Labor Relations & Wages Hours Update August 2013

Applying Supreme Court precedent, the Sixth Circuit indicated that an economic reality test should be used to determine whether an individual is an employee under the FLSA. According to the appeals court, the volunteer firefighters fell within the FLSA’s “broad definition of employee.” The firefighters are suffered or permitted to work, and they receive substantial wages for their work. Specifically, the firefighters received $15 per hour for their service, which was commensurate with the hourly wage other firefighters received, the appeals court noted. ‘These substantial hourly wages simply do not qualify as nominal fees,” wrote the appeals court. Accordingly, the firefighters were employees and not volunteers within the meaning of the FLSA, and therefore, the FMLA. Thus, the police dispatcher could advance his FMLA claim, because the city had a sufficient number of employees to maintain that claim.

The case number is12-1231.

Attorneys: L, Rodger Webb (L. Rodger Webb, PC) for Paul Mendel. Cassandra L. Booms (Logan, Huchla & Wycoff) City of Gibraltar.

9th Cir.: Employee must arbitrate wage claims; she was not prejudiced by employer’s failure to pursue arbitration until Supreme Court issued AT&T v Concepcion

By Lisa Milam-Perez, J.D.

An Ernst & Young employee had to arbitrate her state law wage claims, the Ninth Circuit ruled, reversing a lower court’s holding that the employer waived its right to arbitrate by failing to assert the right as a defense (Richards v Ernst & Young, LLP, August 21, 2013, per curiam).

The employee’s putative class action wage suit was consolidated with another case against Ernst & Young brought by two other employees. The litigation had been moving along for several years and determinative rulings had been issued. However, after the Supreme Court issued its Concepcion decision holding that the FAA preempted state-law bars on class action arbitration waivers, Ernst & Young filed a motion to compel arbitration.

The district court determined that the employer waived its right to arbitration by failing to assert that right as a defense to the other (now-consolidated) wage action. The Ninth Circuit reversed, concluding that the employee could not show she was prejudiced by the employer’s delay in asserting it right to arbitrate.

No showing of prejudice. The employee argued to no avail that she was prejudiced because there already had been litigation on the merits, resulting in the dismissal of some of her claims. Once such claim, a meal and rest break cause of action, was dismissed without prejudice, which is not a decision on the merits, the appeals court noted. The other dismissed claim, for injunctive relief, was disposed of on standing grounds. (As a former employee, she was not entitled to pursue prospective relief.)

Next, the employee argued she was prejudiced by Ernst & Young’s late move to arbitrate because the employer already conducted discovery, causing her to incur expenses during litigation prior to the motion to compel. However, she did not allege that the employer had used discovery as a means of gaining information about her case that could not have been obtained in arbitration. Moreover, the appeals court noted, “self-inflicted” expenses are not evidence of prejudice. Here, the employee was a party to an agreement that mandated arbitration of any disputes. Any extra expense she may have incurred from her “deliberate choice of an improper forum, in contravention of their contract,” could not be attributed to her employer, the court wrote.

More recently, the court noted, the Supreme Court reiterated in Am Express v Italian Colors Rest that “courts must rigorously enforce arbitration agreements according to their terms,” and that this directive holds true for claims that allege a violation of a federal law, “unless the FAA’s mandate has been overridden by a contrary congressional command.” However, Congress did not expressly override any provision in the FAA when it enacted the NLRA or Norris-LaGuardia Act. Thus, D.R. Horton could not salvage her court case.

The case number is 11-17530.

Attorneys: Max Folkenflik (Folkenflik & McGerity), Leon Greenberg and H. Tim Hoffman (Hoffman Libenson Saunders & Barba) and Mark Russell Thierman (Thierman Law Firm) for Michelle Richards. Rex S. Heinke (Akin Gump) for Ernst & Young, LLP.

9th Cir.: High Court overruled Lowdermilk’s “legal certainty” standard to establish amount in controversy for federal CAFA jurisdiction

By Lisa Milam-Perez, J.D.

The Supreme Court has spoken: A lead plaintiff may not waive claims over $5 million in hopes of evading federal jurisdiction under the Class Action Fairness Act, and that holding has effectively overruled the Ninth Circuit’s Lowdermilk standard requiring employers seeking a federal forum to show with “legal certainty” that the amount in controversy satisfies the jurisdictional minimum (Rodriguez v AT&T Mobility Services LLC, August 27, 2013, Clifton, R). Concluding that the High Court’s 2013 decision in Standard Fire Insurance Co v Knowles “has so undermined the reasoning of our decision in Lowdermilk” that it has no legal effect, the appeals court vacated a district court order remanding a California class-action wage suit based largely on that circuit precedent.

Removed, remanded. An AT&T Mobility Services employee brought a putative class action wage claim under California law on behalf of himself and all other similarly situated retail sales managers of AT&T wireless stores in Los Angeles and Ventura counties. He filed his original complaint in Los Angeles County Superior Court, but AT&T removed the case to federal court. The employee moved to remand the case to state court, arguing that AT&T could not establish federal subject-matter jurisdiction because the total amount in controversy did not exceed $5 million, the minimum amount for federal jurisdiction as required by the CAFA. To be certain, he waived any claims in excess of that amount.

In its attempt to show that the amount in controversy did in fact exceed $5 million, AT&T submitted sworn declarations from AT&T representatives regarding the potential number of class members and the size of their claims. The company argued that the lead plaintiff’s allegations, coupled with the sworn declarations, established that the amount in controversy could not be less than roughly $5.5 million and was likely double that amount. Citing the Ninth Circuit’s 2007 decision in Lowdermilk v U.S. Bank Nat’l Ass’n, the lower court required AT&T to demonstrate “to a legal certainty” that more than $5 million was at stake here. But the lead plaintiff’s waiver foreclosed such a showing, the court reasoned. And because the waiver was controlling, the court paid no heed to the employer’s calculations or declarations.

“Legal certainty” standard falls. The High Court ruled a lead plaintiff of a putative class could not foreclose a defendant’s ability to establish the $5 million amount in controversy by stipulating prior to class certification that the amount in controversy is less than $5 million. Because a lead plaintiff cannot reduce the amount in controversy on behalf of absent class members, there is no justification for assigning the “legal certainty” standard, the appeals court concluded. In fact, the rationale for applying such a standard is “clearly irreconcilable with intervening Supreme Court authority.”

Accordingly, “employers seeking removal of a putative class action need show only by a preponderance of evidence that the aggregate amount in controversy satisfies the federal minimum,” the Ninth Circuit wrote. This standard conforms to the employer’s burden of proof when a plaintiff does not plead a specific amount in controversy.

In the case at hand, because the lead plaintiff’s waiver was not binding on the class, it could not resolve the amount-in-controversy question. And, since the district court had relied solely on that waiver in remanding to state court, the appeals court reversed the order of remand for further reconsideration. On remand, the preponderance standard was to be applied to the amount-in-controversy evidence.