Frlekin v. Apple, Inc., -- Cal. -- (2020)

Summary: The time employees spent on Apple’s premises waiting for and undergoing a mandatory exit search of personal belongings was compensable as “hours worked” under Wage Order 7.

Facts: Apple required its retail store employees to undergo exit searches of their bags, packages, purses, backpacks, and briefcases for loss prevention purposes after clocking out. Employees were also required to allow their personal Apple products, such as their iPhones, to be examined before leaving work. These exit searches were performed by an Apple manager or security employee and took up to 45 minutes to complete. Employees brought a class action alleging that Apple failed to pay them minimum and overtime wages for time spent waiting for and undergoing exit searches. The district court granted Apple’s motion for summary judgment, holding that time spent by class members waiting for and undergoing exit searches was not compensable as “hours worked” under Industrial Welfare Commission (“IWC”) Wage Order No. 7 (the “Wage Order”). Plaintiffs appealed to the Court of Appeals for the Ninth Circuit, which certified a question to the California Supreme Court.

Court’s Decision: The Supreme Court held that Apple must compensate its employees for the time spent undergoing exit searches. The court first noted that under the Wage Order, employers must compensate employees for “hours worked” when: (1) the employee is subject to the control of the employer, or (2) when the employee is suffered or permitted to work. Focusing exclusively on the “control” prong, the court noted that Apple controls its employees in several ways: by requiring the bag searches under the threat of discipline, by confining employees to the company’s premises while they wait for and undergo exit searches, and forcing employees to track down a manager or security employee to perform the exit search. The court also found that the exit searches were performed for Apple’s benefit, further establishing control by Apple. The court rejected Apple’s argument that it need not pay for time spent during exit searches because the employees can avoid the searches by not bringing bags or their Apple products into the store. It held that, as a practical matter, Apple’s exit searches cannot be avoided; employees have little choice whether to bring a bag with personal belongings because Apple requires them to wear Apple-approved attire at work, but to remove or cover the attire outside of work. The court also reasoned that employees have little true choice in deciding whether to bring their cellphones to work. Because Apple exercised significant control over the employees during the exit searches, such time was compensable under the Wage Order’s “control” clause.

Practical Implications: Frlekin did not hold that all security checks must be compensated. In future cases concerning exit searches, employers may be able to distinguish Frlekin based on its facts. The simplest effective solution would be to compensate employees for the time spent undergoing an exit search by requiring employees to clock out only after completing their exit search.

Grande v. Eisenhower Med. Ctr., 44 Cal. App. 5th 1147 (2020)

Summary: Res judicata did not bar claims in a class action against a hospital where a staffing agency had previously entered into a class action settlement agreement that did not explicitly release the hospital from all related claims.

Facts: FlexCare, LLC (“FlexCare”), a temporary staffing agency, assigned Lynn Grande to work as a nurse at Eisenhower Medical Center (“Eisenhower”). Grande worked at Eisenhower for just eight days. After her assignment at Eisenhower ended, Grande became a named plaintiff in a class action lawsuit against FlexCare brought on behalf of FlexCare employees assigned to hospitals throughout California. The case alleged standard wage and hour claims, including unpaid overtime and meal and rest break claims. FlexCare settled with the class, and Grande executed a release of claims. The release included standard language releasing the named defendant’s subsidiaries, affiliates, divisions, parent companies, etc. It did not, however, expressly release Eisenhower or the category of FlexCare’s clients. Grande then sued Eisenhower in a separate class action, based on the same labor law violations, but on behalf of all nurses of any staffing agency employed and assigned to work at Eisenhower. After Eisenhower demanded indemnification from FlexCare, FlexCare intervened in the Eisenhower class action, arguing (1) that the judgment in the FlexCare class action precluded Grande’s claims against Eisenhower on res judicata grounds, and (2) that Eisenhower was a released party under the FlexCare settlement agreement. The trial court ruled against FlexCare and Eisenhower on both grounds. FlexCare appealed, and Eisenhower filed a petition for writ of mandate.

Court’s Decision: The California Court of Appeal affirmed the trial court’s judgment against FlexCare and denied Eisenhower’s petition. First, the court held that the doctrine of res judicata did not bar Grande’s claims against Eisenhower because Eisenhower and FlexCare were not in privity. The fact that FlexCare and Eisenhower were alleged to be jointly and severally liable and joint employers, and that FlexCare was required to indemnify Eisenhower, was not enough to satisfy the privity requirements of res judicata. On this point, the court parted ways with Castillo v. Glenair, Inc., 23 Cal. App. 5th 262 (2018), which had held that the staffing agency and client in that case were in privity. Second, the court held that Eisenhower was not a released party under the FlexCare settlement agreement. The court noted (1) that Eisenhower was not identified as a released party and (2) that the agreement did not include language identifying “clients, joint employers, joint obligors, or other similar language” of FlexCare within the long list of categories of people and entities that fell within the definition of “Released Parties.” The fact that the release included “related and affiliated companies” was insufficient to cover Eisenhower. The court explained that “[i]f the settlement defined ‘Released Party’ by naming Eisenhower, as it named FlexCare and several other individual parties, we would have to conclude that Grande had settled her claims against the hospital.” On this second point, the court again parted ways with Castillo. In Castillo, the court held that the client was an “agent” of the staffing agency, and therefore it fell within the scope of the release. The Grande court declined to find an agency relationship between FlexCare and Eisenhower. One justice in Grande dissented, explaining in a short separate opinion that he would have followed Castillo.

Practical Implications: This case is an important reminder to exercise care in drafting settlement agreements, particularly the scope of the release. In complex cases involving multiple entities, staffing agencies, joint employers, or potential indemnitees, the release should expressly name each and every released entity. Do not assume that the boilerplate list of successors, predecessors, assigns, etc. will be sufficient.

Rizo v. Yovino, -- F.3d -- (9th Cir. 2020) (en banc)

Summary: Prior pay history is not a “factor other than sex” that allows an employer to pay an employee less than employees of the opposite sex who perform the same work.

Facts: The Fresno County of Education (“County”) set its new employees’ salaries by a pay schedule with 12 levels and several steps within each level. To calculate a new employee’s pay, the County started with the employee’s prior pay, increased that pay by 5%, and then placed the employee at the corresponding step on the pay scale. In 2012, County employee Aileen Rizo learned that a newly hired male with a similar job title had a starting pay that was significantly more than she was earning after working three years for the County. Rizo filed a complaint alleging violation of the Equal Pay Act (“EPA”) and claims of sex discrimination. The County moved for summary judgment, arguing that the pay disparity between Rizo and male counterparts was the result of its policy to base pay on employees’ prior pay. It argued that prior pay was a “factor other than sex” that defeated Rizo’s EPA claim. The district court denied the County’s motion. A panel of the Court of Appeals for the Ninth Circuit reversed, holding that it was bound by Kouba v. Allstate Insurance Co., 691 F.2d 873 (9th Cir. 1982), which held that the EPA does not impose a strict prohibition against use of prior salary so long as employers consider prior pay reasonably to advance an acceptable business reason. The case was taken up by an en banc panel of the Ninth Circuit, which overruled Kouba, holding that prior pay could not be used to justify paying a female employee a lower wage than her male counterpart. The Supreme Court vacated the en banc opinion based on a procedural issue and remanded to the Ninth Circuit.

Court’s Decision: The Ninth Circuit overruled its decision in Kouba, holding that prior pay can never serve as a basis for unequal pay under the EPA. There are four exceptions to the EPA’s equal-pay mandate. These are payments made pursuant to: (1) a seniority system; (2) a merit system; (3) a system which measures earnings based on quantity or quality of production; or (4) a differential based on any other factor other than sex. The court found that the “factor other than sex” exception must be rooted in legitimate differences in responsibilities or qualifications for jobs. Because prior pay is not itself related to the work an employee is performing, it is not a factor other than sex that can serve as the basis for unequal pay under the EPA. The court concluded that permitting use of prior pay under the “factor other than sex” exception would perpetuate a history of wage discrimination.

Practical Implications: Do not consider an employee's pre-employment pay when setting their new pay. California employers are reminded that California's Equal Pay Act prohibits employers from relying on a job applicant's salary history in setting the applicant's starting wage/salary or eliciting salary history from job applicants.