California Workplace Law Blog : California Employment Law Attorney & Lawyer: Jackson Lewis

A new case presents a mixed bag of results for California employers. As a general matter, California employers should be careful when classifying individuals as independent contractors, rather than employees. Reversing the denial of class certification in an action for various Labor Code violations, a California Court of Appeal held that whether newspaper delivery carriers were independent contractors or employees of the newspaper was amenable to class action treatment through common proof. Ayala v. Antelope Valley Newspapers, Inc., No. B235484 (Cal. Ct. App. Oct. 17, 2012). However, the Court affirmed the denial of class certification on the carriers’ claims for unpaid overtime and meal and rest period violations because such claims would require individual factual assessments.

This case provides employers with guidance regarding defending against wage hour class actions. Significantly, the appellate court held certain issues, such as payment of overtime or provision of meal or rest periods, are highly individualized since they depend on how many hours per day and week individuals work. The Court indicated such inquiries may render class certification inappropriate. Where the Court is being asked to examine the nature of a particular job and the employer’s control, the Court noted such issues may lend themselves to class treatment. There are many more issues in this case and employers should also be weary that the case could be appealed by either or both parties.

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               Another California Court of Appeal provides employers with a victory with respect to the enforcement of arbitration agreements. Affirming an order compelling arbitration in a class action for California Labor Code violations, a California Court of Appeal ruled that the employee was required to arbitrate her individual wage and hour claims against her employer because the parties’ arbitration agreement was neither unconscionable, nor in violation of public policy. Nelsen v. Legacy Partners Residential, Inc., No. A132927 (Cal. Ct. App. Jul. 18, 2012).   Significantly, the Court rejected the employee's reliance on D.R. Horton, Inc., 357 NLRB No. 184 (2012) in which the National Labor Relations Board (“NLRB”) ruled that class action waivers in employment arbitration agreements violated the National Labor Relations Act (“NLRA). The Court noted it was not inclined to follow the NLRB decision, as it was not binding and went beyond the scope of the NLRB’s expertise. 

The Court’s decision provides employers with several positive developments, including the enforcement of an arbitration agreement and the Court’s well-reasoned critique of D.R. Horton.  Nevertheless, employers should be aware that arbitration agreements, including those with class action waivers, remain subject to challenge in California and in other forums, including before the NLRB.  At present, the NLRB appears committed to enforcing D.R. Horton and striking down class action waivers in arbitration agreements under its jurisdiction. As a result, employers should consult with their legal counsel when reviewing the enforceability of arbitration agreements.

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Reversing a $15 million judgment against an employer in a class action for alleged unpaid overtime, the California Court of Appeal, First Appellate District, has held that the trial court’s trial management plan, which used sampling evidence to prove class liability, denied the employer due process by preventing it from defending against over 90% of class claims. Duran v. U.S. Bank Nat’l Ass’n, Nos. A125557 & A126827 (Cal. Ct. App. Feb. 6, 2012). The Court found the plan “was fatally flawed” and concluded the lower court’s adherence to it denied the employer due process. The Court reversed the judgment and ordered the class to be decertified.

This is the first decision to analyze thoroughly the employer’s due process rights in a class action. It provides employers and their counsel a guide to trial procedures that raise due process red flags and may be able to provide authority for employers (and courts) when developing trial management plans in class actions. However, the case does not necessarily preclude the use of statistical sampling or representative testimony as a way to try class action litigation. Duran’s significance may depend on its probable resolution by the California Supreme Court, and its interpretation by other California courts. For a detailed analysis of the case, please review, "Due Process Concerns Sinks Overtime Class Action against Employer, California Court Rules."

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