I. INTRODUCTION

"Logical consequences are the scarecrows of fools and the beacons of wise men." - Thomas Henry Huxley, Animal Automatism (1874).

California is a complicated place. Due, in part, to its complex character, there are regular instances in which the California legislature can neither agree on important legislation, nor pass legislation out of committee, nor move legislation past the Governor's veto; hence, California has a love-hate relationship with its ballot Propositions.

A ballot Proposition is a method of amending either the California State Constitution or California statutory law. Limiting the discussion to statutory law, ballot Propositions are presented to voters through the initiative process, the method by which the public can directly propose legislation. If approved by more than 50% of voters, a Proposition becomes law in the same manner and with the same legal effect as if it had been passed by the state legislature. Since March 7, 2000, there have been roughly 70 statewide propositions presented to California's voters.[1]

Unfortunately, the initiative process brings with it a separate set of problems. One major example of such a problem is that a proposition can be proposed by a narrow set of special interests that are not necessarily reflective of concerns of the majority. Also, there are no requirements that specify how Propositions should be drafted nor identify who may perform such drafting. While attorneys are often involved, propositions do not move through the legislative process, where language would typically be revised numerous times as diverse interests weigh in on the proposed legislation.

While it is certain that there are other legitimate and significant criticisms of the initiative process, the two identified here tend to work in concert with each other to create unanticipated consequences. One such unanticipated consequence is the focus of this article: unanticipated consequences following the passage of Proposition 64. Specifically, this article examines how Proposition 64, funded primarily by businesses interested in limiting the scope of California's Unfair Competition Law, may simply force class action practitioners to develop creative solutions to work around the limitations imposed by Proposition 64. In the wage and hour setting in particular, the search for creative workarounds may direct attention to the less frequently utilized, but more readily satisfied, subparts of Rule 23 of the Federal Rules of Civil Procedure. This would be a consequence that many industries, such as automobile manufacturing, oil, pharmaceutical, or retail industries would not have intended or sought when backing Proposition 64.

II. A BRIEF HISTORY OF CALIFORNIA'S UNFAIR COMPETITION LAW, ITS USE IN LITIGATION, AND THE CHANGES IMPOSED BY PROPOSITION 64

On November 2, 2004, California voters passed ballot Proposition 64, which amended portions of California's Unfair Competition Law (UCL).[2] Prior to the passage of Proposition 64, any plaintiff acting for the interests of itself, its members, or the general public could bring a UCL claim. However, section 17204 was amended to circumscribe standing to bring UCL claims. Under the revised section, a person can only pursue an action for relief under the UCL if he or she has actually suffered injury and has lost money or property as a result of such unfair competition.[3] In short, a plaintiff must have suffered direct injury to bring any claims under the UCL.

Where section 17204 limits individual standing, section 17203 was amended to impose new requirements for private representative actions. Prior to the passage of Proposition 64, a plaintiff could sue on behalf of members of the public despite suffering no direct personal injury. Highly publicized abuses of these so-called "private attorney general" actions were used to justify Proposition 64.[4] After Proposition 64 passed, a plaintiff bringing a representative claim must not only satisfy the new individual standing requirements of section 17204, but he or she must also satisfy the requirements of California Code of Civil Procedure section 382, which governs class actions.[5]

The stated purpose of Proposition 64 was to eliminate frivolous unfair competition lawsuits while protecting the right of individuals to retain an attorney and file an action for relief pursuant to Chapter 5 (commencing with section 17200) of Division 7 of the Business and Professions Code.[6] This stated purpose, according to one of Proposition 64's drafters, was to be accomplished by prohibiting private attorneys from filing lawsuits for unfair competition where the client has not in fact been injured under the "injury-in-fact" element of standing requirements imposed under the United States Constitution.[7]

Opponents of Proposition 64, including both Consumers Union and the Foundation for Taxpayer and Consumer Rights, argued that large corporations, who were substantial contributors to the Proposition 64 campaign, were using scare tactics to curtail private attorney general actions. California Attorney General Bill Lockyer stated, "Proposition 64 will weaken enforcement of environmental and consumer protection laws in California in very substantial ways."[8] However, the California electorate rendered the debate over the true motivations of behind Proposition 64 as academic when they passed Proposition 64..

Regardless of the motivations, Proposition 64's full impact was not publicly addressed before Californians went to the polls. Prior to the passage of Proposition 64, most of the debate occurred in various media outlets - primarily radio and print media. The debate emphasized that organizations would no longer be able to bring representative actions as private attorneys general on behalf of members of the general public, theoretically preventing abusive UCL lawsuits filed by persons that had suffered no injury at the hands of the target defendant.[9] What was missing from this public discussion was any clear explanation that the elimination of representative actions would deprive plaintiffs' litigators of a desirable alternative to the class action procedure.

Prior to the amendments instituted by Proposition 64, representative actions under the UCL and class actions were viewed as separate and distinct methods of mass representation.[10] In particular, there was no obligation upon a plaintiff to seek certification of a UCL claim, and in fact, the representative UCL claim was still viewed as an individual action.[11] The power of restitution, being a power of equity, was available in any UCL case; a Court could fashion those orders necessary to compel disgorgement of what constituted ill-gotten gains from a defendant to the individual plaintiff and/or third-parties.[12]

The desirability of representative UCL actions stemmed from their simplicity. Relief under the UCL is available without individualized proof of deception, reliance, and injury.[13] In particular, proof of a UCL claim only requires a showing that a defendant's conduct is "unlawful, unfair, deceptive, untrue, or misleading."[14] Thus, class action practitioners often included UCL representative claims as the fallback position behind class claims.[15] In the event that a class action was not certified, restitution and/or disgorgement remained available on a group-wide basis.

Plaintiffs' practitioners no longer have the safety net of a UCL representative action to backstop a class action. Now, every representative claim under the UCL must satisfy the requirements of California Code of Civil Procedure section 382. In the field of wage and hour litigation, where practitioners have regularly included UCL claims, the passage of Proposition 64 will have obvious effects, such as requiring the pleading of new elements in a UCL cause of action and the elimination of the uncertified UCL representative action. However, Proposition 64 is already producing unintended consequences as the plaintiffs' bar, deprived of a powerful non-class representative device, is re-evaluating how to best apply the class action device to wage and hour suits for unpaid overtime, meal break violations, failure to pay minimum wages, and other claims. As described, infra, one innovative approach involves the use of the Federal Rules of Civil Procedure (FRCP) 23(b)(1) and/or (b)(2) class certification, in lieu of, or in addition to, Rule 23(b)(3) certification.

III. CALIFORNIA'S CLASS ACTION PROCEDURE AND ITS APPLICATION IN WAGE AND HOUR DISPUTES

A. California's Reliance Upon FRCP 23

California courts look to a number of sources for guidance when asked to certify a class action. Those sources include California's primary class action statute: California Code of Civil Procedure section 382 and Rule 23 of the Federal Rules of Civil Procedure.

Under California Code of Civil Procedure section 382, a class action, allowing one party to sue or defend for the benefit of all, is authorized under two conditions. First, the question must be of a common or general interest, of many persons, or when the parties are numerous. Second, it must be impractical to bring the question or the parties all before the court.[16] Because the literal requirements of section 382 are vague, California courts have been forced to extensively interpret the details of section 382. In the course of this interpretation, California courts have imposed two requirements that must be satisfied in order to maintain a class-action under section 382: (1) the existence of an ascertainable class, and (2) a well-defined community of interest in the questions of law or fact affecting the parties to be represented.[17]

California's courts rely heavily upon FRCP 23 when addressing class certification questions.[18] While California's legislature has never formally adopted Rule 23, the California Supreme Court has effectively done so in two ways. First, the court has directly relied on the rule and interpreted decisions flowing there-from, and second, the court has referenced the Consumer Legal Remedies Act,[19] which incorporates most of Rule 23's language.[20] California has also adopted the federal judiciary's preference for FRCP 23(b)(1) and/or (b)(2) class certification over 23(b)(3) certification.[21] This preference is significant since Rule 23(b)(1) and (b)(2) classes do not require that plaintiffs establish neither the superiority of the class action device nor the predominance of common issues of law or fact.

B. California's Use Of The Class Action Device To Resolve Wage and Hour Claims

As a matter of explicit public policy, California favors the use of class actions to resolve wage and hour disputes. The class action has been described as an essential tool for the protection of employees from exploitive practices.[22] The California Supreme Court recently affirmed that California Labor Code section 1194 embodies a "clear public policy … specifically directed at the enforcement of California's minimum wage and overtime laws for the benefit of workers."[23] California's overtime laws are remedial and are to be construed so as to promote employee protection.[24]

Along with class actions, the Supreme Court has affirmed the use of UCL as one of the essential tools for aggrieved employees.[25] It is natural, then, that creative applications of the UCL and the class action device should find a home in wage and hour litigation.

C. Class Actions Are Not A "One Size Fits All" Proposition

Under the federal model, in order to be certified, a class must meet all the requirements of Rule 23(a) and fall into one of the categories described by Rule 23(b).[26] FRCP 23(a) sets forth the prerequisites to class action treatment:

One or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.[27]

To obtain certification under California Code of Civil Procedure section 382, the following requirements must be satisfied: (1) the parties must be numerous; (2) there must be an ascertainable class; (3) there must be a well-defined "community of interest" in the questions of law or fact affecting the parties to be represented; and (4) class treatment of plaintiffs' claims must be superior to other available methods for the fair and efficient adjudication of the controversy.[28]

The "community of interest" requirement embodies three factors: (1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class.[29] Thus, in California, the community of interest prerequisite for class certification is, essentially, an amalgamation of the requirements of Rule 23(a)(2) - (4).[30] For purposes of this article, the slight variations between Rule 23 class actions and the California approach to class certification are insignificant, and the remainder of the discussion refers to the Rule 23(b) categories of classes (which are also recognized in California).

Under Rule 23(b)(1), class action treatment is appropriate where multiple suits would create a risk of adjudications establishing inconsistent or incompatible standards of conduct for the party opposing the class, or individual actions would, as a practical matter, conclude the interests of other members of the class or impair their ability to protect their own interests.[31]

Rule 23(b)(2) class actions may not present risk of inconsistent adjudication sought to be avoided in the (b)(1) category but nevertheless might not be economically feasible unless brought as a class action. Rule 23(b)(2) provides for class litigation where a party opposing a class has acted on grounds generally applicable to a class, rendering injunctive or declaratory relief appropriate for the class.[32] For example, civil rights cases are often certified under rule 23(b)(2), since injunctive relief is the primary remedy sought, and any injunction would necessarily determine a defendant's behavior as to everyone. [33] Bell v. American Title Ins. Co., emphasized the need for injunctive or declaratory relief when seeking certification under Rule 23(b)(2):

A case is properly certified under subdivision (b)(2) when "the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole."[34]

The Bell court concluded that the second prerequisite to bringing an action under rule 23(b)(2) is that final injunctive or declaratory relief must be requested against the party opposing the class.[35] However, Rule 23(b)(2) classes are not strictly limited to injunctive and/or declaratory relief claims. California courts have afforded rule 23(b)(2) status where the final relief sought includes both injunctive relief and monetary damages.[36]

Rule 23(b)(3), the "catch-all" category for certification, requires a court to closely examine a proposed class case to determine whether common issues predominate over individual issues, and whether a class action would be a superior means of adjudicating the controversy.[37] A class certified under Rule 23(b)(3) must subsequently comply with strict notice and other due process requirements which are not mandated for Rule 23(b)(1) and (b)(2) classes.[38] Because certification of (b)(1) or (b)(2) classes disposes of the (b)(3) requirements that class treatment be superior and common issues predominate, the significant question for plaintiffs' counsel is how to present and certify claims for certification under the preferred 23(b)(1) and/or (b)(2) standards.

D. Putting The Pieces Together: The Mechanics Of Utilizing 23(b)(1) and/or (b)(2) Certification Standards In Wage And Hour Class Actions As A Backstop To The Stricter 23(b)(3) Certification Standard

In California, wage and hour claims can usually be grouped into two types: misclassification cases and meal/rest break cases. Misclassification cases involve the plaintiff's assertion that a class of employees has been wrongly categorized as "exempt" from overtime pay requirements, whereas in meal/rest break cases, the plaintiffs assert that a class of employees has been denied meal and/or rest breaks required by law.[39] Other wage and hour cases litigated as class actions include cases asserting a failure to pay the statutory minimum wage, followed by a variety of less frequently litigated wage and hour violations.[40] The common theme in the majority of these employment cases - a failure to pay employees definite sums required by law - makes such cases well suited to at least partial certification under the 23(b)(1) or 23(b)(2) standards. The unanticipated consequence of Proposition 64 is how one get certification.

The UCL supplies the tool for certifying wage and hour claims under the less stringent (b)(1) and/or (b)(2) standards. Class actions seeking monetary damages must, in most circumstances, be certified under the 23(b)(3) standard.[41] However, the damage issue does not arise under the UCL since claims asserting a violation of the UCL arise only in equity.[42] While much of the distinction between law and equity has eroded in modern jurisprudence, the language of the UCL leaves no doubt that relief available under the UCL is limited to equitable remedies.[43] California Business and Professions Code section 17203 says, in part:

Any person who engages, has engaged, or proposes to engage in unfair competition may be enjoined in any court of competent jurisdiction. The court may make such orders or judgments, including the appointment of a receiver, as may be necessary to prevent the use or employment by any person of any practice which constitutes unfair competition, as defined in this chapter, or as may be necessary to restore to any person in interest any money or property, real or personal, which may have been acquired by means of such unfair competition.

Limiting relief to equitable remedies, the UCL, by its definition, is an action in equity.[44] And as a claim in equity, class certification under the UCL is ripe for 23(b)(1) and/or (b)(2) status.

If it is clear that the UCL provides equitable relief, then a wage and hour claim must be presented correctly in order to maximize the likelihood that a trial court will certify the action under the preferred (b)(1) and/or (b)(2) standards. First, in any instance where a quantifiable lump sum will be subject to an order of restitution under the UCL, such a sum is uniquely suited to (b)(2) certification because restitution is a form of affirmative injunctive relief. For example, suppose a business has misclassified a group of employees as exempt from overtime pay requirements. Suppose further that the employees were required to work ten-hour shifts (an arbitrary number for this example), where overtime pay is required for non-exempt employees working in excess of eight hours. [45] Under these simple facts, the employees would be entitled to overtime wages for the additional ten hours of work they performed each week (five shifts with two hours of overtime for each shift). The calculation of the unpaid wages is mechanical, and will result in a lump sum dependent upon the hourly wage of each affected employee, the number of employees, and their employment durations (back four years from the date of filing for a UCL claim). A UCL claim for unpaid overtime on these facts can be certified as a (b)(2) injunctive relief class.

The policy behind this approach is sound. Wages are a vested right, earned when the work is completed, and as a result, unpaid wages may be the subject of an order of restitution under the UCL.[46] California's overtime laws are remedial and are to be construed so as to promote employee protection.[47] Moreover, it would be unjust to allow an employer to retain unpaid wages once it is determined that such retention is improper.[48] Finally, a defendant's interest is only in the total amount of damages for which it will be liable, not how it is distributed to class members.[49] Thus, a defendant has no standing to challenge the manner in which a lump sum will be distributed to class members, only whether the lump sum is reasonably calculated.[50]

While the simple overtime example provides a basis for understanding how the (b)(2) certification standard can be applied to a UCL claim in a wage and hour matter, life is generally not so simple. The more conventional overtime case will see a defendant-employer arguing that the duties of an allegedly misclassified class vary by store and by worker. A defendant will also typically assert that employees worked varying amounts of hours. As a result, this sort of factual variation makes (b)(3) certification more challenging, however, (b)(2) certification remains an option, at least as to a part of the "real world" overtime case. Suppose that discovery confirms that the class of apparently misclassified employees worked varying hours, but always more than forty-five hours a week. Such evidence allows for a five-hour per week restitution class under the (b)(2) standard. In other words, if a plaintiff can prove a minimum amount owed to each employee, a lump sum can again be calculated. From the standpoint of the employee, it is better that an employer disgorges a portion of unpaid wages than escape class-wide liability under the (b)(3) standard. This lowest common denominator approach reduces the all-or-nothing risk that practitioners face when bringing a motion for class certification.[51]

Further, sums subject to restitution can be proven through resourceful forms of evidence. Plaintiffs' counsel in a wage and hour matter can conduct a statistically relevant survey of the class to collect data, such as average daily hours worked. The California Supreme Court has endorsed statistical sampling as a recognized method of proof.[52] These methods of proof not only allow for the determination of an accurate, aggregate damage total upon which a trial court can issue an equitable order of disgorgement, but they can also be used later to assist the class in fashioning a claim payment process that is fair to class members.

Other types of wage and hour cases may also benefit from presenting claims as restitution claims certified under the (b)(2) injunctive relief standard. A California court has just concluded that the one-hour of wages owed to employees who do not receive required meal or rest breaks is subject to an order of restitution under the UCL.[53] Should this ruling withstand likely scrutiny by the California Supreme Court, meal and rest break class actions, could, in many instances, benefit from the ability to certify a UCL claim under the 23(b)(2) standard and request an order of restitution as to the lump sum value of the one hour of unpaid wages available pursuant to California Labor Code section 226.7.[54] Moreover, because a defendant's obligation to provide a meal break is absolute,[55] and the employer also bears the burden of maintaining accurate records, reliance upon a defendant's data, whatever its accuracy, can be sufficient to provide the basis for certification.[56] Ultimately, in any situation where restitution under the UCL is available, a plaintiff class will benefit by seeking certification under the 23(b)(1) and/or (b)(2) standards for all or some of the requested relief.

IV. CONCLUDING REMARKS

Only repeated testing of the approach outlined herein will indicate whether Rule 23(b)(2) certification of UCL claims is a viable approach in wage and hour matters.[57] At least on a theoretical basis, the approach presents benefits that somewhat offset the loss of representative actions under the UCL as a result of the passage of Proposition 64. Irrespective of whether this approach to wage and hour class certification proves fruitful, any efforts in this regard should serve as an important reminder to those seeking to circumvent the customary legislative process: unless great care is taken, the unanticipated consequences of legislation passed through the initiative process may negatively affect the interests that first advocated the Proposition.