Employment Law News – March 2016

Tip-Pooling Ban by DOL Survives Appellate Review

(Oregon Restaurant and Lodging Association v. Perez (9th Cir. February 23, 2016) D.C. No. 3:12-cv-01261-MO)

The ninth circuit in this case examined a Department of Labor (DOL) rule that extended “tip pooling” restrictions to all employers—not just employers who take a “tip credit.”  Previous ninth circuit case law (Cumbie v. Woody Woo, Inc.) determined that it was permissible for an employer to enforce certain tip pooling, provided the employer did not take the tip credit.  Specifically, employees who are “customarily and regularly tipped” (i.e., front-of-the -house employees) could be made to pool their tips with employees who were not customarily tipped (i.e., back-of-the-house employees) as long as the employer was not taking a tip credit as to minim wage.

In two consolidated cases on appeal, the employers (a restaurant association and casino group) paid their employees minimum wage, and did not take a “tip-credit” to offset their minimum wage responsibilities.  The employers did use tip-pooling and paid tips out to both “front” and “back” employees.  This arrangement was held acceptable by the lower court, but was overturned on appeal by a split 2-1 vote.  The majority found that Cumbie did not prevent the DOL from regulating tip pools under the FLSA, even for employers who do not take a tip credit.  The court reasoned that because the Fair Labor Standards Act was silent as to employers that do not take a tip credit, the DOL acted within its authority when it issued its rule prohibiting the practice.

The dissent strongly argued that the case created “contrary precedent” to Cumbie, likely setting-up review by the United States Supreme Court.  In the interim, tip-pooling arrangements remain a minefield for employers who choose to continue using them.

Employer Not Entitled to Attorneys’ Fees Incurred Defending Wage Claim

(Ling v. P.F. Chang’s China Bistro, Inc. (2016) 245 Cal.App.4th 1242)

The employee, a former floor manager, arbitrated a claim against the employer that she was misclassified as an exempt employee.  The arbitrator found in favor of the employer on the question of the employee’s status as exempt, and rejected the employee’s claim that she was entitled to compensation for overtime or missed meal breaks during her tenure as a manager.  However, the arbitrator found the employee was entitled to penalties for missed meal periods during the time she was training for her position since the employer never challenged the employee’s claim that time spent training was non-exempt work. 

The arbitrator awarded the employer both costs and attorneys’ fees due to the employer’s successful defense of the employee’s missed meal period claim during her tenure as a manager, but indicated the award was not for the defense of employee’s overtime claim.  The arbitrator noted the work done in defense of both claims was “inextricably intertwined” – i.e. it would be impossible to separate out what actions were in defense of each particular claim.  The employee appealed the arbitration award to the superior court, which reversed the fee award to the employer. 

The court of appeal upheld the lower court’s reversal of the arbitrator’s fee award.  The court noted the strong public policy in favor of the one-way fee provision governing overtime and minimum wage claims (Labor Code 1194) precluding an employer from ever recovering fees for defending such claims. Similarly, an employer may not recover fees even where its defense of the wage and hour claim included efforts defending a related claim for which it otherwise may have recovered fees.  Specifically, the court noted that the employer may have been permitted to recover fees for defending one of plaintiff’s meal break claims, but the strong public policy against a two-way fee provision for wage and hour claims, and the nature of the defense of the two claims which were inextricably intertwined, lead to the conclusion that the employer could not recover fees for its defense of either claim.  The court also found plaintiff not entitled to fees on a derivative Labor Code section 203 waiting time penalties claim because the underlying claim was not for wages, but rather was for the failure to provide meal and rest periods during her time as a trainee.

U.S. Supreme Court Holds that “Representative Evidence” May Be Used to Establish Classwide Liability If It Could Be Used To Establish Liability in an Individual Action

(Tyson Foods, Inc. v. Bouaphakeo et al. (2016) 577 U.S. __)

The employees at issue worked in the kill, cut, and retrim departments of a pork processing plan and had to wear a variety of protective gear.  The employer compensated some, but not all, the employees for the donning and doffing, but did not record the time each employee spent on those activities.  The employees filed a lawsuit alleging that the employer’s policy did not to pay for the donning and doffing activities, denied them overtime compensation required by the Fair Labor Standards Act, and violated an Iowa wage law.  They sought certification of a class action on the state law claim and collective action on the FLSA claim.  The employer objected to certification, arguing that because of the variance in protective gear each employee wore, the employees’ claims were not sufficiently similar to be resolved on a classwide basis.

To show that they each worked more than 40 hours per week, including the time spent donning and doffing, the employees relied on a study that analyzed how long the donning and doffing activities took, and then averaged the time to produce an estimate for the different departments (e.g., 18 minutes per day for the cut and trim departments).  These estimates were added to the timesheets of each employee to determine which class members worked more than 40 hours per week.  The district court certified and maintained the class, and a jury awarded the class about $2.9 million in unpaid wages.  The eighth circuit affirmed the judgment and the award.

The United States Supreme Court affirmed.  The Court held that whether and when statistical evidence can be used to establish classwide liability depends on the purpose for which the evidence is being introduced and on the elements of the underlying cause of action.  The Court reasoned that because a representative sample may be the only feasible way to establish liability, it cannot be deemed improper merely because the claim is brought on behalf of a class.  If each class member could have relied on that sample to establish liability in an individual action, then reliance on the sample for class certification purposes is appropriate.  In this case, the employees worked in the same facility, did similar work, and were paid under the same policy, so they could have relied on the sample in an individual lawsuit.  Moreover, the employees sought to use a representative sample to fill in an evidentiary gap created by the employer’s failure to keep adequate records.

The Court distinguished Wal-Mart Stores v. Dukes, 564 U.S. 338, wherein the underlying question was also whether the sample at issue could have been used to establish liability in an individual action.  There, however, the employees were not similarly situated, so none of them could have prevailed in an individual suit by relying on depositions detailing the ways in which other employees were discriminated against by their particular store managers.      

Plaintiff Who Voluntarily Dismisses Action Pursuant to Monetary Settlement Is A “Prevailing Party” Entitled To Costs

(DeSaulles v. Community Hospital of Monterey Peninsula (2016) 62 Cal.4th 1140)

The employee registrar filed suit against the employer hospital after she was terminated, alleging seven various tort and contract claims.  After the employer’s motion for summary judgment and subsequent motions in limine, the court ruled that the employee would only be allowed to introduce evidence on her claims for breach of contract and breach of the implied covenant of good faith and fair dealing.  Before a jury was empaneled, the employer agreed to pay the employee $23,500 in exchange for dismissal of those two causes of action.  After the court of appeal affirmed the rulings on the other causes of action, both parties claimed to be the prevailing party entitled to costs.  The trial court found the employer was the prevailing party due to its success on significant causes of action.  The court of appeal reversed, concluding that the employee had obtained a “net monetary recovery.”  The California Supreme Court granted review and interpreted Code of Civil Procedure section 1032, subdivision (a)(4).

The Court first held that a dismissal obtained in exchange for a monetary settlement is not a dismissal in a defendant’s favor within the meaning of section 1032(a)(4).  The Court held that the rationale for awarding costs to a defendant on dismissal was rooted in the injustice that would result if a plaintiff who dismissed an unmeritorious action before judgment could evade an award of costs to compensate the defendant for the costs of preparing for trial.  The Court found that such a rational did not extend to plaintiffs that have achieved some litigation success through settlement of the case.  Next, the Court held that a monetary settlement is a “net monetary recovery” within the meaning of section 1032(a)(4).  The Court found no reason why a monetary settlement could not fit within the definition of “monetary recovery.”  The Court interpreted the word “recovery” broadly, finding such an interpretation was consistent with the purpose of section 1032: “the party to blame pays costs to the party without fault.”  Just as a plaintiff cannot avoid a cost award by dismissing an action on the eve of trial, so a defendant cannot avoid a cost award merely by settling on the eve of trial.  In its opinion, the Court disapproved the contrary holding of Chinn v. KMR Property Management (2008) 166 Cal.App.4th 175.

The Court also made clear its opinion merely establishes a “default rule,” and parties remain free to resolve the matter of costs in their settlement agreements or stipulate to alternate procedures for awarding costs.  Recognizing that parties sometimes inadvertently overlook the issue of costs in their settlement agreements, the Court advised, but did not require, trial courts to inquire into whether the parties in a given case have resolved the allocation of costs in their settlement agreement before placing a judicial imprimatur on the agreement.