Sonic-Calabasas: Arbitration Agreement Cannot Waive Right to Bring Labor Commissioner Wage Claim

In Sonic-Calabasas A, Inc. v. Moreno (2/24/11) --- Cal.4th ---, 2011 WL 651877, the California Supreme Court has answered three important questions involving arbitration clauses in employment agreements.

Plaintiff worked for defendant, a car dealership. As a condition of employment, he signed an employment agreement that included a mandatory arbitration clause under the Federal Arbitration Act (FAA). After he left defendant, plaintiff filed a wage claim before the Division of Labor Standards Enforcement (DLSE). The Superior Court denied defendant's petition to compel arbitration, and defendant appealed. The Court of Appeal reversed, and the Supreme Court granted review.

The Court first discussed the procedure for DLSE "Berman" hearings. Slip op. at 3-5. The Court held that Berman hearings and arbitration are compatible, so long as the Berman hearing proceeds first. Slip op. at 5-6.

Like the Labor Commissioner below, we see no reason why the statutory protections afforded employees following a Berman hearing cannot be made available in an arbitration proceeding. A party to a Berman hearing seeking a de novo appeal via arbitration pursuant to a prior agreement rather than through a judicial proceeding would initially file an appeal in superior court pursuant to section 98.2, subdivision (a), together with a petition to compel arbitration. The superior court would determine whether the appeal is timely and whether it comports with all the statutory requirements, such as the undertaking requirement in subdivision (b). If so, and if the petition to compel arbitration is unopposed, or found to be meritorious, the trial court will grant the petition. The Labor Commissioner, pursuant to section 98.4, may then represent an eligible wage claimant in the arbitration proceeding. The one-way fee-shifting provisions of section 98.2, subdivision (c) will be enforced initially by the arbitrator, with such judicial review as may be appropriate.

The above framework does not purport to anticipate every problem that may arise from dovetailing the Berman hearing statutes and the CAA. But the Labor Commissioner's position below that the Berman hearing was merely preliminary to, rather than preemptive of, binding arbitration confirms our conclusion that the two statutory schemes are compatible and that having the Berman hearing precede arbitration is workable.

Slip op. at 6-7.

The Court then held that "the employee's statutory right to seek a Berman hearing, with all the possible protections that follow from it, is itself an unwaivable right that an employee cannot be compelled to relinquish as a condition of employment." Slip op. at 8.

The Court noted that it would reach the same result through an unconscionability analysis:

In sum, rather than being justified by “legitimate commercial needs” (see Armendariz, supra, 24 Cal.4th at p. 117, 99 Cal.Rptr.2d 745, 6 P.3d 669), the main purpose of the Berman waiver appears to be for employers to gain an advantage in the dispute resolution process by eliminating the statutory advantages accorded to employees designed to make that process fairer and more efficient. We conclude the waiver is markedly one-sided and therefore substantively unconscionable. This substantive unconscionability, together with the significant element of procedural unconscionability, leads to the conclusion that the Berman waiver in the arbitration agreement at issue here is unconscionable.

Slip op. at 13.

Finally, the Court found that its public policy and unconscionability holdings were not preempted by the FAA. Slip op. at 14-20. Interestingly, the Supreme Court of the United States seems poised to reach the same result in AT&T Mobility, LLC v. Concepcion.

The opinion was written by Justice Moreno, with Justices Kennard, Werdegar, and George joining. Justices Chin, Baxter, and Corrigan dissented.

The opinion is available here.

Hodge v. AON: Court of Appeal Holds Against Claims Adjustors in Long-Running Misclassification Battle

In Hodge v. Superior Court (AON Insurance Services) (2006) 145 Cal.App.4th 278, the Court of Appeal held that the defendant in a wage case has no right to jury trial when the plaintiffs dismiss their Labor Code claims and proceed only with a claim under the Unfair Competition Law.

On remand, the Hodge plaintiffs tried their adjuster misclassification case to a judge (Hon. Ronald M. Sabraw, Ret.), who held that defendants did not violate the UCL in classifying the class members as exempt employees.

The Court of Appeal affirmed:

Hodge contends the judgment in his current case must be reversed because the facts surrounding his employment, when examined in light of the administrative/production dichotomy” (see generally Bell II, at pp. 826-827), support only one conclusion as a matter of law: he was not an “administrative” employee as defined by Wage Order No. 4. After hearing the evidence, the trial court found “the test announced in Bell II [is not] the appropriate standard for determining the exempt/non-exempt status of Plaintiffs.” We agree with the trial court that the Bell II dichotomy is not workable under these facts and further find no error in the trial court's decision.

Hodge v. AON Insurance Services (2/24/11) --- Cal.App.4th ----, 2011 WL 653646.

I will not discuss the holding at length, because I believe that the Supreme Court is very likely to grant review and hold pending its decision in Harris v. Superior Court, which raises the same issue and has been pending in the Supreme Court for approximately two years.

The opinion is available here.

UPS Wage and Hour Cases: Court of Appeal Issues Meal Period Attorney Fee Decision

In re. UPS Wage and Hour Cases (2/24/11) --- Cal.App.4th ----, 2011 WL 653863, raises a number of interesting points.

The plaintiff, McGann, worked for UPS as an on road supervisor. He sued UPS for overtime and other wage and hour violations, alleging that he was misclassified as exempt. The trial court (Los Angeles Superior, Judge Fahey) granted judgment on the pleadings and summary judgment on all but his overtime claim, which proceeded to jury trial. UPS prevailed, with the jury finding that McGann was exempt under both Wage Order no. 9-2001 and the federal Motor Carrier Act.

UPS then moved for attorney fees and costs under Labor Code 218.5 as the prevailing party. UPS conceded that it could not recover fees on the overtime claim (Cal. Labor Code 1194) but sought fees for its defense of the other claims. The trial court awarded UPS $100,000 in fees under section 218.5, and McGann appealed.

The Court of Appeal reversed.

The Court began by examining the interplay between section 218.5, the bilateral fee-shifting statute, and 1194, which allows attorney fees only to successful plaintiffs in minimum wage and overtime cases. 218.5, by its own terms, “does not apply to any action for which attorney's fees are recoverable under Section 1194.”

The phrase “any action” can plausibly be given two different meanings. It can reasonably be interpreted to mean a successful employer-defendant cannot recover Labor Code section 218.5 fees in any civil action in which an overtime or minimum wage cause of action is pled, irrespective of whether or not any other wage claims are joined. It can also reasonably be read to mean the prevailing employer-defendant cannot recover section 218.5 fees as to any claim or cause of action seeking overtime or minimum wage compensation, but may recover fees incurred in the successful defense of other joined claims seeking nonovertime related wages and benefits, if such claims independently support entitlement to section 218.5 fees.

Slip op. at 4. The Court interpreted the statute to mean the latter.

We conclude the phrase “any action” in the last sentence of Labor Code section 218.5 should be interpreted to mean any “cause of action” seeking overtime or minimum wage compensation for which section 1194 fees are recoverable. That construction best reflects our duty to harmonize seemingly conflicting statutory provisions and avoid a construction that ignores or nullifies one statutory provision in favor of another. To interpret the phrase to mean “civil action,” as McGann urges, would lead to absurd results.

Slip op. at 5. The Court found support for this construction in the legislative history:

The Legislative Counsel's Digest of Assembly Bill No. 2509-the bill which added the Labor Code section 1194 language to section 218.5-states the amended language creates “an express exception” to the general rule of section 218.5 by precluding a prevailing employer's recovery of fees in actions for unpaid overtime or minimum wage compensation. There is no language indicating any intent by the Legislature to completely nullify section 218.5 in any civil action simply because of the joinder of one cause of action for overtime compensation with other wage and benefit claims. And, despite McGann's argument to the contrary, Earley does not compel a different result. Earley clearly states that, notwithstanding section 1194, section 218.5 fees may be recovered by a defendant that prevails in claims seeking unpaid “wages, fringe benefits, or health and welfare or pension fund contributions.”

Slip op. at 5.

Despite this, the Court held that UPS could not recover its attorney fees. UPS could not recover fees on the overtime claim, which was the only to go to trial; could not recover fees on the Labor Code 226 cause of action because section 226 contains a one-way fee-shifting provision; could not recover fees on McGann's common law conversion cause of action; and could not recover fees on the UCL cause of action.

That left only the cause of action for missed meal and rest periods under section 226.7. UPS argued that 218.5 applied because the remedy under section 226.7 constitutes a wage under Murphy v. Kenneth Cole Productions. The Court declined to follow this reasoning: “We are not persuaded that extending the holding in Murphy to the discreet fee issue presented here is appropriate or in keeping with our duty to construe statutes regulating the conditions of employment liberally, 'with an eye to protecting employees.'” Slip op. at 7.

Earley held Labor Code section 1194 bars recovery of statutory fees by prevailing employer-defendants in an action for overtime compensation. Earley explained, however, that section 218.5 fees may be recovered by a prevailing defendant in any action brought “to recover nonpayment of contractually agreed-upon or bargained-for ‘wages, fringe benefits, or health and welfare or pension fund contributions.’” In rejecting the employer-defendant's claim for fees, the Earley court distinguished actions for unpaid wages from actions for unpaid overtime compensation. “An employee's right to wages and overtime compensation clearly have different sources. Straight-time wages (above the minimum wage) are a matter of private contract between the employer and employee. Entitlement to overtime compensation, on the other hand, is mandated by statute and is based on an important public policy.... ‘The duty to pay overtime wages is a duty imposed by the state; it is not a matter left to the private discretion of the employer. [Citations.]’”

Like the statutory protections against working in excess of an eight-hour day or for less than the minimum wage, the provisions mandating meal and rest breaks are part of the core remedial employee protections embodied in the Labor Code and the implementing wage orders promulgated by the Industrial Welfare Commission, such as Wage Order 9. Like overtime compensation, the obligation to provide meal and rest periods is imposed by statute, and the statutory remedy for breach of that obligation is not akin to the types of compensation that have traditionally been encompassed within the definition of “wages.”

***

Nothing in the legislative history suggests the Legislature meant the reciprocal fee recovery provisions of Labor Code section 218.5 to apply in an action for violation of the section 226.7 mandate that employers provide meal and rest breaks for certain nonexempt employees. The statutory remedy of section 226.7, providing compensation for missed breaks, was first enacted in 2000 in response to poor employer compliance with the meal and rest break requirements. Before 2000, the only remedy available to an aggrieved employee was injunctive relief to prevent future abuse.

The 2000 amendment providing a pay remedy bears sufficient hallmarks of a penalty designed to shape employer behavior, and is sufficiently distinct from the customary types of bargained-for wages recognized under the law, that we cannot conclude the Legislature intended a claim under Labor Code section 226.7 to be interpreted as a claim for “nonpayment of wages” within the meaning of section 218.5. The section 226.7 pay remedy for missed meal and rest breaks was enacted 14 years after the Legislature enacted the reciprocal fee recovery provisions of section 218.5. It is therefore not reasonable to assume that when the Legislature enacted section 218.5 in 1986 to provide for recovery of prevailing party fees in claims for nonpayment of wages and benefits, it intended that provision to permit a prevailing employer-defendant to recover fees from an employee raising a claim for denial of breaks-a claim which at that time only supported injunctive relief.

Construing the entire statutory scheme with a view toward protecting employees, as we must, we find that a claim for remedial compensation under Labor Code section 226.7 does not trigger the reciprocal fee recovery provisions of section 218.5. Since none of the claims on which UPS prevailed permit the recovery of attorney fees, the award of statutory fees to UPS was in error.

Slip op. at 8-9.

These are the same questions at issue in Kirby v. Immoos Fire Protection, Inc. (7/27/10) currently before the Supreme Court. See our blog posts here and here. The Supreme Court framed the Kirby issues as follows:

1. Does Labor Code section 1194 apply to a cause of action alleging meal and rest period violations (Lab. Code 226.7) or may attorney's fees be awarded under Labor Code section 218.5
2. Is our analysis affected by whether the claims for meal and rest periods are brought alone or are accompanied by claims for minimum wage and overtime?

I have to assume that the Supremes will grant review and hold UPS pending Kirby.

The opinion is available here.

Wherry v. Award: Court of Appeal Invalidates Arbitration Clause

In Wherry v. Award, Inc. (2/23/11) --- Cal.App.4th ----, 2011 WL 635327, the Court of Appeal affirmed a trial court (Orange County Superior, Judge Nakamura) order denying petition to compel arbitration of FEHA claims. The Court found procedural unconscionability because the plaintiff/employee had no meaningful opportunity to negotiate the agreement's terms:

Both plaintiffs filed declarations stating that they were given the agreement when they first contracted with defendants and were told they were required to sign it if they wanted to work for defendants. No one described the agreement's contents and plaintiffs were given but a few minutes to review and sign it, without any time to ask questions. Further they were never given a copy of the document.

Further, contrary to defendants' claim, the fact there were other real estate firms where plaintiffs could have contracted to work does not necessarily vitiate the unconscionability, especially given the fact that as a CAR form, it is highly likely most if not all other brokerage firms would be using it. It merely means additional procedural unconscionability or a greater degree of substantive unconscionability must be shown.

Slip op. at 2-3.

The Court found substantive unconscionability in that it allowed the arbitrator to impose costs, including the arbitration fees, on the losing party. The defendant argued that the Court should red-line this term out of the agreement, but it declined to do so. Slip op. at 4. In addition, the Court found the agreement's 180-day limitations period unconscionable. Slip op. at 4.

Finally, the Court declined to sever the unconscionable provisions from the agreement, finding that the agreement was "rife with unconscionability." Slip op. at 5.

The opinion is available here.

Sonic-Calabasas A, Inc. v. Moreno: Supreme Court to Issue Decision in Arbitration Matter

The Supreme Court on Thursday will announce its decision in Sonic-Calabasas A, Inc. v. Moreno, which raises the following issues:

(1) Can a mandatory employment arbitration agreement be enforced prior to the conclusion of an administrative proceeding conducted by the Labor Commissioner concerning an employee's statutory wage claim?

(2) Was the Labor Commissioner's jurisdiction over employee's statutory wage claim divested by the Federal Arbitration Act under Preston v. Ferrer (2008) __ U.S. __, 128 S.Ct. 978, 169 L.Ed.2d 917?

Safaie v. Jacuzzi: Plaintiff Cannot Renew Motion to Certify After Order Denying Cert Becomes Final

In Safaie v. Jacuzzi Whirlpool Bath, Inc. (2/22/11) --- Cal.App.4th ----, 2011 WL 213494, the plaintiff, Safaie, appealed from an order denying his motion to recertify a class of individuals who purchased bath tubs from defendant.

Safaie alleged that the defendant misrepresented the horsepower of its whirlpool bath motors. The trial court (San Diego Superior, Judge Hayes) originally certified, then decertified the class. Safaie appealed from the decertification order, and the Court of Appeal affirmed. Safaie did not seek review in the Supreme Court.

Shortly thereafter, the Supreme Court then issued its decision in In re Tobacco II Cases (2009) 46 Cal.4th 298, which addressed standing issues in Unfair Competition cases after passage of Prop. 64. We blogged Tobacco II here and here.

Safaie then renewed his certification motion. The trial court denied the motion, and Safaie appealed.

The Court of Appeal affirmed. It held that Safaie could not appeal the order denying his recertification motion:

Unlike a denial of a class certification motion, the order denying recertification did not “end” the class case or dispose of the class allegations. Instead, when Safaie moved to recertify the class in June 2009, the class allegations had already been removed from the case (based on the trial court's decertification order and this court's affirmance of the order), and Safaie was the sole plaintiff in an individual action. Thus, the effect of the challenged order was not to dismiss the action as to the members of the class, but it was to deny Safaie's request to insert class allegations back into his individual action. A denial of this request did not serve as a death knell to Safaie's individual action because the complaint already existed as an individual action. Safaie's motion to recertify the class was essentially a request to reconsider the court's prior order based on asserted new law. Generally, a denial of a reconsideration motion is not appealable.

Slip op. at 4.

Next considering his appeal as a writ petition, the Court held that the trial court did not abuse its discretion in denying the motion.

Safaie contends the court erred in denying his motion to recertify the class. We determine the court properly denied Safaie's motion based on the “state law policy” rule that a party is not entitled to bring a renewed motion for class certification after a court has issued a final order denying certification. We thus do not reach Safaie's challenges to the court's alternate ground for denying the motion based on the law of the case doctrine.

Slip op. at 5.

The opinion is available here.

Price v. Starbucks: Court of Appeal Issues Decision on Check Stubs, Reporting Time Pay, and Waiting Time Penalties

Price v. Starbucks Corporation (2/17/11) --- Cal.App.4th ----, 2011 WL 169177, addresses a number of recurring issues in wage cases. This may be one of those cases where bad facts help make bad law, as the plaintiff was employed for only about three weeks before being fired and filing suit.

Price was an entry-level employee at Starbucks from October 22, 2007 through November 16, 2007, when he was terminated. Price was scheduled to work November 11, but he called the store and informed a coworker that he was unable to work. Price called the store later that day, and he was informed by a coworker that he was not scheduled to work for the rest of the week. Price's coworker told him to call the branch manager regarding his schedule. The next day, the branch manager left Price a voicemail message stating that Price should “come to the store on November 16, 2007, to have a talk.”

On November 16, Price arrived at the store, and the branch manager informed Price that he “was letting him go.” Price received two paychecks; one paycheck for the work he performed up until November 10, and another paycheck for two hours of reporting time pay for the meeting on November 16. The earning statements attached to these paychecks are exhibits to the complaint.

Price, on behalf of himself and a putative class, alleged causes of action for (1) violation of Labor Code section 203 seeking continuing wages for failure to timely pay wages upon discharge, alleging he was fired on November 11 when he was taken off the schedule; (2) violation of sections 204 and 1198 for failure to pay all reporting time pay due him for the November 16th meeting; (3) violation of section 226, subdivision (a) for non-compliant wage statements; and (4) violation of the unfair competition law (UCL) ( Bus. & Prof.Code, § 17200) based upon these alleged Labor Code violations. Price also alleged a fifth cause of action to recover civil penalties under the Private Attorneys General Act (PAGA) in the Labor Code (§ 2699).

First, the Court attempted to clarify the requirement that a plaintiff suffer injury in order to recover penalties under Labor Code section 226.

The injury requirement in section 226, subdivision (e), cannot be satisfied simply if one of the nine itemized requirements in section 226, subdivision (a) is missing from a wage statement. (See Jaimez v. Daiohs USA, Inc. (2010) 181 Cal.App.4th 1286, 1306, 105 Cal.Rptr.3d 443; see also Elliot v. Spherion Pacific Work, LLC (C.D.Cal.2008) 572 F.Supp.2d 1169, 1181.) By employing the term “ ‘suffering injury,’ “ the statute requires that an employee may not recover for violations of section 226, subdivision (a) unless he or she demonstrates an injury arising from the missing information. (Jaimez v. Daiohs USA, Inc., supra, at pp. 1306-1307, 105 Cal.Rptr.3d 443.) Thus, the “deprivation of that information,” standing alone is not a cognizable injury. (Ibid.)

Price alleged a “mathematical injury,” that required him to add up his overtime and regular hours and to ensure his overtime rate of pay is correct, but the allegedly missing information from Price's wage statement is not the type of mathematical injury that requires “ ‘computations to analyze whether the wages paid in fact compensated [him] for all hours worked.’ [Citation.]” (Jaimez v. Daiohs USA, Inc., supra, 181 Cal.App.4th at p. 1306, 105 Cal.Rptr.3d 443.) Price only speculates on the “possible underpayment of wages due,” which is not evident from the wage statements attached to the complaint. Price's complaint, therefore, is distinguishable from the plaintiffs in the cases he relies on that sufficiently alleged (and presented evidence) of an injury arising from inaccurate or incomplete wage statements, which required those plaintiffs to engage in discovery and mathematical computations to reconstruct time records to determine if they were correctly paid. (See, e.g., Wang v. Chinese Daily News, Inc. (C.D.Cal.2006) 435 F.Supp.2d 1042, 1050, affd on other grounds (9th Cir.2010) 623 F.3d 743 [wage statements inaccurately listed hours worked and omitted hourly wage]; see also Ortega v. J.B. Hunt Transport, Inc. (C.D.Cal.2009) 258 F.R.D. 361, 373-374 [wage statements failed to include hours worked and applicable hourly rate]; Perez v. Safety-Kleen Systems, Inc. (N.D.Cal.2008) 253 F.R.D. 508, 517 [inaccurate hours on wage statements]; Jaimez v. Daiohs USA, Inc., supra, at pp. 1305-1306, 105 Cal.Rptr.3d 443 [wage statement listed “total hours paid,” which left employees unable to determine if they were paid for all hours worked]; Cicairos v. Summit Logistics, Inc. (2005) 133 Cal.App.4th 949, 956, 961, 35 Cal.Rptr.3d 243 [inaccurate hours on wage statements].) Price's simple math is not based upon any allegation that the information is inaccurate.

Slip op. at 3-4.

Next, the Court affirmed the trial court's decision that the plaintiff was timely paid his earned wages:

Price seeks additional pay under the theory he should have been paid his final paycheck on November 11, 2007, when he was taken off the schedule, instead of November 16, 2007, when he was fired. We find no abuse of discretion in striking the allegations in the complaint to support this theory.

***

We reject Price's contention that his removal from the schedule was an indefinite layoff. This legal theory was not alleged and contradicts the allegations that he was terminated on November 16, 2007.

Slip op. at 4 (emphasis added).

Finally, the Court rejected the plaintiff's argument that he should have been paid 3.3 hours of reporting time pay for the day that he was fired.

Section 5(A) of Wage Order Number 5-2001 states: “Each workday an employee is required to report for work and does report, but is not put to work or is furnished less than half said employee's usual or scheduled day's work, the employee shall be paid for half the usual or scheduled day's work, but in no event for less than two (2) hours nor more than four (4) hours, at the employee's regular rate of pay, which shall not be less than the minimum wage.” (Cal.Code Regs., tit. 8, § 11050, subd. 5(A).)

The use of the disjunctive “or” in this regulation, is used in the ordinary sense, suggesting alternatives. If an employee is required to work, reports to work, and is not put to work or does not work half of the employees' usual or scheduled day's work, the employee is paid a half-shift reporting wage not to exceed four hours. (Cal.Code Regs ., tit. 8, § 11050, subd. 5(A).) If an employee is not scheduled to work or does not expect to work his usual shift, but must report to work for a meeting, the employee falls into the regulatory category of those employees called to work on their day off for a scheduled meeting. Price was entitled to the minimum payment, which is what he received.

The DLSE states the primary purpose of the reporting time pay regulation “is to guarantee at least partial compensation for employees who report to work expecting to work a specified number of hours, and who are deprived of that amount because of inadequate scheduling or lack of proper notice by the employer.” (DLSE Operations and Procedures Manual (1989) § 10.88; see also California Manufacturers Assn. v. Industrial Welfare Com. (1980) 109 Cal.App.3d 95, 112, 167 Cal.Rptr. 203 [purpose of regulation is to ensure proper scheduling].) The reporting time pay regulation protects an employee from losing all pay because of scheduling errors.

We do not agree with Price that he is entitled to receive more than the two-hour minimum; he did not report to work with the expectation that he would work a scheduled shift, but rather was scheduled to attend a meeting for an unspecified number of hours. Nor do we agree with Price that the term “usual” in the statute means the average of his previously scheduled days' worked during his employment at Starbucks. Rather, the term “usual” refers to the employee's expectation of the hours in the customary workday, just as, in the alternative, a scheduled work day formalizes the expectation of the hours worked. During his employment, Price's expectations of hours worked was solely based upon his scheduled hours. Price was not scheduled to work on November 16, and his expectation was he had been called to work for a meeting on his day off. He did not lose any pay because of a scheduling error. He was paid for reporting to the meeting consistent with the reporting time pay regulation.

Slip op. at 5-6.

The opinion is available here.

UPS v. Superior Court: Plaintiffs Can Recover Two Hours of Pay Per Day for Meal and Rest Violations

This is the second meal and rest period case of the day originating from the same Superior Court judge (LASC, Judge West). But while defendants will applaud Tien v. Tenet Healthcare (blogged here), in which the Court of Appeal affirmed a trial court order denying class certification, it is the plaintiffs who will cheer United Parcel Service, Inc. v. Superior Court (Allen) (2/17/11) --- Cal.App.4th ----, 2011 WL 523633, , which holds that Labor Code section 226.7 provides for two hours of pay per day when an employee misses both a meal and a rest period.

Labor Code section 226.7 requires an employer who fails to provide an employee with a meal or rest period to pay that employee one additional hour of pay (or premium payment) “for each work day that the meal or rest period is not provided.” The question before us is whether this statute authorizes one premium payment per work day regardless of the number or type of break periods that were not provided, or two premium payments per work day-one for failure to provide a meal period and another for failure to provide a rest period. We conclude section 226.7 permits up to two premium payments per work day.

Slip op. at 1.

This case arises out of 32 coordinated actions in which the plaintiffs allege meal and rest period violations, among others. UPS asked the trial court to determine whether the plaintiffs could recover one or two hours of pay under section 226.7, the court held that they could recover two, and UPS petitioned for a writ of mandate.

The Court of Appeal began by noting the remedial nature of the wage and hour codes. Slip op. at 2. It then reviewed the Wage Order and Labor Code requirements, noting that the Wage Orders "treat meal periods and rest periods in separate sections, each providing the additional hour of pay per work day for the designated type of violation." Slip op. at 3. The Court then reviewed Marlo v. UPS (C.D. Cal. May 5, 2009, CV 03-04336 DDP) 2009 U.S. Dist. Lexis 41948, p. 21, which held that an employee who misses a meal and rest period in the same day can recover two hours of pay. Slip op. at 3-4.

The Court followed Marlo's reasoning and held that Section 226.7 allows for recovery of two hours of pay per day. The Court found that 226.7 can be read as allowing for either one or two hours of pay per day, but the histories of 226.7 and the Wage Orders support a rule allowing for two hours of pay. Slip op. at 4-7.

In short, we conclude, based upon the wording of section 226.7, subdivision (b), the legislative and administrative history of the statute and IWC wage orders, the public policy behind the statute and wage orders, and also the principle that we are to construe section 266.7 broadly in favor of protecting employees, that the employees in this case may recover up to two additional hours of pay on a single work day for meal period and rest period violations-one for failure to provide a meal period and another for failure to provide a rest period.

Slip op. at 7.

The opinion is here. It will be interesting to see whether the Supreme Court grants review of UPS pending Brinker. My guess is that it will not, because all of the grant-and-holds to date involve the "make available or ensure" question.

Tien v. Tenet Healthcare: Court of Appeal Affirms Class Certification Denial on Brinker Analysis

The fun thing about waiting for the California Supreme Court to decide Brinker is that we get to talk about lots of different opinions from the Court of Appeal on the same issue. In Tien v. Tenet Healthcare Corp. (2/16/11) --- Cal.App.4th ----, 2011 WL 523611, the Court of Appeal affirmed a trial court order denying class certification based in part on the same issues to be decided in Brinker.

The plaintiffs, hourly employees of Tenet, filed suit for missed meal periods, missed rest periods, waiting time penalties, and check stub violations. The trial court (LASC, Judge West), granted class certification in part on the meal period, waiting time penalty, and check stub claims. Slip op. at 2. After the Court of Appeal issued Brinker and Brinkley, the trial court granted Tenet's motion for reconsideration and denied certification on all issues. Slip op. at 4.

The Court of Appeal affirmed, finding that substantial evidence supported the trial court's decision and following the Brinker rationale on meal and rest periods. Slip op. at 5-6. The Court held that the trial court did not err in relying on Brinkley, and the plaintiffs had an adequate opportunity to brief the issues. Slip op. at 6-7. Finally, the Court held that the trial court did not erroneously rule on the merits of the case by adopting Brinker and Brinkley over Cicairos. Slip op. at 8-9.

The opinion is available here. I assume that the Supreme Court will grant review and hold pending Brinker, as it has done with a number of other cases.

Christopher v. SmithKline Beecham: 9th Circuit Upholds Order that Pharma Sales Reps Are Exempt

In Christopher v. SmithKline Beecham Corp., --- F.3d ----, 2011 WL 489708 (9th Cir. 2/14/11), the Ninth Circuit has upheld a district court's finding that pharmaceutical sales representatives (PSRs) are exempt employees under the Fair Labor Standards Act (FLSA).

The plaintiffs sued GlaxoSmithKline ("Glaxo") for overtime under the FLSA. The parties cross-moved for summary judgment, and plaintiffs moved to certify a conditional class. Glaxo contended that plaintiffs were exempt under the “outside salesman” provision in FLSA or, alternatively, under the “administrative” exemption. 29 U.S.C. § 213(a)(1). The trial court (D. AZ, Judge Martone) granted summary judgment for Glaxo, finding that the PSRs were outside salesmen.

The Court of Appeal affirmed, breaking with the DOL and the Second District. In re Novartis Wage & Hour Litig., 611 F.3d 141 (2d Cir. 2010), blogged here.

After reviewing the outside sales exemption, the Court held that it owes "no deference to the Secretary's current interpretation of the regulations" (slip op. at 7) because the regulations themselves do nothing more than repeat the terms of the FLSA. Slip op. at 10. "Furthermore ... deference is not warranted because the Secretary's position is both plainly erroneous and inconsistent with her own regulations and practices, as demonstrated in the analysis that follows." Ibid.

The Court then held that the PSRs are exempt outside salespeople:

Plaintiffs' contention that they do not “sell” to doctors ignores the structure and realities of the heavily regulated pharmaceutical industry. It is undisputed that federal law prohibits pharmaceutical manufacturers from directly selling prescription medications to patients. Plaintiffs suggest that despite being hired for their sales experience, being trained in sales methods, encouraging physicians to prescribe their products, and receiving commission-based compensation tied to sales, their job cannot “in some sense” be called selling. This view ignores the reality of the nature of the work of detailers, as it has been carried out for decades. Plaintiffs' argument also fails to account for the fact that the relevant “purchasers” in the pharmaceutical industry, and the appropriate foci of our inquiry, are not the end-users of the drug but, rather, the prescribing physicians whom they importune frequently. Unlike conventional retail sales, the patient is not at liberty to choose personally which prescription pharmaceutical he desires. As such, he cannot be fairly characterized as the “buyer.” Instead, it is the patient's physician, who is vested with both a moral and legal duty to prescribe medication appropriately, who selects the medication and is the appropriate focus of our “sell/buy” inquiry. In this industry, the “sale” is the exchange of non-binding commitments between the PSR and physician at the end of a successful call. Through such commitments, the manufacturer will provide an effective product and the doctor will appropriately prescribe; for all practical purposes, this is a sale. Because pharmaceutical manufacturers appreciate who the “real” buyer is, they have structured their 90,000-person sales force and their marketing tactics to accommodate this unique environment.

Slip op. at 11. The Court had this to say about the DOL's current position on PSRs:

We also find that the Secretary's acquiescence in the sales practices of the drug industry for over seventy years further buttresses our decision. The outside sales exemption has existed since 1938. Detail men have practiced their craft over that same period. Generally, they have been considered salespeople. Until the Secretary's appearance in Novartis, the DOL did not challenge the conventional wisdom that detailing is the functional equivalent of selling pharmaceutical products.

Slip op. at 15. The Court concluded:

For the past seventy-plus years, selling in the pharmaceutical industry has followed this process. PSRs are driven by their own ambition and rewarded with commissions when their efforts generate new sales. They receive their commissions in lieu of overtime and enjoy a largely autonomous work-life outside of an office. The pharmaceutical industry's representatives-detail men and women-share many more similarities than differences with their colleagues in other sales fields, and we hold that they are exempt from the FLSA overtime-pay requirement.

Slip op. at 16.

I find this opinion to be a mixed bag. On the one hand, the Court seems to be saying that PSRs don't do sales the way people normally think of sales, i.e., they don't seel anything to anyone, but they're the closest thing the industry has to salespeople, so they fall under the exemption. On the other hand, I can understand the Court's reluctance to follow the DOL's current position. In that sense, the opinion reminds me of Murphy v. Kenneth Cole Productions, in which the California Supreme Court refused to follow the DLSE's then newly adopted position that missed meal period pay was a penalty, rather than a wage.

The opinion is here.

Arzate v. Bridge Terminal: Court Reverses Order Finding that Truck Drivers Are Independent Contractors

Arzate v. Bridge Terminal Transport, Inc. (1/31/11) --- Cal.App.4th ----, 2011 WL 285856, is a trucking industry independent contractor misclassification case.

The plaintiffs brought a wage and hour class action on behalf of truck drivers who were paid by defendant to transport cargo between ports and the facilities of defendant's customers. Plaintiffs alleged they were defendant's employees and asserted Labor Code wage claims and a claim for violation of the Unfair Competition Law. The trial court (LASC, Judge O'Donnell) granted the defendant's motion for summary judgment, holding that the plaintiffs were independent contractors, and the plaintiffs appealed.

The Court of Appeal reversed, holding that the defendant failed to establish, as a matter of law, that the drivers were independent contractors:

Here, the trial court erred in finding no triable issue of material fact. At its heart, this case involves competing, if not necessarily conflicting, evidence that must be weighed by a trier of fact. (Cf. S.G. Borello, supra, 48 Cal.3d at p. 351, 256 Cal.Rptr. 543, 769 P.2d 399 [factors "'are intertwined and their weight depends often on particular combinations'"].) Defendant repeatedly emphasizes that it did not “control[ ] the manner and means by which [plaintiff] hauled loads,” and if there were no evidence other than the evidence on “manner and means,” defendant might carry the day. (As we have seen, plaintiffs drove their own trucks and paid the related expenses, could have leased more than one truck to defendant and hired other drivers, could decline a dispatch, decided when and where to take meal and rest breaks, and so on.)

But there are multiple other factors that must be considered and that do not weigh in favor of independent contractor status. Defendant executed the CBA with plaintiffs' union, which represented the owner-operators of trucks in the role of “employees” of the company. Defendant issued W-2 forms to plaintiffs, withheld taxes, and offered health plan benefits that included paying 70 percent of the cost. Defendant also paid hourly rates for some parts of plaintiffs' work day, such as waiting time, drivers' meetings, and so on. Defendant could terminate the lease agreements on 24 hours' notice. (See S.G. Borello, supra, 48 Cal.3d at p. 350, 256 Cal.Rptr. 543, 769 P.2d 399 [“ ‘the right to discharge at will, without cause,’ “ is “ ‘[s]trong evidence in support of an employment relationship’ “].) And, while defendant asserts that its business is to “mak[e] arrangements between customers and the owner-operators of trucks for the movement of containers” and that plaintiffs “did not perform work that was part of [defendant's] regular business,” that claim is belied by defendant's own documentation, which states, correctly, that defendant is a “common carrier by motor vehicle, engaged in the business of transportation of property....” Thus, the work plaintiffs do “is a part of the regular business of the principal” (S.G. Borello, supra, 48 Cal.3d at p. 351, 256 Cal.Rptr. 543, 769 P.2d 399), a factor suggesting employee status.

In short, a reasonable trier of fact, considering the totality of the evidence, might reasonably conclude that plaintiffs were employees of defendant. We make no such finding, of course, concluding only that the trial court erred when it ruled, as a matter of law, that plaintiffs were independent contractors.

Slip op. at 5 (citations omitted).

The opinion is available here.

Legislation Introduced to Keep California Employment Actions in California

Assembly Bill 267 (Swanson, D.), introduced on Monday, would create Labor Code section 924, invalidating any clause in an employment contract that requires an employee, as a condition of obtaining or continuing employment, to agree to a forum or choice of law other than California to resolve a dispute with his or her employer regarding employment issues that arise in California.

Section 924 would read as follows:

924. (a) An employer shall not require an employee or job applicant, as a condition of employment, to waive the application of California law to any dispute relating to employment, or the securing of employment, in California.
(b) An employer shall not require an employee or job applicant, as a condition of employment, to resolve outside of California any dispute regarding employment, or the securing of employment, in California.
(c) Any choice of law, choice of forum, or choice of venue provision in a job application, employment agreement, employment handbook, or other statement of an employer’s policies applicable to its employees, is unconscionable, violative of the public policy of this state, and void if the provision would have the effect of either
of the following:
(1) Requiring the employee or job applicant, as a condition of employment, to resolve outside of California claims that arose from employment, or the securing of employment, in California.
(2) Depriving the employee or job applicant of the protection of California law for claims arising from employment, or the securing of employment, in California.
(d) Nothing in this provision affects the right of an employee to voluntarily agree to a choice of law or forum selection provision that is not required as a condition of employment and that is the subject of independent consideration.

Governor Schwarzenegger vetoed similar legislation the last two years. Information on the bill is available here.

Arechiga v. Dolores Press: Court of Appeal Issues Decision on Regular Rate of Pay and "Explicit Mutual Wage Agreement"

The Court of Appeal in Arechiga v. Dolores Press, Inc. (February 7, 2011) --- Cal.App.4th ----, 2011 WL 359350, held that an employer and a non-exempt employee can enter into an agreement that a salary will compensate the employee for all regular and overtime hours worked.

Appellant Carlos Arechiga began working as a janitor for respondent Dolores Press, Inc. (“Employer”), in January 2000. Arechiga and Employer orally agreed he would work eleven hours a day, six days a week, for a total of 66 hours per week. Because Arechiga was a nonexempt employee under labor law, they agreed his work-schedule meant he earned 26 hours of overtime pay each week. By agreement, Employer paid Arechiga $880 a week.

In October 2003, Arechiga and Employer signed a written “Employment Separation Agreement,” followed that same day by a written “Employment Agreement” which they both signed. Apparently, Employer directed that they enter into a written agreement in order to institute privacy safeguards for members of a religious body affiliated with Employer. Other than adding privacy provisions, the written employment agreement did not change the terms of Arechiga's employment. The written agreement stated “Employee shall be paid a salary/wage of $880.00 ”; the word “salary” was circled, which we indicate with a box, and the dollar amount was filled in by hand.

***

The court [Los Angeles Superior Court, Judge Munoz] entered judgment for Employer. The court found that an explicit mutual wage agreement existed between Arechiga and Employer under which Arechiga's fixed salary of $880 lawfully compensated him for both his regular and overtime work based on a regular hourly wage of $11.14 and an hourly overtime wage of $16.71. In finding for Employer, the court rejected Arechiga's assertion that Labor Code section 515, subdivision (d), outlawed explicit mutual wage agreements.

The Court of Appeal affirmed. It held that substantial evidence supported the trial court's finding of an explicit, mutual agreement that the salary would cover all hours of work. It held that Labor Code section 515(d) does not outlaw such agreements.

Next, the Court held that the term "salary" in the agreement was ambiguous, and the trial court properly allowed parol evidence to explain its meaning:

The employment agreement's use of the word “salary” was ambiguous because the contract did not identify the number of work-hours for which Arechiga earned his compensation. Arechiga contends the $880 salary covered only the 40 hours of his work-week that did not spill into overtime. Employer asserts, on the other hand, that $880 was Arechiga's entire weekly compensation, calculated as 40 hours of straight time a week at $11.14 per hour plus 26 hours of overtime at $16.71 ($11.14 x 1.5) per hour. Because the employment agreement did not identify the time period to which the $880 applied, which thus rendered “salary” susceptible to more than one meaning, the court did not err in admitting parol evidence to interpret the agreement.

The Court next held that Arechiga failed to develop "with argument supported by citation to legal authority" his argument that the trial court erred in admitting a co-worker's testimony "that then-supervisor Simms [now deceased] offered Arechiga and Garcia an hourly wage of $11.14 when he hired both of them." The Court thus deemed the argument abandoned.

Finally (for our purposes), the Court held that the trial court did not err in admitting expert witness testimony as to the wages typically paid to janitors in Los Angeles. "The court allowed the evidence because the court deemed it relevant to commercial reasonableness, which assisted the court in interpreting the contract under industry custom and usage." The answer: $7.90 per hour -- less than California's minimum wage.