Palagin v. Paniagua Construction: Undertaking in Labor Commissioner Appeal Is Jurisdictional

Just a quick word on this case.

In Palagin v. Paniagua Construction, Inc. (12/16/13) --- Cal.App.4th ---, the Court of Appeal held that the statutory deadline for an employer to post an undertaking "as a condition to filing an appeal" of a Labor Commissioner award is a jurisdictional deadline that the trial court cannot extend. Under Labor Code section 98.2(b), where the employer fails to post the undertaking within the statutory period, the trial court must dismiss the appeal. Cf. Progressive Concrete, Inc. v. Parker (2006) 136 Cal.App.4th 540, 552-553 (the undertaking requirement in an earlier version of section 98.2(b) was not mandatory and jurisdictional).

Palagin v. Paniagua Construction is available here.

American Corporate Security v. Su: Employer May Not Seek Writ of Mandate To Review Labor Commissioner Determination that Employer Retaliated Against Employee

A quick note on this case. 

In American Corporate Security, Inc. v. Su (9/10/13, pub. 9/27/13) --- Cal.App.4th ---, the Labor Commissioner found that an employer (ACS) terminated an employee in retaliation for complaints about alleged Labor Code violations. ACS petitioned for a writ of mandate, and the trial court sustained the Labor Commissioner's demurrer. The Court of Appeal affirmed, finding as follows: 

A Labor Commissioner order finding retaliation is not self-executing. Slip op. at 6-8. If the employer refuses to comply with such an order, the Labor Commissioner must bring an action in court to enforce it. Ibid. Nothing prevents the employer from raising defenses in such an action. Slip op. at 8-9. Because it could defend the retaliation action in court, ACS had an adequate remedy at law and the demurrer to its mandate action was properly sustained. Slip op. at 10-11. 

The opinion is available here. 

Bain v. Tax Reducers: Court Rules on Statute of Limitations, Equitable Tolling, Individual Liability, and Other Issues in Individual Wage Case

Bain v. Tax Reducers, Inc. (8/28/13) --- Cal.App.4th --- addresses a number of interesting issues.
In 2005, Harold Bain filed a Labor Commissioner (LC) action against Tax Reducers, Inc. (TRI). The LC awarded Bain $15,000 in wages, interest, and penalties. 

Bain appealed to the Superior Court, and in December, 2006, the parties agreed to settle.  In May, 2008, Bain sued TRI to enforce the settlement agreement, for contract damages based on the settlement agreement, and for Labor Code violations. In September, 2010, Bain amended his complaint to name TRI's principal shareholder, Griffin, as a defendant. 

The trial court granted summary judgment for Griffin, finding that he was not Bain's employer and was not liable on Bain's claims. After trial, the court awarded Bain $25,000 in unpaid wages, waiting time penalties, liquidated damages, and interest, plus attorney fees and costs. Both sides appealed, and the Court of Appeal affirmed in part and reversed in part, holding: 

A three-year statute of limitations applied to Bain's claims for unpaid wages and waiting time penalties. Slip op. at 18-19. However, Bain's claim for liquidated damages under Labor Code 1194.2 was a claim for penalties, and a one-year statute applied. Slip op. at 19-20. 

Bain's claims were not time-barred because the doctrine of equitable tolling applied. Slip op. at 20-28. Equitable tolling applies “[w]hen an injured person has several legal remedies and, reasonably and in good faith, pursues one.” Because the Labor Code gave Bain the option to pursue his claims in front of the LC or in court, equitable tolling applied when he filed his LC claim. Filing the LC claim gave TRI notice of the claim, the delay did not prejudice TRI's defense of the court action, and Bain acted in good faith. 

The trial court properly relied on the presumption that every person who performs services for another is an employee. Slip op. at 28-33. Even if the trial court erred in applying such a presumption, it "properly analyzed the evidence according to the multi-factor test from" S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341.  Substantial evidence supported the trial court's finding under this analysis that Bain was TRI's employee.  

The trial court properly imposed waiting time penalties under Labor Code section 203. Slip op. at 34-39. Analysis of Bain's employment status was not novel and did not involve an unsettled area of law. 

The trial court did not err in denying Bain's motion for leave to amend his complaint to name TRI's principal, Griffin, as a defendant. Slip op. at 41-46. After reviewing Reynolds v. Bement (2005) 36 Cal.4th 1075, and Martinez v. Combs (2010) 49 Cal.4th 35, the Court held that Griffin could not be liable as a joint employer: 

Bain argues that Griffin meets all three alternative definitions of employer from Martinez because he controlled Bain's hours, working conditions, and whether Bain was paid. However, Bain's contention ignores the court's holdings in Reynolds, which was reaffirmed in Martinez, that the wage orders' definition of “employer” does not impose liability on individual corporate agents acting within the scope of their agency. (Martinez, at p. 75.) In this case, there was no evidence that Griffin acted outside the scope of his agency as an officer and a shareholder of TRI. There is no allegation or evidence that Griffin misappropriated Bain's unpaid wages to himself for his individual advantage. (Reynolds, supra, 36 Cal.4th at p. 1090.) This case is also factually distinguishable from Martinez, because there was no evidence that supported the conclusion that Griffin was a joint employer with TRI.  

Slip op. at 45. 

The opinion is available here.

Happy Nails v. Su: Unemployment Insurance Appeals Board Decision That Cosmetologists Are Independent Contractors Bars Labor Commissioner from Finding That They Are Employees

Happy Nails & Spa of Fashion Valley, L.P. v. Su (7/19/13) --- Cal.App.4th ---, presents an interesting collateral estoppel issue in the context of administrative enforcement actions. 

In 2004, the Employment Development Department (EDD) issued assessments against a number of salons doing business under the name "Happy Nails," finding that they failed to pay unemployment insurance contributions. After a hearing, an administrative law judge found that cosmetologists working at the salons were independent contractors, rather than employees. The EDD appealed to the California Unemployment Insurance Appeals Board, which affirmed.

In 2008, the Labor Commissioner cited Happy Nails for failure to provide its cosmetologists with itemized wage statements. Happy Nails contested the citations, but a hearing officer at the Division of Labor Standards Enforcement (DLSE) affirmed.

Happy Nails then filed a complaint in Superior Court challenging the DLSE's findings and order. The court found for the Commissioner, rejecting Happy Nails' argument that the Board's findings collaterally estopped the Commissioner from acting.

The Court of Appeal reversed, holding that collateral estoppel applied. Slip op. at 11-17. The central issue -- whether the cosmetologists are employees or independent contractors -- was identical in the two proceedings; the issue was actually litigated; the issue was necessarily decided; and the decisions were final and on the merits. Finally, the EDD and DLSE, as agencies of the same government sharing the same goals, were in privity. 

The Court rejected the DLSE's arguments that: (1) the issues litigated differed because the facts presented in the two administrative hearings involved different salons and time periods and were otherwise not the same; (2) the DLSE sought to litigate Happy Nails' liability for failing to provide itemized wage statements, which differed from the issue of its unemployment tax liability; and (3) the Department and the Division are not in privity because they were established by different statutes, enforce different statutes and regulations, and use different definitions of "employee." Slip op. at 17-29.

The opinion is available here.

Ogundare v. DIR: Court Addresses Debarment of Contractor From Public Works Projects for Violation of Prevailing Wage Requirements

Ogundare v. Department of Industrial Relations, Division of Labor Standards Enforcement (2/27/13) --- Cal. App.4th --- deals with the DLSE and its enforcement of the state's prevailing wage requirements for public works projects. As stated in the opinion: 

Ayodeji A. Ogundare, individually and doing business as Pacific Engineering Company (together Pacific), filed a petition for writ of administrative mandate asking the trial court to set aside a “debarment” decision adopted by the State of California, Department of Industrial Relations, Division of Labor Standards Enforcement (DLSE) that would have precluded Pacific from bidding or working on public works construction projects for one year. The trial court reviewed the administrative record and concluded there was no credible evidence to support a finding that Pacific violated prevailing wage laws with intent to defraud, which finding was necessary in this case for debarment to be imposed under Labor Code section 1777.1.2 Accordingly, the trial court granted Pacific's petition. DLSE appeals, arguing that (i) the trial court failed to apply the correct standard of review (i.e., the substantial evidence test) and (ii) there was substantial evidence in the record to support the administrative finding of intent to defraud. We agree on both points and will reverse.  

Slip op. at 2. 

The case makes two important points:  

1. The decision to prohibit a contractor from working on public works projects does not affect a "a fundamental vested right" of the contractor, and the reviewing court does not "conduct an independent review of the entire record to determine whether the weight of the evidence supports the administrative findings."  Instead, its review is limited to "determining whether the administrative findings are supported by substantial evidence."  Slip op. at 6-9. 

2. Substantial evidence supported the DLSE's finding of the contractor's "intent to defraud" where an employee testified, and his paycheck showed, that he worked 61 hours at $15 per hour (less than the prevailing wage rate), while the contractor submitted certified payroll records to the DLSE showing that the employee worked only 25 hours at the correct prevailing wage rate of $36.10 per hour.  Slip op. at 9-12.  

The opinion is available here.

Sonic-Calabasas A, Inc. v. Moreno: California Supreme Court Schedules Oral Argument

The California Supreme Court will hear oral argument in Sonic-Calabasas A, Inc. v. Moreno on Wednesday, April 3, 2013, at 9:00 a.m., in Los Angeles. Hearings are at the Ronald Reagan State Office Building, 300 South Spring Street, Third Floor, North Tower.

As a reminder, in Sonic-Calabasas A, Inc. v. Moreno (2011) 51 Cal.4th 659, the California Supreme Court held: (1) an employee's "statutory right to seek a Berman hearing [a wage hearing before the DLSE or Labor Commissioner], 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;" (2) waiver of an employee's right to seek a Berman hearing is a substantively unconscionable contract term; and (3) the Federal Arbitration Act does not preempt the Court's holdings on points one and two.

The Supreme Court of the United States granted review and vacated that decision, remanding the case for further consideration in light of AT&T Mobility LLC v Concepcion 563 U.S. ___ (2011).

The issues presented are as follows:

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? 

The Court's web page for the case is here.  

Arias v. Kardoulias: Trial Court Does Not Have Jurisdiction to Award Attorney Fees Against Employee Who Files Untimely Appeal of Labor Commissioner Award

In Arias v. Kardoulias (7/26/12) --- Cal.App.4th ---, the Court of Appeal held as follows: 

Labor Code section 98.2, subdivision (c) states that if a party files an appeal in the superior court seeking review of the California Labor Commissioner's (commissioner) decision and is “unsuccessful in the appeal,” the court shall determine the reasonable attorney fees and costs incurred by the other parties to the appeal and assess that amount as a cost upon the party filing the appeal.  “An employee is successful [on appeal] if the court awards an amount greater than zero.”  The commissioner awarded Rebecca C. Arias $6,319.69 in unpaid wages, but her untimely appeal to the superior court was dismissed on jurisdictional grounds.  The superior court considered Arias “unsuccessful on appeal,” and assessed $6,395 in attorney fees and costs against Arias, the party filing the appeal.   

In this case of first impression, we must determine whether the dismissal on jurisdictional grounds of an untimely appeal from the commissioner's decision is equivalent to an “award of zero” for purposes of assessing attorney fees and costs against an unsuccessful employee under section 98.2, subdivision (c).  Unlike a conventional case, when a party timely appeals the commissioner's decision, the superior court conducts a new trial on the merits of the employee's wage claim.  (§ 98.2, subd. (a).)  The statutory right to recover attorney fees under section 98.2, subdivision (c) depends upon success at trial.  Because the purpose behind this one-way fee-shifting provision is to discourage unmeritorious appeals, based upon the statutory language and the legislative intent, we hold that section 98.2, subdivision (c) does not become operative unless the superior court has jurisdiction to conduct a trial on the merits of the employee's wage claim.  We therefore reverse the attorney fees and costs assessed in this action.  

Slip op. at 2.  From the basis that the statutory intent to discourage unmeritorious appeals, the Court reasoned that an employee files an unmeritorious appeal "only if the superior court, upon a trial de novo, reaches the merits of the wage claim and concludes the employee has no right to recover unpaid wages."  Slip op. at 8.  That obviously does not happen if the trial court determines, as a preliminary matter, that the appeal was not timely.  Ibid.  As an illustration, in the case here, the plaintiff ended up with an enforceable judgment -- based on the Labor Commissioner's order, decision or award ("ODA") in the amount of $6,319.69.  Slip op. at 9.  

The opinion is available here.  

Sonic-Calabasas A, Inc. v. Moreno: SCOTUS Vacates and Remands to California Supreme Court

On October 31, the Supreme Court of the United States granted certiorari and vacated the California Supreme Court's decision in Sonic-Calabasas A, Inc. v. Moreno (2011) 51 Cal.4th 659, which held: (1) an employee's "statutory right to seek a Berman hearing [a wage hearing before the DLSE or Labor Commissioner], 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;" (2) waiver of an employee's right to seek a Berman hearing is a substantively unconscionable contract term; and (3) the Federal Arbitration Act does not preempt the Court's holdings on points one and two.

SCOTUS remanded the case to the California Supreme Court for further consideration in light of AT&T Mobility LLC v Concepcion.

The California Supreme Court lists the issues presented as follows:

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?

The Court's web page for the case is here.

Goodwin Liu and Julie Su Confirmed

Governor Brown on Thursday swore in Goodwin Liu as the California Supreme Court's newest justice. Brown nominated Liu to the Supreme Court in July, after Liu withdrew his name from consideration for the Ninth Circuit Court of Appeals. Republicans had blocked Liu's nomination by President Obama, complaining that he was too liberal for the Ninth Circuit. Liu replaces Justice Carlos Moreno, the author of a number of important employment and class action decisions, who retired in February. Recent articles re. Liu: Sacramento Bee; Los Angeles Times.

On Tuesday, Julie Su was confirmed as California's Labor Commissioner. Su will lead the Division of Labor Standards Enforcement, or DLSE.

Congratulations to Justice Liu and Commissioner Su.

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.

Heritage Residential: Court Limits "Inadvertence" Defense In Check Stub Penalty Action

At issue in this appeal is a civil penalty, assessed under Labor Code section 226.3, for appellant’s failure to provide itemized wage statements to all of its employees as statutorily required. Appellant unsuccessfully challenged the penalty below, first at an administrative hearing and later in the trial court, arguing that its noncompliance was inadvertent within the meaning of the statute and that respondent erred in determining otherwise. Appellant renews those arguments here.

Interpreting the pertinent statutory language as a matter of first impression, we conclude that the statute’s references to “inadvertent” violations offer no grounds for setting aside the penalty assessed against appellant. We therefore affirm the judgment.

Heritage Residential Care, Inc. v. DLSE (1/26/11) --- Cal.App.4th ----, 2011 WL 227691. Slip op. at 1.

Heritage Residential Care (Heritage) operated seven residential care facilities. Heritage employed 24 people, 16 of whom did not have social security numbers. Heritage treated them as independent contractors and did not provide them with the check stub information required by Labor Code section 226. The Division of Labor Standards Enforcement (DLSE) cited Heritage under Labor Code Section 226.3 in the amount of $72,000: 288 violations at $250 per violation.

After an administrative hearing, the DLSE found that the violations were not inadvertent and affirmed the citation. Heritage then filed an action for administrative mandamus. After hearing, the Superior Court (Santa Clara County Superior, Judge Elfving) denied the petition and entered judgment for DLSE.

On appeal, Heritage argued that its alleged inadvertence should have been a defense to the citation and that a mitigated penalty should have applied. The Court rejected these arguments and affirmed the judgment.

Section 226.3 requires the Labor Commissioner to “take into consideration whether the violation was inadvertent” and permits respondent to “decide not to penalize an employer for a first violation when that violation was due to a clerical error or inadvertent mistake.” As parties both acknowledge, the statute envisions a two-part analysis: first, a mandatory consideration of whether the violation was inadvertent; second, if inadvertence is found, a discretionary decision about whether to penalize a first violation. The parties disagree on the meaning of the statutory term “inadvertent.” As noted, resolving that dispute requires us to engage in statutory construction. We undertake that task de novo.

Slip op. at 4.

Absent a definition of the word "inadvertent" in the Labor Code, the Court adopted its ordinary meaning: “inadvertent” means “unintentional,” “accidental,” or “not deliberate.” The Court explained that "inadvertent" does not mean the lack of mens rea. "Inadvertence thus denotes no particular mental state." Slip op. at 5.

At bottom, appellant's claim rests on its erroneous contention that both mental state and conduct must be considered in determining inadvertence. For reasons discussed above, that contention is unavailing. The statute does not require the Labor Commissioner or the court to “attempt to divine the employer's subjective belief about the law.”

Appellant also urges that respondent erred in not considering its assertion that its noncompliance was based on a good faith mistake of law. Appellant acknowledges the general rule that “ignorance of a law is not a defense to a charge of its violation.” But appellant insists that it was not ignorant of the requirements of section 226.3, as evidenced by its provision of itemized wage statements to some of its workers. Instead, appellant claims, it was operating under a good faith but mistaken belief about the law's requirements when it misclassified other employees as independent contractors.

Appellant's argument is unpersuasive. This is not a case where the legal requirements of the statute were unclear or unsettled. Under these circumstances, appellant's mistake of law is not a defense to noncompliance. Appellant's conduct thus cannot be characterized as “inadvertent” for purposes of section 226.3.

Finally, appellant asserts an abuse of discretion, based on its claim that respondent failed to consider evidence of its inadvertence, thereby contravening the statutory command that “the Labor Commissioner shall take into consideration whether the violation was inadvertent....” (§ 226.3.)

We find no basis to sustain appellant's contention that evidence of its “mental state and inadvertent violation ... was disregarded.” Concerning appellant's mental state, respondent had no reason to consider such evidence, since the employer's state of mind is irrelevant under the statute. Concerning inadvertence, appellant's evidence was considered. The hearing officer invited proof from appellant, saying “if you can show clerical error or inadvertent mistake, I may be able to exercise some discretion.” After receiving all of the proffered evidence, the hearing officer again discussed inadvertence with appellant and agreed to “give it some consideration.” No failure to comply with the statutory directive appears on this record.

We therefore reject appellant's claim that respondent misapplied section 226.3. In light of our conclusion that appellant's failure to issue itemized wage statements was not inadvertent within the meaning of the statute, we need not and do not reach appellant's alternative argument for a mitigated civil penalty.

Slip op. at 8-9.

Heritage thus brings Labor Code section 226.3 into line with the "willfulness" requirement of Labor Code section 203:

The term “willful” within the meaning of section 203, means the employer “intentionally failed or refused to perform an act which was required to be done.” It does not mean that the employer's refusal to pay wages must necessarily be based on a deliberate evil purpose to defraud workers of wages which the employer knows to be due.

Road Sprinkler Fitters Local Union No. 669 v. G & G Fire Sprinklers, Inc. (2002) 102 Cal.App.4th 765, 781.

The Heritage opinion is available here.

DLSE Sets Forth Test for Unpaid Interns

In a new opinion letter authored by Acting Chief Counsel David Balter, the DLSE has revised the standard for determining whether "trainees" are exempt from California's minimum wage requirements.

The opinion letter considered a program called "Year Up, Inc., a non-profit 501(c)(3) organization (the 'Program'), that serves 18-24 year olds in primarily underserved communities who have not progressed beyond a GED or high school diploma. The objective of the program is to 'close the Opportunity Divide by providing urban young adults with the skills, experience, and support that will empower them to reach their potential through professional careers and higher education.'" Year Up sought an opinion "as to whether California law requires that the trainee/interns enrolled in the program are to be treated as employees subject to California’s wage and hour laws."

Stating that California law does not answer this question, the letter looks to federal regulations for help and notes that the DOL has used a six-part test to determine whether a "trainee" is exempt from minimum wage requirements:

1. The training, even though it includes actual operation of the employer’s facilities, is similar to that which would be given in a vocational school;
2. The training is for the benefit of the trainees or students;
3. The trainees or students do not displace regular employees, but work under their close observation;
4. The employer derives no immediate advantage from the activities of trainees or students, and on occasion the employer’s operations may be actually impeded;
5. The trainees or students are not necessarily entitled to a job at the conclusion of the training period; and
6. The employer and the trainees or students understand that the trainees or students are not entitled to wages for the time spent in training.

The letter then disavows use of an eleven-factor test previously outlined in a number of opinion letters.

In the past, DLSE has articulated an “11-factor test” which consisted of the 6 factors from DOL’s criteria interpreting federal law, plus 5 additional factors which are identified in Wilcox, California Employment Law, §104[1](e). (See also, DLSE OLs 1998.11.12, 1993.10.21) However, the 5 additional factors do not appear to be based upon any source statute or regulation from which they derive nor are the additional factors identified with specific case law. More recently, DLSE applied a 6-factor test for the trainee/intern exemption under an economic realities test for determining an employment relationship where the 6 factors differed, in part, from the above-stated 6 factors used by DOL. (DLSE OL 2000.05.17)

Through an exhaustive analysis of the facts provided, the letter finds that Year Up satisfies the six-factor test. The opinion letter is here. The DLSE web pages for all opinion letters are here: organized by date, organized by topic, and those withdrawn since Arnold Schwarzennegger became Governor in 2003.

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

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

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

Ibid. The Court of Appeal affirmed.

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

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

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

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

Employees of Unlicensed Subcontractor are Employees of General Contractor

In Sanders Construction Co, Inc. v. Cerda (2009) 175 Cal.App.4th 430, the Court of Appeal held that a general contractor ("GC") who hires an unlicensed subcontractor ("sub") is responsible for the wages of the sub's employees.

In Sanders, the GC’s contract with the sub included the costs of labor and materials: the GC paid the sub, and the sub paid its employees. When the GC stopped paying, the sub's employees filed DLSE wage claims against the GC for wages, interest, and “waiting time” penalties. 

The DLSE hearing officer looked to worker’s compensation law by analogy and held that the GC was the employees’ statutory employer because “Labor Code Section 2750.5 operates to conclusively determine that a general contractor is the employer of not only its unlicensed subcontractors but also those employed by the unlicensed subcontractors.” Section 2750.5 provides: “There is a rebuttable presumption affecting the burden of proof that a worker performing services for which a [contractors'] license is required... or who is performing such services for a person who is required to obtain such a license is an employee rather than an independent contractor.” 
The Court of Appeal agreed and determined that, for public policy reasons, employees can bring wage claims against GCs even if they were hired by an unlicensed sub: 

These same public policy considerations concerning the subterranean economy [applied in the worker’s comp context] could apply in the present circumstances. For example, an unscrupulous general contractor could collude with an unlicensed subcontractor to cheat workers hired by the subcontractor out of their wages, plus all the related benefits...We discern no meaningful distinction exists between being paid wages and receiving other benefits based on wages. In both instances, the same policy reasons militate against allowing a general contractor to escape liability for the obligations of an unlicensed subcontractor.

The GC argued that the employees, as unlicensed persons performing work for which a license was required, lacked standing to bring their claims, pursuant to Business and Professions Code Section 7301. The court rejected this argument, noting that Section 7503 limits the reach of Section 7301, excluding employees who do not have independent businesses and who do not have the right to control the manner of their work.

Thanks to Leonard H. Sansanowicz for his contribution to this post.