On July 30, 2008, this blog reported that the DLSE had already updated its enforcement materials in response to Brinker Restaurant Corporation, et al. v. Hohnbaum, et al (July 22, 2008). The information now coming to light is significantly more troubling than a simple revision of DLSE enforcement materials. In a July 25, 2008 Memorandum entitled Binding Court Ruling on Meal and Rest Period Requirements, Angela Bradstreet, the Labor Commissioner, described Brinker as a “binding court ruling,” without noting that Brinker is one of two decisions that interpret regulations governing meal breaks (the other being Cicairos v Summit Logistics, Inc. (2005) 133 Cal App.4th 949, which still stands as valid authority).
The California Labor Federation was none too pleased with the July 25, 2008 Memorandum. In strongly-worded correspondence of July 30, 2008, the California Labor Federation took Ms. Bradstreet to task for what it persuasively described as a biased, pro-employer approach from the very regulatory body charged with enforcing employee-protective laws and regulations. And by fortunate happenstance, I've stumbled across a copy of that correspondence (with attachments):
The correspondence can also be downloaded in pdf format here. The letter is definitely worth reading.
Because of the significance of this issue, I intend to set this post so that, for at least the next week, it appears as the first post on The Complex Litigator (assuming nothing else demands top billing in that time). So be sure to check below to see new posts.
On June 12, 2008, Sprint avoided liability when a California jury ruled in its favor in a trial involving the contentious issue of early termination fees (ETFs) in wireless service contracts. In later commentary, this blog characterized that result as a "home run" for Sprint. It turns out that such a declaration was premature. Late Monday, issues of law decided by the Court did not go in Sprint's favor. Sprint was ordered to refund almost $20 million to consumers that paid ETFs. (David Kravetz, Sprint Ordered to Pay Millions in Early Termination Fee Flap (July 29, 2008) blog.wired.com.)
One measure of a decision's significance is the amount of commentary it generates. By that standard,Brinker Restaurant Corporation, et al. v. Hohnbaum, et al (July 22, 2008) is moving rapidly towards the rarefied air set aside for events like the passage of Proposition 64. The Complex Litigator has already run several posts on this decision, noting its issuance and summarizing coverage here and here. To help readers stay on top of the coverage and the dialog, I'm adding to the coverage collection:
In the last roundup, I noted that Class Action Defense Blog prepared a detailed synopsis of the decision, but I missed its coverage of the Governor's statement about Brinker.
Not to be outdone by Retail Law Observer, Restaurant and Food Service Blog, in a post of uncanny similarity to that by Retail Law Observer, also dicusses the shockwave created by Brinker.
Sheppard Mullin, suggesting that the Court of Appeal has "clarified" meal and rest break obligations, weighs in on the pro-employer Brinker decision here.
Brinker Restaurant Corporation, et al. v. Hohnbaum, et al. (July 22, 2008) keeps on making news. Yesterday, I attempted to collect as much coverage as I could in one post. However, Brinker isn't remotely done making news. In today's edition of the Daily Journal (July 25, 2008), D. Gregory Valenza asks, "Meal and Break Class Actions: On the 'Brink' of Extinction?" (Subscription required.) Mr. Valenza's article follows closely on the heels of a July 23, 2008 article by Daily Journal Staff Writer Pat Broderick, which briefly summarized the core of the Brinker decision.
Mr. Valenza's analysis is substantially more thorough than the July 23, 2008 article, but it is, essentially, a further summary of the Court's primary holdings. While the article discusses several sources of law at issue in the Brinker decision, Mr. Valenza doesn't delve into the competing policies that are suggested but left unresolved by that opinion. In fact, no commentator has yet addressed the full set of economic incentives at play within and without the Brinker world view of wage & hour class actions. The Brinker opinion opens the door to this analysis but fails to step through. Instead, the Court picks one of many economic incentives at work to justify its conclusion: "It would also create perverse incentives, encouraging employees to violate company meal break policy in order to receive extra compensation under California wage and hour laws." (Slip op., at p. 44, quoting Brown v. Federal Express Corp. (C.D.Cal. 2008) ___ F.R.D. ___ [2008 WL 906517 at *6].) In selectively discussing such incentives, the Court overlooks employer economic incentives to cheat the system and employee economic incentives to adhere to a meal break policy where job loss is the consequence for failure to do so. These incentives are likely far stronger, due to the amounts at issue, than one employee's desire to obtain an extra hour of pay.
If policy considerations are going to drive the judicial determination of the meal and rest break obligations, the Brinker decision must be viewed with some measure of skepticism until the full picture of incentives is faily presented and fully analyzed.
Brinker Restaurant Corporation, et al. v. Hohnbaum, et al. (July 22, 2008) dropped a bit of a bombshell in the busy field of wage & hour class actions, at least judging by the early and numerous reactions. The Complex Litigator noted the issuance of the opinion shortly after it was posted to the California Courts website. Other blogs and media outlets followed with commentary and analysis, some of it extensive. Defense-oriented firms proclaimed it a much-needed victory, while plaintiff-side commentators lamented the irrationality of the decision and the need for speedy review by the California Supreme Court. To keep up with the dialog, a round-up of coverage, in no particular order, is in order:
Wage Law has two posts on the decision. The first post hits the highlights of the decision. The second post comments on the Governor's statement in support of the decision, noting that the fact of the Governor's comment, in and of itself, demonstrates that Supreme Court review is needed to "settle an important question of law."
California Workforce Resource Blog also has two posts on the Brinker. The first post is an extensive discussion of the decision, offered from the vantage point of a firm that represents employers. The second post provides a collection of comments about the decision.
What's New In Employment Law offers a decidedly partisan cheer for the Brinker decision, but notes that it is premature to celebrate.
The UCL Practitioner, one of the many counsel in Brinker, judiciously limits her comments to a refutation of quotes attributed to her about the decision in the Recorder. Importantly, Ms. Kralowec takes exception with the attributed statement that the decision "creates an appellate split that likely will ensure Supreme Court review." Ms. Kralowec notes that she would never be so presumptuous as to declare what the Supreme Court will, in the exercise of its discretion, decide to do about Brinker.
Wage & hour class actions have, for many years, been presented for certification in an entirely predictable manner. Since well before Sav-on Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, wage & hour class actions habitually involved a war of employee declarations. The defendant typically submitted a taller stack of current employee declarations, while the plaintiff struggled to collect a smaller group of declarations provided mostly by former employees. This competing stack of declarations was then tossed up in the air for the Court to sort out. In Sav-on, it so happened that the trial court sided with the plaintiff's stack of declaration. But along the way, the dynamic has evolved.
The first major shift hit when the Supreme Court decided Pioneer Electronics (USA), Inc. v. Superior Court (2007) 40 Cal.4th 360, reminding litigants that plaintiffs can discovery class member information before certification. Pioneer was then extended into the wage & hour realm with Belaire-West Landscaping, Inc. v. Superior Court (2007) 149 Cal.App.4th 554. The upshot was that plaintiffs had nearly as much access to the putative class as did defendants. However, this change, alone, did not necessarily do anything to deter the war of declarations. Instead, it armed both sides with the ability to assemble similar volumes of putative class member declarations.
This approach has not been without its critics. One Judge in the complex litigation panel in Los Angeles remarked during a hearing that there had to be a better way to evaluate wage & hour class actions for certification purposes. An example of possible alternative is provided by a recent certification Order from the United States District Court for the Northern District of California. In Otsuka, et al. v. Polo Ralph Lauren Corporation, et al. (C 07-02780 SI), Judge Susan Illston granted certification in spite of the typical declaration set offered by defendants. The Court's statement of facts suggests what information was held significant by the Court:
“Plaintiffs contend that defendants use a single employee handbook for all California stores, and that defendants’ policies and practices are standardized throughout California in both retail and outlet stores. See, e.g., TAC at ¶ 45.
(Opinion, at p. 2.) In contrast, defendants may have protested too much:
“Defendants vigorously object to class certification, arguing that plaintiffs fail to meet almost every requirement of Rule 23 for the main class and the two subclasses. As discussed below, however, defendants’ arguments primarily dispute the merits of plaintiffs’ claims and raise questions of fact that will not be resolved at this juncture, and the Court finds that class certification is appropriate because plaintiffs have satisfied the requirements of Rule 23(a) and Rule 23(b)(3).
(Opinion, at p. 5.) Plaintiffs persuasively cast the action as one of common procedures and common legal inquiries:
“Plaintiffs persuasively argue that many questions of law and fact are common to the class, such as whether: (1) defendants’ policy of not compensating employees for time spent waiting for loss-prevention inspections violates California law or constitutes an unfair business practice; (2) time spent waiting for these inspections was “postliminary” or de minimis, and whether these federal standards would even apply to plaintiffs’ California law claims; (3) defendants breached their contracts with class members by failing to compensate them for time spent awaiting loss prevention inspections; (4) defendants had a policy of not providing or discouraging rest breaks; (5) defendants violated California law by failing to pay employees one hour’s wage when rest breaks were not provided; (6) defendants failed to maintain accurate pay records as a result of these alleged labor code violations; and (6) whether defendants’ failure to maintain accurate records was knowing and intentional. As these questions suggest, plaintiffs have sufficiently demonstrated that the commonality requirement of Rule 23(a) has been met with respect to the main class.
(Opinion, at p. 6.)
This approach, the focus on class-wide policies, has seen some increased use, with Court's accepting a theory of class liability that focuses almost exclusively on whether policies of the employer resulted in wage & hour violations, such as off-the-clock work or missed breaks.
As with a chess match, the adaptations and legal developments that have helped plaintiffs respond to the declaration onslaught will undoubtedly be countered with a new approaches from defendants. It will be interesting to see how those new approaches fare in practice.
The Otsuka Opinion can be downloaded here, or, you can view the embedded opinion in the acrobat.com flash viewer below:
Defense counsel are well acquainted with the concept of conflicts checks at the outset of a matter. Most defense firms with more than a handful of attorneys have electronic systems in place that track all past representations for the purposes of assessing potential conflicts when a matter is first offered to a firm. Plaintiff-side practitioners, at least in my observations, are less rigorous about conflict checks, due, in part, to the infrequency with which conflicts arise in a predominantly plaintiff-side practice. While the infrequency of conflicts allows for laxity without consequence in most cases, when conflicts do surface, the results can be painful.
For example, in Baas, et al. v. Dollar Tree Stores, Inc., (N.D. Cal. Case No. 07-03108 JSW), plaintiffs' counsel undertook to represent two hourly employees in a putative class actions against Dollar Tree Stores, Inc. (“Dollar Tree”), contending that Dollar Tree altered the time records of its employees and, thus, failed to compensate employees for all of the time that they actually worked. Plaintiffs moved for class certification. The Court denied the motion on the sole ground that a conflict of interest by counsel prevented them from adequately representing the class.
Rule 23(a)(4) requires that "the representative parties will fairly and adequately protect the interests of the class." (Fed. R. Civ. P. 23(a)(4).) Adequacy of representation is a two-part analysis, which asks "(1) Do the representative plaintiffs and their counsel have any conflicts of interest with other class members, and (2) will the representative plaintiffs and their counsel prosecute the action vigorously on behalf of the class?" (Staton v. Boeing Co. (9th Cir. 2003) 327 F.3d 938, 957.) In Baas v. Dollar Tree, the first question was answered "yes," leading the Court to conclude in its April 1, 2008 Order that counsel could not adequately represent their clients. The Court explained the source of the conflict:
“Dollar Tree argues that Plaintiffs’ counsel’s representation of John Hansen (“Hansen”), the manager of the store in which named Plaintiffs Baas and Lofquist used to work, in another lawsuit against Dollar Tree creates a conflict of interest. “The responsibility of class counsel to absent class members whose control over their attorneys is limited does not permit even the appearance of divided loyalties of counsel.” Kayes v. Pacific Lumber Co., 51 F.3d 1449, 1465 (9th Cir. 1995) (quoting Sullivan v. Chase Inv. Serv. of Boston, Inc., 79 F.R.D. 246, 258 (N.D. Cal. 1978)). As the court explained in Kayes, “[t]he ‘appearance’ of divided loyalties refers to differing and potentially conflicting interests and is not limited to instances manifesting such conflict.” Id.
(Opinion, at p. 3.) After setting forth various rules of professional conduct, the Court explained where the conflicts could materialize in the dual representations:
“Here, Plaintiffs’ counsel’s client Hansen is a witness in this matter. Lofquist testified in her deposition that Hansen was aware that she worked off the clock in his presence and that Hansen encouraged her to do so. (Declaration of Beth Hirsch (“Hirsch Decl.”), Ex. F at 247:4-248:17. Hansen testified that Lofquist was paid for the time she worked and that he never asked anyone to come in and work off the clock. (Hirsch Decl., Ex. D at 547:23-548:16). He further testified that he knew it was against Dollar Tree’s policy to misrepresent the time employees worked or took breaks. (Id. at 648:13-17). To reconcile the testimony of Hansen and Lofquist, Plaintiffs’ counsel will either need to portray Hansen as a liar or as a manager who knowingly violated his company’s policies. Plaintiffs counter that Plaintiffs’ and Hansen’s claims and class actions are distinct and do not conflict with one another. Plaintiffs further argue that because Hansen is merely involved as a witness in this matter, he is not placed in any jeopardy of being liable. Plaintiffs thus focus on the existence or absence of any conflicts between the two cases and fail to address the duty of loyalty Plaintiffs’ counsel owe to all their clients.
From the testimony in the record, it appears as Plaintiffs’ counsel will either have to cross-examine Hansen and impeach his credibility, or “soft-pedal” their examination of Hansen to the detriment of their representation of the class members in this action. Even if this conflict of interest could be waived, Plaintiffs’ counsel would need to obtain waivers from every class member, which, as a practical matter, they cannot do from the absent class members. Therefore, the Court concludes that Plaintiffs have not demonstrated their counsel would adequately represent the class as required by Rule 23(a)(4). Failure to satisfy any one of Rule 23’s requirement precludes class certification. Rutledge v. Electric Hose & Rubber, Co., 511 F.2d 668, 673 (9th Cir. 1975); see also Sipper v. Capital One Bank, 2002 WL 398769, *4 (C.D.Cal. Feb. 28, 2002) (denying motion for class certification based on plaintiffs’ counsel’s conflict of interest). Accordingly, the Court denies Plaintiffs’ motion for class certification.
(Opinion, at p. 5.) In a nutshell, plaintiffs' counsel reached one rung too far and were cut off at the knees for it. Had they fully explored the potential for conflict at the outset of the second case, they may have concluded that a referral of the case to another firm was the better course of action.
UPDATE: A reader informs me that the Acrobat.com widget is not functioning correctly. I've had some problems with it myself in getting this post up. It is possible that the pdf file contains some sort of error. If I can't get it fixed, I may have to see if iPaper works any better with this file.
UPDATE 2: It appears that Acrobat.com is experiencing some problem today. I am presenting the Order through Scribd.
The Complex Litigator reports on developments in related areas of class action and complex litigation. It is a resource for legal professionals to use as a tool for examining different viewpoints related to changing legal precedent. H. Scott Leviant is the editor-in-chief and primary author of The Complex Litigator.
Multiple sources are now reporting that the DLSE has already updated its materials to require hearing officers to follow 
