Class Actions Quarterly Update: Fashion and Retail Quarterly Update

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In this issue of the Arent Fox Class Action Quarterly Update, we will be focusing on one recent California Supreme Court decision and two court of appeal decisions impacting the fashion and retail industries.

Key Retail Class Action Case

Background: In 2013, a group of employees at a major retail store brought a class action claiming that time spent on the company’s premises waiting for, and undergoing, required exit searches of packages, bags, or personal technology devices voluntarily brought to work purely for personal convenience by employees was compensable as “hours worked”. Under the company’s policy, the employees were required to clock out before submitting to an exit search, which they estimated could take 5 to 20 minutes. A federal judge initially granted the company’s motion for summary judgment, concluding that the searches were not working hours for which the company needed to compensate employees. The employees appealed, and the Ninth Circuit certified the question to the state Supreme Court because no clear controlling California precedent existed. In certifying the question, the Ninth Circuit emphasized that the question was of importance to numerous employees and employers in California

The Decision: In February 2020, the California Supreme Court held that time spent on an employer's premises waiting for, and undergoing, mandatory exit searches of personal bags and devices voluntarily brought to work purely for personal convenience is compensable as "hours worked" under California wage law because it is employer-controlled activity. The High Court expressly held that the ruling applies retroactively.”

Takeaways: With the decision, the California Supreme Court has again broadened the scope of what is considered compensable work time under California's Wage Order. The decision reaffirmed prior holdings that the level of an employer's control over its employees is "determinative" regarding whether an activity is compensable.

Bautista v. Fantasy Activewear

Background: In Bautista v. Fantasy Activewear, Inc., (2020) 52 Cal.App.5th 650, Defendants/employers Fantasy Activewear, Inc. and Fantasy Dyeing and Finishing, Inc. are in the business of designing, manufacturing, and distributing apparel. The plaintiffs/employees in Fantasy Activewear were parties to a wage and hour class action settlement. The 2014 settlement agreement contained an arbitration clause. Years later, the employees brought putative class actions for alleged wage and hour violations, including claims for civil penalties under the California Private Attorneys General Act (known as PAGA) for alleged violations of the Labor Code. In response, Fantasy Activewear, Inc. moved to compel arbitration under the arbitration clause from the 2014 settlement agreement.

The Decision: The Court of Appeal affirmed the trial court’s decision that employees were not acting as agents of the state when they entered into settlement agreements containing arbitration clauses. The Court emphasized that PAGA claims really belong to the State of California as the real party in interest through the Labor and Workforce Development Agency (LWDA). Therefore, since the state was not party to the prior settlement agreements, it was not bound to arbitrate.

Takeaways: The Fantasy Activewear case illustrates the limits of a PAGA plaintiff to contractually bind the state, including with respect to an arbitration clause. When the employees signed the arbitration agreement, they were not authorized to act as agents of the state. Therefore, the arbitration clause could not bind the state to arbitrate its PAGA claim. This left the employer powerless to force the PAGA plaintiffs to arbitrate those claims. 

Citizens of Humanity v. Haas

Background: Citizens of Humanity, LLC (Citizens) is a Los Angeles-based premium denim label. In Citizens of Humanity, LLC v. Hass (2020) 46 Cal.App.5th 589, consumers of Citizens and a plaintiff’s law firm filed a class action lawsuit against Citizens for allegedly violating “Made in the USA” labeling requirements on its jeans. The class action was dismissed and Citizens then filed a malicious prosecution suit against the plaintiff’s law firm claiming that the plaintiffs bringing the suit were “shill” plaintiffs – i.e., they only purchased the jeans to bring the lawsuit based on the label. The plaintiffs and law firm moved to strike the complaint under the provisions of the anti-SLAPP statute (Anti-SLAPP laws are intended to prevent people from using courts, and potential threats of a lawsuit, to intimidate people who are exercising their First Amendment rights).

The Decision: The Court of Appeal affirmed the trial court’s decision denying the plaintiffs’ and their law firm’s anti-SLAPP motion against Citizens because Citizens met its burden to establish a probability of prevailing on the merits of its malicious prosecution claim. Specifically, the Court held that Citizens made a prima facie showing that the original named plaintiff and law firm lacked probable cause for bringing the underlying mislabeling class action because the original plaintiff was a shill, as required for Citizen’s malicious prosecution cause of action against the law firm and the original plaintiff to survive the anti-SLAPP motion. For example, the original plaintiff admitted she was related to one of the plaintiffs’ attorneys and that she was a named plaintiff in some of their prior class action lawsuits involving “Made in the USA” labeling. Thus, there was evidence, including the original plaintiff’s willingness to buy foreign products and her admission that she did not look at the label prior to purchase, from which it could be inferred that she purchased the jeans to serve as the lead plaintiff. The original plaintiff ultimately withdrew as the named plaintiff.

Takeaways: Although California has known cottage industries of repeat plaintiffs and plaintiffs’ law firms that bring claims against manufacturers and retailers of consumer products, including in the fashion industry, the Citizens case illustrates a limit on the ability of these groups to file meritless complaints by using the tool of malicious prosecution in response. Going forward, such plaintiffs groups and law firms may think twice before pursuing such claims without competent evidence knowing they could face a malicious prosecution action and be liable for potentially significant damages, including reputational injury to the manufacturer or retailer. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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