In re E-3 Systems Litigation

Background

Jose Franco filed two actions in state court against E-3 Systems. The first was a proposed class and representative labor action alleging violations of the California Labor Code, including failure to pay overtime under California Labor Code section 510. The second action was described as a representative, “PAGA-only” action under California’s Private Attorneys General Act. Its underlying Labor Code violations were the same as those alleged in the first action.

Franco worked as a non-exempt hourly employee for E-3 Systems from August 18, 2014, through May 15, 2018. E-3 Systems removed both actions to federal court, asserting that section 301 of the Labor Management Relations Act preempted the state-law claims. Preemption means that federal law displaces a state-law claim in circumstances covered by federal law. Franco moved to remand, meaning he asked the court to return the actions to state court.

Section 301 preemption

The court applied the Ninth Circuit’s two-step test for section 301 preemption. It first asked whether the claimed right existed solely because of a collective-bargaining agreement. If not, it would ask whether resolving the state-law claim substantially depended on interpreting that agreement.

The court found the first step dispositive. Under California Labor Code section 514, the default overtime rules in section 510 do not apply to an employee covered by a valid collective-bargaining agreement if the agreement specifies wages, hours, and working conditions, provides premium pay for all overtime hours, and provides a regular hourly rate at least 30 percent above California’s minimum wage.

Relying on the Ninth Circuit’s decision in Curtis v. Irwin Industries, the court reviewed the 2005 and 2018 collective-bargaining agreements applicable during the relevant period. It found that both agreements provided for hours of work and premium rates for overtime. The court also found, based on the agreements and supplemental evidence, that the regular hourly rates satisfied the requirement of being at least 30 percent above California’s minimum wage.

The court rejected Franco’s argument that Curtis was distinguishable because the plaintiff in that case had conceded that the collective-bargaining agreement applied. The court stated that Franco did not dispute that his employment was governed by the agreements. It therefore found that E-3 Systems had met its burden of showing that the agreements satisfied section 514’s requirements. The overtime claim was controlled by the agreements, existed solely because of them, and was preempted under section 301. The court held that it had federal-question jurisdiction over that claim.

Supplemental jurisdiction and PAGA claims

The court exercised supplemental jurisdiction over Franco’s remaining California-law claims, including claims concerning minimum wages, meal and rest breaks, wage statements, unlawful collection of wages, and California Business and Professions Code section 17200. Supplemental jurisdiction allows a federal court to hear related state-law claims arising from the same underlying facts as a federal claim. The court found that these claims arose from the same working conditions and employment relationship as the overtime claim.

The court also held that it had jurisdiction over the PAGA claims. It explained that PAGA claims are derivative of the underlying Labor Code violations and therefore rise or fall with those violations. Seeking civil penalties under PAGA did not change the nature of the underlying overtime violations or prevent the collective-bargaining agreements from affecting them.

Ruling

The court denied Franco’s motion to remand. It set a case-management conference for November 26, 2019, and stated that the parties did not need to submit another joint case-management statement.