Court of Appeal Decides Exemption and Trial Issues - "Pellegrino I"

On January 28, 2010, the Court of Appeal issued the first of two decisions in Pellegrino v. Robert Half Intern., Inc., --- Cal.Rptr.3d ----, 2010 WL 316808 (January 28, 2010) ("Pellegrino I"). Six former account executives sued their former employer for failure to pay overtime compensation and commissions, failure to meal periods and itemized wage statements, and violation of the Unfair Competition Law (UCL). The defendant, RHI, "asserted two affirmative defenses to plaintiffs' claims. First, RHI contended plaintiffs' claims were barred because a provision, entitled “Limitation on Claims,” in their employment agreements shortened the statute of limitations for such claims to six months. Second, RHI argued each plaintiff was exempt from the wage and hour laws based on the administrative exemption." Slip op. at 1.

The trial court determined the limitation on claims provision contained in the employment agreements was unenforceable and granted motions for summary adjudication on that issue accordingly. Plaintiffs' unfair competition claims were tried to the court sitting in equity and began with a trial on the merit of RHI's exemption affirmative defense. The trial court granted plaintiffs' motion for judgment under section 631.8 of the Code of Civil Procedure, having concluded the administrative exemption did not apply to plaintiffs. The parties stipulated as to the amount of damages, penalties, and interest to be awarded each plaintiff; the court entered judgment accordingly.

Ibid. The Court of Appeal affirmed.

First, the Court held that "the plaintiffs' claims were based on unwaivable and fundamental statutory rights, and the provision drastically shortening to six months the time in which an employee might vindicate such rights violates [Cal. Labor Code] section 219 and public policy, and is thus unenforceable." Slip op. at 6, citing Gentry v. Superior Court (2007) 42 Cal.4th 443, 455-456, and Franco v. Athens Disposal Co., Inc. (2009) 171 Cal.App.4th 1277, among other cases. (Gentry came down before I started the blog, but my post on Franco v. Athens is here.) The Court criticized and declined to follow the District Court decision in Perez v. Safety-Kleen Sys. (N.D.Cal., June 27, 2007) 2007 WL 1848037, a case that is better known for its discussion of meal and rest period requirements.

Second, the Court held that the trial court did not abuse its discretion by bifurcating the trial and trying the equitable issues to the court first. "It is well established that, in a case involving both legal and equitable issues, the trial court may proceed to try the equitable issues first, without a jury ... and that if the court's determination of those issues is also dispositive of the legal issues, nothing further remains to be tried by a jury." Slip op. at 15. This procedure does not deprive either party of its Seventh Amendment right to jury trial. Slip op. at 18.

Third, the Court held that substantial evidence supported the trial court's finding that the administrative exemption did not apply to the plaintiffs. The Court reviewed the five-part test of the exemption under the Wage Order, explained the narrow construction of the exemption under Ramirez v. Yosemite Water (1999) 20 Cal.4th 785, 794-795, and reviewed the federal regulations that the Wage Order incorporates. The Court then held that "substantial evidence showed plaintiffs' duties as account executives for RHI were not directly related to management policies because they instead constituted sales work." Slip op. at 22. The Court then noted that its conclusion is consistent with opinion letters written by Miles Locker when at the DLSE.

This is a decision that touches on a number of important issues. Lawyers on both sides of wage and hour are going to need to be familiar with it. Our post on Pellegrino II, in which the Court of Appeal affirmed in part and reversed in part the trial court's order on attorney fees, is here.