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Cargill Initiates Salmonella-Related Recall Of Ground Beef Distributed In The Northeast

By Javier F. Flores and Brian Gross on Posted in Foodborne Illness

Raw Hamburger

OnJuly 22, 2012, Cargill Meat Solutions Corporation (“Cargill”) announced a Class I voluntary recall of approximately 30,000 pounds of fresh ground beef due to contamination from Salmonella Enteritidis.   The recall follows a Salmonella outbreak involving 33 patients in seven states (MA, ME, NH, NY, RI, VA, VT).  An investigation performed by the Food Safety and Inspection Service (“FSIS”), the regulatory agency responsible for ensuring that our country’s commercial supply of meat is safe, has linked five cases of Salmonella infection to ground beef produced by Cargill on May 25, 2012.

Additional incidences of salmonellosis related to the meat subject to the recall should be few, as the onset of the five illnesses which were traced back to the subject ground beef were all well over a month ago, between June 6, 2012 and June 13, 2012.  Symptoms of salmonellosis, which include diarrhea, abdominal cramps and fever, generally manifest between 12 and 72 hours after consumption.  The use by date on all ground beef recalled by Cargill has passed.  Accordingly, none of the meat recalled is presently available for retail purchase.   Concerns remain, however, with respect to whether consumers may have stored potentially contaminated meat in their freezers for later consumption.

Cargill recalled 36 million pounds of ground turkey in August of 2011, after 107 people in 31 states were infected with salmonellosis.   In response to the last recall, Cargill temporarily halted ground turkey production at its Springdale, Arkansas facility in order to implement additional quality and testing standards.   Cargill has not yet determined the source of the bacteria contamination in relation to the present recall.  Accordingly, it is unclear what measures Cargill will implement to prevent future incidents of contamination.

Though it remains early in the recall process, Cargill has performed admirably in working to protect public health, while at the same time protect its brand and minimize the commercial impact of the current Salmonella Enteritidis contamination.

An effective recall requires preparedness, a rapid response, transparency, and a focus on the consumer.  Cargill has exhibited all of these qualities in this instance by:

  1. quickly identifying the potentially contaminated batch of ground beef;
  2. rapidly initiating a voluntary recall;
  3. working effectively with the FSIS to protect consumers against further infection; and
  4. issuing an apology to those who have become ill.

Now, Cargill must work to identify the source of the Salmonella Enteritidis contamination so it may implement measures aimed at the prevention of any future occurrences and attempt to restore consumer confidence.

Avoiding Litigation Risks Arising Out of Private Investment Firms’ Controlling Interest in Portfolio Companies

By Daniel McCarthy on Posted in Litigation Trends, Massachusetts Courts

Avoiding Litigation RiskRecently, my firm Cooley Manion Jones LLP, successfully obtained summary judgment (download pdf) on behalf of its clients, Boca Raton-based private equity firm Sun Capital Partners, Inc. and six of its affiliated entities.  The claims were brought by two entities that had entered into contractual relationships to serve as independent sales representatives on behalf of Sun Capital portfolio company ACT Electronics, Inc.  Plaintiffs asserted numerous contractual related claims under veil piercing theories, together with claims for tortious interference, violations of the Massachusetts unfair trade practices statute, and state law statutory claims for commissions.  The gravamen of Plaintiffs’ claims was that Sun Capital and its affiliated entities pervasively controlled ACT Electronics and siphoned off corporate assets to the detriment of Plaintiffs.  While much of the Plaintiffs’ allegations were baseless and rejected by the Court, this case is a perfect example of the increased risk of liability associated with majority ownership and control of portfolio companies for the private investment industry, and illustrates steps companies can take to limit exposure in such cases.

Shareholder or control person liability arises in an increasing number of situations faced by private equity firms, including common law veil piercing claims, as well as WARN Act and Wage and Hour claims, and claims brought under provisions of the Securities Act and Securities Exchange Act.  While the factors considered by courts to determine whether a controlling shareholder should be held liable for the acts of a portfolio company vary from state to state and vary based on the context in which the claims are brought, all generally boil down to the following:

  • Disregard of corporate formalities
  • Disregard of corporate governance structure
  • Disregard of the corporation’s economic separateness
  • Undercapitalization
  • Siphoning of funds
  • Common ownership
  • Common directors and officers
  • Exercise of impermissible control

As these factors are used in guiding courts’ consideration of whether to extend liability to private investment firms and other controlling shareholders, these controlling shareholders must keep these factors in mind when structuring relationship with each of their portfolio companies.  Moreover, they should be mindful of the measures detailed below in order to reduce or eliminate the risk of such claims.

Recognize corporate formalities.  Private equity firms and their affiliated entities, by their very nature, must have inter-corporate relationships with their portfolio companies due to their interests as shareholders in those companies, and due to various other economic interests associated with their investment in those companies.  As a result, it is imperative that private investment firms and their affiliated entities observe proper corporate formalities.

In addition, private equity firms must encourage their portfolio companies to do the same.  All of the companies involved must take steps to create “corporate separateness.”  For instance, they should “separately: (a) conduct regularly scheduled meetings of their board of directors; (b) conduct and record shareholder votes; (c) prepare and record timely corporate minutes; (d) issue and record stock certificates; (e) make routine filings with the appropriate offices of the appropriate secretaries of states; and (f) maintain individual and separate corporate records and financial accounts.

Recognize separate business activities and governance.  While the success of private equity firms is largely based on the business success of their portfolio companies, private equity firms and their affiliated entities, must not micromanage the day-to-day business of their portfolio companies.  The more autonomy given to the portfolio companies, the less likely a court will extend liability to the shareholders.  For example, portfolio companies should be responsible for their own personnel matters, including the hiring and firing of their own employees.  In addition, portfolio companies should maintain their own financial accounts and finances.  Further, to the extent a portfolio company has a relationship with a private equity firm controlled management services company, it should be abundantly clear that the management company’s role is merely to consult and advise the portfolio’s management team, and that all decisions are explicitly reserved for portfolio management.  Moreover, ensure that any management services agreement is the culmination of an arms-length transaction, and that the fees charged are within norms for the private investment industry.

Adequate capitalization.  Portfolio companies should be adequately financed for their anticipated business purpose.  To the extent feasible, portfolio companies’ operating credit should be secured by independent lenders.  To the extent that private investment firms or their affiliated entities loan portfolio companies money, it should be an arms-length transaction, based upon commercially reasonable market terms and must be fully documented.

Directors and officers.  Ideally, officers and directors of private equity firms should not serve as officers of their portfolio companies.  The officers of the portfolio company should be independent and operate with the business of the portfolio company in mind.  Often, private equity firms, by virtue of their majority shareholder status, will have the right and obligation to appoint their own employees to the boards of directors of their portfolio companies.  While it is typical and justifiable to appoint members aligned with the interests of the private investment firm, it is wise to have one or more independent directors – often a senior member of the portfolio company’s corporate management team.  In any event, it is critical that each officer and director be cognizant of the capacity in which they are acting at all times.

It is unlikely that any company can completely eliminate the litigation risks associated with being a majority shareholder or control person, and the steps detailed above are by no means an exhaustive list of measures that a private equity firm can, and should take.  Nevertheless, it is clear from the case law that the more consideration private equity firms give to recognizing the separate corporate existence of portfolio companies, and the more effort expended on acting in conformance with that recognition, the better chance of success those firms have when confronted with litigation which seeks to extend to them the liability for a portfolio company’s conduct.

Shed a Little Light: Congressional Hearing on Asbestos Bankruptcy Trusts Promises Much-Needed Transparency

By Michael R. Brown and Brian Gross on Posted in Asbestos Litigation

 

Congress

Recently, the Subcommittee on Courts, Commercial and Administrative Law of the U.S. House Judiciary Committee, held a hearing on an important new bill aimed at furthering transparency in asbestos bankruptcy trusts.  Proponents of the controversial new bill, entitled H.R. 4369, the “Furthering Asbestos Claim Transparency Act (FACT) Act of 2012,” say that it would shed some much-needed light on the secretive claims processes of the bankruptcy trusts.

Asbestos-related liabilities have plagued hundreds of corporate defendants over the past twenty-plus years. Many have sought protection under Chapter 11 of the U.S. Bankruptcy Code.  Section 524(g) of that Chapter allows a debtor company to channel asbestos claims to a trust set up for the purpose of paying those claims.  Pursuant to that Section, the trust assumes the asbestos liabilities and the debtor’s assets are transferred to the trust, which then pays the asbestos-related claims.  The debtor company is thus relieved of all present and future asbestos-related liabilities.  See GAO-11-819, at 2-3 (2011), Report of theU.S. Government Accountability Office to the Chairman, Committee on the Judiciary, House of Representatives: Asbestos Injury Compensation; The Role and Administration of Asbestos Trusts, (pdf download). The problem, according to proponents of H.R. 4369, is that the claims process is a private, non-adversarial administrative process, and is shielded from public scrutiny by complex “trust distribution procedures,” or “TDPs.” Marc Scarcella, an economist at Bates White, LLC, testified in support of the bill.  Mr. Scarcella addressed concerns about the lack of mechanisms to cross-check trust claims against claims made to other trusts or in the tort system:

“lack of transparency and accountability may incentivize specious and inconsistent claiming across the tort and trust systems” and “may result in trust funds being depleted by erroneous payments.”  Hearing Before the H. Jud. Comm. Subcomm. On Courts, Commercial and Administrative Law, 112th Cong. (2011-2012) (statement of Marc Scarcella, Bates White, LLC).  H.R. 4369 would preclude such misuse by requiring each trust to file quarterly reports which disclose: (i) who has filed a claim against the trust; and (ii) the asbestos exposures alleged by each claimant.  See id.

The lone opponent of H.R. 4369 at the hearing was plaintiffs’ attorney Charles Siegel of Waters & Kraus LLP.  Attorney Siegal testified that the legislation “would place new burdens on trusts … but would only serve solvent defendants’ interests.”  Mr. Scarcella addressed these concerns, however, by stating that the new transparency considerations would benefit everyone involved, particularly future claimants.  Moreover, he testified that the reporting would not burden the trusts because the claims administration process is controlled electronically.

Concerns about asbestos bankruptcy trusts is not new. There are legislative efforts at reform underway in several states, including Ohio, Lousiana, and Texas, to name but a few.  The fact that the issue has finally made its way before the U.S. Congress is heartening, but there is a long way to go.  The bill in its current form does not appear to address the filing of “placeholder” claims, a common tactic used by plaintiffs’ attorneys.  Some trusts currently allow claimants to file a placeholder claim, which contains no substantive information and in which the claimant does not actually seek payment, but merely seeks to toll the statute of limitations until they refile a claim at later date (presumably after the claimant’s civil lawsuit is resolved).  Moreover, the bill must still make it out of committee and through both the House of Representatives and the Senate: no small feat in today’s political climate.  Regardless, H.R. 4369 is a bold step in the right direction.

 

Hold the relish: ConAgra under fire for allegedly misrepresenting kosher status of Hebrew National hot dogs

By Jonathan F. Tabasky and Sarah M. Knoff on Posted in Products Liability

Hebrew National hot dogs with mustard and relish

Hebrew National Hot Dogs may answer to a Higher Authority, but for the time being they’ll also be answering to the United States District Court of Minnesota.  Hebrew National Hot Dogs which are owned by ConAgra Foods, Inc. has been sued in a class action Complaint (pdf download) which alleges that it utilized deceptive and misleading labeling by representing that Hebrew National hot dogs are strictly 100% kosher in violation of applicable consumer protection statutes.  The suit claims that ConAgra’s kosher meat producer, AER Services, improperly slaughtered and did not maintain the slaughter house in accordance with Kosher laws by, among other things, using knives which were nicked thus preventing a clean cut as mandated by Kosher law and by failing to keep kosher meat separate from non-kosher meat.

The suit contains causes of action for:

  1. negligence;
  2. violation of state consumer protection acts;
  3. breach of express and/or implied warranty; and,
  4. breach of implied warranty of merchantability/fitness for a particular use.

The suit further alleges that employees of AER Services raised concerns about the procedures at the slaughter house, but those concerns were dismissed and the employees were either threatened with retaliation or fired.  None of the employees are named in the suit.

Hebrew National hot dogs are certified as Kosher by Triangle K, the Kosher Food Supervision and Certification Agency which is based in New York.  Neither Triangle K nor AER Services are named as Defendants in the Complaint.  In statements, Triangle K and AER Services have all denied that the allegations.  ConAgra which successfully removed this action to Federal Court has untilJuly 13, 2012to answer.  In response to the suit, ConAgra issued a press release which states that…

for more than 100 years, Hebrew National has followed strict dietary law, using only specific cuts of beef that meet the highest standards for quality, cleanliness, and safety with no by-products, artificial flavors, or artificial colors.”

Some states have statutes which regulate the labeling of Kosher food.  See e.g., the New York Kosher Law Protection Act of 2004.  We expect the Food and Drug Administration as well as other states to issue additional regulations pertaining to such advertising given the increased production and distribution of other religiously significant food products.  Food manufacturers and distributors should follow these regulations closely, as failing to follow them can be costly.  One recent suit brought in Orange County California against Super King Market subsequently settled for $527,000.  In that suit,  Super King allegedly improperly sold generic meat as halal meat, or that which follows Islamic law.

Ben & Jerry’s Recall: Container Label Missing Nut Allergen Advisory in Chocolate Nougat Crunch

By Eric Skelly and Brian Gross on Posted in Foodborne Illness, Products Liability

Ben & Jerry's Chocolate Nougat Crunch Ice Cream

With the Summer Solstice only days away, and peak ice cream eating season upon us, Unilever,PLC, the company which owns Ben & Jerry’s, is voluntarily recalling pints of Ben & Jerry’s Chocolate Nougat Crunch Ice Cream because the container label does not include a statement which warns that the product was manufactured on equipment also used to process peanuts and tree nuts.  In its press release concerning the recall, the Food & Drug Administration (“FDA”) warned that individuals who have an allergy to nut products would “run the risk of serious or life-threatening allergic reaction if they consume” this Ben & Jerry’s product.  The ice cream was distributed to retailers nationwide and it appears that the pints reached shelves for consumer purchase. Luckily, no illnesses have been reported to date.

In 2004, Congress passed the Food Allergen Labeling and Consumer Protection Act (“FALCPA),” which mandates the labeling of food allergens on packaged foods.  The Act was added to the Federal Food, Drug and Cosmetic Act and became effective in 2006.  21 U.S.C.  § 321.  FALCPA requires that manufacturers of foods which contain one of the eight major allergens responsible for 90 percent of food allergies (which includes peanuts and tree nuts) either:

  1. state on the food’s packaging that the food contains the allergen; or
  2. refer to the allergen in the ingredients listing.

According to the Food Allergy and Anaphylaxis Network, 4 percent, or 9 million adults, and about 8 percent or 6 million infants and young children in theU.S., suffer from food allergies. Every 3 minutes a food allergy sends someone to the emergency room in theUnited States.  In fact, more than 200,000 consumers require emergency room treatment each year.  According to the FDA approximately 150 Americans die each year from food allergies.  This is a large pool of potential claimants and you can rest assured that plaintiff firms are well aware of the statistics and track labeling related recalls closely.

We continually advise our manufacturing and processing clients that proper labeling, especially with respect to allergens is critically important.  We help insure that they have appropriate checks and balances surrounding food production and labeling.  Furthermore, we remind our retail (i.e. grocery stores and restaurants) and food services clients that they are held to the same FALCPA labeling standards if they package food for consumption at their facilities.

The Ben & Jerry’s recall is the perfect example of a situation that could result in serious food borne illness claims, and even wrongful death claims.  These claims can be difficult to defend if the labeling practices of a company violated FALCPA, and a claimant can provide proof that they consumed the mislabeled product and suffered an adverse reaction.  In cases such as the Ben & Jerry’s recall, an experienced plaintiff firm’s first step will be to attempt to preserve the food item and any packaging.  As such, any company conducting a recall for mislabeling should not destroy the product at issue, or risk a spoliation claim from future claimants.  Allow this latest recall to serve as a reminder to both attorneys who represent food companies and the food companies themselves that they must constantly evaluate labeling practices to ensure compliance with FALCPA.

UPDATE: The Pink Slime Backlash

By Javier F. Flores and Brian Gross on Posted in Foodborne Illness

Raw Hamburger As we reported several weeks ago, there has been a media fueled public outcry against the inclusion of Pink Slime, which is otherwise known as, “lean finely textured beef,” or “LFTB,” in ground beef.  LFTB is comprised of the beef scraps which remain after the valuable cuts of meat are sold.  These pieces of meat are separated from fat through the use of a centrifuge, and treated with ammonium hydroxide to kill harmful bacteria. The result is a safe, edible, high quality beef product containing the same nutritional value as other ground beef.   In fact, the United States Department of Agriculture (USDA) continues to proclaim that both LFTB and the use of ammonium hydroxide to eliminate bacteria in meat are safe.

Despite the USDA’s continued support for LFTB, the social media led firestorm directed against LFTB has caused a significant backlash against the product.  For example, all but three states which participate in the National School Lunch Program (NSLP), which is administered by the USDA to provide low income school children with a free or reduced cost  lunch, now refuse to purchase ground beef which contains LFTB, despite the fact that it costs three percent less than the alternative. In addition, many restaurants, including McDonalds, and supermarket chains have followed suit and ceased the sale of ground beef which contains LFTB. As a result, many large beef producers have suffered large declines in revenue.  In fact, Beef Products, Inc. (“BPI”), the largest LFTB manufacturer, was forced to close three of its plants and lay off 650 employees.

In an effort to resuscitate their flagging businesses, many beef producers recently submitted requests to the USDA to add labels indicating the inclusion of LFTB. In response, the USDA instituted a voluntary labeling initiative, which many beef manufacturers have already put into practice.   In a further effort to increase transparency and dispute misinformation, BPI has also set up a website, www.beefisbeef.com, which provides valuable factual information about LFTB and the way it is produced.

The impact which the “Pink Slime” phenomenon has had upon the beef industry and the speed with which it developed are staggering.  The sale and consumption of LFTB had been widespread for more than thirty years, with USDA approval. Nevertheless, in a span of a few months, one of the country’s largest industries was derailed through the lightning fast spread of misinformation and misperception.   Perhaps, the lesson to be learned by the food industry is that transparency is the only way to prevent attacks such as those waged against LFTB.

UPDATE: POM Down, Far From Out! POM’s New Advertising Campaign Strikes Back at the FTC

By Kenneth R. Costa and Brian Gross on Posted in Litigation Trends, Products Liability, Uncategorized

POM vs. FTC

As we reported last week, Federal Trade Commission (“FTC”) Chief Administrative Law Judge D. Michael Chappell sided with the FTC when he found that POM’s marketing campaign – the one that reminded us of the alleged “wonderful” capability of pomegranate juice to treat, prevent, or reduce the risk of certain medical conditions – was in fact “deceptive.”  In particular, Judge Chappell found that POM’s claims that its juice can ward off and treat heart disease, prostate cancer and even erectile dysfunction lacked the scientific “juice” to support these statements.

Unlike other companies that have been recently embroiled in this same type of fight with the FTC POM is not going away without a fight.  In fact, it has poked a big stick in the eye of the FTC with a new advertising campaign which omits any mention of its failure to substantiate its claims of disease prevention and treatment, and instead “illuminates the facts and opinions” in the judge’s decision which emphasize the health “benefits” of pomegranate juice.

Using excerpts pulled directly from Judge Chappell’s 335 page decision, POM’s “new” marketing approach touts the facts that pomegranate juice “supports prostate health” and “provides a benefit to promoting erectile health and erectile function.

POM and the FTC have until June 18 to appeal Judge Chappell’s decision.  And based on its actions thus far, it is likely that POM will in fact appeal the ruling.  In the meantime, it is clear that POM will not go down without a fight, and will challenge the limits of the FTC’s power to regulate the content of its advertising campaigns.  This strategy is, however, not without risks.  Such actions may cause the FTC, at some later date, to seek corrective advertisements and penalties if it finds that POM mischaracterized the judge’s ruling in its advertising.  Stay tuned, as this fight has likely just begun.

The FTC Works Out Skechers’ Checkbook: Skechers Settles Claims Over Erroneous Statements in Marketing for their Toning Sneakers

By Sarah M. Knoff on Posted in Products Liability

Last week Skechers USA, Inc. agreed to pay $50 million to resolve claims brought by the Federal Trade Commission (“FTC”) and the attorneys general of 44 states and the District of Columbia. The suit alleged that Skechers wrongfully included false statements in the marketing of their Shape-up, Resistance Runners, Toners and Tone-Up shoes.  Skechers claimed in their advertisements, which included commercials featuring Joe Montana and Kim Kardashian, that the shoes would cause the wearer to put forth greater physical effort than regular shoes, in turn creating better leg tone, improved posture, and greater weight loss.

The settlement calls for $40 million to settle the FTC’s claims.  Most of this money will be used to reimburse shoe purchasers.  An additional $5 million will be used to resolve the state allegations, and the last $5 million will pay for the class action legal fees.

The FTC claims that two of the four research studies on which Skechers relied in their marketing were flawed.  The studies were conducted by the chiropractor spouse of a senior Skechers marketing executive.  In addition to the appearance of bias, one study failed to have a control group while the other study failed to collect data from some study participants and included data which was incorrect.

The FTC said in a statement that Skechers,

made claims about weight loss and cardiovascular heath.”  The FTC went on to say that Skechers and other national advertisers need to “shape up your substantiation or tone down your claims.”

Skechers isn’t the first company to pay for claims regarding the benefit of their toning shoes.  In September 2011, Reebok International, Ltd. agreed to pay $25 million to settle allegations that it falsely claimed that its toning shoes strengthened muscles.  Nor is this the first lawsuit with which Skechers has had to deal regarding their toning shoes.  Last year Skechers was sued by a 38 year old Ohio woman who claimed that the shoes caused her to develop stress fractures in her hips.  The plaintiff claimed that she wore the shoes for five months while working as a waitress.  That suit is still pending.

In a press release on May 16, 2012, Skechers asserts that it settled the FTC claims only to “avoid protracted legal proceedings.” The company stands behind its shoes and believes that it would have prevailed in litigation, but that it had to consider the considerable toll that such a strategy would take on the company.  The settlement does not preclude Skechers from making and selling the toning shoes, rather it only curtails certain advertising.  It is expected that the company will re-release the shoe in the next year, albeit with different advertising.

Perhaps Skechers new advertising should include the disclaimer that if it sounds too good to be true, it probably is.

POM Wonderful? Not so much. The Better Business Bureau Inadvertently Fuels Class Action Lawsuits

By Kenneth R. Costa and Brian Gross on Posted in Litigation Trends, Products Liability

POM WonderfulClass action lawsuits against major consumer product companies are on the rise thanks, in large part, to the Better Business Bureau’s National Advertising Division (“NAD”). The NAD assists in the advertising industry’s self-regulatory efforts to ensure truth and accuracy in advertising by providing guidance to industry in an effort to ensure that consumers can rely on the claims made by companies in their advertising campaigns – ironically enough –in an effort to avert litigation.

 

NAD does so by investigating complaints submitted to it by either competitors or consumers concerning advertising claims made by various companies.  NAD then uses a hybrid form of alternative dispute resolution to decide whether the claims can be substantiated, and publishes its decision online, in print, and via press release.

Recently, plaintiffs’ class action lawyers from across the country have begun to look to the decisions of NAD in order support false advertising class action claims.  In a never ending effort to seek out and discover the “next big thing,” plaintiff attorneys have begun to focus their attention on NAD rulings, which have sparked a new wave of class action lawsuits aimed at companies’ advertising campaigns.

According to NAD Director Andrea Levine, these NAD-driven lawsuits are not so much about “fixing the advertising or protecting the public,” but instead are all about the “money,” as there is no shortage of both product sales and consumers to join in these claims.

The NAD decisions inadvertently lay out a “roadmap” for plaintiff attorneys because they not only detail the legal doctrines which support their findings, but they also indentify an advertiser’s potential defenses and vulnerabilities before discovery even commences.  A perfect example of this is the class action lawsuit which was filed against the William Wrigley Jr. Company, based on the claim that its Eclipse brand gum was scientifically proven to kill germs that cause bad breath.  In a decision published one month prior to the filing of this suit, the NAD chronicled in great detail its critique of Wrigley’s support for its position and concluded that Wrigley should discontinue or modify its advertising campaign.  The class action plaintiffs then used the information gleaned from the NAD decision as a basis to sue Wrigley’s.  In fact, they actually cited the decision in their complaint.  Wrigley’s wound up settling that case for $6 million.

In another recent case, a federal class action lawsuit charges that POM Wonderful falsely advertised that its pomegranate juice provided certain health benefits to its users.  The NAD found that some of the research on which POM relied did not support its health claims – evidence which is directly cited by the plaintiffs in their class action lawsuit.  A copy of the POM Wonderful Class Action Lawsuit can be read here.

It appears that NAD rulings are becoming a gateway for class action lawsuits which, if left unchecked, may spiral out of control.  Companies must coordinate their efforts to enact legislation which makes it more difficult for a class to be certified and more difficult for weak cases to survive.  Otherwise, they run the risk of being “Eclipsed” by potentially game-ending class action lawsuits.

California’s Long Awaited Brinker Decision on Meal and Rest Period Obligations

By Brian Gross and Brittany Maly on Posted in California Courts, Employment Litigation, Litigation Trends

 

The California Supreme Court recently released its long awaited decision in the class action case Brinker v. Superior Court (Hohnbaum), S166350, in which a class of approximately 60,000 restaurant employees alleged their employer failed to provide meal and rest periods as required under California law. Class action litigation has increased exponentially in California, with meal and rest period cases playing a large role in that increase. The Brinker decision provides clarification regarding issues of scope and timing for meal and rest periods required under California law, and provides further guidance regarding certification of classes for wage and hour claims.

Meal Periods

In a long anticipated ruling, the Court held, with regard to meal periods, that employers need not ensure that employees take 30 minute uninterrupted meal periods, but employers must provide such meal periods, in which the employees are relieved of all duty. Under Brinker, an employer has no responsibility to police such meal breaks to ensure that no work is done.  An employer may be liable, however, if they actually know or should know that an employee is not taking the meal period, or they create incentives to coerce or discourage employees from taking their meal period.

The Court also provided some clarification with regard to the timing of meal periods. Plaintiffs argued that California Labor Code Section 512 and California’s Industrial Welfare Commission Wage Orders should be interpreted to require meal periods on a “rolling” basis.  The Court, however, disagreed and found that a meal period must be provided if an employee works a shift over five hours (with the meal period starting no later than the 5th hour), and that a second meal period must be provided no later than the 10th hour of work. The Court also noted that a first meal period may be waived by mutual consent if the employee works no more than 6 hours on the day in question. A second meal period may be waived if the first meal period is not waived and the employee does not work more than 12 hours on the day in question.

Oral arguments can be viewed here:

Rest Periods

The Court also held that employees are entitled to rest periods of 10 minutes “for each four hours of work or major fraction thereof.”  In this context, a “major fraction” means a fraction greater than one half.  No rest period is required for employees who work a shift of less than 3 ½ hours. Michael Kelly, on Squire Sanders’ blog, Employment Law Worldview, provides a chart which outlines the new rest break requirements as follows:

Under the new Brinker standard, employees are entitled to rest breaks as follows:

 

Hours Worked Rest Periods
0 to less than  3.5 hours None
3.5 up to 6 hours 1
More than 6 up to 10 hours 2
More than 10 up to 14 hours 3
More than 14 up to 18 hours 4

 

The Court did not provide similar guidance regarding the timing of rest periods, noting that the Wage Orders only require that rest breaks fall in the middle of work periods “insofar as practicable.” As such, employers are advised to make good faith efforts to provide rest breaks in the middle of a work period, but practicality provides flexibility for the timing of such breaks. It is important to note that for rest periods, there is no “relieve of all duty” standard.

It is important that California employers review their current policies and ensure that they are current and comply with the above requirements. It is also important that employers review time sheets to ensure breaks are taken and that incentives are not created to discourage meal periods. As any employer without a clearly communicated policy is vulnerable to such class action litigation, it is also advisable to inform employees directly of such policies. Employers should also consider the following issues in light of Brinker when reviewing their policies:

 

  • What record keeping will be used to provide proof of meal periods and rest breaks? And how often will these records be reviewed to ensure compliance?
  • Establish what constitutes “relieve of all duty” for purposes of a meal period.
  • Establish a policy for supervisors to ensure employees are not discouraged from taking breaks or coerced.

More information on Brinker and its impact can be found on LXBN.