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.

Hodge v. AON: Court of Appeal Holds Against Claims Adjustors in Long-Running Misclassification Battle

In Hodge v. Superior Court (AON Insurance Services) (2006) 145 Cal.App.4th 278, the Court of Appeal held that the defendant in a wage case has no right to jury trial when the plaintiffs dismiss their Labor Code claims and proceed only with a claim under the Unfair Competition Law.

On remand, the Hodge plaintiffs tried their adjuster misclassification case to a judge (Hon. Ronald M. Sabraw, Ret.), who held that defendants did not violate the UCL in classifying the class members as exempt employees.

The Court of Appeal affirmed:

Hodge contends the judgment in his current case must be reversed because the facts surrounding his employment, when examined in light of the administrative/production dichotomy” (see generally Bell II, at pp. 826-827), support only one conclusion as a matter of law: he was not an “administrative” employee as defined by Wage Order No. 4. After hearing the evidence, the trial court found “the test announced in Bell II [is not] the appropriate standard for determining the exempt/non-exempt status of Plaintiffs.” We agree with the trial court that the Bell II dichotomy is not workable under these facts and further find no error in the trial court's decision.

Hodge v. AON Insurance Services (2/24/11) --- Cal.App.4th ----, 2011 WL 653646.

I will not discuss the holding at length, because I believe that the Supreme Court is very likely to grant review and hold pending its decision in Harris v. Superior Court, which raises the same issue and has been pending in the Supreme Court for approximately two years.

The opinion is available here.

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.

Wherry v. Award: Court of Appeal Invalidates Arbitration Clause

In Wherry v. Award, Inc. (2/23/11) --- Cal.App.4th ----, 2011 WL 635327, the Court of Appeal affirmed a trial court (Orange County Superior, Judge Nakamura) order denying petition to compel arbitration of FEHA claims. The Court found procedural unconscionability because the plaintiff/employee had no meaningful opportunity to negotiate the agreement's terms:

Both plaintiffs filed declarations stating that they were given the agreement when they first contracted with defendants and were told they were required to sign it if they wanted to work for defendants. No one described the agreement's contents and plaintiffs were given but a few minutes to review and sign it, without any time to ask questions. Further they were never given a copy of the document.

Further, contrary to defendants' claim, the fact there were other real estate firms where plaintiffs could have contracted to work does not necessarily vitiate the unconscionability, especially given the fact that as a CAR form, it is highly likely most if not all other brokerage firms would be using it. It merely means additional procedural unconscionability or a greater degree of substantive unconscionability must be shown.

Slip op. at 2-3.

The Court found substantive unconscionability in that it allowed the arbitrator to impose costs, including the arbitration fees, on the losing party. The defendant argued that the Court should red-line this term out of the agreement, but it declined to do so. Slip op. at 4. In addition, the Court found the agreement's 180-day limitations period unconscionable. Slip op. at 4.

Finally, the Court declined to sever the unconscionable provisions from the agreement, finding that the agreement was "rife with unconscionability." Slip op. at 5.

The opinion is available here.

Sonic-Calabasas A, Inc. v. Moreno: Supreme Court to Issue Decision in Arbitration Matter

The Supreme Court on Thursday will announce its decision in Sonic-Calabasas A, Inc. v. Moreno, which raises the following issues:

(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?

Safaie v. Jacuzzi: Plaintiff Cannot Renew Motion to Certify After Order Denying Cert Becomes Final

In Safaie v. Jacuzzi Whirlpool Bath, Inc. (2/22/11) --- Cal.App.4th ----, 2011 WL 213494, the plaintiff, Safaie, appealed from an order denying his motion to recertify a class of individuals who purchased bath tubs from defendant.

Safaie alleged that the defendant misrepresented the horsepower of its whirlpool bath motors. The trial court (San Diego Superior, Judge Hayes) originally certified, then decertified the class. Safaie appealed from the decertification order, and the Court of Appeal affirmed. Safaie did not seek review in the Supreme Court.

Shortly thereafter, the Supreme Court then issued its decision in In re Tobacco II Cases (2009) 46 Cal.4th 298, which addressed standing issues in Unfair Competition cases after passage of Prop. 64. We blogged Tobacco II here and here.

Safaie then renewed his certification motion. The trial court denied the motion, and Safaie appealed.

The Court of Appeal affirmed. It held that Safaie could not appeal the order denying his recertification motion:

Unlike a denial of a class certification motion, the order denying recertification did not “end” the class case or dispose of the class allegations. Instead, when Safaie moved to recertify the class in June 2009, the class allegations had already been removed from the case (based on the trial court's decertification order and this court's affirmance of the order), and Safaie was the sole plaintiff in an individual action. Thus, the effect of the challenged order was not to dismiss the action as to the members of the class, but it was to deny Safaie's request to insert class allegations back into his individual action. A denial of this request did not serve as a death knell to Safaie's individual action because the complaint already existed as an individual action. Safaie's motion to recertify the class was essentially a request to reconsider the court's prior order based on asserted new law. Generally, a denial of a reconsideration motion is not appealable.

Slip op. at 4.

Next considering his appeal as a writ petition, the Court held that the trial court did not abuse its discretion in denying the motion.

Safaie contends the court erred in denying his motion to recertify the class. We determine the court properly denied Safaie's motion based on the “state law policy” rule that a party is not entitled to bring a renewed motion for class certification after a court has issued a final order denying certification. We thus do not reach Safaie's challenges to the court's alternate ground for denying the motion based on the law of the case doctrine.

Slip op. at 5.

The opinion is available here.

Price v. Starbucks: Court of Appeal Issues Decision on Check Stubs, Reporting Time Pay, and Waiting Time Penalties

Price v. Starbucks Corporation (2/17/11) --- Cal.App.4th ----, 2011 WL 169177, addresses a number of recurring issues in wage cases. This may be one of those cases where bad facts help make bad law, as the plaintiff was employed for only about three weeks before being fired and filing suit.

Price was an entry-level employee at Starbucks from October 22, 2007 through November 16, 2007, when he was terminated. Price was scheduled to work November 11, but he called the store and informed a coworker that he was unable to work. Price called the store later that day, and he was informed by a coworker that he was not scheduled to work for the rest of the week. Price's coworker told him to call the branch manager regarding his schedule. The next day, the branch manager left Price a voicemail message stating that Price should “come to the store on November 16, 2007, to have a talk.”

On November 16, Price arrived at the store, and the branch manager informed Price that he “was letting him go.” Price received two paychecks; one paycheck for the work he performed up until November 10, and another paycheck for two hours of reporting time pay for the meeting on November 16. The earning statements attached to these paychecks are exhibits to the complaint.

Price, on behalf of himself and a putative class, alleged causes of action for (1) violation of Labor Code section 203 seeking continuing wages for failure to timely pay wages upon discharge, alleging he was fired on November 11 when he was taken off the schedule; (2) violation of sections 204 and 1198 for failure to pay all reporting time pay due him for the November 16th meeting; (3) violation of section 226, subdivision (a) for non-compliant wage statements; and (4) violation of the unfair competition law (UCL) ( Bus. & Prof.Code, § 17200) based upon these alleged Labor Code violations. Price also alleged a fifth cause of action to recover civil penalties under the Private Attorneys General Act (PAGA) in the Labor Code (§ 2699).

First, the Court attempted to clarify the requirement that a plaintiff suffer injury in order to recover penalties under Labor Code section 226.

The injury requirement in section 226, subdivision (e), cannot be satisfied simply if one of the nine itemized requirements in section 226, subdivision (a) is missing from a wage statement. (See Jaimez v. Daiohs USA, Inc. (2010) 181 Cal.App.4th 1286, 1306, 105 Cal.Rptr.3d 443; see also Elliot v. Spherion Pacific Work, LLC (C.D.Cal.2008) 572 F.Supp.2d 1169, 1181.) By employing the term “ ‘suffering injury,’ “ the statute requires that an employee may not recover for violations of section 226, subdivision (a) unless he or she demonstrates an injury arising from the missing information. (Jaimez v. Daiohs USA, Inc., supra, at pp. 1306-1307, 105 Cal.Rptr.3d 443.) Thus, the “deprivation of that information,” standing alone is not a cognizable injury. (Ibid.)

Price alleged a “mathematical injury,” that required him to add up his overtime and regular hours and to ensure his overtime rate of pay is correct, but the allegedly missing information from Price's wage statement is not the type of mathematical injury that requires “ ‘computations to analyze whether the wages paid in fact compensated [him] for all hours worked.’ [Citation.]” (Jaimez v. Daiohs USA, Inc., supra, 181 Cal.App.4th at p. 1306, 105 Cal.Rptr.3d 443.) Price only speculates on the “possible underpayment of wages due,” which is not evident from the wage statements attached to the complaint. Price's complaint, therefore, is distinguishable from the plaintiffs in the cases he relies on that sufficiently alleged (and presented evidence) of an injury arising from inaccurate or incomplete wage statements, which required those plaintiffs to engage in discovery and mathematical computations to reconstruct time records to determine if they were correctly paid. (See, e.g., Wang v. Chinese Daily News, Inc. (C.D.Cal.2006) 435 F.Supp.2d 1042, 1050, affd on other grounds (9th Cir.2010) 623 F.3d 743 [wage statements inaccurately listed hours worked and omitted hourly wage]; see also Ortega v. J.B. Hunt Transport, Inc. (C.D.Cal.2009) 258 F.R.D. 361, 373-374 [wage statements failed to include hours worked and applicable hourly rate]; Perez v. Safety-Kleen Systems, Inc. (N.D.Cal.2008) 253 F.R.D. 508, 517 [inaccurate hours on wage statements]; Jaimez v. Daiohs USA, Inc., supra, at pp. 1305-1306, 105 Cal.Rptr.3d 443 [wage statement listed “total hours paid,” which left employees unable to determine if they were paid for all hours worked]; Cicairos v. Summit Logistics, Inc. (2005) 133 Cal.App.4th 949, 956, 961, 35 Cal.Rptr.3d 243 [inaccurate hours on wage statements].) Price's simple math is not based upon any allegation that the information is inaccurate.

Slip op. at 3-4.

Next, the Court affirmed the trial court's decision that the plaintiff was timely paid his earned wages:

Price seeks additional pay under the theory he should have been paid his final paycheck on November 11, 2007, when he was taken off the schedule, instead of November 16, 2007, when he was fired. We find no abuse of discretion in striking the allegations in the complaint to support this theory.

***

We reject Price's contention that his removal from the schedule was an indefinite layoff. This legal theory was not alleged and contradicts the allegations that he was terminated on November 16, 2007.

Slip op. at 4 (emphasis added).

Finally, the Court rejected the plaintiff's argument that he should have been paid 3.3 hours of reporting time pay for the day that he was fired.

Section 5(A) of Wage Order Number 5-2001 states: “Each workday an employee is required to report for work and does report, but is not put to work or is furnished less than half said employee's usual or scheduled day's work, the employee shall be paid for half the usual or scheduled day's work, but in no event for less than two (2) hours nor more than four (4) hours, at the employee's regular rate of pay, which shall not be less than the minimum wage.” (Cal.Code Regs., tit. 8, § 11050, subd. 5(A).)

The use of the disjunctive “or” in this regulation, is used in the ordinary sense, suggesting alternatives. If an employee is required to work, reports to work, and is not put to work or does not work half of the employees' usual or scheduled day's work, the employee is paid a half-shift reporting wage not to exceed four hours. (Cal.Code Regs ., tit. 8, § 11050, subd. 5(A).) If an employee is not scheduled to work or does not expect to work his usual shift, but must report to work for a meeting, the employee falls into the regulatory category of those employees called to work on their day off for a scheduled meeting. Price was entitled to the minimum payment, which is what he received.

The DLSE states the primary purpose of the reporting time pay regulation “is to guarantee at least partial compensation for employees who report to work expecting to work a specified number of hours, and who are deprived of that amount because of inadequate scheduling or lack of proper notice by the employer.” (DLSE Operations and Procedures Manual (1989) § 10.88; see also California Manufacturers Assn. v. Industrial Welfare Com. (1980) 109 Cal.App.3d 95, 112, 167 Cal.Rptr. 203 [purpose of regulation is to ensure proper scheduling].) The reporting time pay regulation protects an employee from losing all pay because of scheduling errors.

We do not agree with Price that he is entitled to receive more than the two-hour minimum; he did not report to work with the expectation that he would work a scheduled shift, but rather was scheduled to attend a meeting for an unspecified number of hours. Nor do we agree with Price that the term “usual” in the statute means the average of his previously scheduled days' worked during his employment at Starbucks. Rather, the term “usual” refers to the employee's expectation of the hours in the customary workday, just as, in the alternative, a scheduled work day formalizes the expectation of the hours worked. During his employment, Price's expectations of hours worked was solely based upon his scheduled hours. Price was not scheduled to work on November 16, and his expectation was he had been called to work for a meeting on his day off. He did not lose any pay because of a scheduling error. He was paid for reporting to the meeting consistent with the reporting time pay regulation.

Slip op. at 5-6.

The opinion is available here.