Government to the Rescue: A Selective Compendium of Assistance for Businesses, Employers, Landlords and Tenants

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With all of the laws, orders and regulations being passed, adopted or issued to address the crisis occasioned by the COVID-19 pandemic, I thought it might be helpful to provide a summary of many recent local (Los Angeles), California and federal passed, issued or proposed government actions granting relief and stimulus to businesses, employers and property owners.

I.     Los Angeles City Orders

  1. On March 23, 2020, the Mayor of the City of Los Angeles issued an order expanding the protection against evictions for residential tenants who are able to show an inability to pay rent due to circumstances related to the COVID-19 pandemic. (https://www.lamayor.org/sites/g/files/wph446/f/page/file/March232020OrderEllisalcoholparking_0.pdf.)
  2. On March 17, 2020, the Mayor had issued an order protecting those commercial tenants from eviction who are “able to show an inability to pay rent due to circumstances related to the COVID-19 pandemic. These circumstances include loss of business income due to a COVID-19 related workplace closure, child care expenditures due to school closures, health care expenses related to being ill with COVID-19 or caring for a member of the tenant’s household who is ill with COVID-19, or reasonable expenditures that stem from government-ordered emergency measures.” (https://www.lamayor.org/mayor-garcetti-orders-moratorium-commercial-evictions-related-novel-coronavirus.)

II.     Relief for Borrowers   

Federal and state banking regulators have encouraged financial institutions to work with borrowers to address loan modifications that may be necessitated by the COVID-19 pandemic.  On March 22, 2020, the federal regulatory agencies and state banking regulators issued an Interagency Statement encouraging and effectively making it easier for banks to reach short term modifications with borrowers who were current on their loans before the COVID-19 crisis began.  (https://www.fdic.gov/news/news/press/2020/pr20038a.pdf?source=govdelivery&utm_medium=email&utm_source=govdelivery.)

III.     California Order

CA Executive Order N-31-20 (https://www.gov.ca.gov/wp-content/uploads/2020/03/3.17.20-EO-motor.pdf) temporarily suspends the 60-day notice requirement under the California WARN Act (Lab. Code § 1400, et seq.) for employers that give written notice to employees and meet other conditions.  The Executive Order gives relief to California employers who had (or have) to take action to lay off employees or suspend operations because of the impact of the COVID-19 crisis, but would not have been able to do so under the California WARN Act, which does not contain the exception for “unforeseen business circumstances” included in the federal WARN Act.  The California Department of Industrial Relations, Division of Labor Standards Enforcement and the Employment Development Department (EDD) issued guidance about this change, which explains the conditions an employer must meet to qualify for the temporary suspension, the manner in which notice must be sent, and applicability of the California WARN Act in general.  (https://www.dir.ca.gov/dlse/WARN-FAQs.html.)

IV.     Federal Legislation

     A.     The Coronavirus Aid Relief, and Economic Security Act

On March 25, 2020, the U.S. Senate unanimously passed and sent to the House of Representatives H.R. 748, the “Coronavirus Aid, Relief, and Economic Security Act’’ or the ‘‘CARES Act,” to provide massive financial relief and stimulus to stem the financial crisis caused by the COVID-19 crisis.  The House is expected to pass the bill in short order, and the President has pledged to sign it.  Included in the Senate bill, in addition to direct payments to income-qualified individuals, are the following provisions:

  1. Expanded Unemployment Benefits. The legislation provides for a $600 per week increase in unemployment compensation insurance benefits (funded by the federal government), which currently average $300 per week.  The increased benefit lasts for up to four months.  It also expands unemployment benefits to people whose employment may not have been terminated but who cannot work as a result of coronavirus, either because they are sick, quarantined or need to take care of a child forced to stay home from school, and to people who are self-employed or are independent contractors working in the gig economy.
  2. Grants, loans and loan guarantees for businesses. The CARES Act authorizes grants, loans and loan guarantees for large businesses in “severely distressed industries,” including $25 billion in grants and $25 billion in loans to the passenger airlines, $17 billion to companies deemed critical to national security (read Boeing), and $425 billion for other businesses, cities and states, allocated through a funding mechanism established by the Federal Reserve.  Grants or loans from the $425 billion fund come with restrictions:  They may not be used for salary increases for executives of firms receiving the funds or for stock buybacks that primarily benefit company shareholders.  The legislation includes oversight measures for the fund, including a congressional oversight panel and a new inspector general to examine decisions made by the Treasury Department.  And allocations from the fund may not be used to benefit the President, Vice President, Cabinet members, Members of Congress, or their family members.  Allocations to “mid-sized businesses” with 500 to 10,000 employees are conditioned upon a pledge of neutrality in any union organizing efforts during the life of the loan.  Zero-interest loans of up to $10 million per business for businesses with fewer than 500 employees will be available through lenders (banks and credit unions) certified by the Small Business Administration.  Such loans will be convertible to grants if used for employee salaries, rent, paid leave, utility payments, health insurance premiums or other business necessities or worker protections.
  3. Other breaks for businesses. Under the legislation, businesses will be able to delay payment of the 6.2 percent payroll tax on wages over the following two years, with the first half due at the end of 2021, and the second half due at the end of 2022.  Other business tax breaks include an increase from 30 percent to 50 percent of the amount firms may deduct off their interest, delays in corporate and business taxes, and a change in the tax law to permit the hospitality industry to expense immediately the costs of building improvements.

     B.    The Family First Coronavirus Response Act

HR6201, the Family First Coronavirus Response Act, which was adopted on March 18, 2020, applies to employers of fewer than 500 employees and covers employees who have worked for their current employer for at least 30 days.   The Department of Labor is tasked with issuing regulations to grant relief to employers of 50 or fewer employees if compliance with the Act would jeopardize the viability of the business.  The FFCRA includes the following provisions:

  1. The Act has many sections but the provisions relevant to most employers are found in an amendment to the Family Medical Leave Act, which will be in effect through December 31, 2020, and by a new “Emergency Paid Sick Leave Act”.  These two provision fit together as pieces of a whole, which allows up to 12 weeks of paid leave (subject to modest dollar and other limits) for affected employees.
  2. Payroll Tax Credits for Employers.  Employers that are required to pay benefits to covered employees, as explained below, are allowed reimbursement of the amounts paid, up to the dollar limits for such benefits as set by the Act, by means of a refundable tax credit against payroll taxes as claimed on the employer’s quarterly tax return.  Employers may obtain help with cash flow by accessing employment taxes that have been withheld as set aside for deposit with the IRS.
  3. FMLA Amendments.  The FMLA amendments pertain only to employees who are caring for a son or daughter if the school or place of care for the child has been closed, or the child care provider of the child is unavailable, due to COVID-19 precautions.  These circumstances are added to all other occasions for leave under the FMLA, while the Act is in effect. The first 10 days of such leave may be unpaid, though any eligible employee may use other available paid leave during this initial 10 days.  The balance of the 12 weeks family leave may be paid at the rate of up to two-thirds of the employee’s regular pay for the number of hours per week the employee usually works, subject to a cap of $200 per day and $10,000 in total.
  4. Emergency Paid Sick Leave.  This “first two weeks of compensation” is broader in coverage than the FMLA provision.  It provides for pay at the employee’s regular rate, subject to $511/day (and $5,110 in the aggregate) cap, if the employee:(a) is subject to a quarantine or isolation order; (b) has been advised to self-quarantine; or (c) is experiencing symptoms; or for pay at two-thirds of the employee’s regular rate, subject to a $200/day (and $2,000 in the aggregate) cap, if the employee (d) is on leave to care for an individual who is subject to an isolation order or is a quarantined employee; or (e) is on leave to care for a son or daughter if the school or place of care for the child has been closed or the child care provider of the child is unavailable, due to COVID-19 precautions.

U.S. District Court Prohibits Enforcement of AB 51, the New CA Law that Would Ban Arbitration Agreements as a Condition of Employment

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In my post on November 12, 2019, I described new California laws impacting employers as of January 1, 2020.  See https://weinbergerlawblog.com/2019/11/12/preventive-maintenance-to-avoid-expanded-liability-risks-from-new-california-employment-laws-effective-january-2020/.  One of those laws, AB 51, prohibits employers from requiring new and current employees to enter into arbitration agreements as a condition of employment.

On December 6, 2019, the U.S. and California Chambers of Commerce, along with other business associations, filed a lawsuit in the U.S. District Court in Sacramento, asking the Court to declare AB51 is preempted by the FAA and therefore unenforceable as applied to arbitration agreements governed by the FAA and to enjoin California governmental from enforcing AB51 as applied to such agreements.

The plaintiffs filed a motion for temporary restraining order (TRO), which was heard on December 23, 2019.  On December 30, 2019, the Court granted the motion and issued a TRO prohibiting enforcement of AB51, because of the serious concerns raised about whether the statute is preempted by the FAA.  The Court also set a hearing for January 10, 2020 on a preliminary injunction.

In light of the Court’s ruling, AB51 cannot be enforced against employers that require current or new employees to sign an arbitration agreement as a condition of employment.  Employers should stay informed about the status of this case, and in particular the outcome of the January 10, 2020 hearing.

PREVENTIVE MAINTENANCE TO AVOID EXPANDED LIABILITY RISKS FROM NEW CALIFORNIA EMPLOYMENT LAWS EFFECTIVE JANUARY 2020

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I.  Introduction

New laws that take effect at the turn of the year increase the risk of liability to those employers that do not plan for compliance.  Some steps that employers should consider include:

  1. Taking a close look at how they classify workers, either as independent contractors or as employees, and determining whether, under the ABC test (see part II, below), if applicable to the employer’s industry, previously classified contractors need to be reclassified as employees.
  2. Assessing, on one hand, the risk of continuing to include arbitration agreements in employment arrangements against, on the other hand, the value of such agreements and the possibility that the law prohibiting such agreements will ultimately be struck down as preempted by the Federal Arbitration Act.
  3. Improving documentation of grounds for termination, changes in terms or conditions of employment or decisions not to hire an applicant, in light of the tripling of the length of the statute of limitation to bring a claim for discrimination, harassment or retaliation under the Fair Employment and Housing Act.
  4. Modifying settlement agreements to eliminate “no rehire” clauses, and improving documentation of determinations not to rehire former employees who have brought claims against the employer.
  5. Implementing measures to comply with those provisions of the California Consumer Privacy Act for which the effective date was not extended to January 1, 2021, including notice of personal information an employer is gathering from employees and applicants resident in California and bolstering security measures for such data, to avoid the private right of action for unauthorized access caused by a security breach. 

II.  AB5 – The Enshrinement of the Dynamex Decision in the Labor Code—with Exceptions

Building on the California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (see https://weinbergerlawblog.com/2018/05/09/the-abcs-of-the-worker-classification-the-california-supreme-courts-new-dynamex-standard-expands-employee-protections/), the California legislature passed AB 5, enshrining the ABC test for independent contractor/employee classification in the California statutes.

AB5 makes clear that the ABC test for worker classification applies to the California Labor Code, the California Unemployment Insurance Code, and California Wage Orders.  Under the ABC test, a worker is “considered an employee rather than an independent contractor” unless the hiring entity sustains its burden to show all of the following factors are met:

A. The worker “is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.”

B.  The worker “performs work that is outside the usual course of the hiring entity’s business.”

C.  The worker “is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.”

AB5 contains a host of exceptions – specified industries in which the ABC test does not apply to classification of workers.  Most of those industries had heavily lobbied the Legislature for an exception.  In many instances, where the statute states that the ABC test does not apply, it states that the long-time multifactor test for classifying a worker as a contractor or an employee, as stated in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, will apply.

Under Borello, the main factor in the classification determination is whether the person to whom the worker renders services has control or the right to control the worker with regard to the work done and the manner and means in which it is performed.  Other factors considered include: whether the person performing services is engaged in an occupation or business distinct from that of the person for whom the work is performed; whether the work is a part of the regular business of the latter person; which party supplies the instrumentalities, tools, and the place for the person doing the work; the level of skill required for the services rendered; whether in the locality, the work done by the worker is usually done under the direction of the person for whom the work is performed or by a specialist without supervision; the worker’s opportunity for profit or loss depending on the work performed; the length of the work relationship; and whether the work is paid by time or by the job.

One or more ride-share companies are organizing to place an initiative on the California ballot to make AB5 and the ABC test inapplicable to their drivers.  And some industries that the Legislature did not except from AB5 are contemplating constitutional challenges to the statute.  For now, on or before January 1, 2020, companies treating workers as independent contractors will need to consider seriously whether to change their classification to employees.

III.  AB51 – No Forced Arbitration Clauses with Employees

AB51, effective January 1, 2020, adds section 432.6 to the Labor Code to prohibit employers “as a condition of employment, continued employment, or the receipt of any employment-related benefit” from “requir[ing] any applicant for employment or any employee to waive any right, forum, or procedure for a violation of” the California Fair Employment and Housing Act (“FEHA”) or the Labor Code.  The statute’s nonexhaustive list of rights, forums or procedures that an employer is prohibited from requiring an employee or applicant to waive includes “the right to file and pursue a civil action or a complaint with, or otherwise notify, any state agency, other public prosecutor, law enforcement agency, or any court or other governmental entity of any violation.”  The prohibition extends to any agreement that would require an employee “to opt out of a waiver”.  The legislation also adds section 12953 to the California Government Code (where the FEHA is located), to make it “an unlawful employment practice for an employer to violate section 432.6 of the Labor Code.”

The legislation contains a savings clause, stating that it is not “intended to invalidate a written arbitration agreement that is otherwise enforceable under the Federal Arbitration Act. . . .”  And it excepts from the prohibition “postdispute settlement agreements or negotiated severance agreements.”

While the U.S. Supreme Court has ruled heavily in favor or enforcement under the Federal Arbitration Act of arbitration agreements between employers and employees, as well as class action waivers, it has based such ruling in large part on upholding the intention of the parties as disclosed in the arbitration agreements.  It has not ruled on state laws that prohibit compelled arbitration agreements.  How the Court views this new law may depend upon (1) whether it accepts the premise that, under the FAA, one condition of employment, that is, an arbitration agreement, can be singled out for prohibition, and (2) whether it sees the law as having a “disproportionate impact” on arbitration, which could make it subject to preemption by the FAA.

Pending a ruling on the statute’s enforceability, an employer runs the risk of liability under the FEHA for including as a condition of employment, the employee’s acceptance of an arbitration agreement.

IV.  AB9 – Lengthened Statute of Limitations for Discrimination and Harassment Claims under the Fair Employment and Housing Act

AB9, effective January 1, 2020, amends the FEHA, in particular section 12960 of the Government Code, increasing from one year to three years the statute of limitations for filing with the Department of Fair Employment and Housing (“DFEH”) a complaint alleging discrimination, harassment or retaliation in violation of the FEHA.  Filing a complaint with the DFEH and obtaining notice from that department that it will not pursue a civil action with regard to the complaint is a necessary prerequisite to a plaintiff filing a civil action in court for FEHA violations.

AB9 does not revive claims that have lapsed under the current statute of limitations, and it does not change the one-year limitations period for a plaintiff to file a civil action for FEHA violations, which starts to run from the date of the DFEH’s notice that it will not pursue a civil action.

Because a complaint for FEHA violations may now be filed up to four years after an alleged violation of that statute, employers should take greater care to document all decisions and actions taken with regard to hiring, discipline, promotions, demotions, termination and other terms and conditions of employment.  Statutes of limitation are adopted to provide sufficient time for an injured party to bring a lawsuit to seek redress and at the same time place an outer limit on such claims, to avoid the fading of memories, loss of records and other impacts on evidence that parties may need to offer to pursue or defend against a claim.  AB9 resets the balance in favor of allowing later claims over the risk that evidence will be lost by the passage of time.

V.  AB749 – Prohibition on “No Rehire” Provisions in Settlement Agreements

AB749 adds section 1002.5 to the California Code of Civil Procedure effective January 1, 2020, to ban inclusion in an agreement settling an employment dispute of any provision that “prohibit[s], prevent[s], or otherwise restrict[s] a settling party that is an aggrieved person from obtaining future employment with the employer against which the aggrieved person has filed a claim, or any parent company, subsidiary, division, affiliate, or contractor of the employer.”  Any provision that violates this provision is void.

The new law will not prohibit an agreement between an employer and aggrieved employee to end an employment relationship or a provision to prohibit the aggrieved employee from further employment, where “the employer has made a good faith determination that the person engaged in sexual harassment or sexual assault.”  In addition, the new law will not require an employer “to continue to employ or rehire a person if there is a legitimate non-discriminatory or non-retaliatory reason for terminating the employment relationship or refusing to rehire the person.”

In light of this law, where an employer is considering terminating employment of an employee who has filed a claim against the employer in court, before an administrative agency, in an alternative dispute resolution forum, or through the employer’s internal complaint process, the employer should be even more careful to assure that it has documented defensible reasons to terminate the employee.  Likewise, if a former employee who has filed such a claim applies for re-employment, the employer should have documented defensible reasons not to employ him or her.

VI.  SB688 – Expansion of Labor Commissioner Authority to Issue Citations for Failure to Pay Wages

SB688 amends section 1197.1 of the Labor Code to expand the Labor Commissioner’s Authority to issue a citation for underpaid wages.  In addition to the Labor Commissioner’s authority to issue a citation to an employer for having paid less than the minimum wage to its employees, the Commissioner is empowered, effective January 1, 2020, to issue a citation to an employer that has “paid a wage less than the wage set by contract in excess of the applicable minimum wage” in order to obtain restitution of the amounts underpaid.  This amendment provides an additional means for employees to recover wages they allege an employer failed to pay in accordance with a contract.

The law requires an employer that challenges a Labor Commissioner finding of unpaid wages in court to post a bond for the amount of found by the Commissioner to be due and owing.  The bond is forfeited to the Labor Commissioner if the court affirms or modifies the Commissioner’s finding and the employer fails to pay that amount within 10 days of the court’s ruling.

VII.  SB778 – Extension of Deadline to Provide Harassment and Abusive Conduct Training

This legislation extends the time from January 1, 2020 to January 1, 2021 for employers with five or more employees to provide at least two hours of classroom or other effective interactive training and education regarding sexual harassment to all supervisory employees and at least one hour of classroom or other effective interactive training and education regarding sexual harassment to all nonsupervisory employees in California.

VIII.  AB25 – Partial Reprieve on Applicability of the California Consumer Privacy Act (“CCPA”) to Employers

AB25 gives employers with employees who reside in California limited breathing room to prepare for the full application of the new law to data they gather from such employees.  For an employer to which the CCPA applies – that is, a for-profit entity that either (1) has annual gross revenues over $25 million; or (2) alone or in combination, annually buys, receives for its commercial purposes, sells, or shares for commercial purposes, alone or in combination, the personal information of 50,000 or more consumers, households, or devices; or (3) derives 50 percent or more of its annual revenues from selling consumers’ personal information – the application to employees’ personal information is delayed until January 1, 2021, but only to the extent that such information is used for purposes of the employment relationship.

Employers to which the CCPA is applicable must still be prepared for the law as of January 1, 2020, because of the following provisions:

  1. Absent adoption of a further delay in the CCPA’s applicability to employers, as of January 1, 2021, businesses will be required to disclose data collected during the prior 12 months upon a request. Tracking of such data should start on January 1, 2020.
  2. AB25 does not delay the January 1, 2020 implementation date for the requirement that a company notify its employees resident in California of the categories of personal information to be collected and the purposes for which that personal information will be used. Likewise, without further notice to employees of additional data to be collected or other uses to which the information collected will be used, the company will be limited to collecting the data and using it as described in the notice.
  3. AB25 does not delay the January 1, 2020 implementation date for the requirement that employers comply with the other CCPA requirements if they use employee data for non-employment purposes, for example, to market goods or services to employees; those requirements include disclosure and right to opt out of sales of personal information.
  4. AB25 does not delay the January 1, 2020 date authorizing an employee to bring a private right of action for data breaches impacting his or her data.

 

Summer California Supreme Court Decisions Ease Procedural Thresholds for Consumer Claims

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I.  Introduction: An Eased Standing Requirement for Unruh Act Claims against Web-Based Businesses, a Lower Bar to Show a Class is Ascertainable in Class Actions, and What Businesses Need to Know

In two cases decided in July and August of this year, the California Supreme Court struck a balance in consumer claims between easing access to the courts for such claims and protecting defendants’ rights to due process.  In White v. Square, Inc. (Aug. 12, 2019), the Court held that a person who seeks access to an online service but does not attempt to register for it after reading terms that exclude him or her may bring a claim under California’s Unruh Civil Rights Act, even absent an attempt to register for the service.  In Noel v. Thrifty Payless, Inc. (July 29, 2019), the Court settled a split in authority on the requirement in class action suits that the class members be ascertainable, landing on the side of the less stringent interpretation of the requirement.

For companies doing business with California consumers, these holdings mean:

  1. Web-based companies should assure that their terms of service do not unduly exclude consumers or businesses on bases that are not easily justified by reasoning that is consistent with California law requiring non-discriminatory access to accommodations, facilities, privileges or business services.
  2. Consumers in California may seek relief on a class-wide basis against consumer-oriented businesses even where a representative plaintiff cannot identify each individual consumer who is a potential member of the class, provided that members can be identified through objective characteristics and common transactional facts, and the other class certification criteria are met. Therefore, businesses need to assure that low-value high-volume products are marketed truthfully and meet applicable safety and other standards.
  3. If a business is served with an action asserting class claims, then, when the class certification motion is filed, the business may still raise the issue of the feasibility of contacting class members, but must do so in the context of other applicable class action criteria, such as the manageability of the class, and/or the lack of superiority of a class proceeding to alternative means of resolving the claims.

II.  White v. Square, Inc.: A Plaintiff Need not Plead an Attempt to Use a Website to Bring a Claim for Discrimination under the Unruh Act.

Square, Inc. offers an online service through which subscribers, for a per-transaction fee, may accept electronic payments without opening up a merchant account with a Visa or MasterCard member bank.  Its terms of service require a user, when creating an account, to confirm that the user will not accept payments for bankruptcy attorneys or collection agencies.  In White v. Square, Inc., a bankruptcy attorney alleged that Square’s agreement discriminates against bankruptcy attorneys in violation of the California’s Unruh Civil Rights Act.  In his second amended complaint, he claimed that he accessed the Square website intending to register for use of its services for his bankruptcy practice, but after reviewing its terms of services, he did not click the button “Continue” to register, because he believed that he could not do so without committing fraud.

The Unruh Act prohibits discrimination on the basis of 14 enumerated categories, in “accommodations, advantages, facilities, privileges or services in all business establishments,” and authorizes a private right of action for damages, injunctive relief and attorneys’ fees.  The non-discrimination categories in the Act are not exclusive.

The case raised the issue of whether a plaintiff “has standing to bring a claim under the Unruh Civil Rights Act when the plaintiff visits a business’s website with the intent of using its services, encounters terms and conditions that allegedly deny the plaintiff full and equal access to its services and then leaves the website without entering into an agreement with the service provider”.  The Court held that the plaintiff need not have entered into an agreement with the business to bring a claim under the Unruh Act.  The general rule that a person “suffers discrimination under the Act when he or she “presents himself or herself to a business with an intent to use its services but encounters an exclusionary policy or practiced that prevents him or her from using those services,” applies to online businesses.

In reaching this determination, the Court viewed the issue in light of the legislative intent and statutory purpose.  The Court explained that the Unruh Act has a “broad remedial purpose and overarching goal of deterring discriminatory practices by businesses.”  Courts are required to construe the Act liberally to carry out its purpose.

Thus, there is no requirement that a plaintiff ask the business for an exception to the stated restriction or to verify that the restriction applies to him or her.  “Such a requirement would limit a business’s liability only to individuals who inquire and would potentially enable a business to make exceptions to its stated policies in order to avoid suit . . . .”

In pleading a claim under the Unruh Act, a plaintiff “must allege, for purposes of standing, that he or she visited the business’s website, encountered discriminatory terms, and intended to make use of the business’s services.”

III.  Noel v. Thrifty Payless, Inc.: Class Action Plaintiffs Need Not Show that Class Members May Be Individually Identified to Meet the “Ascertainability” Requirement for Certification of the Class, provided objective characteristics can be used to identify class members when necessary.

To seek certification of a class in a class action under section 382 of the California Code of Civil Procedure, a class representative plaintiff must meet criteria established by the courts.  One of the criteria is that the class is ascertainable.  (The other criteria are that the class is “sufficiently numerous, [and has] a well-defined community of interest, and [that] substantial benefits from certification . . . render proceeding as a class superior to the alternatives.”)

California courts had not applied the ascertainability standard consistently – some required that, among other things, the representative plaintiff show that the individual members of the proposed class can be readily identified without unreasonable expense or time, while other courts employed a less stringent requirement that the plaintiff define the class “in terms of objective characteristics and common transactional facts” that make identification of class members possible when that becomes necessary.

Reviewing the California and federal case law on the ascertainability standard, the Court held that the less stringent standard best achieved “the limited but important function of the ascertainability requirement,” to protect “the due process interests of all parties and absent class members without unduly impairing the efficacy of the class action mechanism.”  The Court identified two ways in which the requirement that a class definition be framed in objective terms promotes due process:  First, it “puts members of the class on notice that their rights may be adjudicated in the proceeding, so they must decide whether to intervene, opt out, or do nothing and live with the consequences.”  Second, it supplies “a concrete basis of determining who will and will not be bound by (or benefit from) any judgment.”

An ascertainability requirement that is focused on objective criteria and common transactional facts assures that high-volume low-individual-value claims can proceed without undue administrative burdens that would preclude such claims from being adjudicated – either on an individual or class basis.  Quoting from the case of Mullins v. Direct Digital, LLC, 795 F.3d 654 (7th Cir. 2015), the Noel Court explained the detrimental impact that a heightened ascertainability approach would have on the viability of such class actions:

“‘More broadly,’ the court wrote, ‘the stringent version of ascertainability loses sight of a critical feature of class actions for low-value claims . . . .  In these cases, “only a lunatic or a fanatic” would litigate the claim individually, [citation], so opt-out rights are not likely to be exercised by anyone planning a separate individual lawsuit.  When this is true, it is particularly important that the types of notice that courts require correspond to the value of the absent class members’ interests.  [Citation.] . . . .  [¶] The heightened ascertainability approach upsets this balance.  It comes close to insisting on actual notice to protect the interests of absent class members, yet overlooks the reality that without certification, putative class members with valid claims would not recover anything at all.’”

California case law “has adopted a . . . practical approach” to the question of what notice to class members will be required in a particular case: “the circumstances of each case determine what forms of notice will adequately address due process concerns.”  Therefore, “due process does not demand that the proponent of class treatment demonstrate, as a prerequisite of certification, that (much less how) class members eventually will receive individual notice of the action.”  (Emphasis in original.)  And when the time comes in a case to determine what notice is appropriate, “individual notice may not always be required even for absent class members whose whereabouts are known”.  A representative plaintiff “is not required to notify individually every readily ascertainable member of his class without regard to the feasibility of such notice; he need only provide meaningful notice in a form that ‘should have a reasonable chance of reaching a substantial percentage for the class members.’”

Since due process does not always require personal notice to all members of a class for the class action to proceed or for an individual member of a certified class to be bound by the judgment, “a construction of the ascertainability requirement that presumes such notice is necessary to satisfy due process, and demands that the plaintiff show how it can be accomplished, threatens to demand too much, too soon.”  Therefore, “as a rule, a representative plaintiff in a class action need not introduce evidence establishing how notice of the action will be communicated to individual class members in order to show an ascertainable class.”  As explained above, the representative plaintiff need only define the class based on objective characteristics and common transactional facts.

The impact of the Court’s decision in Noel is unclear because of the Court’s comments that the issue of whether a plaintiff can show a feasible means to identify and contact class members may be raised and considered in reviewing other requirements for class certification, for example, the requirements that the plaintiff show that the proposed class is manageable and that the class proceeding is superior to alternative means of resolving claims.  But based upon the Court’s in depth analysis of the ascertainability requirement and the impact of that requirement on low individual-value claims, it is likely that, even if the feasibility of notifying all class members is raised in connection with other class action criteria, the Court will lower the bar for such claims.