6 FRIDAY, AUGUST 27, 2010 Los Angeles Forced Patronage, No Longer The Wage and Hour Bridesmaid?

By Eric Steinert fees, after several disputes between the Labor Commissioner and various force employees to buy their own products or services. Most prospective airlines. Additionally, the Labor Commissioner issued three opinion letters: litigation, however, will focus on the provision that employers cannot com- ecent court fi lings suggest that California’s forced patron- An employee cannot be required to purchase a customized truck from pel employees to purchase anything of value from “any other person.” age law has received increased attention from the class a particular vendor (Jan. 2,1997); fees related to certain casting direc- Outside of the Department of Labor Standards Enforcement’s opinion action plaintiffs’ bar and may not remain the wage and hour tor “workshops” are prohibited as application fees (Jan. 22, 2002); and letters from 1997 and 2002, there is scant authority as to the scope of bridesmaid it has been in the past. employees cannot be required to receive wages through a particular cash the prohibition against third-party patronage. For example, it remains an California law prohibits “forced patronage” by an employer. In dispensing machine (Dec. 12, 2002). open question whether offering employees a choice of several vendors Rother words, an employer cannot force an employee to purchase anything Those letters, however, currently have no binding legal effect per Execu- results in prohibited “coercion.” If an employer requires work boots with from the employer — or from anyone else for that matter. More specifi - tive Order S-2-03, but rather provide limited guidance only to their specifi c specifi cations offered by only certain brands, is that “forced patronage” of cally, Labor Code Section 450(a) provides that no employer “may compel cases. a third party? Does it matter whether the employer specifi cally refers to a or coerce any employee, or applicant for employment, to patronize his or Subsequent case law discussing the statute’s scope is rather limited. name brand or not? her employer, or any other person, in the purchase of any thing of value.” Two courts have held that requiring repayment for police academy training In the fi nancial-services industry, employers must monitor certain em- Although this depression-era statute typically evokes images of the did not coerce patronage of employer or purchase of anything of value. ployee fi nancial transactions — especially those employees holding par- “company store” of Steinbeck novels, modern application will likely turn City of Oakland v. Hassey, 163 Cal. App. 4th 1477 (2008); and material is- ticular licenses. Does requiring those transactions through fi rms that allow on the reference to “any other person.” Although the “company store” may sue of fact precluded summary judgment for employer as to whether sales employer supervision result in prohibited “coercion?” Does it matter if the not have survived in modern times, employers must be especially vigilant reps were required to purchase sample kits. Harris v. Vector Marketing supervision is dictated by regulatory requirements or industry standards? as to policies and practices that require purchases of goods or services Corp., 656 F. Supp. 2d 1128 (2009). Does it matter if the transaction generates a fee? from any other third party. Recently, the state Supreme Court held in a tip-pooling case, Lu v. Ha- California’s prohibition against “third-party patronage” raises many Early cases from the 70s and 80s concerned whether collective bargain- waiian Gardens Casino Inc., S171442 (Aug. 9, 2010), that no private right questions and challenges for employers, any of which will be the focus of ing agreements provide adequate consent for employer-provided meal of action exists for tip-pooling claims. Importantly, the Supreme Court let wage and hour class litigation. deductions (generally, they do). See California State Restaurant Assoc. v. stand the Court of Appeal decision similarly holding that no private right of As a result, all employers should review their policies and practices for Whitlow, 58 Cal. App. 3d 340 (1976); DLSE v. Williams, 121 Cal. App. 3d action exists for Section 450 claims. After Hawaiian Gardens, potentially any requirement that an employee purchase anything of value. This could 302 (1981); Porter v. Quillin 123 Cal. App. 3d 869 (1981). aggrieved plaintiffs are left to pursue forced patronage claims through be a product or service, or any transaction that generates a fee or revenue In 1998, the statute was amended to explicitly prohibit application an action under the Private Attorney General Act or under Business and for a third party. Professions Code Section 17200, otherwise known as the unfair-competi- Retail employers should review their policies and practices regarding tion law. uniforms, clothing, and footwear. Any policy requiring employee purchases In the glut of tip-pooling class actions in the last several years, forced should be reviewed with an eye towards Section 450. Eric Steinert, a partner in Seyfarth Shaw’s patronage claims were always the bridesmaid. They dutifully appeared Financial-services employers should review supervisory policies and San Francisco offi ce, represents clients in in nearly every case, but always played a background role. None of the practices regarding employee transactions. This will necessarily involve state and federal employment law disputes reported tip-pooling cases have defi ned the statute’s scope. the intersection of fi nancial-industry regulatory law and California em- involving issues of wrongful discharge, Recent court fi lings suggest, however, that forced patronage claims may ployment law. Engaging counsel experienced in both fi elds is critical to discrimination, retaliation, harassment, now have their own special day. The following alleged employer practices navigate the interplay between these complex areas of law. traditional labor, and wage and hour class are being challenged repeatedly on a class basis: fi nancial institutions Based on recent court fi lings, employers can expect challenges to any actions, with a focus on representing clients allegedly requiring employees to conduct certain fi nancial transactions policies requiring employee purchases or employee transactions that in the fi nancial services industry. through the employer or a particular fi rm; and retail employees allegedly generate a fee. Given the lack of case law and administrative guidance, required to purchase certain brands of clothing and shoes. employers should review their policies with the assistance of experienced Presumably, California employers have been aware that they cannot employment counsel. Civil Litigation: Starting Right and Staying Right

By Joe Ramsey factual bases for what they say. At a bare minimum, in the fi rst meet- The discipline of including this legal research in your checklist is a ing, identify the sources of all documentary evidence and the persons good habit with no downside and a potentially invaluable up side. Your he most important time in any litigated case is the begin- most knowledgeable about each major issue. Some immediate advice client may not want to pay for research, but the standard of care may ning. If you start right and follow a well-considered game concerning each of these evidentiary sources will become obvious. well require it unless you are a specialist currently knowledgeable on all plan, the case will likely stay on track, and you will end For documentary evidence, identify the person within your client’s or- issues. If you fi nd nothing of consequence, you may want to show the with a satisfactory result. Here’s how to do it in a time and ganization that knows where documents are stored or archived. “Docu- time spent but not charge for it. If you fi nd compelling recent authority, cost-effi cient manner. ments” include not only hard copies stored in traditional depositories your client will be pleased or at least benefi tted and will not question a TThese suggestions apply to all civil litigation. For purposes here, but electronically-stored information. Advise your client in writing to proper charge. assume there is no imminent statute of limitations or comparable preserve all potentially relevant documents and how to do it, effective Now you can make responsible recommendations about further emergency. Assume that you represent either side in a two-party busi- immediately. Once you know where likely evidence is located and its handling. Unless there is some compelling reason not to, prepare a ness dispute involving low to mid six-fi gure damage potential. Assume approximate volume, you can decide in each case the most time and written report of all you have done. Assuming that the case does not that you are past the pleadings stage. Assume that both parties are cost-effi cient method for review and analysis and get that important settle at this point, your report should end with a checklist of additional fi nancially successful businesses operating as close corporations; work done. activities you believe your client should consider, including additional that there is a long history of business dealings between the parties; factual investigation, percipient witness depositions, and any additional and that the dispute will involve multiple lay witnesses, voluminous expert consultation. This initial evaluation will serve as a guideline for documentation, and a need for independent expert consultation and staying on course. There are four identifi able components to staying retained expert witnesses for litigation. If you start badly, you will likely right in every case. As litigation counsel, we are required to get the information concern- continue badly, with increasing Decide on specifi c steps. When you conclude your initial evaluation, ing all issues necessary to make responsible recommendations about meet with your client to decide whether to try early settlement or to settlement and trial. We are ethically obligated to get that information diffi culty ever to recover. prepare for litigation. If the decision is to prepare for litigation, identify sooner rather than later and to do so as cost-effi ciently as the standard activities to be considered toward that end. Be prepared to discuss of care allows. If we do this correctly at the outset, the case tends to the pros and cons of each potential activity. Use a checklist to ensure stay on track — from early settlement opportunities, to preparation nothing is overlooked. The categories of activities should include any for the appropriate forum, and for trial or arbitration. Regrettably, the remaining factual investigation, depositions of lay or percipient expert witnesses, and developing potential retained expert witness testimony. converse is also usually true: If you start badly, you will likely continue Identifying key people will obviously depend on the nature of the badly, with increasing diffi culty ever to recover. Just considering these categories will involve the client, keep the client dispute. For example, if you face an accounting dispute, you will need informed, and result in a clear authorization for further work-up and The fi rst step in starting right is preparing for in-depth questioning to know who was involved in tracking the transactions. If you face a of key people with knowledge of the dispute. Client representatives litigation preparation. contractual relationship gone awry, you will need to know each person Set self-imposed deadlines. The preparatory activities will suggest will come seeking your advice. They will have their perceptions of the involved in the negotiation and performance of the contract. If you face dispute and of the law, and opinions why their side is correct. Your fi rst priorities and timing. Impose reasonable deadlines you can meet. The an employment relationship dispute, you will need to know each person important operative word is reasonable, because the “good” that will re- job is to get to the bottom of what they have to say. To do this properly, with percipient knowledge of the history of employment and all relevant meet with them at the right time and place. The right time is usually as sult from doing a fi rst class job and achieving client satisfaction will be relationships. quickly outweighed by the “bad” that will result from missing deadlines. soon as they can set aside enough time to explore the problem fully, Be sure to identify key former employees as well as current employ- and the right place is usually their place of business so that access to Report in writing. Unless there is some compelling reason not to, the ees. It may well be that someone with invaluable knowledge has retired discipline of written reporting will sharpen your analyses of evolving in- documents and personnel is easiest. or moved to other employment. Steps should be taken to ensure that When you have their commitment to focus on the problem, be pre- formation. If you are practicing in a fi rm and are one of a team respon- these witnesses will be available when you need them. The necessary sible for the fi le, a written record of the case development provides pared to question them in detail. Listen carefully, follow-up, and clarify. steps could range from keeping in touch periodically, to arranging for Never accept their conclusions about what happened. Find out the relatively seamless service for the client in case a teammate has to fi ll trial testimony in case something happens to the witness. At the other in for you. Sometimes a client will resist reporting as an unnecessary extreme, there may well be a disgruntled ex-employee determined to expense. But written reporting of case development may be required hurt your client’s cause. It is obviously better to know this problem as by the standard of care and is such a good practice that you should soon as possible. keep one at no charge if the client refuses to pay or cannot afford it At this point, you will have identifi ed key issues that suggest retain- — especially if team members will likely have to back each other up ing an independent consultant. Your client may resist retaining outside periodically. expert consultants early, but it is usually unwise to defer this expense. Finally, you should regularly meet with your client decision-makers to Charles T. Munger Gerald L. Salzman It is common for personnel to be defensive if their performance is review short and long term strategy as new information is developed. Chairman of the Board Publisher / Editor-in-Chief the focus of a dispute. For example, in an accounting dispute, the in- These suggestions should almost always keep you headed in the J.P. Guerin Robert E. Work house comptroller will likely defend the accounting and fi nancial work right direction. In addition to doing the job right for your clients, they Vice Chairman of the Board Publisher (1950-1986) done to date. In a contract dispute, the person who negotiated the con- are almost always enormously satisfi ed because they are actively David Houston tract or is in charge of its performance will likely insist that the contract invested in their own representation, they are fully informed, and both Editor is clear and the performance is satisfactory. In an employment dispute you and your client keep close to what your services cost. Satisfi ed Alexia Garamfalvi Sharon Liang the human resources director will likely defend the company’s handling clients are the best form of further business development, because San Francisco Editor Legal Editor of performance issues arising from the work of the unhappy employee. they tell their friends how attentive you were to their needs. Liz Enochs Pia Sarkar Evan George Michael Gottlieb Evelyn Larrubia Here, you need the benefi t of an independent outside expert with the Associate Editor Associate Editor Associate Editor Associate Editor Associate Editor qualifi cations and confi dence to tell your client’s decision-makers what San Francisco San Francisco Los Angeles Los Angeles Los Angeles they need to hear and not what they want to hear. Aris Davoudian, Designer

Los Angeles Staff Writers owever, you may still lack certain information obtainable Pat Alston, Gabe Friedman, Emma Gallegos, Kari Hamanaka, Catherine Ho, only from the opposition. Even though pitched discov- Joe Ramsey received his L.L.B. degree from Ciaran McEvoy, Susan McRae, Brandon Ortiz, Jean-Luc Renault, Anna Scott ery battles have become too common, you may be able Stanford University in 1961, and has been San Francisco Staff Writers to avoid the expense and anguish from such disputes. involved ever since in general and appellate Rebecca Beyer, Laura Ernde, Sara Randazzo, Always ask opposing counsel to provide needed informa- Jill Redhage, John Roemer, Fiona Smith, Amy Yarbrough civil litigation as a trial lawyer and as a tionH voluntarily and early. A reasonable request is usually honored, mediator. Bureau Staff Writers Craig Anderson, San Jose, Jason W. Armstrong, Riverside, especially if accompanied by a voluntary offer to reciprocate. You Don J. DeBenedictis, Santa Ana, Pat Broderick, Mandy Jackson, San Diego, can often set the tone for cooperative professionalism on both sides Lawrence Hurley, Washington D.C. and your client should be grateful upon realizing the considerable Robert Levins, S. Todd Rogers, Photographers cost savings. Lisa Kestenbaum, Carla Pineda Editorial Assistants To the extent your opposition refuses to yield information voluntarily Rulings Service Seena Nikravan, Rulings Editor for whatever reason, you may need to consider some targeted discov- SUBMIT A COLUMN Meryl Chambers, Verdicts and Settlements Editor ery to get additional information needed to allow informed recommen- The Daily Journal accepts opinion pieces, practice pieces, book reviews and Karen Natividad, Genevieve Knolle Legal Writers dations about settlement and litigation. Advertising excerpts and personal essays. These articles typically should run about Although many attorneys routinely serve form interrogatories to get 1,000 words but can run longer if the content warrants it. For guidelines, Audrey L. Miller, Corporate Display Advertising Director Monica Smith, Los Angeles Account Manager basic information, you should not automatically default to that form of e-mail legal editor Sharon Liang at [email protected]. Joel Hale, Michelle Kenyon, San Francisco Account Managers “paper discovery.” It may be more time and cost-effi cient to identify Kari Santos, Display Advertising Coordinator and depose one or more opposition witnesses who have specifi c infor- WRITE TO US Audrey Wood, San Francisco Administrative Coordinator mation you need to assess your client’s posture. The Daily Journal welcomes your feedback on news articles, Art Department commentaries and other issues. Please submit letters to the editor by Kathy Cullen, Art Director By this time, legal issues will have become apparent. Even if you have e-mail to [email protected]. Letters should be no more than extensive experience and expertise in the subject matter, you should The Daily Journal is a member of the Newspaper Association of America, 500 words and, if referencing a particular article, should include the date California Newspaper Publishers Association, National Newspaper Association and Associated Press double-check what you believe to be controlling case or statutory law to of the article and its headline. get most recent authorities with fact patterns similar to yours.