This month’s experts are
Rod M. Fliegel, a shareholder in the
office of law firm Littler Mendelson and CWHA board member, and Marlene S. Muraco,
a shareholder in Littler Mendelson’s
Jose
Employees can sue
employers for some wage and hour violations under
Law (the “UCL”), including overtime violations. In November 2004, however,
Proposition 64, an initiative intended to curb rampant abuse of the UCL by
restricting the “standing”— the right to file a lawsuit—of private individuals and
entities.
Before Prop. 64, an
individual with no injury could file a lawsuit on behalf of “the general
public.” Now, someone can only file suit when he or she has suffered actual
harm. But does Prop. 64 impact lawsuits that were filed before November 2004?
The California Supreme Court has answered that question in two recent cases.
The Mervyn’s Case
In the first lawsuit, a
nonprofit corporation alleged that the aisles in Mervyn’s stores were too
narrow to allow access by certain disabled patrons. The nonprofit sued on
behalf of the general public and did not claim any harm from Mervyn’s conduct.
After a court trial, the judge ruled in favor of Mervyn’s.
While the nonprofit’s
appeal from that ruling was pending, Prop. 64 took effect. Mervyn’s sought to
dismiss the appeal on the ground that the initiative eliminated standing under
the UCL for plaintiffs who, like the nonprofit corporation, were not actually
harmed. The court of appeals denied the motion. However, the California Supreme
Court reversed, holding that Prop. 64 did apply to cases pending at the time it
took effect.
The
The high court’s holding
that the nonprofit plaintiff in Mervyn’s no longer had standing to pursue the UCL
claims against Mervyn’s left open the question of whether the lawsuit could
continue at all. That question was answered in a second case, also filed before
Prop. 64 was passed, alleging that Downey Savings had misrepresented and
overcharged customers for fees charged by the state to record official
documents used in real estate transactions (such as deeds and powers of
attorney). As in the Mervyn’s case, the plaintiffs in
having suffered no actual harm themselves, they had no standing to sue.
The state Supreme Court,
however, held that courts may allow the substitution of a new plaintiff—one who
does have standing—so the case can continue. This is true as long as the new
plaintiff does not “state facts which give rise to a wholly distinct and
different legal obligation against the defendant.”
Thus, even though the
high court helped employers by finding that the standing argument narrows down who
can bring a lawsuit under the UCL, there will be cases when someone else with
standing will be able to step in as a substitute plaintiff so the case can go forward.
Implications for
Employers
Because the UCL has a
generous four-year limitations period, it has become common for plaintiffs’ attorneys
to include a UCL claim when asserting the violation of a statute with a shorter
limitations period (such as the California Labor Code’s overtime provisions). It
remains to be seen whether the Supreme Court’s decisions will put an end to a
substantial number of such claims that were pending before Prop. 64 took
effect.
Businesses that can
challenge a plaintiff’s standing under the UCL almost certainly will explore
the opportunity to do so. Success may depend in large measure on how far the
action has progressed. For example, it will be easier to identify “substitute
plaintiffs” in cases in which the plaintiff already was able to discover, or otherwise
has access to, contact information for persons allegedly harmed by the
defendant’s conduct.
Because of these rulings,
employers who are presently defending UCL claims should consider the following:
• Whether the lawsuit
was filed before Prop. 64 took effect.
• If it was, whether the
plaintiff who filed the lawsuit has standing (for example, whether he or she worked
for you and suffered actual harm from the alleged employment violation).
• Whether it’s
worthwhile to invest time and money in a motion to dismiss the lawsuit if it
appears a substitute plaintiff with standing can easily be added to the
lawsuit.
Join us this fall in San Francisco for the California Employment Law Update conference, a 3-day event that will teach you everything you need to know about new laws and regulations, and your compliance obligations, for the year ahead—it’s one-stop shopping at its best.
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1 Californians for
Disability Rights v. Mervyn’s LLC,
Supreme Court No. S131798, 2006
2 Branick v.