Alvarado v. Dart Container Corp.: Cal. Supremes Grant Review to Decide Overtime Rate of Pay Issue

In Alvarado v. Dart Container Corporation of California (Cal.App. 1/14/16) (discussed here), the California Court of Appeal held: (1) California law does not provide a method of calculating overtime rates of pay where the employer pays its employees an hourly rate of pay, plus a flat sum daily attendance bonus; (2) the employer here properly followed the formula set forth in the Code of Federal Regulations for paying overtime.

The Supreme Court granted review on May 11. Alvarado is case no. S232607, and the Court's web page for it is here. 

Alvarado v. Dart Container Corp: Where Defendant Paid Employees Daily Flat Sum Bonuses, It Properly Calculated Overtime Rates of Pay in Compliance with Federal Law

Here's one for the wage and hour folks.

In Alvarado v. Dart Container Corporation of California (Cal.App. 1/14/16), the defendant, Dart, paid its employees an "attendance bonus" for working a full Saturday or Sunday shift. The plaintiff filed a class and PAGA representative action, alleging that Dart failed to account properly for this bonus when calculating its employees' overtime rates of pay properly. Dart used the following calculation:

1. Multiply the number of overtime hours worked in a pay period by the straight hourly rate (straight hourly pay for overtime hours). 

2. Add the total amount owed in a pay period for (a) regular non-overtime work, (b) for extra pay such as attendance bonuses, and (c) overtime due from the first step. That total amount is divided by the total hours worked during the pay period. This amount is the employee’s “regular rate.” 

3. Multiply the number of overtime hours worked in a pay period by the employee’s regular rate, which is determined in step 2. This amount is then divided in half to obtain the “overtime premium” amount, which is multiplied by the total number of overtime hours worked in the pay period (overtime premium pay). 

4. Add the amount from step 1 to the amount in step 3 (total overtime pay). This overtime pay is added to the employee’s regular hourly pay and the attendance bonus.

Plaintiff alleged that Dart should use the following calculation instead:

1. Multiply regular hours by the employee’s hourly rate (regular pay); 

2. Multiply overtime hours by the employee’s hourly rate (overtime pay on overtime hours); 

3. Divide flat sum bonus by regular hours (overtime rate), and multiply by 1.5 (overtime pay on bonus); 

4. Add pay for regular hours, bonus, overtime pay on overtime hours, overtime pay on bonus (total pay).

The trial court granted summary judgment for Dart, and the Court of Appeal affirmed, holding as follows:

Federal law requires payment of weekly overtime only and uses a "fluctuating workweek" method of calculating overtime wage rates. Although federal law does not address a daily flat sum bonus such as the one here, it does provide that a weekly bonus should be added to the weekly compensation, which is divided by the number of hours worked to arrive at the regular rate of compensation. 29 CFR 778.209(a). 

California law requires payment of daily overtime and does not follow the fluctuating workweek system. In this respect, California law is more protective of employees than federal law.

Federal law does not preempt more protective state wage and hour laws and would not preempt California law regulating overtime in this situation, if there were such law.

California law does not set forth a method of calculating overtime rates of pay based on daily flat sum bonuses such as the one here.

Skyline Homes v. DIR (1985) 165 Cal.App.3d 239, in which the court held that an employer may not use the fluctuating workweek method to calculate overtime rates for salaried employees, does not apply. Skyline was "confined to salaried employees working a fluctuating workweek, did not address bonuses, and dealt with an employer who failed to pay overtime for work exceeding eight hours in a day."

Sections 49.2.4.2 and 49.2.3 of the Division of Labor Standards Enforcement (DLSE) Enforcement Policies and Interpretations Manual provide a reasonable basis for calculating overtime rates. However, the DLSE Manual was not enacted in accordance with the Administrative Procedures Act, it does not carry the force of law, and it does not control here. 

Marin v. Costco Wholesale Corp. (2008) 169 Cal.App.4th 804 does not require adherence to the method set forth in the DLSE Manual. Marin considered a semi-annual bonus based on years of service and hours worked in the previous six months, rather than a flat sum bonus like the one here. No federal regulation applied in Marin, while 29 CFR section 788.209(a) applies here. Note: The Court here cites to CFR section 788.209(a), but this undoubtedly is a typo, and the Court meant to refer to section 778.209(a), discussed above.

Absent state law requiring use of the formula proposed by plaintiff, defendant properly used the formula stated in section 778.209(a). 

The opinion is available here.

Moncada v. West Coast Quartz: Court Rules On Misrepresentation Claims

A quick word on Moncada v. West Coast Quartz Corporation (10/28/13, pub. 11/22/13) --- Cal.App.4th ---, which involves allegations that an employer failed to pay a promised retention bonus. (A retention bonus is a bonus paid to compensate employees who agree to remain employed for some period of time, typically during a transition period, such as a sale or shut-down.)

In this case, the plaintiffs alleged that their employer offered them a retention bonus pending the sale of the business, then refused to pay. The plaintiffs sued for fraud, breach of contract, and other causes of action, trial court sustained the defendants' demurrer, the plaintiffs appealed, and the Court of Appeal reversed, holding:

Plaintiffs adequately fraud by alleging that the defendants "concealed the fact that they wanted plaintiffs to remain employed at West Coast to make the company more attractive to potential buyers, and only intended to give plaintiffs a nominal or no bonus for remaining employed." Slip op. at 5-8.

Plaintiffs adequately alleged breach of contract by alleging that "defendants told plaintiffs that if they stayed and continued to work for West Coast until the company sold, defendants would give plaintiffs bonuses that would be sufficient for plaintiffs to retire." Slip op. at 8-11.

Plaintiffs adequately alleged promissory estoppel by alleging that defendants "promised to pay them an amount sufficient to retire upon the sale of West Coast if they remained employed." Slip op. at 11-12.

Plaintiffs did not allege conduct sufficiently extreme or outrageous to support a cause of action for intentional infliction of emotional distress. Slip op. at 12-13.

Plaintiffs did not allege a cause of action for negligent misrepresentation because they alleged that the defendants knew their promises to be false at the time offered. Slip op. at 13-14.

Plaintiffs did not allege a cause of action for estoppel in pais, or equitable estoppel, which is defensive only and cannot be stated as an independent cause of action in California. Slip op. at 14-15.

The opinion is available here.

Cal. Supremes Grant Review in Security Guard Class Action

On October 13, the California Supreme Court granted the plaintiffs' petition for review in Faulkinbury v. Boyd & Associates, Inc. (June 24, 2010) 185 Cal. App. 4th 1363.

Petition for review after the Court of Appeal affirmed in part and reversed in part an order denying class certification in a civil action. The court ordered briefing deferred pending decision in Brinker Restaurant Corp. v. Superior Court, S166350, which presents issues concerning the proper interpretation of California's statutes and regulations governing an employer's duty to provide meal and rest breaks to hourly workers.

Our post on the Faulkinbury appellate decision is here. The Supreme Court's docket is here.

Court of Appeal Rules on Arbitration, Choice of Law Issues

In Countrywide Financial Corp. v. Bundy (August 6, 2010) --- Cal.App.4th ---, 2010 WL 3064481, Countrywide account executives and call center employees filed consolidated class arbitrations alleging various wage and hour violations, including failure to pay bonus compensation, waiting time penalties, and violation of the UCL. The arbitrator issued a number of interim awards, including orders (1) dismissing claims for what the Court described as penalties under Labor Code section 204 and (2) granting class certification.

Countrywide filed a petition in Superior Court to modify or vacate the interim awards. The Superior Court granted the petition, the employees appealed, and the Court of Appeal reversed.

The Court first determined whether to apply Federal or California law, which incorporate different standards for vacating arbitration awards. After reviewing the applicable arbitration clauses, the Court held:

Here, the parties unambiguously agreed that any award would be reviewed as it would be by a federal district judge applying the Federal Arbitration Act. Accordingly, we review the partial awards in this case utilizing the vacatur provisions of Federal Arbitration Act which would be applied by a United States District Court judge.

Slip op. at 8. The Court noted that the arbitration agreements at issue were "executed prior to the holding in Hall Street Associates L.L.C. v. Mattel, Inc. (2008) 552 U.S. 576, 579-580, 128 S.Ct. 1396, 170 L.Ed.2d 254, that no enhanced merits based judicial review may be conducted in a United States District Court under the Federal Arbitration Act pursuant to the litigants' stipulation." Slip op. at 9. The Court thus considered the law as it existed prior to Hall Street Associates.

The Court next explained the limited review of arbitration orders available in District Court:

In federal court, there is one certain relevant statutory provision and a possible second way in which the merits of an arbitration award can be attacked. The relevant certain method for challenging the merits of an arbitration award, albeit extremely limited, is in title 9 United States Code section 10(a)(4) which provides in part: “In any of the following cases the United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration-[¶] (4) where the arbitrators exceeded their powers....” The United States Supreme Court has described this narrow scope of judicial review: “It is not enough for petitioners to show that the panel committed an error-or even a serious error. [Citations.] ‘It is only when [an] arbitrator strays from interpretation and application of the agreement and effectively “dispense[s] his own brand of industrial justice” that his decision may be unenforceable.’ [Citations.]” Even gross, ‘ “painfully clear” ‘ or “obvious” errors are insufficient to permit vacatur under title 9 United States Code section 10(a) (4) which is the relevant statutory vacatur provision.

***

It is less clear in federal court that an arbitration award can be attacked because the arbitrator has acted in manifest disregard of the law. At one point, there was Supreme Court authority for the proposition that in federal court an award may be vacated if it is made in manifest disregard of the law.... [However], in Hall Street Associates L.L.C., the Supreme Court cast doubt on whether the manifest disregard of the law rule remains viable.

Slip op. at 11-12. Despite this uncertainty (or perhaps because of it), the Court decided to analyze the arbitration awards under both the excess of powers test and the manifest disregard of the law test. Slip op. at 13.

Regarding the manifest disregard of the law test, the Court stated:

The most prevalent manifest disregard of the law test contains two elements. The first element is the arbitrator must know the governing rule of law and refuse to apply it or ignore it. The second element is that the law ignored by the arbitrator is well-defined, explicit, and clearly applicable to the case.

Slip op at 13.

Having gone through all of this analysis, the Court then held that Countrywide would have no grounds for vacating the arbitration awards in District Court.

First, the Court held that Countrywide could not vacate the arbitrator's award allowing the employees to proceed with a UCL claim.

Thus, Business and Professions Code section 17200 provides an independent basis for potential liability apart from Labor Code section 204. And the arbitrator expressly dismissed all of defendants' penalty claims. There is no independent Labor Code section 204 claim pending in this case. Rather, defendants are asserting claims for restitution which are expressly provided for by the Unfair Competition Law. Finally, the sole issue raised by plaintiffs is that the Labor Code section 204 claims cannot be pursued. There are a myriad of defenses which remain to be litigated. Thus, a federal district court judge could not lawfully set aside the arbitrator's ruling on defendants' Business and Professions Code section 17200 unfair competition claims.

Slip op. at 16.

Second, the Court held that Countrywide could not vacate the award on grounds that the arbitrations were barred by res judicata because the current litigation was not identical to the prior litigation on which Countrywide relied. Slip op. at 16-20.

Third, the Court rejected Countrywide's effort to vacate the award on grounds that not all class members signed the same arbitration agreement and not all class members agreed to arbitration before the AAA.

[Employees] presented evidence to the arbitrator that all employees were required to agree to arbitration. Before the arbitrator, [Countrywide] presented no evidence of a single class member who did not sign an agreement vesting potential arbitral jurisdiction in the American Arbitration Association.

Slip op. at 20.

Finally, the Court rejected Countrywide's apparently late argument that it had not consented to classwide arbitration.

Finally, there is no merit to plaintiffs' arguments that the present record supports the conclusion they did not agree to classwide arbitration. They never claimed in the trial court they had not consented to classwide arbitration. They never argued to the arbitrator they objected to classwide arbitration. And the present record indicates plaintiffs in fact agreed to classwide arbitration at the commencement of the proceedings. The present record thus indicates they consented to classwide arbitration and, in any event, the issue has been forfeited because it was not presented to the arbitrator and Judge White. ( Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp. supra, 559 U.S. at p. ---- [130 S.Ct. at pp. 1774-1775] [consent]; T.Co Metals v. Dempsey Pipe & Supply (2d Cir.2010) 592 F.3d 329, 346, fn. 10 [forfeiture].)

Slip op. at 21.

Court of Appeal Issues Class Certification Decision

In Faulkinbury v. Boyd & Associates, Inc. (June 24, 2010) --- Cal. App. 4th ---, the Court of Appeal affirmed in part and reversed in part a trial court order denying certification of a class of approximately 4,000 security guards.

The plaintiffs moved for certification of a class of all employees during the applicable period, plus eight sub-classes, and the trial court denied certification without prejudice. The plaintiffs' second motion sought certification of a broad class of all employees and three sub-classes for the following: (1) meal period violations; (2) rest period violations; and (3) failure to include certain expenses and bonus compensation in the class members' regular rates for overtime compensation purposes. The trial court again denied certification.

The Court of Appeal held as follows:

1. The order denying plaintiffs' first motion was not res judicata as to plaintiffs' second motion because the court's ruling was made without prejudice. Slip op. at 4-5.
2. Plaintiffs' motion to re-designate the case as non-complex following denial of class certification did not evidence an intent to abandon the class action remedy and did not render the appeal moot. Slip op. at 5-6.
3. The fact that defense counsel made arguments as to the merits of plaintiffs' claims at the certification hearing did not mean that the Court improperly relied on such arguments in denying certification. The trial court expressed permissible reasons for denying certification. Slip op. at 6-8.
4. On plaintiffs' meal period claim, substantial evidence supported the trial court's finding that common issues of law or fact did not predominate over individual issues. Although the defendant required all class members to sign on-duty meal period agreements and take on-duty meal periods, defendant's evidence established that "the conditions and nature of security guard services vary from location to location and often from shift to shift," such that individual issues predominated. Slip op. at 10-16.
5. On plaintiffs' rest period claims, substantial evidence also supported the trial court's finding that common issues did not predominate. The defendant's declarations showed that employees sometimes took rest periods, destroying commonality. Slip op. at 16-17.
6. The trial court abused its discretion in refusing to certify the overtime sub-class, as the overtime sub-class claims "are governed by common legal principles set forth in the Labor Code and case authority." Whether an employer must include reimbursement items and bonus compensation in the calculation of its employees' overtime rate of pay "can be decided on a class-wide basis as a legal matter based on common proof." The fact that damages must be calculated individually does not destroy commonality. Slip op. at 17-18.

Schachter v. Citigroup: Cal. Supreme Court Upholds Bonus Compensation Plan

In Schachter v. Citigroup, Inc. (November 2, 2009) 47 Cal.4th 610, the California Supreme Court upheld an employer's bonus compensation plan against allegations that it worked a forfeiture of wages in violation of California law. The Court described the plan and the issues presented as follows:

Citigroup offered a voluntary employee incentive compensation plan that provides employees with shares of restricted company stock at a reduced price in lieu of a portion of that employee's annual cash compensation. Employees agree that, should they resign or be terminated for cause before their restricted shares of stock vest, they would forfeit the stock and the portion of cash compensation they directed be paid in the form of the restricted stock. We consider here whether the incentive plan's forfeiture provision violates Labor Code sections 201, 202, and 219, which provide that employees be paid all earned, unpaid wages upon termination or resignation and prohibit agreements that purport to circumvent that requirement. We conclude the forfeiture provision does not run afoul of the Labor Code because no earned, unpaid wages remain outstanding upon termination according to the terms of the incentive plan.

The Court held that:

1. shares of restricted stock constituted a wage; but
2. compensation plan did not violate statute prohibiting agreements that attempt to circumvent requirements of Labor Code;
3. forfeiture provision did not violate statutes requiring prompt payment of all earned wages upon termination or resignation;
4. employer was not required to provide cash compensation for forfeited stock; and
5. employee was not entitled to a pro rata payment for the elapsed portion of the two-year vesting period for the forfeited stock.

In light of the Supreme Court's decision a couple of years ago in Prachasaisoradej and Court of Appeal decisions such as Neisendorf v. Levi Strauss, this decision does not come as a real surprise.