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LOS ANGELES — The Second District Court of Appeal on April 2 rejected what has become an increasingly common tactic in wage-hour class action litigation: suing corporate officers and managing agents as individual defendants. In Reynolds v. Bement, 03 C.D.O.S. 2845, the Second District held that agents of an employer cannot be personally sued for unpaid overtime, either under the provisions of the Labor Code permitting such suits against employers or under the unfair competition statute, Business & Professions Code � 17200. Reynolds is the first appellate decision in 46 years to address this issue. (Editor’s note: The author represented the company in the lawsuit underlying Reynolds v. Bement.) Unlike the federal Fair Labor Standards Act, California’s wage-hour laws do not expressly provide for individual liability. But like their federal counterparts, California’s laws do draw a distinction between employers and the agents of employers. On a variety of topics (including the obligation to pay overtime), the Labor Code imposes the burden of complying with the law on the employer — but expressly makes the employer’s agents or management liable for misdemeanor penalties or civil fines in egregious cases of noncompliance. In a unanimous decision written by Justice Michael Nott, the Second District held that the courts must respect the distinction made by the Legislature, and that it means precisely what it says: Managing agents cannot be personally sued. This ruling will have at least three effects on wage-hour class action litigation. � The first, and most obvious, effect of the ruling is to remove one of the more serious pressures on defendants to settle overtime class actions. Naming corporate officers, directors or managing agents individually in a class action creates two kinds of pressures on the company to settle. By making the lawsuit a significant personal inconvenience to the persons in a business organization whose approval is necessary for settlement, it may be somewhat more likely that the employer will be willing to settle earlier, and for more. Second, naming individual managing agents creates the specter of a trial in this post-Enron environment in which class counsel will be able to accuse executives of benefiting at the expense of “working managers.” � A second effect of the ruling will be to make it easier to remove overtime class actions to federal court. It not only prevents class counsel from naming nondiverse individual defendants, it actually creates a ground for removal based on a federal question. Since the Reynolds ruling now makes it clear that state law does not provide for individual liability for overtime violations, while federal law does, a complaint that seeks to hold individuals liable must necessarily make a claim under federal law. � But the most wide-ranging effect is the signal the ruling sends that the views of the Division of Labor Standards Enforcement are of limited persuasive value. The DLSE adopts its own interpretations of wage-hour laws and promulgates them in two ways: First, it publishes “Enforcement Policies and Interpretations Manual” for DLSE staff (including administrative law judges). Second, it issues “opinion letters” at the request of private parties that it makes available to the general public. Although the Supreme Court held in 1996 that because the DLSE does not comply with the state’s Administrative Procedures Act when it publishes the manual, the interpretations contained in it are not entitled to any form of deference, it has approved the practice of according persuasive weight to the DLSE’s opinion letters. More often than not the courts have deferred to the DLSE’s views. The Second District did not defer to the DLSE’s views in this instance. In June (while Reynolds was being briefed), the DLSE issued an opinion letter that concluded the FLSA’s individual liability provisions could be grafted onto California’s statutory scheme to create individual liability for overtime, relying on a federal district court decision in Bureerong v. Uvawas, 922 F.Supp. 1450 (C.D.Cal. 1996). The Reynolds ruling dismissed both the DLSE’s opinion letter and the Bureerong decision as unpersuasive. The Reynolds ruling represents a second significant impact for wage-hour class action proponents in less than one month. On March 3, the California Supreme Court handed down its opinion in Lockheed Martin Corp. v. Superior Court (Carrillo), 03 C.D.O.S. 1842. Although not a wage-hour case, Lockheed Martin settles a question that has been hotly debated in wage-hour class actions: The court held that the predominance requirement for class certification is not satisfied unless each element of the class claim can be resolved on a class basis. Proponents of wage-hour class actions have up to now been arguing that predominance is satisfied when the majority (but not necessarily all) of the issues to be resolved were susceptible to class proof. The Lockheed Martin ruling raises the bar for plaintiffs class counsel in wage-hour cases and will be regarded as a preview of the state Supreme Court’s ruling in Sav-On Drug Stores, Inc. v. Superior Court (Rocher), in which it is reviewing another Second District opinion that reversed the grant of class certification in an overtime class action. For now at least, the tide seems to be turning on a litigation trend that some have described as a tsunami. Steven B. Katz is a partner in the Los Angeles office of Seyfarth Shaw, where he specializes in appeals and complex litigation. Katz represented a co-defendant in the Lockheed Martin case.

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