Wage and Hour Cases in the Ninth Circuit

Wage and hour class actions comprise approximately one third of all class action litigation. The Ninth Circuit Court of Appeals has taken note as during the past six months, a number of significant wage and hour cases were decided by the court. Most of these cases involved class allegations where the court considered issues related to employee classification, off-the-clock work and individual liability. These recent decisions provide guidance to employers defending against these claims, particularly since the court seems to have heightened the scrutiny applied to these class actions.

A. Preemptive Strike on Class Certification Permissible: On July 7, 2009, the Ninth Circuit published In re: Wells Fargo Home Mortgage, 571 F.3d 953 (2009) and Vinole v. Countrywide Home Loans, Inc., 571 F.3d 935 (2009); each favorable for employers defending against wage and hour class actions. In Vinole, the Ninth Circuit affirmed a preemptive decertification motion. Plaintiffs sought to represent a proposed class of Countrywide external home loan consultants whom they alleged were misclassified as “exempt” outside sales employees.

Countrywide preempted plaintiffs’ class certification motion by filing a motion to deny certification pursuant to Federal Rule of Civil Procedure 23. The district court granted Countrywide’s motion. On appeal, the Ninth Circuit considered whether the district court abused its discretion by granting the motion to decertify the class action prior to plaintiffs’ motion for class certification and pretrial deadlines, and whether the court could otherwise deny class certification. The 9th Circuit affirmed and found as follows:

“First, no rule or decisional authority prohibited Countrywide from filing its motion to deny certification before Plaintiffs filed their motion to certify, and Plaintiffs had ample time to prepare and present their certification argument. Second, the district court did not abuse its discretion by denying certification under Rule 23 (b)(3) because the record supports its conclusion that individual issues predominate over common issues.”

As to the timing of the motion for decertification, the Ninth Circuit held that Rule 23 requires the certification issue be resolved at an “early practicable time,” and the “plain language of Rule 23(c)(1)(A) alone defeats Plaintiffs’ argument that there is some sort of ‘per se rule’ that precludes defense motions to deny certification….”

The appellate court also affirmed the district court’s opinion that the outside salesperson exemption precluded certification. The court found such analysis would require an individualized inquiry and held:

“We decline to adopt such an approach because-as set forth in greater length in our opinion In re Wells Fargo we hold that a district court abuses its discretion in relying on an internal uniform exemption policy to the near exclusion of other factors relevant to the predominance inquiry. See In re Wells Fargo Home Mortgage Overtime Pay Litig., No. 08-15355, slip. op. at 8335-36. As we stated there, focusing on a uniform exemption policy alone does little to further the purpose of Rule 23(b)(3)’s predominance inquiry, which requires an assessment of the relationship between individual and common issues.”

B. Reliance on a Uniform Policy Insufficient: In re: Wells Fargo Home Mortgage (referenced in Vinole), also involved class allegations premised on misclassification claims. There, the lower court granted plaintiffs’ motion for class certification and certified a class of loan specialists. The Ninth Circuit vacated the lower court’s decision and found the district court abused its discretion by relying almost exclusively on the existence of a uniform policy which classified the loan specialists as exempt. It held:

“In short, Wells Fargo’s uniform exemption policy says little about the main concern in the predominance inquiry: the balance between individual and common issues. As such, we hold that the district court abused its discretion in relying on that policy to the near exclusion of other factors relevant to the predominance inquiry.”

Both decisions provide guidance for employers defending against wage and hour class actions. Vinole provides opportunity for a preemptive dispositive motion even before the plaintiffs’ motion for class certification. In re: Wells Fargo further offers a great defense to employers defending against class allegations premised solely on the mere existence of uniform employment policies. Notably, both decisions demonstrate increased scrutiny by the appellate court in evaluating class allegations, particularly those based on misclassification claims.

C. Pharmaceutical Sales Reps, Certification of Issues to California Supreme Court: D’Este v. Bayer Corporation, 565 F.3d 1119 (9th Cir. 2009) involved yet another wage and hour case alleging misclassification of employees. Plaintiff moved to certify a putative class of pharmaceutical sales representatives classified as exempt. The district court granted summary judgment in favor of Bayer, finding that D’Este was exempt under California’s outside sales exemption and declined to decide whether D’Este also was exempt under California’s Administrative exemption. On appeal the case was consolidated with two other nearly identical cases pending before the Ninth Circuit, Barnick v. Wyeth, 07-56684 and Menes v. Roche, 08-55286.

Due to limited existing authority regarding state law issues, the Ninth Circuit requested the California Supreme Court exercise its discretion to decide certified questions involving classification of pharmaceutical sales representatives s under California’s outside sales person or administrative exemptions. As such, the California Supreme Court can now exercise its discretion to offer the requested clarification, critical to employers seeking further guidance on employee classification issues.

D. Commuting Time and Related Activities: In Rutti v. Lojack Corporation, Inc., 578 F.3d 1084 (2009), the Ninth Circuit attempted to define activities that qualify as compensable time. Plaintiff alleged class claims under the Fair Labor Standards Action (FLSA), seeking recovery on behalf of a putative class of nationwide technicians. Plaintiff sought compensation for the time spent commuting to worksites in company vehicles and for time spent on preliminary and postliminary activities performed at their homes. Lojack moved for summary judgment and the district court granted the motion, holding that plaintiff’s commute was not compensable and the preliminary and postliminary activities were not compensable because they “either were not integral to Rutti’s principal activities or consumed a de minimis amount of time.” The 9th Circuit affirmed in part and vacated the lower court’s decision as follows:

“We affirm the district court’s denial of compensation for Rutti’s commute and for his preliminary activities. However, we vacate the district court’s grant of summary judgment on Rutti’s postliminary activity of required daily portable data transmissions, and remand the matter to the district court for further proceedings consistent with this opinion.”

First, the Court concluded “the district court properly held that Rutti is not entitled to compensation for the time spent commuting to and from his job sites in a vehicle provided by Lojack under either 29 U.S.C. [Section] 254(a)(2) or California law.” The court found that even Lojack’s requirement of using the company vehicle and restrictions placed on the use of the company vehicle did not trigger an obligation to compensate Rutti’s commute under the Employee Commuting Flexibility Act or California law.

Second, the Ninth Circuit also considered whether Rutti’s off-the-clock claims were viable, and if he was entitled to compensation for activities he engaged in for Lojack before traveling to his first jobsite and after returning home from his last job. The court found Rutti’s morning “preliminary” activities (“receiving, mapping and prioritizing jobs and routes for assignments”), to the extent that they are both distinct from his commute (which is not compensable) and related to his principal activities, appear to be de minimis, and thus, not compensable.” However, the postliminary activities, including time spent sending a PDT transmission to Lojack using a modem (after getting home) were compensable. The court applied the three-prong test: “the practical administrative difficulty of recording the additional time;” “the aggregate amount of compensable time;” and “the regularity of the additional work.” Using this test, and based on the facts before it, the court found “the grant of summary judgment in favor of Lojack on Rutti’s claim for the transmission must be vacated.” Rutti reemphasizes that regular commuting time need not be paid under the FLSA or California Labor Code. The decision also attempts to discern whether “preliminary” and “postliminary” work is compensable or can qualify as de minimus; serving as further reminder to employers to closely monitor pre- and post-work activities, which could qualify as compensable time.

E. Potential Managerial Liability Under the FLSA: In Boucher v. Shaw, 572 F.3d 1087 (9th Cir. 2009), former employees of the Castaways Hotel, Casino and Bowling Center (Castaways) sued the Castaways’ individual managers for unpaid wages under state and federal law. The issue was whether the individual Castaways’ managers could be held liable for unpaid wages under the FLSA.

On June 26, 2003, Castaways filed for Chapter 11 bankruptcy protection. In January 2004, the former employees were discharged. On February 10, 2004, Castaways’ Chapter 11 petition was converted to a Chapter 7 liquidation and the company ceased operations. The former employees’ claims consisted of unpaid wages and accrued vacation and holiday pay. The individual Castaways’ managers named as defendants were the Chairman and Chief Executive Officer, who owned 70 percent of the company, the labor and employment professional (L&E Professional), who owned 30 percent of the company, and the Chief Financial Officer. The former employees alleged that the named individual managers had custody or control over them, their employment or their place of employment at the time the wages were due, and thus, could be individually liable.

The circuit court ruled that individual managers can be “employers” under the FLSA and thus, liable for unpaid wages. The court held that where an individual exercises control over the nature and structure of the employment relationship, or economic control over the relationship, that individual is an employer within the meaning of the Act and is subject to liability. The Chairman/CEO and the L&E Professional owned the company, and, together with the CFO, all three individual managers had control and custody of the employees, their employment and place of employment. Thus, the court found that the individual managers were properly classified as “Employers” under the FLSA and liable for the claims of unpaid wages. Further, the court found that the company’s bankruptcy had no effect on the claims against the individual managers.

This decision provides an expansive interpretation of the FLSA concepts to effectuate its broad remedial purposes. Under the FLSA, individual managers who hold a majority ownership or controlling ownership in the company, and who also oversee the day-to-day employment operations of the company, and make decisions that affect the employees, their employment and place of employment, may be held individually liable for unpaid wages. In order to limit such risk of liability, employers should limit a majority owner or controlling owner’s control over the day-to-day operations of the company and/or decision making that affects the workforce’s employment and place of employment.

Dorsey & Whitney

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