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.