v. Time Warner Cable, Inc. should prompt employers to evaluate their compensation plans for commissioned employees who are classified as exempt.
The commissioned-employee exemption requires a showing that the employee earns more than 150% of the minimum wage and earns commissions accounting for more than 50% of the employee’s pay. While many employers commonly have paid commissions on a monthly basis, the Supreme Court in Peabody cast doubt on that practice. The Supreme Court concluded that it is not proper for an employer to attribute commissions paid in one pay period to other pay periods to make up any shortfall in meeting the pay requirements of the commissioned-employee exemption.
During 2015, additional employment cases will be pending before the California Supreme Court. We can expect further guidance regarding arbitration agreements. The Supreme Court in Iskanian noted that employees remain free to challenge the enforceability of arbitration agreements with an argument that the agreement is unconscionable. The Supreme Court will address such a challenge in Baltazar v. Forever 21, Inc., No. S208345. In another arbitration case, Sandquist v. Lebo Automotive, Inc., No. S220812, the Supreme Court will decide whether the arbitrator or the trial court decides whether the parties agreed to class arbitration when the arbitration agreement is silent on the issue of class actions.
Meanwhile, issues of joint employment will return to the Supreme Court’s docket in State ex rel. Dep’t of California Highway Patrol v. Superior Court, No. S214221. In Dynamex Operations West, Inc. v. Superior Court, No. S222732, the Supreme Court also will revisit the appropriate standard for class certification, in the context of the Wage Order’s definition of employment. And in Williams v. Chino Valley Independent Fire District, No. S213100, the Supreme Court will decide the relevant standard applicable to employers to recover costs in cases brought under the Fair Employment and Housing Act. Also on the docket is the long-pending referral from the U.S. Ninth Circuit Court of Appeals, in Kilby v. CVS Pharmacy, Inc., concerning the interpretation of the suitable-seating requirements found in section 14 of California Wage Orders.
The California Supreme Court’s decisions in 2014 have had widespread impact on employment litigation already, particularly as to arbitration agreements. We expect further guidance for employers this coming year, and we will of course report on any new developments.