On May 29, 2014, the California Supreme Court in Duran v. U.S. Bank National Association clarified employers’ rights in defending against employee misclassification class action cases. The Court held that in defending against such claims, employers must be permitted to present relevant defenses, even if such defenses involve individual issues. The Court’s analysis should have a sweeping effect on trial courts by requiring a more thorough analysis at the time of class certification. Trial courts can no longer leave the issue of a trial plan in the queue and wait to see if the case proceeds to trial, which is exceedingly rare in class actions. Rather, trial courts will need to consider and define a manageable and fair trial plan at the outset that will permit employers to litigate individual liability defenses. 

Duran arose from a class action brought by 260 current and former loan officers of U.S. Bank. The employees claimed they had been misclassified as exempt employees under the outside salesperson exemption and, therefore, had been denied overtime pay.

The class was certified and a trial management plan was created that allowed a random sampling of 21 employees to testify at trial. Although the Bank tried to introduce numerous declarations from absent class members who claimed they met the exemption standard, the court refused to admit the declarations. The employer was only permitted to present evidence related to the 21 class members in the sample.

In the court’s words, Duran was “an exceeding rare beast, a wage and hour class action that proceeded through trial to verdict.” Based on the testimony of the random sampling of class members, the trial court awarded $15 million in restitution and $18 million in attorneys’ fees to all of the class members.

The Bank appealed. The California Court of Appeal reversed the trial court, decertified the class, and held that the trial plan was “fatally flawed” because it deprived the employer of its due process right to litigate affirmative defenses – the trial plan prevented the employer from defending against the individual claims of 90% of the class members. The employees appealed to the California Supreme Court.

In a decision that can be called a “win” for employers, the Supreme Court affirmed the appellate court’s decision that the trial plan was flawed and prevented the Bank from presenting evidence that some of the class members were not misclassified.  Although the court rejected the idea that an employer can present individual evidence for every class member, the court confirmed the right of an employer to present individualized evidence to challenge “common evidence” in a class action.

The court did not wholly reject the use of sampling, but emphasized that, at the class certification state, the litigation of individual issues, including those arising from affirmative defenses, must be managed fairly and efficiently. In the court’s words, “Trial courts must pay careful attention to manageability when deciding whether to certify a class action.” The court clarified that such statistical methods must not undermined a defendant’s right to present relevant evidence.

The court remanded the case to the lower court for a new trial and held that the trial court may hear a new motion for class certification.

Duran should be useful guidance for trial courts in determining whether employee wage class actions can be certified, and, if so, how individual issues must be managed through a trial plan. Much more time will likely be expended by both sides to argue the feasibility of any trial plan based on sampling and statistics. Trial courts may also be asked to review class certification decisions to determine if, in light of this recent clarification, a certified class action should, in fact, remain certified.

A California Court of Appeal decision issued on May 15, 2014 (Tiri v. Lucky Chances, Inc., Case No. A136675) decided that the parties to an arbitration agreement may, by agreement, deprive a civil court of jurisdiction to determine whether an arbitration agreement is enforceable.

Several years after she was hired, Lourdes Tiri signed an agreement with her employer, Lucky Chances, Inc. requiring disputes between them to be resolved by arbitration.  In one of the provisions to that agreement, the parties agreed to delegate questions about the enforcement of the agreement to the arbitrator, instead of to a court.   Tiri was subsequently fired and she filed a complaint in the Superior Court alleging wrongful discharge.  The employer petitioned to compel arbitration but the trial court denied the petition on the grounds that the arbitration agreement was unconscionable and therefore unenforceable.  Lucky Chances appealed the court’s order denying arbitration.  The court held that the trial court lacked the authority to rule on the enforceability of the agreement because the parties’ assignment of this authority to the arbitrator was clear and was not revocable under state law.

This is great news for employers and a further incentive to use arbitration agreements that contain provisions of this kind.  The chances that an agreement will be found to be unenforceable if it contains such “arbitrator decides” language is fairly remote.  A full copy of the decision can be viewed at this link: Tiri v. Luck Chances.

Summary of Program

Companies and their employees are now widely using social media in their daily business activities. These networking sites are used by employees to communicate with one another as well as current and potential customers. However, an employee’s use of social media may occasionally adversely impact their employer’s business or present other legal risks. What can an employer do to protect itself without intruding on an employee’s rights?

Program Highlights

  • Employer’s use of employee’s social media information versus the employee’s right to privacy.
  • Protection of employer’s Confidential and Proprietary Information.
  • Ramifications of B.Y.O.D. policies.
  • Potential employer liability for employee’s on-line conduct.
  • The importance of effective Electronic Use and Social Media policies.
  • Legal limits for employee use of social media in the workplace.

Date:      May 22, 2014

Time:    9:30 a.m. – 11:30 a.m.

Location:  Weintraub Tobin, 400 Capitol Mall, 11th Floor, Sacramento, California.

For more information and to download a copy of the flyer, please click here.

Readers of this blog may recall our discussion of a “bad faith” attorney’s fees award made by the trial court in the Aerotek v. The Johnson Group case.   To view a copy of our previous post, click here.  As a refresher, Aerotek sued its former employee and that former employer’s new employer claiming misappropriation of trade secrets.  Aerotek lost.  The trial court awarded $735,781.27 in attorney’s fees to defendants under Cal. Civil Code section 3426.4.  That section provides attorney’s fees to a prevailing party in a Uniform Trade Secrets Action “if a claim of misappropriation is made in bad faith.”  Aerotek appealed, challenging the attorney’s fee award on the grounds that the action was neither (1) objectively specious nor brought in subjective bad faith as required for fees awarded under Cal. Civil Code section 3426.4; and (2) the lodestar multiplier used by the trial court was based on the misrepresentation by the law firm.

In a decision that contains lots of useful insights into how trial courts and courts of appeal view such “bad faith” attorney’s fees awards, the court of appeal affirmed the trial court.  The decision is unpublished.  That means that regardless of the value of the insights contained in the decision, it cannot be cited as precedent in future cases.   To read a fully copy of the decision, click on this link: Aerotek v The Johnson Group.

As readers of this blog may know, a party prevailing in a trade secret misappropriation case may be entitled to reasonable attorney’s fees if that party can show either that the claim was brought by the plaintiff in bad faith or that the defendant was guilty of willful and malicious misappropriation. The award of attorney’s fees in such cases can sometimes be significant, even exceeding the amount of damages awarded for the actual misappropriation.

In a recent decision, Altavion, Inc. v. Konica Minolta Systems Laboratory, Inc., 2014 Cal.App. LEXIS 409, a California appellate court addressed the issue as to what local community rates would apply in awarding attorney’s fees to the prevailing party.  Altavion, was the inventor of technology that would allow for the self-authentication of digital and paper documents.  It later entered into negotiations with the defendant, a subsidiary of a parent company that, among other thing, manufactures scanners and printers.  After the negotiations failed, plaintiff learned that the defendant had patented technology that seemed to be based on the technology that plaintiff had developed and discussed with defendant during their negotiations.  Plaintiff brought a claim for, among other things, trade secret misappropriation.  Plaintiff won and was awarded $1 million in damages and $3.2 million in attorney’s fees.  The case was venued in San Mateo County, but the plaintiff’s attorneys were  from Sacramento.  In making its attorney’s fee award, the trial court awarded plaintiff its “reasonable attorney’s fees” based on hourly rates that were reasonable in the local San Mateo community – not Sacramento.  On appeal, the defendant argued that the Court should have used the “reasonable hourly rates for the Sacramento attorneys where plaintiff’s attorneys were based,” which would be somewhat lower.

The appellate court rejected this argument.  It found that “the reasonable hourly rate is that prevailing in the community for similar work” and that for purposes of this analysis, “the relevant `community’ is that where the Court is located.”  Because an award of attorney’s fees is “committed to the discretion of the trial court”, the appellate court held that the trial court did not err in awarding attorney’s fees based on the local community rate (i.e., San Mateo) as opposed to the lower Sacramento rate.

The Altavion decision is a reminder that the cost of litigating a trade secret claim can be quite high, especially when the risk of an award of attorney’s fees is factored in.  It also raises the implication that a party who hires attorneys from a big city to litigate these claims in a smaller jurisdiction may find its attorney’s fee award capped by that community’s lower local rates.