Rhea v. General Atomics: Employer May Deduct Vacation Pay from Exempt Employee for Partial Day Absences

In Rhea v. General Atomics (7/21/14) --- Cal.App.4th ---, the plaintiff filed a putative class action challenging the employer's policy of requiring exempt employees to use annual leave hours to cover partial day absences from work. The plaintiff alleged that under this policy, exempt employees were not being paid on a salary basis for purposes of California law and could not be exempt.

The trial court granted summary judgment for the defendant, and the plaintiff appealed. The Court of Appeal affirmed, holding as follows:

California law on the issue is patterned after federal law, which allows employers to deduct from pay "for absences of one or more full days occasioned by sickness or disability." Slip op. at 8. Under both California and federal law, when an exempt employee is absent from work for a partial day, an employer is prohibited from deducting monetary pay from the employee. Slip op. at 9. In Conley v. Pacific Gas & Electric Co. (2005) 131 Cal.App.4th 260, the Court of Appeal held that under California law, an employer may deduct vacation pay for partial day absences without destroying the exemption. Slip op. at 10-11.

California's law prohibiting the forfeiture of earned wages does not prohibit an employer from deducting leave pay for partial day absences. Slip op. at 11-18. Although vacation pay constitutes wages under California law, and although California law prohibits the forfeiture of vacation pay, requiring employees to use vacation pay to cover partial day absences does not constitute the forfeiture of wages. Slip op. at 13-15. Instead, requiring such use of vacation pay simply "affords an employer the right to control the terms under which vacation time may be exercised by employees." Slip op. at 15.

The deduction policy also does not constitute an "impermissible shifting of wages that an employee has already earned (i.e., Annual Leave benefits) to cover [the employer's] duty to pay wages for the period of the employee's partial-day absence." Slip op. at 19-20. Requiring an employee to use vacation pay does not mean that an employer has failed to pay all of the wages that it is obligated to pay during an employee's partial-day absence. Slip op. at 20.

Finally, California law does not prohibit use of vacation pay wages when a partial day absence is for less than four hours. Slip op. at 21-22.

The opinion is available here.

Choate v. Celite Corporation: Waiver of Vacation Pay in CBA Must Be "Clear and Unmistakable"

In Choate v. Celite Corporation (5/2/13) --- Cal.App.4th ---, the Court of Appeal held that a collective bargaining agreement abrogates an employee's statutory right under Labor Code section 227.3 to immediate payment for vested vacation time "only if the agreement clearly and unmistakably waives that right."  

I will not go through the facts at any length.  The plaintiffs worked for Celite under a collective bargaining agreement.  They alleged that Celite failed to pay them all earned vacation time promptly on termination.  Celite paid the vacation pay at issue, the plaintiffs dismissed their unfair competition claim to expedite appellate review, and the parties stipulated to class certification on the plaintiffs' claim for waiting time penalties.  

The Court of Appeal held: 

• A waiver of an employee's right to vacation pay under Labor Code section 227.3 must be "clearly and unmistakably" stated in the CBA itself.  It may not be inferred from parole evidence of mutual understanding or past practices. Slip op. at 4-7. 
• The CBA at issue did not "clearly and unmistakably" waive the employees' section 227.3 rights.  Slip op. at 7. 
• Substantial evidence did not support the trial court's finding that Celite acted "willfully" in failing to pay the employees their vacation pay and was not liable for Labor Code section 203 waiting time penalties.  Slip op. at 8-9. 
• Determining the plaintiffs' Labor Code claims did not require the court to interpret the CBA, and Section 301 of the Labor Management Relations Act (LMRA) did not preempt those claims.  Slip op. at 9-10. 

The opinion is available here.  

Bell v. HF Cox: Court of Appeal Holds That Truck Drivers Are Subject To Motor Carrier Exemption

In Bell v. H.F. Cox, Inc. (9/5/12) --- Cal.App.4th ---, truck drivers filed a class action against their employer, Cox, alleging wage and hour violations. The trial court summarily adjudicated three counts in favor of Cox, a jury found in favor of Cox on another count, and the trial court found that plaintiffs were exempt from federal overtime compensation requirements and awarded attorney fees to Cox. Plaintiffs appealed, and the Court of Appeal affirmed in part and reversed in part.

The Court affirmed the trial court's grant of summary judgment on the count for failure to pay promised vacation benefits to current employees, but reversed on the count for failure to pay vacation benefits on termination of employment. Slip op. at 9-17. First, a triable issue of fact (whether the employer pays vacation benefits from its general funds or from a separately maintained account) precluded summary judgment on ERISA grounds. Slip op. at 10-13. Because this was the trial court's sole basis for summary judgment on the claim for payment of vacation funds on separation, the Court reversed as to this count. Ibid. Second, because Labor Code section 227.3 prohibits the forfeiture of vested vacation benefits upon the termination of employment, Cox's policy of paying its drivers $500 (and later $650) per week of unused vacation time did not violate section 227.3, as applied to current employees. Slip op. at 13-17.

The Court affirmed the trial court's order denying the plaintiffs' motion to exclude certain witnesses from trial. Slip op. at 17-18. In short, the plaintiffs had asked Cox to identify witnesses, and Cox had identified "the shippers," but the plaintiffs failed to dig further, and the court properly denied the plaintiffs' motion to exclude individual representatives of "the shippers" from testifying at trial. Ibid.

The Court held that the plaintiffs were exempt from the Fair Labor Standards Act (FLSA) overtime requirements because they fell within the motor carrier exemption as employees "with respect to whom the Secretary of Transportation has power to establish qualifications and maximum hours of service pursuant to the provisions of section 31502 of Title 49." 29 U.S.C. section 213(b)(1). Slip op. at 19-24. The Court held that substantial evidence supported the trial court's finding that the drivers "reasonably could be expected to be called on to drive an interstate route," and did not discuss the more interesting issue of whether the drivers' intrastate deliveries were "part of the continuous movement of goods in interstate commerce." Slip op. at 22.

The Court rejected the plaintiffs' argument that the trial court committed instructional error. Slip op. at 24-27. "Because plaintiffs have not shown that any particular proposed instruction was proper, we conclude that they have shown no error in the denial of any of their proposed instructions." Slip op. at 26.

Finally, the Court reversed the award of attorney fees to Cox because its reversal in part "compels the conclusion that there is no prevailing party at this time and therefore no basis for an attorney fee award under section 218.5." Slip op. at 28.

The opinion is available here. 

Paton v. Advanced Micro Devices: Sabbatical Leave May Be Protected as Vacation under Labor Code 227.3

In Paton v. Advanced Mirco Devices, Inc. (8/5/11) 197 Cal.App.4th 1505, a former employee brought a class action against his former employer, alleging that he was entitled to be paid for an eight-week sabbatical that he had earned but not used at time he resigned. The trial court (Santa Clara Superior, Judge Jack Komar) granted the employer's motion for summary judgment, and the employee appealed. The Court of Appeal reversed, holding that it could not determine as a matter of law that the sabbatical leave was not vested vacation pay subject to Cal. Labor Code section 227.3.

The Court first asked, "What is vacation?"

It is paid time off that accrues in proportion to the length of the employee's service, is not conditioned upon the occurrence of any event or condition, and usually does not impose conditions upon the employee's use of the time away from work. (See DLSE Opn. Letter [as of Jul. 26, 2011] “Leave time which is provided without condition is presumed to be vacation no matter what name is given to the leave.”)

Slip op. at 7.

In contrast to regular vacation, sabbatical leave, as it originated in the academic setting, is a conditional type of paid leave. The dictionary definition of “sabbatical” is “a period of paid leave granted to a university teacher for study or travel (traditionally one year for every seven years worked).” (Concise Oxford English Dict. (11th ed.2004) p. 1262, col. 2.) Sabbaticals are usually granted for one academic semester or for a full year. During the sabbatical the faculty member engages in a project intended to promote his or her professional development and, in turn, enhance the institution's status as an institute of higher learning. (Boening & Miller, Research and Literature on the Sabbatical Leave: A Review (Univ. of Ala., Higher Education Administration Program 1997), available at [as of Jul. 26, 2011].) Sabbaticals are granted with the expectation that the faculty member will return to the employing institution and put his or her newly acquired expertise to use there after the sabbatical is over. (Ibid.) Thus, traditional sabbaticals are like special-purpose, conditional types of leave in that the employee is expected to use time for the identified purpose. They also have an incentive component to the extent they encourage the employee to continue in the service of the institution that provides the opportunity for professional growth.

Ibid. Adopting three tests promulgated by the DLSE and adding a fourth test, the Court held that sabbatical leave differs from vacation as follows:

First, leave that is granted infrequently tends to support the assertion that the leave is intended to retain experienced employees who have devoted a significant period of service to the employer [and thus is sabbatical, not vacation]....

Second, the length of the leave should be adequate to achieve the employer's purpose. Since we are concerned here with unconditional sabbaticals given for the purpose of reenergizing the employee then, as the Labor Commissioner suggested, the length of the leave should be longer than that “normally” offered as vacation. Since regular vacation time may be used for rest, a sabbatical ought to provide the extended time off work that regular vacation does not.

Third, a legitimate sabbatical will always be granted in addition to regular vacation. And this point carries more weight when the regular vacation program is comparable in length to that offered by other employers in the relevant market. Because an employer could offer a minimal vacation plan and reward senior staff with sabbaticals as a way to avoid the financial liability of a more generous vacation plan, the employer's regular vacation policy should be comparable to the average vacation benefit offered in the relevant market.

A fourth factor is one that is implicit in the DLSE test but is not called out specifically. Since a sabbatical is designed to retain valued employees, then a legitimate sabbatical program should incorporate some feature that demonstrates that the employee taking the sabbatical is expected to return to work for the employer after the leave is over.

As to the nature of the employee to whom the sabbatical is offered, we are not persuaded that employers must limit sabbaticals to upper management or professional employees. Nor does it seem necessary to preclude offering sabbaticals to all employees, or to all employees in a class. The fundamental question is whether the leave is compensation earned over the course of the employment, the enjoyment of which is deferred, or whether the leave is intended to retain the most experienced or valued employees and to enhance their future service to the employer. The rank or classification of the employee to whom the sabbatical is offered may or may not be relevant to that question. Indeed, any number of other factors could apply as well as the four we have set forth above. As the Labor Commissioner suggested when first confronting the question, “The point is that each case will have to be decided on its own facts.”

Slip op. at 9. The Court found the record inconclusive and thus reversed the order granting summary judgment.

Although the underlying facts, such as they are, are essentially undisputed, the ultimate fact to be determined is defendant's purpose in establishing its sabbatical policy. That is the central fact in dispute and the record before us does not resolve it conclusively. While there are facts to support a finding that the sabbatical was intended as incentive to induce experienced employees to continue working for defendant and increase their productivity or creativity upon return to work, reasonable minds could find, instead, that the leave was actually intended as additional vacation for longer term employees.

Slip op. at 11. The opinion is available here.

Supreme Court Announces Oral Argument in Arbitration Matter

The California Supreme Court will hear oral argument in Sonic-Calabasas A, Inc. v. Moreno on December 8, 2010, at 9:00 a.m., in Los Angeles. Sonic-Calabasas is represented David Reese of Fine Boggs & Perkins in Long Beach. Moreno is represented by Miles Locker and Rachel Folberg. It should be an interesting argument.

The case presents the following issues, as stated by the Court:

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 Supreme Court's docket is located here.

California Supreme Court Will Review Arbitration Decision

The California Supreme Court has granted review in Sonic-Calabasas A, Inc. v. Moreno (2009) 94 Cal.Rptr.3d 544, which held that an employee who signs an otherwise valid pre-dispute arbitration agreement may not pursue his claims for unpaid vacation pay in front of the Labor Commissioner. The Court of Appeal held that the plaintiff waived his right to a Labor Commissioner hearing, and that enforcement of the waiver was not barred by Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, or Gentry v. Superior Court (2007) 42 Cal.4th 443. The Supreme Court framed the issues to be decided 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) 552 U.S. 346, 128 S.Ct. 978, 169 L.Ed.2d 917?

The Supreme Court's docket is available here. It will be interesting to see whether the Court puts this case on track with Pearson Dental, a case discussing similar issues in the context of the Fair Employment and Housing Act.

Court of Appeal Holds That Some Employees Do Not Get Vacation

This seems evident to me, but it's surprising how many employees think that employers must provide vacation time. In Owen v. Macy’s Inc. (June 29, 2009, Second District, Div. Two), the employer had a policy that new employees would not earn vacation time during their first six months of employment. After termination, an employee alleged that this policy violated California Labor Code Section 227.3. The trial court disagreed and granted summary judgment for the employer.

The Court of Appeal affirmed:

An employer is entitled to adopt a policy specifying "the amount of vacation pay an employee is entitled to be paid as wages," depending on length of service. (Suastez v. Plastic Dress-Up Co. (1982) 31 Cal.3d 774, 783.) The law permits an employer to offer new employees no vacation time: If an express written company policy forewarns new employees that their compensation package does not include paid vacation during their initial employment, then no vacation pay is earned and none is vested. When such a policy is in place, as it is in this appeal, employees cannot claim any right to vested vacation during their initial employment, because they know in advance that they will not earn or vest vacation pay during this period. The trial court correctly determined that plaintiff was not unlawfully denied vacation pay when her employment ended.

Owen includes a good explanation of the limits on LC 227.3 and Suastez. The full text of the opinion is here.