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Class Action Defense Cases–Amaral v. Cintas: California Court Affirms Class Action Judgment In Favor Of Plaintiffs In Labor Law Class Action Holding City’s Living Wage Ordinance Applied To All Work By All Employees

Class Action Judgment in Favor of Plaintiffs Proper because City’s Living Wage Ordinance Covered Work Performed on City Contract Outside the City by Employees who did not Live within the Territorial Boundaries of the City, and because Employees were Intended Beneficiaries of Ordinance and therefore had Standing to Pursue Claims under it California State Court Holds

Plaintiffs filed a class action against Cintas for labor law violations; the class action complaint alleged that because Cintas has a contract with the City of Hayward, California, that required it to comply with Hayward’s Living Wage Ordinance, Cintas was required to pay workers in the City of San Leandro the wages mandated by the Ordinance. Amaral v. Cintas Corp. No. 2, ___ Cal.App.4th ___, 78 Cal.Rptr.3d 572 (Cal.App. 2008) [Slip Opn., at 1]. The class action alleged violations of the Ordinance, as well as California Labor Code § 200 and Business and Professions Code § 17200. Id. Defense attorneys admitted that Cintas did not provide employees located outside of Hayward with “the minimum wages or benefits required by the ordinance,” but argued that the Ordinance was unconstitutional, id. The trial court disagreed and, on cross-motions for summary judgment, found that Cintas for backpay and unpaid benefits, id. The trial court also found, however, that Cintas did not act “willfully” and so limited the amount of plaintiffs’ damages. Id., at 2. Both parties appealed; the California Court of Appeal affirmed the trial court order in all respects.

Briefly, the facts are as follows. From 1999 to 2003, Cintas contracted with the City to provide uniform and linen services; the City would lease linens and garments from Cintas, and contracted further with Cintas to collect, clean and return these items. Amaral, at 2. The City did not lease specific items, and Cintas did not necessarily return to the City the same items that it had picked up from the City; rather, the linens and garments would be collected and cleaned as a group, inspected for damage, sorted, and sent out to customers. Id. Cintas processed items it collected from and delivered to Hayward, at its facilities in Union City and San Leandro, and employees at both locations “worked on items for many different customers each day.” Id. Hayward’s Living Wage Ordinance was enacted in 1999 for the purpose of providing sufficient compensation so employees could “afford a decent standard of living in Hayward,” id., at 3 (italics added), and “requires covered contractors to pay their employees at least $8.00 per hour if health benefits are provided, or $9.25 per hour if no health benefits are provided,” id. Before the Ordinance went into effect, the City advised Cintas of its passage, and after the Ordinance went into effect, the City required Cintas certify that it would comply with the Ordinance. Amaral, at 4. Cintas represented to the City that it agreed to comply with the Ordinance, but never contacted the City to inquire into its applicability to employees outside the City. Id. Cintas terminated its contract with the City in 2003; during the life of the contract, the City’s business accounted for less than 1% of the company’s revenue. Id., at 5.

The class action complaint was filed in June 2003, and alleged Cintas violated the Ordinance, breached its contract with the City, violated certain California Labor Code provisions, and engaged in unfair business practices. Amaral, at 5. The trial court certified the litigation as a class action, and granted the City leave to intervene as a plaintiff. Id. Defense attorneys moved for summary judgment on the ground that the City “lacked authority to regulate wages for work performed outside of Hayward’s territorial boundaries,” but the trial court denied the motion. Id., at 5-6. The parties then filed cross-motions for summary judgment: defense attorneys argued that the Ordinance was unconstitutional; plaintiffs’ lawyers argued the Ordinance was valid and Cintas violated it. Id., at 6. The trial court found for plaintiffs and awarded almost $260,000 in penalties, as well as $1.2 million in attorney fees. Id.

With respect to the defense challenge to the enforceability of the Ordinance beyond the limits of the City of Hayward, Amaral, at 7, the appellate court defined the issue as “whether [the] application of the [Ordinance] to Cintas is an appropriate exercise of the City’s contracting power, or whether it is an inappropriate attempt by the City to extend its police powers extraterritorially,” id., at 8. The Court held that it was a case of the former, because the Ordinance is not directed at “regulat[ing] conduct outside of Hayward’s boundaries” but rather at “specif[ying] certain conduct the City wants its contracting partners to follow.” Id., at 10. For this purpose, it is irrelevant whether the contractor perform that conduct inside or outside the City’s boundaries, id. At bottom, “Companies that wish to avoid the [Ordinance’s] enforcement measures can do so simply by choosing not to bid on service contracts with the City.” Id., at 12. The appellate court also rejected the defense argument that the Ordinance was unconstitutionally vague because, even though the Ordinance does not specify how it “will apply in situations where contractors perform work outside of Hayward or commingle an employee’s contract-related work with work for other customers, id., at 16, “the company’s apparent failure to ask anyone about the proper application of the [Ordinance] undermines its current claim that the ordinance’s terms are hopelessly ambiguous,” id., at 18.

The appellate court then turned to the issue of whether the Ordinance required Cintas to pay its San Leandro employees in accordance with the provisions of the Ordinance. It readily rejected the argument that the class members were providing a service to the company rather than the City, and so did not fall within the scope of the Ordinance. Amaral, at 19. The more difficult issue was whether the Ordinance applied only with respect to pay for time spent working only on the City contract, which Cintas argued was de minimus. Id., at 20. In rejecting the defense argument, the appellate court relied on the fact that (1) the City did not state in the Ordinance that it was limited to time spent working only on City contracts, id., at 21-22, (2) the absence of any record-keeping requirements under the Ordinance suggested that it applied to all work performed by employees, as it would be otherwise impossible for the City to meaningfully audit a contractor’s compliance with the Ordinance, id., at 22, and (3) the remedial purposes of the Ordinance supported the trial court’s ruling, id., at 22-23. In a related vein, the Court of Appeal found no error in the trial court “shifting the burden to require Cintas to prove which of its employees worked on the City of Hayward contracts,” id., at 23; Cintas could have organized the workload differently or implemented a different method of recordkeeping, id., at 23-28.

With respect to the enforceability of the contract, the appellate court stressed that Cintas expressly agreed to comply with the terms of the Ordinance and never sought clarification of its application. Amaral, at 28-29. The more difficult question was whether plaintiffs could sue as third party beneficiaries under the City contracts. The appellate court recognized that this was a matter of first impression, as the California Supreme Court “has not yet decided whether employees have a right to enforce the prevailing wage law absent a specific provision in their employment contracts.” Id., at 30. Nonetheless, the Court concluded that plaintiffs could sue under the City contracts, finding that they were “the intended beneficiaries” of the Ordinance, id., at 31-32.

NOTE: We do not here discuss the appellate court’s analysis of the California Labor Code violations, which may be found at pages 32 through 40 of the opinion, or of plaintiffs’ challenge to whether Cintas acted “willfully,” which may be found at pages 40 through 44 of the opinion. We also do not here discuss the amount of the Labor Code penalties awarded by the trial court, which may be found at pages 44 through 57 of the opinion, or the award of attorney fees and costs, which may be found at pages 58 through 62 of the opinion.

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