Wage and hour rulings have plaintiff-friendly implications

The wage and hour plaintiffs' bar was recently faced with two potentially game-ending blows emanating from the state high court. The two cases - Duran v. U.S. Bank National Association, 2014 DJDAR 6773 (May 29, 2014), and Iskanian v. CLA Transportation Los Angeles LLC, 2014 DJDAR 8037 (June 23, 2014) - were legally and factually quite different; however, once the dust cleared, not only was the plaintiffs' bar was still standing, it was stronger than it has been in a long time. The future looked bright and settlement postures changed overnight. Wage and hour defendants still believe that they have the upper hand, but they should be very concerned about these cases. The pendulum is swinging back.

The first long-awaited opinion to come down was Duran, which laid out a framework for using statistical evidence that is both practical and achievable in many class and representative action cases. First, the margin of error must be as low as possible. If one can attain a rate below 20 percent, it is very likely to pass muster, especially if there are other bolstering factors such as a high response rate, probable distribution within the margin of error, and absence of measurement error. While the cost of the survey may go up by adding participants to reduce the margin of error, it should not be substantial.

Duran discusses due process rights at length, with the focus on allowing a defendant to prove its affirmative defenses. There are many cases where the documentary evidence alone will allow a plaintiff to make her prima facie case, therefore shifting the burden to defendant. Pay stub violations, regular rate issues, or meal period claims paired with a deficient policy are all good examples. In those cases, it may be defendants who are relying on survey information. Alternatively, there may be cases such as misclassification claims, where survey evidence will be required for liability. In that instance, it will be important to craft a survey that eliminates bias in selection to the greatest extent possible. Of course, in situations with mixed liability findings, reliance upon survey evidence may prove problematic. If there are only a few outliers, common questions may still predominate and class certification may still be appropriate. There are still pitfalls to be sure, but the rules have now been clarified and the plaintiffs' bar has a clear path to proof.

Iskanian provided the second potential blow to plaintiffs. I wrote about this case in April, and my reading of the tea leaves proved spot on. Emboldened, I further predict that Iskanian will escape Supreme Court review. California Supreme Court Justice Goodwin Lui carefully crafted this opinion for U.S. Supreme Court Justice Antonin Scalia. It is a very conservative opinion, in most ways.

The decision starts by overruling Gentry v. Superior Court, 42 Cal. 4th 443 (2007) (rendering a class arbitration waiver unenforceable when it "undermine the vindication of the employees' unwaivable statutory rights"), with the proclamation that a state law rule must bow down to the Federal Arbitration Act. Liu placates Scalia out of the gate, but just as Superman bowed down General Zod to trick him - it was Zod who was powerless, not the Man of Steel - Lui seems to bow down here. But unbeknownst to Scalia, something terrible is coming.

Lui then disposes of the National Labor Relations arguments and the waiver arguments, rejecting both, and finally moves on to discuss the Private Attorney General Act. The crux of the argument is that a PAGA action is state action; the penalties are penalties that the state of California could bring against an employer for violations of the Labor Code. The Legislature chose to allow aggrieved employees to act as a proxy for the state and bring these claims themselves. These claims seek penalties that belong to the state. Therefore, Lui found, "an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy."

Brilliantly, Lui declares that PAGA actions are in essence qui tam actions. He spends some time explaining the history of qui tam dating back to colonial times. He further cautions that the FAA was not set up to interfere with state police powers, only commercial disputes. In the coup de grace, he threatens that should PAGA be stricken, the state Legislature could enact a different kind of PAGA: "In crafting the PAGA, the Legislature could have chosen to deputize citizens who were not employees of the defendant employer to prosecute qui tam actions. The Legislature instead chose to limit qui tam plaintiffs to willing employees who had been aggrieved by the employer in order to avoid private plaintiff abuse."

Here, Lui is warning Scalia that a rejection of PAGA may result in something even worse. Just like General Zod before him, Scalia has lost his powers. This is why he will let Iskanian pass as one of many certiorari petitions that are denied.

So the question remains, why should the plaintiffs' bar be bullish? PAGA, as a vehicle for bringing claims, could not be better. There are four attributes that render PAGA very pro-plaintiff.

First, as discussed above, the claims are unarbitrable. This is very important. The next battle to be fought, also one that plaintiffs are likely to win, is whether employees' contact information will need to be provided in a pure PAGA action. Once that contact information is provided, many of the aggrieved employees will desire to pursue their own claims in arbitration. Defendants will need to pay arbitration fees for each of potentially dozens, if not hundreds, of arbitrations - plus they will still have to deal with PAGA in court. The burden on defendants will be severe.

Second, the claims are unremovable. Much of the bad case law in the wage and hour litigation context has come from district court judges. The 9th U.S. Circuit Court of Appeals, in Bauman v. Chase, has foreclosed removal in PAGA-only situations. So if PAGA-only actions are the new normal that will mean no more federal court. Plaintiffs have home field advantage now.

Third, PAGA claims are unpickoffable. You can't release the claims unless a judge signs off. This means the practice ratified by Pick Up Stix - and oft-employed by worried defendants - won't work with PAGA. See Chindarah v. Pick Up Stix Inc., 171 Cal. App. 4th 796 (2009) (holding that Labor Code Section 206.5 does not apply to any wage release given in connection with payment that settles a good faith dispute).

Fourth, they are uncertifiable. You could certify a PAGA claim if desired, however, Arias v. Superior Court, 46 Cal. 4th 969 (2009), tells us that it's not necessary and there may be no real advantage in doing so. This means these cases are going to a state court bench trial with the entire membership intact. This is an immensely powerful vehicle that is particularly problematic for medium-sized employers that will have no choice but to negotiate or risk paying two sets of lawyers to duke it out and end up paying more in the end.

The plaintiffs' bar will now recalibrate as defenders of the state. As Spiderman says, "With great power comes great responsibility." Now that Liu has clearly bestowed the power, the mild-mannered plaintiffs' bar now fights a never ending battle for truth, justice, and the California way.