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In Aleksick v. 7-Eleven, Plaintiff Aleksick represented a class claiming that 7-Eleven's payroll system violated California Business and Professional Code 17200. The complaint alleged that 7-Eleven's method of converting partial hour worked from minutes to hundredths of an hour sometimes docked employees of few seconds of time, and therefore shorted them commensurate pay. The trial court had granted 7-Eleven's summary judgment motion. The California Court of Appeal, Fourth Appellate District, Division One, affirmed.

First, the Court held, raising a 17200 claim based on "unlawful" conduct required Aleksick to point to a particular statute that 7-Eleven had violated, since "section 17200 'borrows' violations of other laws and treats them as unlawful practices." Although Aleksick cited to various Labor Code sections in her appellate papers, she had not cited to any in her complaint. The Court ruled that Aleksick should have sought leave to amend to allege such violation, but did not do so, and therefore she had forfeited her argument under the Labor Code wage statutes.

Second, even if her complaint had alleged violation of the Labor Code wage statutes, the Court still would have found against her because the Labor Code governs "the employer-employee relationship, and undisputed evidence shows 7-Eleven was not the class members' employer." Aleksick's employer was the franchisee who operated a 7-Eleven franchise. 7-Eleven was the franchisor. Aleksick conceded that 7-Eleven was not her employer. The Court held that 7-Eleven's provision of payroll services to its franchisees did not change this relationship or render 7-Eleven liable under the Labor Code.

Third, Aleksick failed to establish "unfair" conduct on the part of 7-Eleven under section 17200. Where an "unfair" act is predicated on public policy, the Court explained, "the public policy which is a predicate to the action must be 'tethered' to specific constitutional, statutory, or regulatory provisions." Aleksick argued that 7-Eleven's payroll practices are "tethered" to the public policy in favor of full payment to employees of all hours worked, as codified in the Labor Code. However, because 7-Eleven was not the employer, these statutes did not apply to it.

Comment:
The narrow basis of this ruling is simply that 7-Eleven was not the employer, and therefore a 17200 claim based on violation of Labor Code statutes could not apply to it. It is important to note that the Court of Appeal explicitly did not rule on the issue of whether an employer could be liable under the Labor Code wage statutes and section 17200 for using the payroll practices that 7-Eleven uses. (See Opinion, at 22, fn. 6.) Thus, this ruling provides no guidance to employers as to whether the practice of converting partial hours worked from minutes to hundredths of an hour is permissible. As the Court recounts, the trial court had determined that the amounts docked were too minimal to be a sufficient basis for a 17200 claim -- however, the Court of Appeal did not affirm this part of the trial court's ruling.

Originally posted at Barger & Wolen's Employment Law Observer blog.

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As reported in The Recorder, (subscription required) the National Labor Relations Board has filed a formal complaint against 24 Hour Fitness, alleging the gym company's arbitration opt-out policy compels employees to waive their rights to utilize the civil litigation system, and in particular, class actions.

According to The Recorder, 24 Hour Fitness requires employees to opt out of the mandatory arbitration agreement within 30 days of receiving the employee handbook. Opting out requires the employee to request a form and then mail it in.

The NLRB alleges this policy is coercive and constitutes a violation of the protections guaranteed by the National Labor Relations Act.

The NLRB has previously found that mandatory arbitration clauses violate federal labor law -- a decision now on appeal. See D.R. Horton Inc., 374 NLRB No. 184 (the employer, a home building company, violated Section 8(a)(1) of the Act by maintaining, as a condition of employment, a mandatory arbitration agreement that did not allow its employees to file joint, class, or collective employment-related claims in any forum, arbitral or judicial.)

Arbitration has a long history. Sir Edward Coke’s report in Vynior’s Case (1609) was the first published decision about arbitration in our jurisprudence, but in fact it is older than English common law itself. Indeed, Romans and even the ancient Egyptians utilized it.

For many years in the early history of our country, the American judiciary viewed this method of dispute resolution with hostility. But that ended with the passage of the Federal Arbitration Act in 1925 (“FAA”), when Congress announced a complete reversal of the governmental attitude towards arbitration, signaling a rejection of “generalized attacks on arbitration” that “res[t] on suspicion of arbitration as a method of weakening the protections afforded in the substantive law to would-be complainants.” Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 30 (1991).

Thus, the FAA established a governmental policy favoring arbitration and requiring the rigorous enforcement of agreements to arbitrate, preempting contrary state law.

The seasaw is now moving in the other direction, with Federal authorities viewing arbitration agreements as a hindrance to the rights of employees to form classes and utilize the court system.

Barger & Wolen will continue to follow developments in this area.

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In Kirby v. Immoos Fire Protection, Inc., the California Supreme Court held that neither California Labor Code section 1194 nor section 218.5 authorize the payment of attorney fees in an action seeking recovery for denial of required rest breaks under section 226.7.

Section 1194 authorizes recovery of attorney fees by a prevailing employee on a claim for unpaid minimum or overtime wages. It provides for one-way fee-shifting to plaintiffs.

Section 218.5, by contrast, provides for attorney fees to be paid to the prevailing party in any action brought for the nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions. It is thus a two-way fee-shifting statute. However, it is also limited, since it does not apply to any action for which attorney’s fees are recoverable under section 1194.

Section 226.7 imposes an obligation upon employers to provide mandated meal and rest breaks.

Plaintiffs, employees of Defendant (“IFP”), sued the employer for nonpayment of mandated rest breaks, but subsequently dismissed this claim. IFP sought roughly $50,000 of attorney fees for successfully defending this claim.

The first question the Supreme Court had to address was whether attorney fees would have been recoverable under 1194. The Supreme Court found that fees would not have been recoverable under 1194, since rest breaks do not constitute a type of “minimum wage,” as Plaintiffs had argued.

The second question was whether, in that case, attorney fees were recoverable under the two-way fee-shifting of section 218.5. Here, it was IFP that argued that non-payment of rest breaks constituted a “wage,” and therefore qualified under section 218.5. Again, the Supreme Court disagreed. Rest breaks do not constitute wages of any kind.

Thus, the Court held, attorney fees were not recoverable in actions seeking mandated rest breaks under section 226.7.

What makes this case interesting (and a little ironic) from a procedural standpoint is that it was the defendant employer seeking the attorney fees, and the employee plaintiffs who resisted. Thus, in losing their claim for attorney fees, the employer ended by establishing law generally advantageous to employers. And in winning this battle over the payment of roughly $50,000 in fees, the employees essentially nullified the ability of future plaintiffs to seek attorney fees in actions based on the denial of required rest breaks.

Originally posted on Barger & Wolen's Employment Law Observer blog.

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On October 3, 2011, the California Supreme Court heard argument in Francis Harris et al v. Superior Court, Case No. S156555. The issue here is whether insurance adjusters should be eligible for overtime pay under California’s wage and hour laws. 

In 2007, the California Court of Appeal, Second District, Division One, ruled that insurance adjusters who sued Golden Eagle and Liberty Mutual were nonexempt from California’s overtime laws. The insurers had argued that the adjustors were subject to the “administrative exemption” to California’s overtime rules, which provides that persons employed in “administrative, executive, or professional capacities” are exempt from overtime.

In a 2-1 ruling, the Court of Appeal disagreed. 

Justice Rothschild wrote the opinion of the Court, pursuing a lengthy and complicated analysis of California and federal law to reach the conclusion that adjustors were not exempt. 

Noting that California law requires that exempt administrative employees be “primarily engaged in office or non-manual work” that is “directly related to management policies or general business operations,” the Court concluded that this requirement was only satisfied if such work relates to the administrative operations of a business as distinguished from production or, in retail services, sales work. 

Applying this “administrative/production worker dichotomy,” the Court held, adjustors were not subject to the administrative exemption, since their work involved the daily carrying out of the insurance business’ affairs, and had no effect on the policies adopted by the Company or general business operations.

Justice Vogel dissented, wryly noting that “[t]he majority’s analysis is complex. Mine is not.” 

Noting that federal regulations, which are incorporated into California’s regulations by reference, specifically note that claims adjustors constitute administrative employees, Justice Vogel would have rejected the “administrative/production” dichotomy as a test. Instead, she pointed to applicable federal regulations, which specifically provide that work performed by employees who advise, plan, negotiate, and represent management are administrative employees. 

Watch this space. We’ll keep you posted on developments as they occur.

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The much-touted and recently signed Financial Reform Bill includes a provision that prevents the public from obtaining any documents relating to SEC investigations (past or present, open or closed) pursuant to the Freedom of Information Act. 

As discussed in an article by Barger & Wolen partner Michael A.S. Newman in the Los Angeles and San Francisco Daily Journals, the law flies in the face of well-established notions in this country that the workings of the government must remain visible to the general public. 

Click here to read the full article (pdf).

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In an article appearing in today's Los Angeles and San Francisco Daily Journals (pdf), I discuss H.R. 4115, which, if passed, will overturn the Supreme Court's recent rulings in Bell Atlantic Corporation v. Twombly and Ashcroft v. Iqbal. Twombly and Iqbal held that a complaint filed in federal court could be dismissed if it does not contain sufficient factual matter to state a claim for relief that is plausible on its face.  

H.R. 4115 (called "The Open Access To Courts Act of 2009"), by contrast, would prohibit a federal district judge from dismissing a complaint unless it appears

beyond doubt that plaintiff can prove no set of facts in support of their claim which would entitle plaintiff to relief.

A judge would also be prohibited from dismissing a complaint based on the determination that the factual contents of the complaint do not show their claim to be plausible or do not warrant a reasonable inference that the defendant is laible for the misconduct alleged.  

The exact effect of this legislation is unclear, but, if passed, it is certain to invite the argument from plaintiff's lawyers that all they need to do to get a complaint past the pleading stage is to include as few facts as possible. Vagueness may become the order of the day, and it will certainly become more difficult to dismiss a case under Federal Rules of Civil Procedure Rule 12.  

This law may mean that we will soon see complaints in federal court containing fewer and vaguer allegations. For the insurance industry, this may mean rethinking the generally accepted practice of invariably removing state court actions to federal court on diversity grounds. If a motion to dismiss is being contemplated, it may see more success as a state court demurrer. 

Please feel free to contact me directly for more information.

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