Wisdom v. AccentCare: Supreme Court Grants Review of Decision Holding That Arbitration Agreement Was Unconscionable

In Wisdom v. AccentCare, Inc. (2012) 202 Cal.App.4th 591 (blogged here) the Court of Appeal affirmed a trial court order denying a motion to compel arbitration where the plaintiffs (six individuals) sought monetary, injunctive, and declaratory relief based on allegations that their employer required them to work off the clock. The Court of Appeal held that the arbitration agreement was both procedurally and substantively unconscionable.

The California Supreme Court yesterday granted the employer's petition for review. The Court has stated the issue on review as follows:

Is an arbitration clause in an employment application that provides "I agree to submit to binding arbitration all disputes and claims arising out of the submission of this application" unenforceable as substantively unconscionable for lack of mutuality, or does the language create a mutual agreement to arbitrate all such disputes? (See Roman v. Superior Court (2009) 172 Cal.App.4th 1462.)

Interesting. In Roman, the trial court (Los Angeles Superior, Judge Soussan G. Bruguera) granted an employer's petition to compel arbitration of FEHA claims based on an arbitration clause similar to the one in Wisdom. The Court held: 

1. Any procedural unconscionability that arose from the fact that the clause was in a job application was limited and, in any case, procedural unconscionability alone will not invalidate an agreement to arbitrate;
2. The arbitration clause, which read, "I hereby agree to submit to binding arbitration all disputes and claims arising out of the submission of this application," created a bilateral, rather than a unilateral obligation to arbitrate and was not substantively unconscionable;
3. The AAA's employment dispute rules authorized the arbitrator to order "such discovery ... as the arbitrator considers necessary to a full and fair exploration of the issues in dispute, consistent with the expedited nature of arbitration," did not appear to be in conflict with the scope of discovery approved in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83; and
4. Any requirement in the AAA rules that the plaintiff to pay one half of the arbitration fees should be severed and would not be cause to invalidate the arbitration clause. Again citing Armendariz.

Very interesting. Is Wisdom the vehicle that the California Supreme Court will use to overturn Armendariz in light of Concepcion? Or will the Court stand on unconscionability analysis as a "generally applicable contract defense" under which an arbitration agreement may be voided? Only time will tell.

I've added Wisdom to my watch list. The Supreme Court's page is here.

Harris v. City of Santa Monica: Supreme Court to Rule on Mixed-Motive Defense

In Harris v. City of Santa Monica, the California Supreme Court will determine whether the mixed-motive defense applies to employment discrimination claims under the Fair Employment and Housing Act ("FEHA").  Cal. Gov. Code, § 12900 et seq.

The Court of Appeal in Harris (2010) 181 Cal.App.4th 1094 reversed and remanded a judgment on jury verdict in favor of a bus driver who alleged pregnancy discrimination. The Court held:

1. The trial court (Los Angeles Superior, Judge Soussan Bruguera) erred by refusing to give a "mixed-motive" jury instruction (BAJI No. 12.26) and instead giving a "motivating factor" instruction (CACI No. 2500); but 
2. The error did not entitle the city to judgment notwithstanding the verdict because there was substantial evidence to support the verdict for Harris. 

Harris is fully briefed, but the Court has not yet scheduled oral argument. The Court's case summary is here.  I have added Harris to my Supreme Court watch list.  

Supreme Court Cleans House After Harris v. Superior Court

In Harris v. Superior Court (2011) 53 Cal.4th 170, the Supreme Court held that the administrative / production worker dichotomy is not dispositive in cases involving the administrative exemption from California's overtime requirements.

On February 29, 2012, the California Supreme Court cleared its docket of two cases in which it had granted review pending Harris.

In Pellegrino v. Robert Half Intern., Inc. (2010) 182 Cal.App.4th 87 ("Pellegrino I"), the Court of Appeal held, inter alia, that substantial evidence supported the trial court's finding that the administrative exemption did not apply to the plaintiffs. The Supreme Court granted review pending Harris. On February 29, the Court transferred Pellegrino back to the Court of Appeal for reconsideration in light of Harris. I find this a little odd because the Court of Appeal did not rely on the administrative / production worker dichotomy.  

In Hodge v. AON Insurance Services (2011) 192 Cal.App.4th 1361, the Court of Appeal affirmed a judgment after bench trial holding that the defendant did not violate the Unfair Competition Law in classifying a class of insurance adjusters as exempt employees.  On February 29, the Supreme Court dismissed the case.   It also denied an amicus request for an order directing republication of the Court of Appeal's original decision.  

Aleman v. AirTouch Cellular: Supreme Court Grants Review on Attorney Fee Issue

The California Supreme Court last week granted review in Aleman v. AirTouch Cellular (blogged here) pending its decision in Kirby v. Immoos Fire Protection, Inc. (blogged here).

Aleman held (1) an employee could not recover “reporting time pay” for attending scheduled meetings at work when he worked at least half the scheduled time, even if the scheduled time was less than four hours; and (2) the employee could not recover split shift compensation when, on each occasion that he worked a split shift, he earned more than the minimum amount required by the wage order for the shift. It also held that the successful employer in that action could not recover its attorney fees.

The issues in Kirby are: 

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? 

The Court granted the employer's petition for review and denied the employee's. It's not hard to read between those lines, but that's always risky business when you're talking about the Supreme Court.

The Supreme Court's page for Aleman is here and for the docket for Kirby is here.  The Kirby decision is due June 4, 2012.  

Muldrow v. Surrex Solutions: Court of Appeal Holds That Recruiters Are Subject to Commissioned Sales Overtime Exemption

I failed to pick up this case when it was published. In Muldrow v. Surrex Solutions Corporation (1/24/12) 202 Cal.App.4th 1232, a recruiter sued his employer for failure to pay overtime and meal period compensation. The trial court (San Diego Superior, Judge Nugent) certified the class, and the case was tried to the court. The court found that the class members were subject to the commissioned employees exemption from the overtime requirements, that the employer provided meal periods to them, and it was not obligated to insure that they took their meal periods.

The Court of Appeal affirmed. First, it reviewed the relevant cases: Keyes Motors, Inc. v. DLSE (1987) 197 Cal.App.3d 557, Ramirez v. Yosemite Water Co. (1999) 20 Cal.4th 785, Harris v. Investor's Business Daily, Inc. (2006) 138 Cal.App.4th 28, and Areso v. CarMax, Inc. (2011) 195 Cal.App.4th 996 (blogged here).

The Court held that the class members were engaged principally in sales. In essence, the Court found that recruiters have to sell an employer and an applicant on each other. "Appellants would then attempt to convince both the candidate and the client that the placement of the candidate with the client was a proper fit." Slip op. at 12.

The Court then held that the class members were paid on a commission basis. "Some candidates were hired directly by employer clients. For these so called "direct hire" placements, appellants received a commission equal to a percentage of the placement fee that Surrex received from the client." The plaintiff conceded that this compensation constituted a commission. Slip op. at 15.

"Surrex placed other candidates by hiring them as consultants. The candidate-turned-consultant would then perform work for the client, and Surrex would in turn bill the client at an hourly rate for the consultant's services." Slip op. at 15. The class members would earn a percentage of the compensation thus earned by Surrex. Distinguishing Keyes Motors and Ramirez, the Court held that this arrangement constituted a commission:

Appellants' contention that the term "commissions" in the relevant regulation should be interpreted to include only those commissions that are based strictly, and solely, on a percentage of the price of the product or service rendered constitutes an excessively narrow and wooden application of Keyes Motors and Ramirez. Such a limited definition would not comport with the contemporary legal sense of the word "commission." On the contrary, the relevant Black's Law Dictionary's definition of "commission" expressly includes payments derived from profits. Moreover, a commission based on profits is hardly a concept foreign to California law.

Slip op. at 18 (citations omitted).

Finally, the Court held that Surrex's system constituted a "bona fide" commission system "as a matter of law." Noting that the DLSE Enforcement Policies and Interpretations Manual states, "Consistent commission earnings below, at or near the draw are indicative of a commission plan that is not bona fide," the Court cited evidence in the record that certain class members were paid commissions in excess of their draws. Slip op. at 22-23. 

The last part of the opinion addresses the plaintiffs' meal period claim. The plaintiffs raised the issue to preserve their right to petition the Supreme Court in the event that it reverses the Court of Appeal's decision in Brinker. Accordingly, the Court of Appeal found no error in the trial court's decision, which was consistent with Brinker. 

The opinion is available here. 

Arnold v. Mutual of Omaha: Court Finds That Nonexclusive Insurance Agent Was Not Employee

I missed this case when it came out in December: Arnold v. Mutual of Omaha Insurance Company (12/30/11) 202 Cal.App.4th 580.

Plaintiff Kimbly Arnold worked as a nonexclusive insurance agent for Mutual of Omaha Insurance Company (Mutual). After plaintiff terminated her contractual relationship with Mutual, she filed a putative class action alleging failure to reimburse expenses (LC 2802) failure to pay wages on termination (LC 201-203) and violation of the Unfair Competition Law. The trial court (Contra Cost County, Judge Cheryl R. Mills) granted summary judgment, applying the test in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 34 to find that Arnold was an independent contractor, rather than an employee.

Arnold argued that the trial court should not have applied Borello, but should have looked to Labor Code section 2750 to define “employee” for purposes of section 2802. Section 2750 provides:

The contract of employment is a contract by which one, who is called the employer, engages another, who is called the employee, to do something for the benefit of the employer or a third person.

The Court of Appeal first discussed the test set forth in Borello, to which it referred as the "common law" test.

I have to note here that the test articulated in Borello is not the common law test. The Borello court explained that, while the factors considered under the common law test overlap to a certain extent with those considered under the Workers Compensation Act, "the concept of  'employment' embodied in the Act is not inherently limited by common law principles. We have acknowledged that the Act's definition of the employment relationship must be construed with particular reference to the 'history and fundamental purposes' of the statute."  Borello, 48 Cal.3d at 351.  

In any case, the Court held that "section 2750 does not supply such a definition of 'employee' that is clearly and unequivocally intended to supplant the common law definition of employment for purposes of Labor Code section 2802."  Slip op. at 7.  

Having determined that the Borello test applied to the question at hand, the Court affirmed the trial court's decision that Arnold was an independent contractor as a matter of law.  The Court found the following facts persuasive: 

Arnold used her own judgment in determining whom she would solicit for applications for Mutual's products, the time, place, and manner in which she would solicit, and the amount of time she spent soliciting for Mutual's products.  Her appointment with Mutual was nonexclusive, and she in fact solicited for other insurance companies during her appointment with Mutual.  Her assistant general manager at Mutual's Concord office did not evaluate her performance and did not monitor or supervise her work.  Training offered by Mutual was voluntary for agents, except as required for compliance with state law.  Agents who chose to use the Concord office were required to pay a fee for their workspace and telephone service.  Arnold's minimal performance requirement to avoid automatic termination of her appointment was to submit one application for Mutual's products within each 180-day period.  Thus, under the principal test for employment under common law principles, Mutual had no significant right to control the manner and means by which Arnold accomplished the results of the services she performed as one of Mutual's soliciting agents.  

Slip op. at 9-10.  

I find this decision very strange. First, as I stated above, the Court confuses the common law and Borello tests of employment.  

More importantly, the Court does not discuss the impact of Martinez v. Combs (2010) 49 Cal.4th 35. Martinez held that in an action for unpaid minimum wages under Labor Code section 1194, the Wage Orders, rather than the common law test or the Borello multi-factor test, define the employment relationship. “An examination of section 1194 in its statutory and historical context shows unmistakably that the Legislature intended the IWC's wage orders to define the employment relationship in actions under the statute.” Martinez, 49 Cal.4th at 52. Sections 1194 and 2802 were enacted by the same legislation in 1937, and I would have thought that this issue would have been raised.  

The opinion is available here.  

Thurman v. Bayshore Transit: Court of Appeal Issues Broad PAGA Decision

In Thurman v. Bayshore Transit Management, Inc. (February 27, 2012), the Court of Appeal has decided a number of issues arising under the 2004 Labor Code Private Attorneys General Act (PAGA). Thurman was a bus driver.  His union filed an action against his employer, alleging violation of California's meal and rest period requirements and violation of the Unfair Competition Law (UCL). In a later pleading, it added Thurman as a plaintiff.

On June 29, 2009, the California Supreme Court held that a union may not bring a class action under the UCL or a representative action under PAGA on behalf of its members.  Amalgamated Transit Union v. Superior Court (First Transit, Inc.) (2009) 46 Cal.4th 993 (discussed here).  Thurman then asked the trial court to continue the trial, so that he could bring a motion for class certification.  The trial court (San Diego Superior, Judges Kevin A. Enright and Timothy Taylor) denied the motion, the case proceeded to bench trial, and the court awarded a judgment against the defendant for civil penalties and unpaid wages under PAGA, restitution for Thurman only under the UCL, and prejudgment interest. Both parties appealed.

The Court of Appeal held:

1. The court did not abuse its discretion in refusing to continue trial. Thurman's counsel should have known that the Supreme Court might rule as it did in Amalgamated, and the failure to pursue certification was "a dubious strategy."  Slip op. at 15.  
2. The court did not abuse its discretion in refusing to certify a class on the fourth day of trial. Insufficient notice under the California Rules of Court, undue prejudice to defendants, and due process concerns for putative class members who had not been notified and given the opportunity to opt out of the class all justified the refusal to certify.  Slip op. at 20.  
3. The court did not err in refusing to award civil penalties under both Labor Code section 558 and Wage Order section 20.  PAGA allows the recovery of civil penalties only for violations of the Labor Code.  It does not allow recovery of the penalties stated in the Wage Orders.  Allowing Thurman to recover PAGA penalties under both section 558 and Wage Order No. 9 would "allow an impermissible double recovery for the same act."  Slip op. at 22.
4. The court did not abuse its discretion in reducing the civil penalties by 30 percent under Labor Code section 2699(e)(2) based on the facts cited by the court in its statement of decision.  Slip op. at 29-30.  
5. Liability for Thurman's UCL claims began on January 1, 2002, due to the collective bargaining exemption in the original version of Labor Code section 514, rather than on October 1, 2000, the effective date of Wage Order No. 9's penalty provision for failure to provide meal and rest breaks.  Slip op. at 30-31.  
6. Labor Code section 558(a) provides a civil penalty that consists of both the $50 or $100 penalty amount and any underpaid wages, with the underpaid wages going entirely to the affected employee or employees as an express exception to the general rule that civil penalties recovered in a PAGA action are distributed 75 percent to the Labor and Workforce Development Agency (LWDA) and 25 percent to the aggrieved employees. Slip op. at 43-44. 
7. Thurman did not have to exhaust administrative remedies by notifying the LWDA of his intent to seek PAGA penalties because the exhaustion requirement was enacted after the action was filed.  Slip op. at 50.  
8. The court did not err in allowing Thurman to recover PAGA penalties under section 558 for missed rest periods.  Section 558 applies to "any provision regulating hours and days of work in any order" of the IWC, including the rest period requirement.  Slip op. at 56-57.  
9. The court erred in allowing Thurman to recover for missed meal periods after July 2003 because his complaint contains judicial admissions that defendants have provided meal periods, as required, since July 2003.  Slip op. at 58.  

That's a lot of ground to cover.  At the end of the day, this opinion (assuming that the Supreme Court does not grant the defendant's petition for review) will be remembered for points three (no PAGA penalties under Wage Order section 20), four (court has discretion to reduce penalty award), six (section 558 includes unpaid wages, which then go to the aggrieved employees), and eight (penalties for missed rest periods).  The opinion also implicitly resolves the question of whether an employee can recover multiple penalties under PAGA for multiple violations.  The court did not address the issue directly, but its holding on point eight and its disposition seem to resolve the issue.

The opinion is available here.

Los Angeles Superior Court to Lay Off 350 Employees

The L.A. Times is reporting that the Los Angeles Superior Court will lay off another 350 employees and "restructure" more than 50 courtrooms to address budget cuts. Statewide, court budgets have been cut by $652 million. In Los Angeles County, this has resulted in the loss of more than 500 employees over the last two years alone. Additional cuts will focus on courtroom staffing, including courtroom assistants and court reporters. According to a March 5, 2012, memo from Presiding Judge Lee Smalley Edmon to all judicial officers and court staff, "Court-employed court reporters would no longer be available for civil trials; They would be available for civil law-and-motion calendars on a part-time basis, and they would be available in family law courts."  

The L.A. Times article is here.  Judge Smalley Edmon's memo is here.  

Metson Marine Revisited: Employer May Not Use Workweek that Artificially Avoids Paying Overtime Compensation

I should have posted this a while back. In Seymore v. Metson Marine, Inc. (2/28/11) 193 Cal.App.4th 64, the Court held: (1) employees who worked 14-day shifts from Tuesday to Tuesday on boats could recover seventh day overtime compensation on both the seventh and 14th days of each consecutive 14-day work period, even though the employer's designated workweek was Monday at 12:01 am to Sunday at midnight; (2) twelve-hour, off-duty, standby periods were considered “hours worked” for purposes of compensability; and (3) the employer could exclude eight hour sleeping periods from compensation owed.

The Court granted the employer's petition for rehearing to address the argument that the court should follow federal law interpreting the meaning of “workweek” under the federal Fair Labor Standards Act of 1938 (FLSA). The Court agreed that federal authority is persuasive, but rejected the employer's argument that it could designate a Monday-to-Sunday workweek when its employees actually worked Tuesday to Tuesday.

Contrary to Metson's suggestion, however, these authorities do not stand for the proposition that an employer's authority to designate a workweek is unlimited. Under both federal and state labor laws, it is clear that an employer may not designate its workweek in a manner that is designed primarily to evade overtime compensation. The federal regulation states explicitly that the workweek may not be “designed to evade the overtime requirements of the [Fair Labor Standards] Act.” (29 C.F.R. § 778.105.) Similarly, the DLSE Enforcement Policies and Interpretations Manual repeats that the workweek cannot be changed if “designed to evade overtime obligations.” (DLSE, Enforcement Policies and Interpretations Manual, supra, at p. 48–1.) “The bottom line is this: An employer may not engage in a subterfuge or artifice designed to evade the overtime laws.” (Huntington Memorial Hospital v. Superior Court (2005) 131 Cal.App.4th 893, 910.) 

Seymore v. Metson Marine, Inc. (4/14/11) 194 Cal.App.4th 361, 370.  

The opinion is available here.