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Management at Ralphs Grocery Co. was not the only group to take note of a California appeal court decision last month that found that elements of the retailer’s employee bonus system ran afoul of the law. “We started receiving cases against other employers the very next day,” says Kirby Wilcox, a partner at Paul, Hastings, Janofsky & Walker. The burst of copycat suits represents the latest chapter in the wage-and-hour class action phenomenon. Employment attorneys are reporting a decline in the unpaid overtime class actions that have dominated the dockets for the past few years. But while overtime litigation may be on the wane, wage-and-hour law remains among the plaintiffs bar’s most fertile soil, as attorneys increasingly turn to a new breed of suits. “It’s really the second wave of class actions,” says Brian Ashe, a partner at Seyfarth Shaw. The new wage-and-hour suits take aim at violations of specific labor code regulations; things like meal breaks, work breaks and policies on uniforms. Individually, the violations carry small fines. But the broad and repetitive nature of the claims makes them well suited for class actions. “They’re basically gotchas that wind up, if you add all the little crumbs together, making a really nice class action,” says Ashe. Some of the most innovative wage-and-hour suits involve the accounting methods used in worker bonus plans and sales commissions. At issue in Ralphs Grocery Co. v. Superior Court (Swanson), C.D.O.S. 9311, is the company’s system for calculating profit-based bonuses. The court found that Ralphs’ practice of factoring expenses such as merchandise losses and worker’s compensation costs into the bonuses it pays its employees is tantamount to an illegal deduction of wages. The size of the class in Ralphs is still undetermined, with the case now heading back to trial court. A similar raft of suits targets the so-called commission chargebacks in use at many businesses. AT&T Wireless, Verizon Wireless, Nextel, Sprint and Cingular Wireless have all been sued for “illegal wage deductions” because the companies reclaim a portion of their salespeople’s commissions if a customer cancels cell phone service before the contract expires. “It’s the old rule: You never, ever take back money from an employee,” says Mark Thierman, a Reno-based attorney who is representing the plaintiffs in the cell phone cases. According to some lawyers, this new generation of cases is a natural result of the boom in wage-and-hour litigation. Simply put, the flood of overtime misclassification suits has begun to exhaust the supply of defendants. Since 2000, corporations have doled out hundreds of millions of dollars to settle allegations that they denied their workers overtime pay by misclassifying them as overtime-exempt “managers.” A $90 million jury verdict against Farmer’s Insurance Co. in 2001 established overtime exemption suits as one of the most popular, and potentially lucrative, causes of action in employment law. But most of the big corporate targets have now been hit, or have altered their overtime classification policies in response to the suits. The retail industry has been especially picked over. “I don’t think there’s a mall that my wife can go shopping in without them recognizing my name from a class action,” says Thierman. Moreover, a case pending before the California Supreme Court, Sav-on v. Superior Court, S106718, has cast a cloud of uncertainty over the future of overtime class actions. The court of appeal ruling in front of the justices holds that Sav-on workers’ misclassification claims cannot be tried en masse because of disparities in store locations, store sizes and sales volume. “The fact that defendant has a common policy of treating all its operating managers and assistant managers as exempt does not necessarily mean the common policy, when challenged in court, is either right as to all members of the class or wrong as to all members of the class,” wrote Second District Court of Appeal Justice Charles Vogel in a unanimous opinion. BROADENING HORIZONS With overtime case filings slowing, plaintiffs attorneys have expanded the range of their wage-and-hour repertoire, seeking out new causes of action. “Our first wave of cases were all misclassification cases, and now we have a mix,” says David Borgen, a partner at Oakland plaintiffs firm Goldstein, Demchak, Baller, Borgen & Dardarian. Legislative and administrative developments have provided a helping hand. Amendments to the labor code adopted in 2001 entitle a worker to one hour’s pay for each 30-minute meal period that’s denied. Similarly, another new provision makes employers liable for an hour of pay for each workday that an employee is denied a 10-minute rest period. Plaintiffs attorneys have also found inspiration in the steady stream of opinion letters published by the Division of Labor Standards Enforcement that clarify the labor code on matters like travel time and meal periods. “All of these things the plaintiffs bar has been studying, and it’s our job to enforce them,” says Borgen. “Especially in the light of the budget crisis, with the DLSE being underfunded and understaffed.” Borgen says he’s currently involved in numerous class actions seeking compensation for the time workers spend traveling between the main office and remote work sites. In July 2002, he won certification in a travel time suit for a class that could include up to 275,000 members against Labor Ready, a Tacoma, Wash., day laborer firm. As with the earlier overtime exemption suits, the most important battle remains class certification. In some cases, such as sales commission chargebacks, there’s often a company-wide policy or payroll data that plaintiffs can point to. But in suits involving things like rest breaks, which most employers don’t document, businesses can drill into commonality arguments with the testimony of workers who say they did take breaks. Plaintiffs attorneys have had some success winning class certification in the latest wage-and-hour suits, notes Borgen, but the bar is not any lower. “There’s no free lunch,” says Borgen, “even on lunch-period cases.”

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