Oregon Restaurant and Lodging Ass'n v. Perez: Ninth Circuit Revisits Tip Pooling

Just a quick word on Oregon Restaurant and Lodging Association v. Perez (9th Cir. 2/23/16). The opinion itself does a good job of stating the holding:

Under the Fair Labor Standards Act of 1938 (“FLSA”), as amended in 1974, an employer may fulfill part of its hourly minimum wage obligation to a tipped employee with the employee’s tips. 29 U.S.C. § 203(m). This practice is known as taking a “tip credit.” Section 203(m) of the FLSA obligates employers who take a tip credit to (1) give notice to its employees, and (2) allow its employees to retain all the tips they receive, unless such employees participate in a valid tip pool. Id. Under section 203(m), a tip pool is valid if it is comprised exclusively of employees who are “customarily and regularly” tipped. Id.

In both cases before this court, Employer-Appellees did not take a tip credit against their minimum wage obligation; they paid their tipped employees at least the federal minimum wage. Employer-Appellees required their employees to participate in tip pools. Unlike the tip pools contemplated by section 203(m), however, these tip pools were comprised of both customarily tipped employees and non-customarily tipped employees.  

In 2010, we held in Cumbie v. Woody Woo, Inc. [discussed here] that this type of tip pooling arrangement does not violate section 203(m) of the FLSA, because section 203(m) was silent as to employers who do not take a tip credit. 596 F.3d 577, 583 (9th Cir. 2010). In 2011, shortly after Cumbie was decided, the Department of Labor (“DOL”) promulgated a formal rule (“the 2011 rule”) that extended the tip pool restrictions of section 203(m) to all employers, not just those who take a tip credit. 76 Fed. Reg. 18,832, 18,841–42 (April 5, 2011).

The United States District Court for the District of Oregon held that Cumbie foreclosed the DOL’s ability to promulgate the 2011 rule and that the 2011 rule was invalid because it was contrary to Congress’s clear intent. Or. Rest. & Lodging v. Solis, 948 F. Supp. 2d 1217, 1218, 1226 (D. Or. 2013). The United States District Court for the District of Nevada followed suit. Cesarz v. Wynn Las Vegas, LLC, No. 2:13-cv-00109-RCJ-CWH, 2014 WL 117579, at *3 (D. Nev. Jan. 10, 2014). For the reasons set forth below, we reverse both district court decisions.

In other words, under the 2011 DOL rule, a tip pool is valid only if it is comprised exclusively of employees who are “customarily and regularly” tipped, whether the employer takes a tip credit or not. The opinion is available here.  

Von Nothdurft v. Steck: Apartment Owner Entitled to Credit Rental Value of Apartment Against Minimum Wages Owed to Apartment Manager

Just a quick word on this case. In Von Nothdurft v. Steck (6/26/14), --- Cal.App.4th ---, the defendant hired the plaintiff to work as a resident apartment manager. The parties signed a management agreement that provided that the plaintiff would receive free rent on her apartment. 

The plaintiff sued for unpaid minimum wages, and the case made its way to the Court of Appeal, which held that the management agreement satisfied the requirements of the applicable IWC Wage Order No. 5-2001, such that the defendant was entitled to credit a portion of the apartment's rental value against the minimum wages owed. 

The opinion is available here.

Governor Brown Signs Minimum Wage Increase

Governor Brown signed AB 10 into law today. AB 10 amends Labor Code section 1182.12 to increase California's minimum wage from $8 per hour to $9 per hour, effective July 1, 2014, and to $10 per hour, effective January 1, 2016. 

More information 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.

Leyva v. Medline Industries: Ninth Circuit Holds that Individual Damage Calculations Do Not Defeat Certification

In Leyva v. Medline Industries, Inc., ___ F.3d ___ (9th Cir. 5/28/13), the plaintiffs sued their employer, alleging that it failed to compensate its hourly employees for all hours worked, failed to calculate their overtime rates of compensation properly, failed to pay all earned wages on separation, and failed to provide timely and accurate wage statements.  The district court denied certification, and the Ninth Circuit reversed, holding that the district court abused its discretion in concluding that (1) individual questions predominated over common questions, and (2) class certification was not superior to other means of resolving the dispute. 

The district court applied the wrong legal standard by concluding that individual questions predominate over common questions. The only individualized factor that the district court identified was the amount of pay owed. “In this circuit, however, damage calculations alone cannot defeat certification.” 

Slip op. at 7-9.  

The district court incorrectly held that class certification was not the superior method of adjudication because of the difficulty of managing the approximately 500 member class and determining the putative class members' damages.  The district court failed to suggest any other means for putative class members to adjudicate their claims, and the Ninth Circuit held, "it appears that none exist."  

In light of the small size of the putative class members’ potential individual monetary recovery, class certification may be the only feasible means for them to adjudicate their claims. 

Slip op. at 9-11.

The opinion is available here.  

Gonzalez v. Downtown LA Motors: Court Holds That Employer Must Compensate Piece Rate Workers Separately for “Non-Productive” Time

Gonzalez v. Downtown LA Motors, LP (3/6/13 pub. 4/2/13) --- Cal.App.4th ---, considers "whether California's minimum wage law requires an employer that compensates its automotive service technicians on a 'piece-rate' basis for repair work must also pay those technicians a separate hourly minimum wage for time spent during their work shifts waiting for vehicles to repair or performing other non-repair tasks directed by the employer." Slip op. at 2.  The Court of Appeal held that class members were entitled to separate hourly compensation for time spent waiting for repair work or performing other non-repair tasks, as well as Labor Code section 203 waiting time penalties.  

The employer, DTLA, used a "flag hour" compensation system. Each employee had a flag rate, and each repair job had a set number of flag hours, regardless of the actual time spent doing the job. At the end of each pay period, DTLA multiplied the flag rate by the flag hours to compute total compensation. If that amount fell short of the minimum wage for the actual hours worked, DTLA paid minimum wage for the actual hours worked, rather than the flag rate. 

Gonzalez filed suit, alleging that this system failed to compensate the employees at minimum wage rates for hours waiting for repair work or otherwise engaged in non-repair tasks.  After a bench trial, the court entered judgment for the class, and DTLA appealed. The Court of Appeal affirmed, finding: 

The holding in Armenta v. Osmose, Inc. (2005) 135 Cal.App.4th 314 -- that employers must pay for all hours worked and may not average paid, productive hours with non-paid, non-productive hours -- applies equally to employees paid on a piece rate basis.  Slip op. at 12-18.  The Court added an interesting note: 

Averaging piece-rate wages over total hours worked results in underpayment of employee wages required “by contract” under Labor Code section 223, as well as an improper collection of wages paid to an employee under Labor Code section 221.  

Slip op. at 14. 

Next, although the Court did not rule on whether DTLA's use of the flag rate system justified imposition of Labor Code section 203 waiting time penalties, it held that substantial evidence of other conduct supported the award:  

Although DTLA stated that its policy was to supplement its technicians' pay when flag hour compensation fell below the minimum wage floor, there was evidence that DTLA did not always follow this policy. DTLA's expert witness testified that he reviewed technicians' pay records and found instances when DTLA failed to cover shortfalls between piece-rate wages and the minimum wage floor. 

Slip op. at 18-19. 

Gonzalez v. Downtown LA Motors is here.

Guerrero v. Superior Court: Court of Appeal Reverses Order Sustaining Demurrer on Joint Employment Issues

In Guerrero v. Superior Court (Weber) (2/11/13) --- Cal.App.4th ---, the plaintiff, Guerrero, was employed to provide in-home support services (IHSS) to eligible recipients in Sonoma County (County) under the In-Home Support Services Act. Cal. Welf. & Inst. Code § 12300 et seq. She sued the County and its In-Home Support Services Public Authority (the Authority) for violation of federal and state wage law, alleging that they jointly employed her along with the individual to whom she rendered services.

The trial court sustained without leave to amend the demurrer of the County and the Authority. The Court of Appeal reversed, holding:

Although providing IHSS-funded care does not constitute employment for all purposes, the County and the Authority were Guerrero's joint employers for FLSA purposes because: (1) "their power over the employment relationship by virtue of their control over the purse strings was substantial"; (2) her wages were determined and paid by the state and its agents, the County and the Authority; (3) the County and the Authority maintained employment records on Guerrero; and (4) the County had an inherent role in in supervising the provision of services by IHSS providers such as Guerrero. Slip op. at 12-30. The Court relied heavily on Bonnette v. California Health and Welfare Agency (9th Cir. 1983) 704 F.2d 1465 (state and counties were employers under California's IHSS program) and distinguished Moreau v. Air France (9th Cir. 2003) 356 F.3d 942 (airline was not joint employer of service workers hired by outside entities for purposes of FMLA and CFRA).

Because Guerrero alleged that she "performed general household work exceeding twenty percent of her total weekly hours worked," the trial court erred in sustaining the demurrer on grounds that her job was exempt from FLSA minimum wage and overtime protections pursuant to the domestic service companionship exception. 29 U.S.C. section 213. "Determining whether or not all of the elements of the exemption have been established is a fact-intensive inquiry. The appropriateness of any employee's classification as exempt must be based on a review of the actual job duties performed by that employee." Slip op. at 30-34.

The Court rejected the concern that allowing such wage claims on a joint employment basis make the County and the Authority "liable for wages that they have no power to control."  

The IHSS program pays for specified services delivered to qualified recipients up to a maximum number of hours. Where a qualified provider delivers services other than those authorized and covered by the program or for a greater number of hours than authorized and real parties have no knowledge that such is occurring and are realistically unable to inform themselves of such, we agree it would be inappropriate to impute the recipient's knowledge to real parties so as to require real parties to pay for such services. 

However, this was a factual issue not ripe for adjudication on demurrer.  Slip op. at 34-36.

The County and the Authority were Guerrero's employers for purposes of California wage law because: (1) California's protections cannot be any less protective of employees than federal law; (2) while they did not directly hire, fire or supervise providers, through their "power of the purse" and quality control authority, the County and the Authority had "the ability to prevent recipients and providers from abusing IHSS authorizations both as to the type of services performed and the hours worked." The trial court thus erred in finding that they did not suffer or permit Guerrero to work and were not her employers.  Slip op. at 36-45. 

Public agencies are not exempt from the provisions of Wage Order No. 15-2001.  Slip op. at 45-50. 

The trial court erred in holding that the personal attendant exemption barred Guerrero's claims because whether she rendered services as a personal attendant was a question of fact. Guerrero's allegation that she spent more than 20 percent of her time performing "general household work" raised an issue of fact as to her personal attendant status under the wage order.  Slip op. at 50-52.  

The opinion is available here.  

The County and the Authority just last week filed their petition for review in the California Supreme Court. The Court last year granted review in Patterson v. Domino's Pizza (discussed here), in which the Court of Appeal held that a franshisor may be liable for a franchisee's alleged violations of the Fair Employment and Housing Act, but denied review in Aleksick v. 7-Eleven (2012) 205 Cal.App.4th 1176, in which the Court of Appeal held that 7-Eleven is not liable for allegedly failing to pay its franchisees' employees their earned wages. If I had to wager, I would say that the Court will deny review, particularly because Guerrero arises on the defendants' demurrer.  

Avidor v. Sutter's Place: Court of Appeal OKs Casino Card Dealer Tip Pooling

In Avidor v. Sutter's Place, Inc. (1/23/13) --- Cal.App.4th ---, the Court of Appeal held that a casino's policy of requiring card dealers to contribute a portion of their tips to a tip pool did not violate California law.  The Court held: 

1. Evidence of the tipping customer's intent in leaving or providing the tip is not relevant, and the trial court did not err in excluding evidence of such intent at trial.  Even if the patron intended the tip to go only to the tipped employee, "that does not mean that the employee to whom it is given may keep it notwithstanding a policy he or she has agreed to in accepting employment."  Slip op. at 6-10.
2. Mandatory tip pools in casinos, where patrons typically give tips directly to individual employees -- rather than leaving them on the table to be picked up, as typically happens in restaurants -- does not violate Cal. Labor Code section 351.  Slip op. at 10-12. 
3. Substantial evidence supported the trial court's finding that the casino did not impermissibly include its agents -- those "having the authority to hire or discharge any employee or supervise, direct, or control the acts of employees" -- in the pool.  Slip op. at 12-14.  
4. Tips given to dealers were not their property, and the casino did not commit conversion by requiring the dealers to contribute tips to the pool.  Slip op. at 14-15. 
5. The dealers failed to show that they contributed more to the tip pool than they received in tips, thus reducing their hourly wages below the minimum wage rate, and the trial court did not err in granting summary judgment on the minimum wage claim.  Slip op. at 15-16.  
6. Because tips given to dealers were not their property, and every dealer understood that tips contributed to the pool were contributed for the benefit of the other employees in the pool, the dealers could not state a cause of action for money had and received.  Slip op. at 16-19.  

The opinion is available here.  

People ex rel. Harris v. Sunset Car Wash: Court of Appeal Clarifies Successor Liability Under Car Wash Worker Statute

Labor Code section 2050, et seq., established a regulatory scheme for car wash operators, motivated by a legislative concern that car wash employees were not being paid in accordance with law. One component of the statutory scheme — section 2066 — imposes liability upon a "successor" to a car wash employer for unpaid wages and penalties owed by a predecessor employer in four circumstances, including where the successor uses the same facilities to perform substantially the same services as the predecessor. We hold that the four circumstances of liability set forth in section 2066 determine the meaning of "successor," and there is no need to look to other statutes and case law to further define the term. We further hold that imposition of liability against a successor who operates at the same location as a predecessor car wash employer does not constitute a violation of due process.

Thus starts People ex rel. Harris v. Sunset Car Wash, LLC (5/16/12) --- Cal.App.4th ----, in which the Court of Appeal upheld the car wash successor liability statute.

Briefly, the facts are as follows: Auto Spa operated a car wash. Sunset Alvarado Investors, which held a note secured by a trust deed on the property, foreclosed on the property, evicted Auto Spa, and leased the same premises to Sunset Car Wash ("Sunset"). Auto Spa had failed to pay minimum wage and overtime to its employees and denied paid rest breaks. The Attorney General brought an action to hold Sunset liable for Auto Spa's unpaid wages and penalties. The trial court (Los Angeles Superior, Judge Daniel J. Buckley) denied Sunset's motion for summary judgment, holding that Sunset was liable under the statute as Auto Spa's successor.

The Court of Appeal affirmed. Labor Code section 2066, provides as follows:

A successor to any employer that is engaged in car washing and polishing that owed wages and penalties to the predecessor‘s former employee or employees is liable for those wages and penalties if the successor meets any of the following criteria: 

(a) Uses substantially the same facilities or workforce to offer substantially the same services as the predecessor employer. 

(b) Shares in the ownership, management, control of the labor relations, or interrelations of business operations with the predecessor employer. 

(c) Employs in a managerial capacity any person who directly or indirectly controlled the wages, hours, or working conditions of the affected employees of the predecessor employer. 

(d) Is an immediate family member of any owner, partner, officer, or director of the predecessor employer of any person who had a financial interest in the predecessor employer.

The Court held that a "successor" under the statute is an entity that meets any of the four criteria, notwithstanding the common law or other definition of the term.  Slip op. at 5-6.  

The Court rejected Sunset's contention that imposing liability denied due process because Sunset did not have notice of its potential successor liability.  "In the context of the car washing industry, section 2066 provides the necessary notice of the potential for successor liability for labor law violations.  Any entity commencing business in the industry is presumptively aware of the requirements of section 2050 et seq."  Slip op. at 9.  

The opinion is available here.  

Kirby v. Immoos: Supreme Court Holds that Parties Cannot Recover Attorney Fees in Rest Period Actions

In Kirby v. Immoos Fire Protection, Inc. (4/30/12) 53 Cal.4th 1244, the California Supreme Court considered whether a defendant can recover its attorney fees when it prevails in an action for meal and rest period compensation under California Labor Code section 226.7. The Court held that the answer is no, and neither can a successful plaintiff.

Plaintiff Anthony Kirby worked for a contractor, IFP. He filed suit, alleging that IFP violated a number of wage and hour laws. He also named a number of doe defendants, alleging that they were liable under Labor Code section 2810 because they entered into contracts with IFP while knowing that the contracts did not provide sufficient funds to allow IFP to comply with all applicable labor and wage laws. Kirby settled with the doe defendants and dismissed his action against IFP. The trial court awarded IFP its attorney fees under Labor Code section 218.5, and the Court of Appeal affirmed. The Supreme Court reversed.

First, the Court held that a section 226.7 claim is not a claim for which attorney's fees can be awarded to a prevailing employee under Labor Code section 1194.  Section 1194 allows successful plaintiffs to recover attorney's fees in actions for the "legal minimum wage or the legal overtime compensation." The Court rejected Kirby's argument that the required payment for missed meal or rest periods is tantamount to a statutorily prescribed minimum wage. Slip op. at 7-8.

Next, the Court held that Labor Code section 218.5 does not authorize a prevailing party -- either the employer or the employee -- to recover its attorney's fees in an action under section 226.7. The Court based this on its conclusion that an action under section 226.7 does not constitute an “action brought for the nonpayment of wages” within the meaning of section 218.5. Slip op. at 11.  

Section 226.7 is not aimed at protecting or providing employees' wages. Instead, the statute is primarily concerned with ensuring the health and welfare of employees by requiring that employers provide meal and rest periods as mandated by the IWC. When an employee sues for a violation of section 226.7, he or she is suing because an employer has allegedly “require[d] [the] employee to work during [a] meal or rest period mandated by an applicable order of the Industrial Welfare Commission.” In other words, a section 226.7 action is brought for the nonprovision of meal and rest periods, not for the “nonpayment of wages.”

Slip op. at 11-12 (citations omitted).

The Court then explained its holding in light of Murphy v. Kenneth Cole Productions (2007) 40 Cal.4th 1094, in which it held that the remedy for a violation of section 226.7 is one additional hour of pay, and that such pay constitutes a wage, rather than a penalty. "Nonpayment of wages," the Court said, "is not the gravamen of a section 226.7 violation." Slip op. at 13.  

The “additional hour of pay” provided for in subdivision (b) is the legal remedy for a violation of subdivision (a), but whether or not it has been paid is irrelevant to whether section 226.7 was violated. In other words, section 226.7 does not give employers a lawful choice between providing either meal and rest breaks or an additional hour of pay. An employer's failure to provide an additional hour of pay does not form part of a section 226.7 violation, and an employer‟s provision of an additional hour of pay does not excuse a section 226.7 violation. The failure to provide required meal and rest breaks is what triggers a violation of section 226.7. Accordingly, a section 226.7 claim is not an action brought for nonpayment of wages; it is an action brought for non-provision of meal or rest breaks.

Slip op. at 13-14.

The Court found support for its holding in the legislative histories of sections 218.5 and 226.7. "In sum, the legislative history shows that the Legislature (a) considered including a one-way fee-shifting provision in favor of employees in section 226.7, (b) ultimately deleted the provision from the final version of section 226.7, and then (c) gave no indication that section 218.5's two-way fee-shifting rule should apply to section 226.7 claims, even as (d) it adopted amendments to section 218.5 as part of the very same legislation that created section 226.7." Slip op. at 17.

Finally, the Court rejected IFP's argument that the public policies of discouraging unmeritorious lawsuits and encouraging employees to file administrative complaints instead of civil suits support the applicability of section 218.5's two-way fee-shifting rule to section 226.7 claims. Slip op. at 17.

The Court's holding does not address the plaintiff's argument that that, when a suit includes claims covered by section 1194, that section shields an unsuccessful employee against a section 218.5 award of attorney fees in favor of a successful employer. That argument will have to wait for another day.  

Kirby v. Immoos: Supreme Court to Issue Decision Monday

The California Supreme Court just announced that it will publish its decision in Kirby v. Immoos Fire Proection on Monday.  Kirby raises the  the following issues:

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 decision is early. The 90-day deadline was not set to expire until June 4.  This is interesting, considering that the Court had to give itself an extension of time to publish the Brinker 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.  

State Building & Construction Trades Council v. City of Vista: Supreme Court to Hear Prevailing Wage Case on April 4

On April 4, 2012, the California Supreme Court will hear oral argument in Los Angeles in State Building & Construction Trades Council v. City of Vista, in which the Court will decide whether California's prevailing wage law (Lab. Code 1720 et seq.) applies to a charter city when it contracts to construct public works projects with municipal funds. As discussed here, both the trial court and the Court of Appeal held that the city need not comply with the prevailing wage law.

The Court's docket is here.  

Kirby v. Immoos: California Supreme Court Schedules Oral Argument in Attorney Fee Case

The California Supreme Court will hear oral argument in Kirby v. Immoos Fire Protection, Inc. on Tuesday, March 6, 2012, at 9:00 a.m., in San Francisco. No word yet on whether the argument will be broadcast over the internet, as Brinker was. (Or if it will be broadcast in a way that actually allows people to watch live!) Kirby presents the following issues:

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's case summary is here. 

Cal. Supreme Court Grants Review in In re. UPS Wage and Hour Cases (McGann)

As predicted, on May 11, 2011, the California Supreme Court granted review in In re. UPS Wage and Hour Cases (Supreme Court Case No. S191908) pending its decision in Kirby v. Immoos Fire Protection. Our original post on UPS is here, and our post on Kirby is 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?

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.

Sheppard v. North Orange County Occupational Program: Minimum Wage Order Covers Public School Employees

Sheppard v. North Orange County Occupational Program (12/23/10) --- Cal.App.4th ----, 2010 WL 5188768, holds that employees of public entities are covered by the minimum wage protections of the Wage Order and may sue their employers for breach of contract when they fail to pay minimum wage. The plaintiff was employed by an entity created by four public school districts. His employer required him to spend 20 minutes of unpaid time preparing for every hour he spent teaching. He sued his employer for violation of the minimum wage law under Industrial Welfare Commission (IWC) wage order No. 4-2001 and Labor Code section 218, breach of contract, and quantum meruit. Slip op. at 1. The trial court (OCSC Judge Velasquez) sustained demurrers and granted judgment on the pleadings for the defendant.

The Court of Appeal reversed in part and affirmed in part:

We reverse the trial court’s order granting judgment on the pleadings as to the violation of the minimum wage law claim. Sheppard alleged he was employed by a regional occupational program which was the creation of one or more public school districts through Education Code section 52301. We conclude the minimum wage provision in Wage Order No. 4 2001 applies to Sheppard’s employment with NOCROP. We hold the Legislature has plenary authority over public school districts and was constitutionally authorized to vest in the IWC, through section 1173, the power to impose the minimum wage law provision contained in Wage Order No. 4 2001 as to employees of such public school districts. (For the reasons we explain, this holding is limited to employees of public school districts.) We therefore reverse the trial court’s order granting judgment on the pleadings as to the violation of the minimum wage law claim.

We also reverse the order sustaining NOCROP’s demurrer to Sheppard’s breach of contract claim. California Supreme Court precedent establishes that a public employee has a contractual right to earned but unpaid compensation, which is protected by the State Constitution.

We affirm the order sustaining the demurrer to the quantum meruit claim because the Government Claims Act (Gov. Code, § 810 et seq.) bars the assertion of such a claim against a public entity.

Slip op. at 1. The opinion is available here.

Alcazar v. Catholic Archbishop: Ministerial Exemption Bars Minimum Wage Action

In Alcazar v. Corporation of the Catholic Archbishop of Seattle, --- F.3d ----, 2010 WL 5029533 (9th Cir. December 10, 2010), an en banc panel of the Ninth Circuit affirmed an order granting judgment on the pleadings in a case involving a seminarian who alleged that the Church failed to pay him minimum wage in violation of Washington law. The Court held:

Churches, like all other institutions, must adhere to state and federal employment laws. But the federal courts have recognized a “ministerial exception” to that general rule. The exception exempts a church's employment relationship with its “ministers” from the application of some employment statutes, even though the statutes by their literal terms would apply. A key inquiry, therefore, is whether an employee is a “minister” for purposes of the exception. Where, as here, the plaintiff alleges that he “entered the seminary to become a Catholic priest” and performed his duties “in a ministerial placement,” “[a]s part of [his] preparation for ordination into the priesthood,” we hold that he is a “minister” for purposes of the ministerial exception.

Slip op. at 1. The opinion is available here.

Gordon v. City of Oakland: City May Require Police Officer to Repay Training Costs Under FLSA

In Gordon v. City of Oakland, --- F.3d ----, 2010 WL 4673695 (9th Cir. November 19, 2010), the Ninth Circuit Court of Appeals held that a city did not violate the minimum wage provisions of the Fair Labor Standards Act (FLSA) by requiring the plaintiff, a former police officer subject to a collective bargaining agreement, to repay a portion of her training costs when she voluntarily left the City's employment before completing five years of service. The Court quoted 29 C.F.R. § 535.31, which provides in pertinent part:

Whether in cash or other facilities, ‘wages' cannot be considered to have been paid by the employer and received by the employee unless they are paid finally and unconditionally or ‘free and clear.’ The wage requirements of the Act will not be met where the employee ‘kicks-back’ directly or indirectly to the employer or to another person for the employer's benefit the whole or part of the wage delivered to the employee. This is true whether the “kick-back” is made in cash or in other than cash.

It then held:

Because Gordon did not allege she was paid below the federal minimum wage for any given week, the only way Gordon has stated a cognizable claim is if her payment to the City for a portion of her training costs is a “kick-back” payment as described in section 535.31.

Slip op. at 3.

Finally, the Court held that the costs of training were similar to a loan to the plaintiff, not a kickback to the employer, and the City paid the plaintiff at least minimum wage for her final work week before deducting the training costs. Slip op. at 4.

The opinion is here.

Kirby v. Immoos: Cal. Supreme Court Grants Review on Attorney Fee Issues

On July 27, 2010, the Court of Appeal affirmed an award of attorney fees to a defendant under Labor Code section 218.5. Kirby v. Immoos Fire Protection, Inc. (July 27, 2010) 113 Cal.Rptr.3d 370. See our blog post here.

Yesterday (while I was mediating a tough class action that we did get resolved), the California Supreme Court announced that it would review Kirby. The Court limited review to the following issues:

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?

Very interesting questions with some complex arguments involved. The Court's case summary is here. I will add Kirby to our watch list.