California Court Dismisses Employment Antitrust Class Action

Cases involving employment and antitrust are rare. Typically, such cases involve claims that a group of employers agreed expressly or impliedly to cap or limit wages among their employees. For example, they may claim that the employers in a particular industry agreed not to pay more than a set wage for employees in certain positions. These types of claims are difficult to make and maintain for reasons reflected in the recent decision of a California Court of Appeals in Zumbowicz v. Hospital Association of Southern California, Case No. B215633 (Nov. 16, 2010).

The Zumbowicz case arose out of a bill passed in California in 1999 that obligated employers to pay overtime to non-exempt employees for hours in excess of 8 hours per day. This new bill went beyond federal and the then existing state law, which required payment of overtime only for time in excess of that over 40 hours per week. The new statute posed particular problems for the hospital industry because of the popularity of 12-hour shifts among nurses. While, under the prior law, no overtime would be incurred so long as the nurses did not work more than 40 hours per week, the new law would have created 4 hours of overtime liability each 12-hour shift, even though a given nurse may only have worked a total of 36 hours for the week. At the same time, the existence of 12-hour shifts, even apart from the potential overtime premium, was an important recruiting tool for nursing staff.

To address this issue and to keep the 12-hour shift a financially viable option, several southern California hospitals came up with the expedient solution of simply reducing the rate of pay of those on 12-hour shifts so that, with the new overtime, there was no change in their total compensation. The actual reduction was equal to about 15 percent of the hourly rate, but the employee’s total paycheck would stay more or less the same.

The plaintiffs, a group of nurses and technical care specialists, brought a putative class action challenging the change as being an antitrust violation under California law. They contended that the area hospitals, through a hospital association, conspired to depress their wages by reducing their pay. Much of their case rested upon a theory of “conscious parallelism,” under which they claimed that the hospitals consciously followed each other in reducing the hourly rate for 12-hour shifts. The trial court granted summary judgment against them, and they appealed.

The Court of Appeals affirmed the dismissal of the lawsuit on several grounds. First, it found that only about half of the hospitals in the association actually adopted the pay reduction, suggesting strongly that there was no “parallel” conduct at all. Second, they failed to prove even that the hospitals were aware of each others’ conduct, let alone that such knowledge was part of the decisional process. Finally, the court noted the absence of other “plus” factors of anti-competitive conduct, primarily because they failed to show that the hospitals did anything but to act in their own economic self-interest in the wake of the changes in California law.

The court also rejected the plaintiffs’ claim of an outright conspiracy, primarily because of a lack of evidence that any such conspiracy took place, and also held that the trial court had properly limited discovery from third parties such as other hospitals, unions, and the trade association’s attorney.

The bottom line: Absent solid evidence of a conspiracy to fix wages, anti-trust employment class actions are difficult to maintain.