Employment Law

California Appellate Court Sides With Plaintiff in PAGA Suit

Why it matters

A plaintiff seeking civil penalties under the Private Attorneys General Act (PAGA) for a violation of the Labor Code is not required to satisfy the “injury” and “knowing and intentional” requirements of the statute, a California appellate panel has concluded. Eduardo Lopez alleged Friant & Associates violated California Labor Code Section 226(a)(7) by failing to include the last four digits of employees’ Social Security numbers on their itemized wage statements. Friant moved for summary judgment, arguing that the plaintiff failed to show that he suffered any injury resulting from a knowing and intentional violation of Section 226, as required by Section 226(e). The trial court agreed, noting that Friant’s accounting manager testified that she was unaware that the digits were not on the paychecks. But the appellate panel reversed. Consistent with the PAGA statutory framework and the plain language and legislative history of Section 226, a plaintiff seeking civil penalties for a violation of Section 226(a) does not have to satisfy the “injury” and “knowing and intentional” requirements of Section 226(e)(1), the court held.

Detailed discussion

In 2015, Eduardo Lopez filed a single-count complaint under the California Private Attorneys General Act (PAGA) in California state court asserting that his employer, Friant & Associates LLC, failed to include the last four digits of its employees’ Social Security numbers or employee identification numbers on itemized wage statements, in violation of California Labor Code Section 226(a)(7).

The parties stipulated that Friant issued 5,776 itemized wage statements to the plaintiff and other employees that failed to include the required information.

Friant responded with a motion for summary judgment. The employer argued that Lopez did not suffer any injury resulting from a “knowing and intentional” violation of Section 226, as required by Section 226(e), as evidenced by testimony from the company’s accounting manager that she was not aware that the last four digits were not included on employees’ pay stubs.

A trial court agreed, granting the motion in favor of the employer. Lopez appealed, and an appellate panel reversed.

The appellate court explained that under PAGA, a worker is empowered to file a representative action on behalf of him/herself and other current and former employees to recover civil penalties for violations of the Labor Code that otherwise would be assessed and collected by the Labor and Workforce Development Agency. For those provisions of the Labor Code for which a civil penalty is not specific, PAGA creates a default civil penalty.

Lopez premised his PAGA claim on Friant’s alleged noncompliance with Section 226(a)(7). Section 226(e) provides that employees who “suffer[] injury as a result of a knowing and intentional failure by an employer to comply with subdivision (a)” are entitled to either actual damages or an increasing per-pay-period penalty beginning at $50 for the first offense.

The defendant’s argument that Section 226(e) requires the plaintiff to demonstrate both an “injury” and a “knowing and intentional” violation of Section 226(a) to succeed on his PAGA claim “oversimplifies” statutory interpretation and “ignores how a PAGA claim differs from an employee’s individual or class claim for damages or statutory penalties,” the panel wrote.

Section 226(e) states that employees are entitled to recover “actual damages” or a “penalty,” not a “civil penalty,” the court explained. “Because the penalty in section 226(e) is not called a ‘civil penalty,’ it is a statutory penalty. Thus, under the plain language of the statute, the prerequisite that an employee suffer injury as a result of a knowing and intentional failure by an employer to comply with section 226(a) applies to an action for statutory damages under section 226(e)(1).”

Legislative history further reinforced the conclusion that Section 226(e) authorizes a private right of action for statutory damages recoverable by an individual plaintiff rather than a civil penalty for the benefit of the public, the panel said. In 1979, lawmakers created a separate civil penalty recoverable for violations of itemized wage statement requirements, adding to the existing statutory damages, established in 1976, that were available to individuals.

Applying this interpretation of Section 226(e) to Lopez’s PAGA claim, the panel held that his complaint sought only PAGA civil penalties. “Because section 226(e)(1) sets forth the elements of a private cause of action for damages and statutory penalties, its requirement that a plaintiff demonstrate ‘injury’ resulting from a ‘knowing and intentional’ violation of section 226(a) is not applicable to a PAGA claim for recovery of civil penalties,” the court wrote.

The panel further explained that its interpretation was bolstered by “the fact PAGA expressly recognizes a claim for violation of section 226(a), but does not mention 226(e),” the court said. “Thus, by its plain language, PAGA allows a claim for violation of section 226(a) without any reference to subdivision (e).”

Decisions from federal courts have made similar determinations, the court added, and “Friant has not pointed us to a single state or federal case holding that section 226(e)’s ‘injury’ or ‘knowing and intentional’ requirements apply to a PAGA claim for violation of section 226(a).”

“Consistent with the PAGA statutory framework and the plain language and legislative history of section 226(e), we hold a plaintiff seeking civil penalties under PAGA for a violation of section 226(A) does not have to satisfy the ‘injury’ and ‘knowing and intentional’ requirements of section 226(e)(1),” the panel wrote.

To read the opinion in Lopez v. Friant & Associates, LLC, click here.

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Supreme Court Hears Oral Argument on Class Action Waivers

Why it matters

The Supreme Court heard oral argument in a case that will decide the validity of class or collective action waivers in arbitration agreements and appeared—to no one’s surprise—split on the issue. The consolidated oral argument in a trio of cases from the U.S. Court of Appeals for the Fifth, Seventh and Ninth Circuits (the first of the Court’s 2017–2018 term) focused on the intersection of the National Labor Relations Act (NLRA) and the Federal Arbitration Act (FAA). While some members of the Court—such as Justices Stephen Breyer and Ruth Bader Ginsburg, who told counsel for the employers, “You recognize that this contract … there is no true bargaining”)—appeared to believe that such arbitration agreements are irreconcilable with the NLRA, Chief Justice John Roberts and Justice Samuel Alito seemed to adopt the opposite position. No questions were asked by Justices Clarence Thomas and Neil Gorsuch, leaving Justice Anthony Kennedy as the likely swing vote in the closely watched case. A decision is expected from the Court later this term.

Detailed discussion

The dispute first began in 2012, when a divided panel of the National Labor Relations Board (NLRB) ruled in D.R. Horton that an employment agreement waiving class or collective actions violated the National Labor Relations Act (NLRA). Although the U.S. Court of Appeals, Fifth Circuit reversed the decision in 2013, the NLRB was undeterred and maintained its position.

A split then developed among the federal appellate courts. Faced with the question for a second time in Murphy Oil, the Fifth Circuit stood fast and again rejected the NLRB’s argument. “Murphy Oil committed no unfair labor practice by requiring employees to relinquish their right to pursue class or collective claims in all forums by signing the arbitration agreements at issue here,” the panel wrote. Similar holdings followed from the Second and Eighth Circuits.

But other courts agreed with the NLRB, including the Seventh and Ninth Circuits in Epic Systems v. Lewis and Morris v. Ernst & Young, respectively. In Morris, for example, the Ninth Circuit noted that the NLRB is tasked with defining the scope of NLRA rights, attaching deference to the NLRB’s interpretation of the statute.

“Section 7 protects a range of concerted employee activity, including the right to ‘seek to improve working conditions through resort to administrative and judicial forums,” the court stated. “Concerted action is the basic tenet of federal labor policy, and has formed the core of every significant federal labor statute leading up to the NLRA.”

Given the division among the courts, both sides asked the Supreme Court to weigh in on the issue.

The justices agreed, granting certiorari and consolidating Murphy Oil, Morris and Lewis, and allotting one hour for oral argument on the question of “[w]hether an agreement that requires an employer and an employee to resolve employment-related disputes through individual arbitration, and waive class and collective proceedings, is enforceable under the Federal Arbitration Act, notwithstanding the provisions of the National Labor Relations Act.”

At oral argument, the philosophically divided justices appeared just that—divided. On one end of the spectrum, Justice Stephen Breyer disagreed that the case was about arbitration, instead suggesting it was really about labor law. “I’m worried about what you are saying is overturning labor law that goes back to … the entire heart of the New Deal,” he told counsel for the employers.

Justice Ruth Bader Ginsburg seemed to be on the same page, characterizing employee agreements with class action waivers as “yellow dog contracts.” “You recognize that this contract … there is no true bargaining,” she said. “It’s the employer [that] says you want to work here, you sign this … That is, there is no true liberty to contract on the part of the employee, and that’s what Norris-LaGuardia wanted to exclude.”

Justices Elena Kagan and Sonia Sotomayor gave the impression of leaning in favor of employees in their comments and questions, while Justices Clarence Thomas and Neil Gorsuch—contrary to his prior chatty oral argument appearances—remained silent.

Sparking hope for employers, Chief Justice John Roberts and Justice Samuel Alito seemed skeptical of the NLRB’s position, with Justice Alito asking questions regarding “the scope” of the right to engage in concerted activity.

In an interesting line of questioning, likely swing vote Justice Anthony Kennedy suggested that as long as other types of concerted activity are still permitted, an arbitration agreement could lawfully ban class or collective actions.

For example, if three employees all hired the same lawyer to represent them against an employer, “they’re proceeding concertedly,” Justice Kennedy said. “They have a single attorney. They’re presenting their case. They’re going to be decided maybe in three different hearings.”

To view the transcript of the oral argument, click here.

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DOJ Reverses Stance on Transgender Rights

Why it matters

Attorney General Jeff Sessions released a memorandum officially reversing the prior position of the Department of Justice (DOJ) in its application of Title VII’s protections to claims of discrimination based on an individual’s gender identity. In 2014, then-Attorney General Eric Holder published a memo clarifying that Title VII’s protections against discrimination include gender identity such as transgender status, aligning the DOJ with the Equal Employment Opportunity Commission (EEOC). Sessions withdrew the 2014 memo and replaced it with a new position. “Title VII’s prohibition on sex discrimination encompasses discrimination between men and women but does not encompass discrimination based on gender identity per se, including transgender status,” Sessions wrote to all the U.S. Attorneys. Going forward, the DOJ will adopt this position except in cases where lower-court controlling precedent dictates otherwise; in those cases, the issue will be preserved for potential review, Sessions said. Given the EEOC’s contrary position on Title VII, the DOJ’s reversal leaves employers with some serious uncertainty.

Detailed discussion

Attorney General Jeff Sessions is taking the Department of Justice (DOJ) in a different direction with a new memorandum titled “Revised Treatment of Transgender Employment Discrimination Claims Under Title VII of the Civil Rights Act of 1964.”

Sessions revoked a 2014 memorandum published by prior Attorney General Eric Holder that brought the DOJ in line with the Equal Employment Opportunity Commission, recognizing that Title VII’s prohibition on discrimination against individuals “because of such … individual’s sex” includes gender identity such as transgender status.

While noting that nothing in his memo “should be construed to condone mistreatment on the basis of gender identity,” Sessions said Title VII does not refer to gender identity and “sex” is ordinarily defined to mean biologically male or female.

“Although Title VII bars ‘sex stereotypes’ insofar as that particular sort of ‘sex-based consideration[]’ causes ‘disparate treatment of men and women,’ Title VII is not properly construed to proscribe employment practices (such as sex-specific bathrooms) that take account of the sex of employees but do not impose different burdens on similarly situated members of each sex,” he wrote.

Congress has confirmed this interpretation by expressly prohibiting “gender identity” discrimination in several other statutes, Sessions said, listing it in addition to—rather than within—prohibitions on discrimination based on “sex” and “gender.”

“Accordingly, Title VII’s prohibition on sex discrimination encompasses discrimination between men and women but does not encompass discrimination based on gender identity per se, including transgender status,” Sessions wrote. “This is a conclusion of law, not policy.”

This position will be adopted by the DOJ in all pending and future matters as of the Oct. 4, 2017, date of the memorandum, Sessions stated, with the exception of jurisdictions where “controlling lower-court precedent dictates otherwise, in which event the issue should be preserved for potential further review.”

Other laws—the Violence Against Women Reauthorization Act and the Matthew Shepard and James Byrd, Jr., Hate Crimes Prevention Act—ban gender identity discrimination along with other types of discrimination in certain contexts, Sessions explained. “The Department of Justice has vigorously enforced such laws, and will continue to do so, on behalf of all Americans, including transgender Americans.”

To read the Attorney General’s memo, click here.

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Employer’s Actions Get FLSA Releases Invalidated by California Court

Why it matters

Offering a cautionary tale for employers, a California federal court invalidated releases signed by potential members of a Fair Labor Standards Act (FLSA) collective action after the employer attempted to settle with plaintiffs outside the litigation. A group of mortuary drivers brought the action, asserting they were misclassified as independent contractors and were owed additional wages. The drivers filed a motion for conditional certification. A few weeks into the opt-in period, the employer sent letters with a “Settlement and Release Agreement” to drivers and held a meeting with current workers where participation in the suit was discouraged. By the end of the opt-in period, every driver currently working for the employer had signed the release and elected not to participate in the litigation, while the majority of former drivers opted in. The class moved to invalidate the releases. Granting the motion, the court found that the employer engaged in ex parte communications, discouraged drivers from participating in the lawsuit, and provided the drivers with a misleading and inaccurate release. For employers, the order provides a good road map regarding what not to do when rolling out releases in the context of collective and class actions.

Detailed discussion

Mortuary drivers for Serenity Transportation filed suit against the company, claiming they were misclassified as independent contractors in violation of the Fair Labor Standards Act (FLSA). In April 2016, U.S. Magistrate Judge Jacqueline Scott Corley granted conditional certification.

Notice was issued to 74 putative class members, who had until July 30 to opt in to the collective action. Approximately 30 days into the opt-in period, Serenity began contacting putative class members in an attempt to secure their exclusion from the litigation.

The company sent a four-page letter to current and former drivers asserting that Serenity complied with all state and federal wage and hour laws and referenced the case against it, describing the litigation process as an “uncertain process for all those involved.” The letter stated that given this uncertainty, the company had decided to offer “fair and reasonable” settlements.

Current Serenity drivers also testified that the company’s chief operating officer (COO) discouraged drivers from participating in the lawsuit, warning them at a meeting that if they participated, he would take the drivers off the rotation and terminate their contract because “participation in the lawsuit would be a conflict of interest.” And one current driver testified that the COO continually pestered him about signing the settlement release.

At the end of the opt-in period, every Serenity driver who was still working for the company had signed a release and did not opt in to the lawsuit. The releases included settlement payments ranging from $1 to $220, with most being less than $60. Alternatively, 28 of 55 of former Serenity drivers opted in to the suit, with the majority of those electing to join the case before receiving the letter and release.

The plaintiffs filed a motion asking the court to invalidate the releases and order a curative notice to be provided to potential class members.

Siding with the plaintiffs, Judge Corley granted the motion. The discrepancy between the opt-in rate of current drivers (zero) and that of former drivers (more than half) was “reasonably explained by [the COO’s] threat via his ‘conflict of interest’ comment … to fire current drivers,” she wrote. “Similarly, that every single current driver signed the Release for nominal sums, as low as $1, is also consistent with [the COO] having discouraged driver participation in the lawsuit.”

The COO did not deny that he told drivers they would have a conflict of interest, but responded that he “never threatened anybody during that meeting or at any other time that they would lose their job, be retaliated against, or suffer any other form of discipline as a result of joining the lawsuit.” The court disagreed, as “telling your drivers that they have a conflict of interest if they join the lawsuit is an implicit threat that will discourage participation.”

Judge Corley was similarly not persuaded by the defendant’s argument that only a few drivers submitted declarations in support of the plaintiffs’ motion.

“To accept Serenity’s argument would reward employers for engaging in such conduct since the more successful they are at discouraging drivers from participating the more likely they are to prevent any judicial curative action,” the court held. “Because the Court finds that Serenity actively discouraged its current drivers from participating in this lawsuit, their releases must be invalidated and curative notice issued.”

The court also invalidated the releases signed by former drivers, finding that Serenity’s written communications were problematic. The release and letter failed to inform drivers that the settlement of FLSA claims required court approval, incorrectly stated on whose behalf the claims in the litigation were brought (excluding several years of drivers), and improperly suggested that by signing the release, the driver was precluded from participating as a witness in the litigation.

Further, the defendant failed to provide the relevant complaint to the drivers when it sent the release and suggested in the letter that drivers could contact the defense counsel, even though the employer’s lawyers could not ethically advise a driver on whether to sign the release.

“These misstatements and omissions require invalidating the Release as to all drivers and sending curative notice to all drivers notifying them that their releases are invalid and reinstating the FLSA opt in period for a period of 60 days from the sending of a new notice,” the court said.

Judge Corley declined to take the “drastic remedy” of prohibiting Serenity from communicating with the drivers about the litigation until the resolution of the lawsuit, but did order the defendant to refrain from any contact with the drivers about the lawsuit during the renewed opt-in period.

To read the order in Johnson v. Serenity Transportation, Inc., click here.

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