A recent decision by a California appellate court may increase the frustration level for retailers trying to implement effective flexible work scheduling plans. In Ward v. Tilly’s Inc., No. B280151, 2019 WL 421743 (Cal. Ct. App. Feb. 4, 2019 ), a majority of the court reversed a trial court’s decision and reinstated a class action filed against an Orange County retailer. The complaint alleges that the company’s employee call-in procedures violated provisions of a California Wage Order requiring reporting pay, by not paying employees who were required to call-in two hours before a previously-scheduled ‘on call’ shift. The dissenting judge strongly criticized the outcome, observing that it was nonsensical for California employers to face “tens of millions of dollars in liability” as a result of an erroneous interpretation of the language of the Wage Order.

The Company’s Practices and the Lawsuit

Like many retailers, Tilly’s uses on-call shifts to optimize scheduling. Tilly’s required its employees to call their stores two hours before the start of an on-call shift, to determine whether they would actually be needed to work the shift. If the employee was told not to come in, Tilly’s did not consider the employee to have “reported for work” within the meaning of the relevant California Wage Order.

Tilly’s was sued in a class action complaint alleging that its practices violated the Industrial Welfare Commission (“IWC”) Wage Order 7. The complaint alleged that Tilly’s was required by Wage Order 7 to pay reporting time pay to employees who utilized the company’s call-in procedure.

Tilly’s filed a demurrer to the complaint, arguing that Wage Order 7 did not apply to its call in policy because the only way an employee could “report for work” within the meaning of the Wage Order was by physically appearing at the store at the start of a shift. The trial court agreed, and dismissed the lawsuit.

The Appellate Court’s Decision

On appeal, Plaintiff argued that Wage Order 7 is triggered by any manner of reporting, whether in person, telephonic, or otherwise. The court’s majority accepted this position and concluded that Tilly’s employees were entitled to reporting pay if they were told not to come into work when they called in two hours before the shift.

Wage Order 7 does not define the phrase “report for work.” The court analyzed the phrase’s meaning in context, beginning with several dictionary definitions of the word “report.” The majority concluded that those definitions do not conclusively establish whether the phrase “report for work” requires the employee’s presence at a particular time and place, or whether it is satisfied by an employee “presenting” himself or herself in whatever manner the employer has directed, such as the telephone call-in required under Tilly’s system.

The court’s opinion gets more interesting when it gets to the legislative intent of Wage Order 7. Tilly’s argued for an originalist interpretation of the phrase, to reflect the understanding of the phrase at the time of the language’s adoption in the 1940s.  The majority acknowledged that, back in the day, the phrase would have been understood to require the employee’s physical presence at the work site. The majority cited statistics suggesting that telephones were not widely available to the public in the 1940s, in support of the conclusion that physical presence would have been the common understanding of the phrase. The court then observed that the advent of the cell phone and other technologies has altered the way in which employees communicate with their employer. The court concluded that, given the employee protection objectives of the California Wage Orders, it was appropriate to ask how the IWC would have addressed this question had it anticipated the realities of modern technology. In what some might call a presumptuous form of mind-reading, the court concluded that, had the IWC addressed the issue, it would have concluded Tilly’s alleged on-call system triggers the payment of reporting time pay.

The majority gave the following explanation for the policy supporting its interpretation of the phrase: “[O]n-call shifts burden employees, who cannot take other jobs, go to school, or make social plans during on-call shifts—but who nonetheless receive no compensation from [the employer] unless they ultimately are called in to work. This is precisely the kind of abuse that reporting time pay was designed to discourage.”

The Dissent

Justice Egerton dissented in a robust and colorful opinion. Her review of the legislative history of the Wage Order clearly reflected “the drafters’ intent that―to qualify for reporting time pay―a retail salesperson must physically appear at the workplace: the store.”Tilly’s at *15. Justice Egerton rejected the majority’s focus on cell phone technology. “But there has been no technological change pertinent to proper statutory interpretation in this case. Nothing turns on whether a cord or a cell tower connects the phone. The notion that phones were unfamiliar in the 1940s is ahistorical: spend some enjoyable time listening to Glenn Miller’s 1940 hit Pennsylvania 6-5000. (The Andrews Sisters’ rendition is delightful.)” Id. at *18.

Justice Egerton relied on a district court decision (Casas v. Victoria’s Secret Stores, LLC (No. CV 14-6412-GW) 2014 WL 12644922, at * 5 (C.D. Cal., Dec. 1, 2014), which held on-call shifts do not trigger reporting time pay under Wage Order 7 unless employees actually reported to work in the traditional sense of the term, rejecting contrary “interpretations that promote the Court’s view of good policy.’” Id.  While Justice Egerton acknowledged the hardships an on-call system may impose on employees, she reasoned employers do not have on-call systems just to “torture employees”  Id. at *18.

What this Means for California Employers

The majority’s decision in Ward endorses the view of advocates who oppose employer predictive scheduling initiatives and other flexible staffing strategies. While the decision may be reviewed by the California Supreme Court, California retailers should be aware that Ward may well represent the current view of California courts as to on-call scheduling practices. And, because other Wage Orders implemented by the IWC contain the same language regarding reporting pay, California employers in other industries should assume that advocates will seek to extend the rationale of Ward to their businesses.

 

@ Business Benefits Group

It’s 1974 and bell-bottom pants and platform shoes were in fashion…unfortunately. It was also the year that an odd federal law was passed that now governs $29 trillion in U.S. retirement plan assets. The law was ERISA or the Employee Retirement Income Security Act. And notwithstanding the word “retirement” in its title, it also covers all employer-sponsored health plans and most other employee benefit arrangements. The bell-bottoms and platform shoes may be gone but the growing impact of ERISA and explosion of class action litigation against employer plan sponsors in recent years is something that boards of directors, officers and other company executives should be concerned about – because under ERISA they may be personally on the hook for any plan breaches as fiduciaries – and often D&O insurance isn’t going to protect them.

The costs of ERISA litigation can be staggering. The 10 highest ERISA class action settlements in 2017 totaled nearly $1 billion. With courts increasingly siding with plaintiffs in these cases, there appears to be little hope that the trajectory of ERISA litigation will reverse. At the same time, plaintiffs are exploring new avenues of attack under employer sponsored health plans using the same ERISA fiduciary arguments developed over the last 45 years on the retirement side. It’s simply not enough that employers keep compliant with the Affordable Care Act and Internal Revenue Code (both of which have provisions embedded in ERISA amongst eight other federal laws including COBRA). They also need to focus on their fiduciary obligations under ERISA because that’s the focus of these class action lawsuits.

Historically, ERISA litigation has focused on the duties, responsibilities, and actions of retirement plan’s fiduciaries—typically, the board and company executives. Under ERISA, those fiduciaries are charged with one main objective: to act solely in the best interests of plan participants. Class action suits against companies have alleged that fiduciaries have violated that rule by, for example, making imprudent decisions regarding investment choices, or failing to manage plan documentation or monitor people hired to carry out plan duties.

In recent years, ERISA fiduciary litigation has increasingly focused on excessive plan fees and expenses. There has been an increase in class action litigation by plan participants who are basically saying that their employer’s 401(k) plan charged them too much—and the plan fiduciaries should have shopped around and found better deals. Those can be huge lawsuits. In some, the employer has ended up being on the hook for reimbursing retirement accounts for millions—sometimes hundreds of millions—of dollars.

Often, businesses will carry directors and officers (D&O) liability ERISA fiduciary insurance as a hedge against personal liability exposure. However, those policies might not be sufficient when it comes to ERISA fiduciary litigation. D&O policies may not cover ERISA-related liability at all, or there may be special provisions, such as requiring executives to get annual fiduciary training. Even if there is coverage, it might be woefully inadequate compared to the size of the plan or the risks involved.

Up Next: Health Plans Under ERISA

The United States spends approximately $3 trillion a year on health care, making the oversight of company health plans an attractive target for plaintiffs. Such plans have been covered by ERISA since it was passed, but over the course of four decades, there has been comparatively little litigation on that front. However, that has been changing with rapidly rising health care costs and the implementation of the Affordable Care Act. These factors prompted employers to collect cost-sharing premiums from employees or become self-insured, thus creating a new target for ERISA fiduciary breach actions.

The plaintiffs’ bar is now arguing that those employee premiums and other costs, such as co-pays, types of coverage, pharmacy rebates, should be considered protected ERISA plan assets, and that every decision a plan sponsor makes with respect to use of those plan assets is a fiduciary decision. Fiduciaries overseeing health plans have to be exceptionally careful to follow the same golden rule that they follow with retirement plans under ERISA, i.e., to ensure what they do is solely in the best interest of participants.

Looking ahead, fiduciaries’ decisions about monitoring costs and who they appoint and hire to administer health plans will be important drivers of ERISA litigation. The best protection for employers is to demonstrate that they have undertaken regular and in-depth compliance reviews of retirement and health plans. That means providing proof that the plan sponsor has reviewed plan documentation for compliance with applicable law, undertaken review of governance and delegation of authority structures, provided external fiduciary training, and demonstrated regular monitoring and benchmarking. In general, companies need to make sure that their fiduciaries perform due diligence and follow clear decision-making processes.

With the increasing emphasis on personal liability, companies also need to make sure that people in those roles are qualified to act as fiduciaries—a factor that may be getting more scrutiny. In September 2018, after losing a class action lawsuit against New York University over the handling of retirement funds, the plaintiffs turned around and sued for the removal of two fiduciaries on the retirement committee —an action based on the court’s ruling that noted that the two individuals lacked the capabilities needed to effectively oversee the plan.

Recent months have shown a dramatic increase in suits against retailers by cashiers seeking seats at work. The influx results from two California Court of Appeal decisions in late 2010 that permitted the plaintiff cashiers to pursue suits against their employers for not providing seating. Several suits filed since then come from cashiers seeking to require employers to provide them with seats at work. But a lawsuit filed in Los Angeles last Thursday shows that the issue does not just concern cashiers.

That suit, filed against Banana Republic and Gap, alleges that the clothing manufacturers should have provided employees in their retail stores with adequate seating accommodations. Like the cashier lawsuits, the complaint cites on California Labor Code section 1198 and Industrial Wage Commission ("IWC") Wage Order 7-2001. Labor Code section 1198 prohibits employers from violating IWC wage orders. Wage Order 7-2001 requires employers within the "mercantile" industry to provide employees with suitable seats if the nature of their work allows. Specifically, Section 14 of the Wage Order requires employers to provide suitable seats to all employees "when the nature of the work reasonably permits the use of seats" and, when the nature of the work requires standing, provide seats close to the work area for employees to use "when it does not interfere with the performance of their duties."

Wage Order 7-2001 broadly defines the mercantile industry to include "any industry, business, or establishment operated for the purpose of purchasing, selling, or distributing goods or commodities at wholesale or retail; or for the purpose of renting goods or commodities."

The cashier cases all contend that cashier work reasonably permits the use of seats. The Banana Republic and Gap case does the same, but also expands beyond cashiers to include other employees who may wish to sit down when not engaged in active duties. So the net effect is that plaintiffs are now pursuing seating violations as they apply to every employee, not just those at the cash register. And they are seeking civil penalties under the Private Attorney General Act of 2004 that potentially number in the millions.

So what can employers do? First, employers can assess the nature of employees’ work duties and make determinations about whether the nature of the respective jobs reasonably permits the use of seats, and whether there is some reason that seating cannot reasonably be provided to employees awaiting active engagement. Where employers deem standing to be essential for a job, they can make sure that the job description accurately reflects that determination. These decisions and the basis for them should be documented. Second, employers may consider making seats available upon request, on a case-by-case basis; this could bolster the argument,should litigation later arise, that the case should not proceed as a class action. Third, employers can make seats available near the employee work area, such as in a break room, and allow employees to use these seats when doing so does not interfere with the performance of their duties.

Content for this post was provided by the following labor and employment attorneys in Crowell & Moring’s Orange County office: partner Mark A. Romeo, counsel Wendy A. Sugg, and associate Samuel P. Nielson.

Chipotle Mexican Grill coined the phrase the “Chipotle Experience” to describe customers’ participation in the preparation of their meal. In July 2010, the Ninth Circuit ruled in Antoninetti v. Chipotle Mexican Grill, Inc., that the Chipotle Experience violated the ADA because there was no “equivalent facilitation” for customers in wheelchairs, who could not see over a wall separating the food from the customers. The court awarded injunctive relief, damages, and attorney’s fees. Like Chipotle, other restaurants and retailers are at risk for failing to offer the same customer experience to all their patrons, particularly if they advertise the experience to the public.

Continue Reading Ninth Circuit Holds that Under the ADA, Chipotle Mexican Grill Must Offer Patrons Equivalent Customer Experiences

Despite strong opposition expressed by the National Retail Federation, the Retail Industry Leaders Association, the National Grocers Association, and the National Association of Manufacturers, President Obama has filled two of the three vacancies at the National Labor Relations Board with recess appointments. Joining union-side labor lawyer Mark Pearce is Craig Becker. Becker is a long-time senior lawyer for the Service Employees International Union and has been a staff attorney with the AFL-CIO since 2004. Becker’s appointment has generated enormous controversy. Senate Republicans unanimously joined business groups in opposing the nomination, citing concern that Becker’s views on labor law are outside the historical mainstream. Sen. John McCain (R-Az.) described Becker’s appointment as “clear payback by the Administration to organized labor.”

Continue Reading Pro-Union Presidential Appointees Likely to Change the Labor Law Landscape

Case: Kullar v. Foot Locker Retail Inc., Case No. A119697 (Cal. Ct. App. 11/7/08)

The One Sentence Summary: Approval of a $2 million settlement in a wage-and-hour class action against a retailer was vacated because the trial court failed to independently analyze the evidence and circumstances surrounding the settlement.


What They Were Fighting About: Defendant Foot Locker agreed to settle this class action, which alleged various failures to properly compensate employees for their labor and expenses, for a total of $2 million. A member of the class filed a written objection to the settlement and requested discovery, arguing that the settlement was not fair and class counsel had not completed sufficient discovery to determine the extent of the class loss. At the hearing for final approval, the settling parties argued that information supporting the settlement had been exchanged at the mediation that resulted in the settlement, but that none of the information could be provided to the trial court due to the privilege accorded mediation discussions. The trial court concluded that it could not compel the parties to turn over documents exchanged at the mediation, and approved the settlement on the basis that “circumstantial evidence” indicated it was fair.

Upon the objector’s appeal, the appellate court vacated and remanded for further proceedings. The court held the trial court was required to independently analyze the evidence and circumstances to determine whether the settlement was in the best interests of the class. Although the trial court was not required to attempt to decide the merits of the case, it must at least satisfy itself that the class settlement is within “the ‘ballpark’ of reasonableness.” Accordingly, the trial court was required to examine the relevant data. If certain data were privileged, the parties could be required to provide the trial court with other data that would enable the court to make an independent assessment of the adequacy of the settlement terms. The appellate court further held that the objector should be permitted to renew its discovery requests, within limits.

Employment contracts with non-competition clauses are common outside of California, but a California statute, section 16600 of the California Business and Professions Code, prohibits non-compete contracts outside of a few statutory exceptions. In a decision issued on August 7, 2008, Edwards v. Arthur Anderson, No. S147190, the California Supreme Court held that section 16600 prohibits non-competition contracts even if the non-compete clause is reasonable or imposes only a “narrow restraint.” The Court further held that the employer had engaged in a wrongful act by requiring the employee to sign a release of claims under the non-competition contract.

Background:

Section 16600 provides that

“Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”

Statutory exceptions to section 16600 allow non-compete contracts in certain circumstances, including in connection with the sale of goodwill of a business (§ 16601) and the dissolution of a partnership (§ 16602) or limited liability corporation (§ 16602.5).

In Edwards, the plaintiff Edwards had signed a non-competition agreement as an employee of Arthur Anderson. The agreement barred Edwards from serving within 18 months any Anderson clients with whom Edwards had worked, and barred solicitation of clients of Anderson’s Los Angeles office. After Anderson became embroiled in the Enron scandal, HSBC sought to hire a group of employees including Edwards. HSBC and Anderson required the moving employees to sign a “Termination of Non-Compete Agreement” which released “any and all” claims against Anderson. Edwards refused to sign the termination agreement because he did not want to release indemnity claims against Anderson, and was therefore not hired by HSBC. Edwards then sued Anderson and HSBC for claims including interference with prospective economic advantage. Edwards lost in the trial court against Anderson but won at the California Court of Appeal (click here for a discussion of the lower court decision). The California Supreme Court then took the case.

California Supreme Court Holdings:

  • The first question before the California Supreme Court was whether Anderson’s enforcement of the non-competition agreement (by forcing Edwards to sign an agreement terminating it) was a wrongful act. The Court held that enforcing the non-competition agreement was illegal under section 16600 and enforcing it was a wrongful act that could lead to liability for interference with prospective economic advantage. The Court noted that

    section 16600 reflects “a settled legislative policy in favor of open competition and employee mobility, . . . [it] ensures that every citizen shall retain the right to pursue any lawful employment and enterprise of their choice [and it] protects the important legal right of persons to engage in businesses and occupations of their choosing.”

  • In light of the broad statutory language of section 16600 and the limited statutory exceptions, the Court rejected decisions of federal courts which had ruled that section 16600 allowed “reasonable” non-compete contracts that imposed only a “narrow restraint” on competition. The Court stated “Section 16600 is unambiguous, and if the Legislature intended the statute to apply only to restraints that were unreasonable or overbroad, it could have included language to that effect.”
  • In a second part of the decision unrelated to the non-competition agreement issue, the Court also held that the release sought by Anderson as the employer for “any and all” claims was not unlawful because it could not be interpreted to release non-waivable employee indemnity rights under California Labor Code section 2802(a).

Case: Costco Wholesale Corporation v. Superior Court (Cal. Ct. App. 3/27/08)

The One Sentence Summary: Where a redacted version of a letter prepared by Costco’s outside counsel detailing a comprehensive factual investigation and legal analysis of the classification of managers within Costco warehouses disclosed only job descriptions of certain managers readily available from other sources, Costco was unable to establish that irreparable harm would result from disclosure of the redacted letter and therefore was not entitled to writ relief from the trial court’s order requiring production of the redacted letter.

What They Were Fighting About: In 2000, Costco engaged outside counsel to conduct a comprehensive factual investigation and legal analysis of the classification of managers within Costco warehouses. Outside counsel interviewed two warehouse managers and relied on other information provided to her by Costco, her legal research and experience in preparing a 22 page letter addressing the exempt status of certain Costco warehouse managers in California. In 2001, Costco decided to reclassify ancillary managers (i.e., managers of departments within each warehouse, such as meat, bakery, pharmacy, etc.) from exempt employees not entitled to overtime payments to salaried, non-exempt employees who were entitled to overtime. Plaintiffs then filed a class action against Costco in 2003 alleging it had misclassified ancillary managers as exempt employees and thus unlawfully failed to pay overtime. Plaintiffs sought production of the outside counsel’s letter, and Costco objected on attorney-client privilege and work product grounds. The trial court ordered that a referee inspect the letter in camera to determine whether and what information in the document constituted privileged legal advice. The referee issued a recommendation upholding Costco’s privileges as to parts of the letter, which he redacted, but found that other factual information about various employees’ job responsibilities was not protected and should be produced. The referee found that the factual information was obtained in outside counsel’s role as fact-finder rather than attorney and should be disclosed because it amounted to recorded statements of prospective witnesses and/or reflections on a non-legal matter. The trial court adopted the referee’s recommendation and ordered the redacted form of the letter produced. Costco filed a petition for writ of mandate, which the appellate court denied, and then filed a petition for review in the California Supreme Court. The Supreme Court granted the petition and transferred the case back to the appellate court. The appellate court requested supplemental briefs, specifically on the issue of whether irreparable harm would result from release of the redacted letter, thus justifying extraordinary relief by writ of mandate. Following a hearing, the court again denied the petition for writ of mandate, thereby upholding the trial court’s order requiring production of the redacted letter.

Court Holdings:

  • The court’s opinion focused primarily on whether disclosure would result in irreparable harm to Costco. Upon examining the redacted letter, the court held that Costco could not establish irreparable harm because the only parts of the letter that were unredacted were “inconsequential and [did] not infringe on the attorney-client relationship.” The factual statements describing certain employees’ job descriptions did not communicate any legal opinion, analysis or strategy, but merely provided information readily available from other sources that could easily be obtained through interviews, depositions or a document production request.
  • Although the general rule in Evidence Code section 915(a) is that a trial court may not require even in camera disclosure of a communication in order to determine whether the communication is privileged, the rule is not absolute and in camera hearings may be held under certain circumstances. For example, in camera review is allowed to evaluate whether waiver exists and when application of a privilege depends on the communication’s content (e.g., common interest privilege); or when there is a claim that the attorney was acting in some capacity other than as legal counsel and the dominant purpose of the communication and the attorney’s work were not in furtherance of an attorney-client relationship (e.g., communications by insurance company’s in-house claims adjuster who was also an attorney). Without in camera hearings, control over the determination of whether a privilege exists would be based solely on the representations of the party asserting the privilege.
  • The court upheld the referee’s conclusion that the unredacted portions of the letter, which contained factual information about various employees’ job descriptions based on non-privileged documents and interviews with two managers, were not privileged. While recognizing that the attorney-client and work product privileges apply to corporations, the court cited the “landmark” California case on corporate attorney-client privilege, D.I. Chadbourne, Inc. v. Superior Court, 60 Cal.2d 723 (1964) for the proposition that not all statements furnished to corporate attorneys are privileged. The court noted that the referee applied the principles set forth by the Supreme Court in Chadbourne in analyzing which portions of the letter were privileged.
The San Francisco Health Care Security Ordinance (HCSO) became effective on January 9, 2008. The HCSO requires most San Francisco employers to make minimum health care expenditures for their employees, to track such expenditures, and to confirm compliance. Folger Levin & Kahn LLP has prepared a summary of the HCSO intended to be a step-by-step guide to help businesses understand the basic requirements of the ordinance. If you have any questions about the application of the HCSO to your business, please contact any of us in the Labor and Employment Practice Group.
This posting provides a summary of many new developments in California Employment Law for 2008, including summaries of new statutes, case law, and regulations that will impact California employers. If you have any questions about the application of any of these laws to any particular situation effecting your company, please contact one of us in the Labor and Employment Practice Group.