California Developments

Class Certification Denied: California Court of Appeal Holds That Reliance Upon Legal, Companywide Policies Is Insufficient to Support Class Certification

Coins and Hourglass

On October 10, 2012, a California Court of Appeal held that a wage and hour class action could not be certified where the common company-wide policy at issue did not answer the “central liability” question of the case.

The case, Morgan v.  Wet Seal, Inc., was brought by former Wet Seal employees against the clothing store alleging that the company violated California law by requiring employees to 1) purchase Wet Seal clothing and merchandise as a condition of employment; and 2) travel between Wet Seal business locations without reimbursing them for mileage. The plaintiffs moved for class certification, pointing to written company policies as evidence of the common issues of fact and law that predominated over individual issues. Wet Seal opposed the plaintiff’s motion for class certification arguing, among other things, that their written policies actually undermined the plaintiff’s claims. The policies at issue specifically state that employees are not required to wear Wet Seal clothing and that employees may be eligible for reimbursement for mileage.

The Court of Appeal affirmed the trial court’s holding that the facially legal policies made it impossible to use a class-wide method of proving liability. For example, the Court explained that the plaintiffs’ dress code claims raised issues of 1) whether Wet Seal requires employees to wear the merchandise as a condition of employment; 2) whether the allegedly required attire constitutes a uniform; and 3) whether any given purchase by an employee constituted a “necessary expenditure.” Here, the Court found that the policy explicitly did not require wear and the policy’s description of the dress code as “consistent with the current fashion style that is reflected in the stores” was too broad and vague to constitute a “uniform” under the definition provided by the DLSE. Therefore, any question of liability would inevitably turn on what each Plaintiff was told, who told it to them, how they interpreted that information, whether the interpretation was reasonable and whether the employee then purchased merchandise pursuant to that conversation.

The Court of Appeal emphasized that the allegation of a companywide policy is not sufficient in and of itself to establish that common issues predominated because “there was no class wide method of proof for resolving this key liability question.” The anecdotal evidence provided in Plaintiffs’ declarations attempting to show a practice of requiring employees to purchase Wet Seal clothing as a uniform only reinforced the Court’s conclusion that liability would have to be decided on an individualized basis.

California Computer Software Employee Overtime Exemption Rate to Increase 2.6% on January 1

The California Department of Industrial Relations (DIR) released its 2013 hourly rate and minimum salary requirement adjustment for exempt computer software employees. Beginning January 1, 2013, the minimum hourly rate of pay will increase to $39.90 to qualify for exemption, the minimum monthly salary will increase to $6,927.75, and the annual minimum salary will increase to $83,132.93. The 2.6 percent increase is based upon the California Consumer Price Index for Urban Wage Earners and Clerical Workers pursuant to California Labor Code § 515.5(a)(4).

In addition to the salary requirements, computer software employees must meet the remaining criteria set forth under Labor Code § 515.5 in order to be exempted from state overtime requirements.

See’s Candy Shops, Inc. v. Superior Court: California Appellate Court Confirms Application of Federal Rounding Standards in California

Many employers systematically round employee time punches to the nearest tenth of an hour. For example, if an employee clocks in at 9:58 a.m., the time is rounded up to 10:00 a.m.; and likewise if she clocks in at 10:02 a.m., her time is rounded down to 10:00 a.m. Under federal law, rounding policies are lawful if they are neutrally applied and do not systematically under compensate employees. While this standard was approved by the California Division of Labor Standards and Enforcement, until recently, no California court or statute specifically addressed the issue.

However, on October 29, 2012, the California Court of Appeal for the Fourth Appellate District in See’s Candy Shops, Inc. v. Superior Court confirmed that the neutral rounding standard adopted by federal law and the Department of Labor Standards and Enforcement is appropriate under California law. Thus, under See’s Candy, California employers may maintain lawful rounding policies if the rounding does not consistently result in a failure to pay employees for time worked. An example of a potentially unlawful rounding policy is one in which the employer always rounds time down.

Also of note, in approving the federal rounding standard, the See’s Candy opinion rejected the plaintiff’s reliance on California Labor Code section 204. Specifically, the court emphasized that Section 204 is solely a timing requirement as to when wages must be paid, and does not create any substantive right to wages.

You can read the decision here.

California Court of Appeal: Employer Cannot Compel Arbitration Unless There Is A Signed Arbitration Agreement

Chairs Around a Table

Since the United States Supreme Court’s decision in AT&T Mobility v. Concepcion, more and more employers have sought to get out of court and into arbitration when dealing with employee disputes. The California Courts of Appeal, however, are not making that easy when it comes to an employer’s burden to show the existence of a valid agreement to arbitrate. Several months ago, the Second Appellate District held in Sparks v. Vista Del Mar Child and Family Services that an arbitration policy in an employee handbook was not enough to force arbitration. Similar decisions have reached the same conclusion, e.g., Carey v. 24 Hour Fitness USA, Inc., (5th Cir. Jan. 25, 2012). READ MORE

Governor Brown Signs Amendments to California Labor Code

Gavel and Hundred-Dollar Bill

On Sunday, September 30, Governor Jerry Brown signed Assembly Bill 2674, Assembly Bill 1744, and Senate Bill 1255 into law, thereby amending California Labor Code sections 226, 1198.5, and 2810.5, and adding section 226.1 to the Labor Code. The changes go into effect on January 1, 2013. READ MORE

California Court of Appeal Reads Employment Agreement in Conjunction with a Sale of Business Transaction Yet Refuses to Apply “Sale of Business” Exception to its Non-Compete Clause

People at a Table

On August 24, 2012, a California Court of Appeal clarified when an employment agreement can satisfy the “sale of business” exception to California’s general ban on post-employment non-compete provisions. The Court held that when a stock purchase agreement’s non-compete clause already adequately protects the goodwill of the sold business, any inconsistent and additional non-compete protection in a related employment agreement with the purchasing company may not be enforceable. The holding signals that an employment agreement’s non-compete covenant does not automatically qualify for the “sale of business” exception  simply because it is part of the same transaction as a stock purchase agreement. READ MORE

California Court Finds Arbitration Agreement In Employee Handbook Unenforceable

People at a Table

In a July 30, 2012 decision the Second Appellate District of the Court of Appeal ruled that an employee was not bound by the arbitration clause in his employee handbook for a slew of reasons:

  • the clause itself was buried (or as the Court said “not specifically highlighted”) in a lengthy handbook and was not called to the employee’s attention;
  • the employee did not specifically acknowledge the clause or agree to arbitrate, but merely signed an acknowledgment of receipt of the handbook itself;
  • the handbook contained a (relatively) standard clause that it was not intended to create a contract but, the employer also “had it both ways” and retained the rights to unilaterally amend the handbook’s provisions;
  • the employer failed to provide the employee with the specific arbitration rules; and
  • the clause itself was found unconscionable:  procedurally, because the employer did not distribute the rules governing the arbitration to employees and because the issue of arbitration was not negotiable and, substantively, because it required the employee to relinquish administrative and judicial rights and made no express provision for discovery rights.

While this decision points out the pitfalls of this particular factual scenario, it also highlights some nuances.  As courts reinvigorate their scrutiny of arbitration clauses and agreements, due to what this Court called “the increasing phenomenon of depriving employees of the right to a judicial forum,” employers may want to revisit and revise their handbook language.

California Court of Appeal Enforces Arbitration

A California Court of Appeal recently required a plaintiff to forego class and representative action claims in Nelsen v. Legacy Partners Residential, Inc., No. A132927 (Cal. App. July 18, 2012) finding that she failed to show the employer’s arbitration agreement was unconscionable or that compelling individual arbitration would violate state or federal law or public policy. Knocking down the attempt to keep class and representative claims alive in either a judicial or arbitration proceeding, the First Appellate District held that all of the plaintiff’s California Labor Code claims, as well her claim for injunctive relief, had to be arbitrated on an individual basis. READ MORE

Menes v. Roche

Gavel and Hundred-Dollar Bill

In a victory for pharmaceutical companies, the Ninth Circuit Court of Appeals recently held that plaintiff-appellant pharmaceutical sales representatives (“reps”) were exempt from California law’s overtime requirements. See Menes v. Roche Laboratories, Inc., No.  08-55286 (9th Cir. July 23, 2012) (unpublished) (consolidated with D’Este v. Bayer Corp. and Barnick v. Wyeth).

The Ninth Circuit decision is on the heels of the U.S. Supreme Court’s similar holding that reps are exempt from federal law overtime requirements. Back in June 2012, the U.S. Supreme Court in Christopher v. SmithKline Beecham Corp., No. 11-204 (U.S. June 18, 2012) held that reps were exempt from overtime under the Fair Labor Standards Act’s outside sales exemption. The Supreme Court found reps were exempt as outside salespersons despite laws that prohibit reps from selling pharmaceuticals directly to patients or physicians based on a “common sense” approach to the exemption. It was also a significant victory for employers because the Department of Labor attempted to use amicus briefs to argue that courts must defer to its interpretation of the law—the Supreme Court rejected this practice. See Orrick’s Blog Post about Christopher here.

Unlike Christopher and unlike the district court below, the Ninth Circuit in Menes did not reach the issue of whether reps were exempt under California’s outside sales exemption. Rather the Ninth Circuit held that reps were exempt under California’s administrative exemption, a different exemption, which generally provides that individuals who spend more than 50 percent of their time performing non-manual work directly related to the management policies or general business operations of his employer or customers are exempt.

Orrick represents Roche Laboratories, Inc. Read Law360’s coverage of this case here.

Harris v. Superior Court, No. B195121 (Cal. App. July 23, 2012)

Is it “here we go again” for Harris? In the latest round of the donnybrook that is the administrative exemption in California, a California Court of Appeal in Harris v. Super. Ct., No. B195121 (Cal. App. July 23, 2012), held that the plaintiffs, insurance claims adjusters, were—as a matter of law—not exempt from California’s overtime laws under California’s administrative exemption. After a trial court certified a partial class of California claims adjusters, but denied plaintiffs’ motion for summary judgment, the parties appealed the decision all the way to the California Supreme Court. READ MORE