Thursday, May 27, 2010

U.S. Supreme Court to Review California Arbitration

So, I asked in this post whether the California Supreme Court's jurisprudence on class action waivers in arbitration would survive the U.S. Supreme Court's recent decision in Stoltt-Nielsen v. AnimalFeeds. There, the SCOTUS held that the Federal Arbitration Act does not authorized arbitrators to require class action arbitration when an arbitration agreement is silent.
The California Supreme Court, on the other hand, say that arbitration agreements cannot preclude class-wide arbitration.

Looks like we're going to find out. The U.S. Supremes just granted review of a 9th Circuit decision in AT&T Mobility v. Concepcion. There, the Ninth Circuit held that a class action waiver was "unconscionable" under California law and that the FAA does not preempt California's unconscionability jurisprudence. Ross Runkel's arbitration blog posts the details here. This case will be argued next term, which begins in October 2010.

Tuesday, May 25, 2010

U.S. Supreme Court on Attorney's Fees in ERISA cases

The Supreme Court unanimously held that a court may award attorneys fees in ERISA benefits denial cases to any party without proving it is a "prevailing" party:
a fees claimant must show "some degree of success on the merits" before a court may award attorney’s fees under §1132(g)(1), id., at 694. A claimant does not satisfy that requirement by achieving "trivial success on the merits" or a "purely procedural victor[y]," but does satisfy it if the court can fairly call the outcome of the litigation some success on the merits without conducting a "lengthy inquir[y] into the question whether a particular party’s success was ‘substantial’ or occurred on a ‘central issue.’"

The ERISA attorney's fees statute awards fees to "any" party in the district court's discretion. Courts had read into that statute the requirement that a litigant be deemed the "prevailing" party. Under case law, a "prevailing" party has to demonstrate certain characteristics, like monetary gain, etc. The Supreme Court held that as a matter of statutory construction, courts could not simply add a prevailing party requirement.

So, in ERISA benefits denial cases, it will be easier for litigants to claim attorney's fees, even if they simply win a remand by the district court to the insurance plan administrator, rather than total victory.

Justice Stevens concurred in most of the opinion and in the judgment. The decision otherwise was unanimous.

The case is Hardt v. Reliance Standard Life Insurance Co. and the opinion is here.

U.S. Supreme Court on Timeliness of Disparate Impact Claims

The U.S. Supreme Court unanimously held that disparate impact claims were timely even though the plaintiffs did not challenge the original implementation of the alleged discriminatory practice. Justice Scalia wrote the opinion. So there, Scalia haters.

The City of Chicago conducted an examination for firefighters in 1995. It announced it would begin selecting from among the highest scorers, called "well-qualified." The middle tier was called "qualified." Applicants who scored in this range would be kept on an eligibility list. No one brought suit attacking the examination at the time it was given.

Over time, the city exhausted the "well-qualified" list. On March 31, 1997, some African-American applicants filed a charge with the EEOC. They claimed the use of the "well qualified" score had a disparate impact on black applicants - i.e., it resulted in exclusion of a disproportionate number of black applicants. After receiving right to sue letters, they brought a class action on behalf of 6,000 "qualified" applicants.

The Court framed this issue like this:

We consider whether a plaintiff who does not file a timely charge challenging
the adoption of a practice—here, an employer’s decision to exclude employment
applicants who did not achieve a certain score on an examination—may assert
a disparate-impact claim in a timely charge challenging the employer’s later
application of that practice.

The city argued the charges were untimely and that the scoring was justified by business necessity. The city lost at trial. The district court rejected the business necessity of the test as a justification for the admittedly "severe" disparate impact.

Regarding timeliness, the plaintiffs were timely regarding the city's more recent selections of well-qualified applicants, but were untimely regarding the city's initial classification of qualified and well qualified persons.

The Supreme Court decided that the city's use, rather than adoption, of the practice was the discriminatory act. Therefore, the decision that the City's selection of well-qualified applicants within the limitations period was sufficient to establish a disparate impact claim.

The issue in Ledbetter v. Goodyear Tire & Rubber Co., 550 U. S. 618 (2007), in contrast, was whether a plaintiff could allege disparate treatment - intentional discrimination - based on time-barred past decisions. The court distinguished Ledbetter because the disparate impact claim is based on the use of neutral, but discriminatory, criteria, without the need to prove intent. So, Ledbetter is not in conflict with this decision.

The case is Lewis v. City of Chicago and the opinion is here.

Friday, May 21, 2010

California Supreme Court Defines "Employer" in Wage Hour Cases

In 2005, the California Supreme Court held in Reynolds v. Bement (2005) 36 Cal.4th 1075, that individual agents / managers cannot be held liable as "employers" under California wage-hour law. In Martinez v. Combs, opinion here, the court similarly held that investors / business partners could not be held liable as "employers" either.

To get there, the Court engaged in a rigorous, painstaking (euphemisms for tedious) analysis of the history of California wage-hour laws, all the way back to the Magna Carta, or so it seemed.

But the Court did something that had not been done before. It came up with a framework for deciding just what entity can be held liable for unpaid wages.

This case arises because Munoz, the employer that hired, supervised, and (previously) paid its farm workers, went bankrupt. So, the case has relevance during these troubled times. Munoz operated a strawberry harvesting operation. Because of lower strawberry prices and financial reverses, Munoz could not pay its workers and then declared bankruptcy.

Unable to recover from Munoz, the employees sued: "two of the produce merchants through whom Munoz sold strawberries: Apio, Inc. (Apio), and Combs Distribution Co., together with its principals, Corky and Larry Combs, and its field representative Juan Ruiz (collectively Combs). Plaintiffs’ separate action against a third merchant, Frozsun, Inc. (Frozsun), has been stayed pending the outcome of this action."

The Labor Code does not specify who is liable for unpaid wages under Lab. Code Section 1194:

Notwithstanding any agreement to work for a lesser wage, any employee receiving
less than the legal minimum wage or the legal overtime compensation applicable to the employee is entitled to recover in a civil action the unpaid balance of the full amount of this minimum wage or overtime compensation, including interest thereon, reasonable attorney’s fees, and costs of suit.

The Court first decided that liability under Section 1194 is limited to an "employer" under the Industrial Welfare Commission's Wage Orders. The Wage Orders do define "employer." As the Court related:

Employ’ means to engage, suffer, or permit to work,” and “ ‘[e]mployer’ means any person as defined in Section 18 of the Labor Code, who directly or indirectly, or through an agent or any other person, employs or exercises control over the wages, hours, or working conditions of any person.”

So, who is an employer? The Court said that under the IWC's definition, one can become an employer in one of three ways:

To employ, then, under the IWC’s definition, has three alternative definitions. It means: (a) to exercise control over the wages, hours or working conditions, or (b) to suffer or permit to work, or (c) to engage, thereby creating a common law employment relationship.
Suffer or permit - The Court clarified that to "suffer or permit" someone to work results in a finding of employer only when the person permitting the work has the power to stop it. The vendors / defendants could not stop or prevent the work. Munoz had all the power to hire or fire his own workers.

Regarding the "control over the wages hours and working conditions," the Court rejected the claim that the vendors' financial relationships with Munoz resulted in de facto control over the plaintiffs' working conditions.

Finally, "to engage" means that the employer hires the employees to work, which is the straightforward way of establishing an employment relationship. There was no such evidence in this case.

So, this test will be used to define who is liable under California law as an "employer," with the exception of the employer's agents / employees. The employer's own agents and employees are not liable under Reynolds v. Bement, cited above. If the IWC changes the definition of "employer," then this case may be superseded. But the Legislator has all but abolished the IWC. So, the Legislature will have to define the employment relationship or reconstitute the IWC to change the effect of this case.

The opinion in Martinez v. Combs is here.