Class Action

2019 Federal Wage and Hour Updates: The DOL Tackles Potential OT Violations and Ministerial Exceptions Under the FLSA

On December 21, 2018, the Department of Labor issued two opinion letters regarding the Fair Labor Standards Act (“FLSA”). The first opinion letter explains that an employer failed to comply with the FLSA’s overtime requirements when it designated a standard regular rate of pay for overtime purposes and the actual regular rate of pay exceeded that amount. The second opinion letter found that certain members of a religious organization were not employees under the FLSA, but, even if considered employees, qualified for the ministerial exception. This blog post explores both letters. READ MORE

Big Win for the Healthcare Industry on Meal Break Waivers as the California Supreme Court Resolves an Apparent Conflict in the Labor Code and IWC Wage Order

On December 10, the California Supreme Court issued an impactful decision for the healthcare industry. In Gerard v. Orange Coast Memorial Medical Center, the unanimous Court endorsed the Hospitals’ meal break policy, over which the parties had battled for more than a decade.

The policy permitted employees who worked shifts longer than 10 hours to voluntarily waive one of their two meal breaks, even if their shifts lasted more than 12 hours. The Plaintiffs alleged the meal period waivers they signed were illegal because under the California Labor Code, waivers were not permissible for shifts greater than 12 hours.

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Say It Again: No Common Question Binds a Class Subject to Thousands of Individualized Pay Decisions

Echoing an increasingly familiar refrain, another district court has declined to certify a class of women bringing pay equity claims on the basis that they did not present a common question capable of producing a common answer to “the crucial question why was I disfavored.” Relying largely upon Wal-Mart Stores, Inc. v. Dukes, the court found certification inappropriate because the putative class members were subject to countless independent decisions involving the judgment and discretion of individual managers. The case also serves as another reminder that courts (including California state courts) will not accept an overly simplistic analysis comparing broad job categories or titles, but will continue to look at actual business practices and job responsibilities to ensure comparators are “similarly situated” so a meaningful pay comparison can be made. READ MORE

Cert Denied in Potential Harbinger for California Equal Pay Act Class Actions

On August 28, 2018, a judge in Los Angeles County Superior Court issued one of the first decisions – if not the first decision – on a motion to certify a putative class action under the state’s revised Equal Pay Act, Cal. Labor Code § 1197.5 (“EPA”).  See Bridewell-Sledge, et al. v. Blue Cross of California, No. BC477451 (Los Angeles Sup. Ct. Aug. 28, 2018) (Court’s Ruling and Order re: Pls.’ Mot. for Class Certification).  Specifically, the court denied the plaintiffs’ motion to certify classes of all female and all African American non-exempt employees of Anthem Blue Cross California and related entities.  The complaint alleged both violations of the EPA, as well as discrimination in promotions and pay in violation of the Fair Employment and Housing Act (Cal. Gov. Code §12900 et. seq.).[1]

Expert testimony played a key role in the briefing and the court’s decision.  Plaintiffs attempted to use statistical evidence to establish there were common questions about the legality of pay and promotion decisions, and argued the claims were amenable to classwide treatment and common proof.  The court allowed Plaintiffs a second round of briefing after concluding they did not receive education, training, and performance-related data for their initial expert to include in his analysis.  In the supplemental round of briefing, however, Plaintiffs tendered a different expert who chose not to make use of the acquired data.

The trial court concluded that neither of Plaintiffs’ experts had appropriately grouped together similarly situated individuals across the entire putative classes.  A plaintiff does not state even a prima facie case of an EPA violation unless she can show that she was paid less than another employee of a different gender, race, or ethnicity for “substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions.”  Cal. Labor Code §§ 1197.5(a) (gender), (b) (race or ethnicity).  The court found that Plaintiffs failed to furnish evidence that could make that showing across the entire class.

Plaintiffs’ experts grouped individuals by EEO job group, which assigned Anthem’s greatly varied jobs into only 10 categories, with over 80% of individuals falling into just one EEO job group (office and clerical).  The EEOC web site itself describes this category broadly to include office and clerical work regardless of level of difficulty.  Both experts also ignored Anthem’s grouping of jobs into job families, which clustered jobs by function and responsibility and greatly narrowed the breadth of the groups.

The Court found Plaintiffs’ statistical models thus crucially rested on faulty assumptions by assuming those who shared an EEO job group were comparable.  To demonstrate, the court pointed to various Anthem jobs, vastly different in nature, which shared the same EEO job group.  For example, dental services analysists and office clerks were in the same EEO job group even though Anthem required dental services analysts to have a bachelor’s degree and two years of experience, while Anthem only required a high school diploma (and no prior experience) of office clerks.  The court also looked to market trends as evidence of the different pay typical of these vastly different positions, noting that market research data indicated that nationwide median pay was $47,900 for dental analysts but only $28,200 for clerks.  As another example, a nurse practitioner and accounting operations manager, earning $93,000 and $166,400 at Anthem, respectively, shared the same EEO job group and were treated as similarly situated in Plaintiffs’ models, even though one worked in the finance department and the other in the physicians’ and nurses’ department.  The court found the expert models did not properly analyze pay rates of putative class members and juxtapose those against employees who performed substantially similar work.  Thus, the court concluded it could not rely on Plaintiffs’ models to assess violations on a classwide basis but would instead have to make individualized inquires as to who were truly comparators under the EPA.

Aside from the problematic reliance on EEO groupings, the court also faulted Plaintiffs’ second expert on two additional grounds.  First, he only measured tenure by time at the company, rather than time in a position.  As Defendant’s expert pointed out, time in position is a more relevant tenure-related variable, because one would expect salary to increase over time in a position as the employee gained experience in that role.  Time in position was a statistically significant variable related to compensation in 7 of 10 years.  Conversely, Plaintiffs’ model measuring tenure by time since hire did not accurately capture one’s experience in a specific position, but instead conflated various positions held and ignored decreases that may have resulted from position changes. The court also found that Plaintiffs’ expert erred by including physician advisors earning over $180,000 in his model.  By contrast, Defendant’s expert deemed these individuals as outliers because their earnings were so vastly different from other non-exempt employees.  The Court found the exclusion of “time in position” and inclusion of physician advisors further evidenced that Plaintiffs’ experts’ “methodology would not provide a reasonable basis for his conclusion that racial discrimination exists at Blue Cross.”

Even ignoring the reliability problems, the court noted that Plaintiffs’ final statistical model showed no pattern of underpayment of women and no statistically significant disparity for five of the eleven years of the class period.  Defendant’s statistical model, on the other hand, controlling for Anthem job family to reflect similarly situated positions based on actual jobs, showed that there were no statistically significant disparities for 10 of the 11 years of the class period.  The court noted that Plaintiffs’ models—particularly when juxtaposed with Defendant’s more refined analysis—highlighted “the inherent problem in treating [the] case as a class action” because the evidence showed “individual [Anthem] job titles within [an EEO] Job Group can be vastly different.”  The court explained the upshot was that it would have to conduct highly individualized assessments of each member of the putative class to determine liability, and that Plaintiffs’ statistical models did nothing to cure the problem.

Significantly, the court noted that Plaintiffs failed to identify a single uniform policy that dictated pay and promotion decisions across the putative class.  The court noted that this failure further undermined the idea that there was any predominant common question amenable to common proof, related to whether Blue Cross had a policy of discriminating in pay and promotions.  In contrast, Blue Cross put forth evidence that it used race- and gender-neutral factors to develop its pay structure, including using market surveys to determine the median pay rates for its specific jobs and adjusting pay per geographic location.  The company also put forth evidence that managers had discretion to make individualized determinations when making pay decisions by considering the labor budget and pay equity among employees as well as the employee’s contributions, experience, and performance.  Plaintiffs’ failure to identify a specific employment practice in the face of Defendant’s evidence of race-and gender-neutral pay-setting policies, in the court’s view, underscored that the equal pay inquiry was highly individualized, and thus even a reliable regression model “would not be sufficient for a finding of predominance.”  Quoting the U.S. Supreme Court’s 2011 decision in Walmart Stores, Inc. v. Dukes, the Court noted that statistics alone are “insufficient to establish [Plaintiffs’] discrimination theory can be proved on a classwide basis.”

This case serves as a reminder that even under California’s EPA, one of the nation’s most employee-friendly equal pay statutes, plaintiffs cannot skirt the requirement that comparators must perform substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions, and that poorly-constructed statistics are insufficient on their own to furnish common, classwide proof of discrimination.  Orrick will be tracking developments in this and other EPA cases and putative class actions.

[1] Plaintiffs also alleged unfair business practices violations (Cal. Bus. & Prof. Code §§ 17200 et. seq.).

Change of Course? OFCCP Issues Long-Awaited Revised Compensation Guidelines

In a highly anticipated move, the Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) issued its new compensation directive on August 24, 2018. Directive (DIR) 2018-05, Analysis of Contractor Compensation Practices During a Compliance Evaluation, replaces the Obama-era compensation guidance DIR 2013-03, Procedures for Reviewing Contractor Compensation Systems and Practices (referred to as Directive 307). OFCCP also included a list of 22 Frequently Asked Questions (FAQs) with DIR 2018-05. READ MORE

Wait a Minute…California Supreme Court Says Employers Must Pay for De Minimis Off-the-Clock Work

On July 26, 2018, the California Supreme Court found that employers must compensate workers for the time they spend on certain menial tasks after clocking out of their shifts. In a unanimous decision, the Court held that California wage law did not bar a putative class action brought by a former Starbucks employee who routinely spent several minutes on trivial close-out tasks after his shift. READ MORE

California Court Rejects “ABC” Test For Joint Employers

As has been widely reported, last month the California Supreme Court issued a decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles that rejected the long-standing, multi-factor test to determine whether a worker is an employee. The Dynamex decision established a three-factor “ABC” test that, on its face, places the entire burden of showing that a worker is not an employee squarely upon the hiring party. The ABC test asks whether:

  1. The worker is free from the direction and control of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;
  2. The worker performs work that is outside the usual course of the hiring entity’s business; and
  3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

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Epic News for Employers: Class Action Waivers in Arbitration Agreements are Enforceable

Employers across the country started the work week with some positive and long-awaited news.  On Monday, May 21, 2018, the U.S. Supreme Court ruled in a landmark case that employment arbitration agreements with class action waivers do not violate federal labor law.  The Court’s 5-4 decision in Epic Systems Corp. v. Lewis, No. 160285 (U.S. May 21, 2018), consolidated with Ernst & Young LLP et al v. Morris et al., No. 16-300, and National Labor Relations Board v. Murphy Oil USA, Inc., et al. , No. 16-307, was authored by Justice Gorsuch, and settles the longstanding dispute over whether arbitration agreements containing class waivers are enforceable under the Federal Arbitration Act (FAA) despite the provisions of Section 7 of the National Labor Relations Act (NLRA).   READ MORE

Auto Dealership Sells Supreme Court on Service Advisor OT Exemption

On Monday, the U.S. Supreme Court ruled that service advisers at car dealerships are exempt from the Fair Labor Standards Act (FLSA).  In Encino Motorcars v. Navarro, the majority, Chief Justice John Roberts and Justices Clarence Thomas, Anthony Kennedy, Samuel Alito, and Neil Gorsuch voted to overturn the Ninth Circuit’s ruling on this exemption a second time, deciding that service advisors are “salesm[e]n . . . primarily engaged in . . . servicing automobiles,” and thus are exempt from overtime pay.  READ MORE

Are Franchisees Employees? California Court Says No

In October 2017, four franchisees filed a federal complaint against the global convenience store chain, 7-Eleven, seeking to represent a purported class of over 1,000 similarly situated 7-Eleven franchisees in California. The franchisees alleged 7-Eleven’s corporate entity violated the Fair Labor Standards Act, California Labor Code, California Code of Regulations, and California Business and Professions Code. The central issue in the case was whether 7-Eleven misclassified franchisees as independent contractors instead of employees. READ MORE