ZB, N.A. v. Lawson, 2019 WL 4309684 (Sept. 12, 2019)
In a much-anticipated decision, the California Supreme Court definitively decided that the wage component of Labor Code section 558 (“an amount sufficient to recover underpaid wages”)[i] is not part of the civil penalty that a private citizen can recover through a representative action under the Labor Code Private Attorneys General Act of 2004 (“PAGA”)[ii] but rather a compensatory remedy only available to the Labor Commissioner (“DLSE”), as Section 558 does not create a private right of action. Thus, even though “Wages recovered pursuant to [Section 558] shall be paid to the affected employee,”[iii] the wages may only be collected through a DLSE claim. The decision overturns the holdings in Thurman v. Bayshore Transit Mgmt., Inc. (2012) 203 Cal.App.4th 1112 and its more recent progeny[iv] that the wage component is part of the PAGA civil penalty, as opposed to a separate claim for damages. In so ruling, the high court also laid waste to the argument that such damages are the type of “victim-specific relief” that could be compelled to arbitration;[v] after all, if employees cannot claim wage damages under Section 558, they cannot be compelled to arbitrate on that basis, either.
The Court began its analysis by drawing a distinction between the restitution of unpaid wages – which “were recoverable directly by employees well before the PAGA”[vi] and primarily seek to compensate employees for actual losses incurred – and civil penalties, which are “fundamentally a law enforcement action designed to protect the public and not to benefit private parties”[vii] and which are “additional to actual losses incurred.”[viii] It then reviewed the legislative history of Section 558, which reflected that the statute authorized the Labor Commissioner “to issue citations, including an assessment of civil penalties, for overtime and other workday violations.” It further analyzed the sentence construction of the clause in question (a fixed dollar amount “for each underpaid employee for each pay period for which the employee was underpaid in addition to an amount sufficient to recover underpaid wages”), finding that the better reading of the phrase “in addition to” was not that the penalty included the underpaid wages but rather that the compensation for the underpaid wages (actual losses incurred) was in addition to the civil penalty to be imposed. As the Court reasoned, payment of wages addresses the injury the employee has suffered, whereas penalties address the employer’s bad conduct.
The Court also looked to Labor Code section 1197.1, which it found analogous to Section 558 and “remarkably similar” in structure, language and purpose, for guidance on harmonizing the fixed penalty portions of Section 558(a) ($50/$100) and the wage component. The Court, reading both Code sections (which reference each other) in tandem, concluded that the citations the Labor Commissioner may issue for wage loss pursuant to Section 558 were compensatory in nature and not penalties.[ix] The finding also resolved the inconsistency created by Zakaryan, which held that 75% of the wage portion had to go the state despite the statute’s clear language directing such payments to go directly to the affected employee.[x]
The Court further noted that the “vast majority” of civil penalties in the Labor Code are “fixed, arbitrary amount[s],”[xi] suggesting that civil penalties “consist primarily of dollar-denominated fines,” as opposed to the statute’s unpredictable wage component.
California Supreme Court Readdresses Unconscionability Analysis for Wage Disputes.
OTO, L.L.C. v. Kho¸ 2019 WL 4065524, (Aug. 29, 2019)
The California Supreme Court addressed anew the unconscionability of arbitration agreements that waive statutory rights to “Berman hearings,” expedited DLSE wage dispute hearings with no discovery process and to which technical rules of evidence do not apply (all relevant evidence is admitted). In Sonic-Calabasas A, Inc. v. Moreno (2011) 51 Cal.4th 659 (Sonic I), California concluded such agreements were categorically unconscionable, as requiring employees to waive their Berman rights as a condition of employment violated public policy and was substantively unconscionable (i.e., decidedly unfair), but it did not completely invalidate such agreements, holding that a party that was not satisfied with the outcome of the Berman hearing could then compel arbitration. The United States Supreme Court invalidated that decision and remanded in the wake of AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333. Thus, in Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109 (Sonic II), the California high court held that Sonic I’s categorical rule was preempted by the Federal Arbitration Act (“FAA”) and that arbitration agreements of wage disputes were enforceable if they made arbitration affordable, but that waiver of Berman hearings, though not dispositive, remained a significant factor in the unconscionability analysis. The Court initially granted review in this case to decide whether an arbitration agreement with terms akin to civil litigation was properly affordable and made arbitration no more complex than the Berman hearing process. Along the way, however, a nearly unanimous Court found such a high degree of procedural unconscionability that it declared the agreement unenforceable and punted on the original issue.
The majority agreed with the Court of Appeal that the facts of this case showed an extraordinarily high degree of procedural unconscionability – particularly oppression, although also surprise, noting the agreement also was “a paragon of prolixity” and “visually impenetrable” – but parted ways with the appellate court in finding that, given the high level of procedural unconscionability, “even a relatively low degree of substantive unconscionability” could render the agreement unenforceable. While the Court acknowledged that arbitral schemes based on civil litigation are not per se unfair, it noted that such a process can be “costly, complex, and time-consuming,” which, the Court suggested, might be better suited for resolving wrongful termination actions rather than wage and hour disputes. The Court ultimately concluded that because of the coercive nature in which Defendant obtained Plaintiff’s signature (rushing him through the process, not explaining the dense legal terminology, not affording him the opportunity to consult with an attorney, and not presenting him the contract in his native language), it was not clear that Plaintiff understood what he was giving up or getting in return and therefore the agreement was sufficiently one-sided as to render it unconscionable.
Meal Periods for 24-hour Attendants Must Be At Least 30 Minutes Long, Even if On-Duty.
L’Chaim House, Inc. v. DLSE, 38 Cal.App.5th 141 (July 31, 2019)
Subdivision 11(A) of the Industrial Welfare Commission (“IWC”) Wage Order No. 5-2001 mandates an employer provide its employees uninterrupted meal periods of not less than 30 minutes but provides for an “on duty” meal period “when the nature of the work prevents an employee from being relieved of all duty and when by written agreement between the parties an on-the-job paid meal period is agreed to” that is revocable at any time. Subdivision 11(E) creates an exception to subdivision 11(A), providing that in residential care facilities for the elderly, blend or developmentally disabled, employees may be required to work an on-duty meal period when necessary if one of two criteria is met.
Defendant and its owner operated 24-hour residential care homes for seniors and failed to provide their employees meal periods of at least 30 minutes when they provided on-duty meal periods. Defendant argued subdivision 11(A) “contemplate[s] instances where an employee’s meal period may be less than 30 minutes,” and therefore it either does not extend to employees “until a full uninterrupted 30 minutes is realized” or it “require[s] a tolling of the 30-minute meal period while the employee carries out some of his or her duties.” The Court of Appeal called this “a fundamental misreading of subdivision 11,” rebuking Defendant for misunderstanding that “an on-duty meal period is not the functional equivalent of no meal period at all.” Instead, the Court held, “On-duty meal periods are an intermediate category requiring more of employees than off-duty meal periods but less of employees than their normal work.” The appellate court upheld the trial court’s ruling that even if employees are not entitled to a meal period that is free of interruptions they still must be “afforded 30 minutes of limited duty enabling them to eat their meal in peace.”
Conversion Tort Not a Proper Remedy for Wage Loss.
Voris v. Lampert, 446 P.3d 284 (Aug. 15, 2019)
The California Supreme Court upheld the Court of Appeal’s decision in concluding that the tort of conversion is not a cognizable claim for failure to pay wages. The high court acknowledged that prompt and complete payment of wages has long been the public policy of this state.[xii] However, it also cited long-standing authority that “money cannot be the subject of an action for conversion unless a specific sum capable of identification is involved.”[xiii] The Court enumerated certain examples of conversion involving misappropriation or commingling of funds, or misapplying specific funds intended for another, generally in the sales or real estate transactional context, or even where a client fails to pay his attorney from settlement proceeds despite the attorney’s lien on the settlement. Yet it distinguished those scenarios from unlawfully withholding wages, reasoning that unpaid wages are to be paid from funds owned by the employer (or cannot be paid because the funds do not exist at all) and therefore the employee has never had ownership over the unpaid monies.
At its essence, the Voris majority simply was uncomfortable blurring the common law distinction between contract claims and tort claims. It reasoned that a conversion claim was inappropriate because it is a strict liability tort that merely requires intent to deprive a plaintiff of his or her rightful possession, as opposed to a showing of bad faith, knowledge, or negligence, a standard which the Court was uncomfortable imposing on wage claims. To reach its decision, the Court reinterpreted Cortez v. Purolator Air Filtration Prods. Co. (2000) 23 Cal.4th 163, 178, which held that wages become an employee’s property when earned, limiting the Cortez decision to a theory of equitable conversion for the purposes of a restitution award under the Unfair Competition Law (“UCL,” Business and Professions Code 17200, et seq.).
In a scathing dissent, Justice Cuéllar, joined by Justice Liu, attacked the majority opinion for being inconsistent and not well-reasoned. Referencing DIR v. UI Video Stores, Inc. (1997) 55 Cal.App.4th 1084, he noted the paradox that the DLSE can bring a conversion action for unpaid wages on behalf of affected employees but those same workers now do not have the same remedy available to them to recover the wages they have already earned. He also assailed the majority’s willingness to apply a conversion theory to Plaintiff’s claims for unpaid stocks but not to his claims for unpaid wages, even though the tort is an action that applies to “every species of personal property.” And he disagreed with the majority’s opinion that conversion was not “the right fit for the wrong” or “an appropriate remedy,” citing numerous cases from 2007 to 2015 supporting a conversion claims for wages, from trial courts to the California Supreme Court.
Employee Status is Not a Jurisdictional Bar to Bringing a FLSA Collective Action.
Tijerino v. Stetson Desert Project, 2019 WL 3849570 (9th Cir. Aug. 16, 2019)
Plaintiffs, a group of exotic dancers, brought an action for violations of the Fair Labor Standards Act of 1938 (“FLSA”) and Arizona state wage laws in federal court. The district court denied Plaintiff’s motion to certify an opt-in class and dismissed the case for lack of subject-matter jurisdiction after finding the dancers were independent contractors and not employees, reasoning that only employees could be parties to an FLSA action pursuant to Section 216(b). The United States Court of Appeals for the Ninth Circuit, relying on Arbaught v. Y & H Corp. (2006) 546 U.S. 500,[xiv] held the district court erred because the dancers’ employment status was a merits-based determination, not a jurisdictional issue; the limitation on the scope of Section 216(b) could only be considered jurisdictional if Congress clearly had indicated an intent for it to be jurisdictional, which, in the case of the FLSA, it did not. The Ninth Circuit also noted that courts historically have not treated the employment status provisions of Sections 203(e) and 216(b) as jurisdictional. The appellate court further found that Plaintiffs’ claims were not so lacking in merit as to justify dismissal for lack of subject-matter jurisdiction on that basis, either.
Applying an FLSA Standard, “Duty-Integrated” Walk Time is Compensable for California State Employees, “Entry-Exit” Walk Time is Not.
Stoetzl, et al. v. Dept. of Human Resources, 7 Cal.5th 718 (July 1, 2019)
Plaintiffs represented a certified class of state correctional employees claiming unpaid time for pre- and post-work activities, which the California Supreme Court labeled “walk time” (even though the activities encompassed more than mere walking). The high court differentiated between “entry-exit” walk time, which it described as the time an employee spent after arriving at the prison’s outermost gate but before beginning her or his first work-related activity (and a similar time upon leaving the facility), and “duty-integrated” walk time, defined as the time the employee spends after beginning her or his first activity but before arriving at her or his assigned work post. The Supreme Court found that duty-integrated time was contemplated by the state’s Pay Scale Manual (“Manual”) as adopted by California’s Department of Human Resources (“CalHR”) and by additional CalHR regulations,[xv] whereas entry-exit time was not defined as compensable time in the Manual (which incorporates the FLSA’s narrower concept of compensable time) and therefore was excluded from coverage.
The majority acknowledged Wage Order No. 4 governs the type of employees at issue, and that the 2001 amendment expressly applies the wage order’s minimum wage provisions (but not overtime compensation) to rank-and-file employees of the state government. The Court further noted that Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575 (finding compulsory travel time on a company’s bus qualified as “hours worked” under the wage order) arguably applied to both types of walk time contemplated here. However, the high court chose the Manual over a wage order, a different regulatory scheme that has been given great deference and force of statutory law by the Supreme Court,[xvi] reasoning that harmonizing wage orders with other regulatory schemes “does not mean that [IWC] wage orders must invariably prevail over the regulations of other agencies.” Indeed, the high court found, “the provisions of the Pay Scale Manual at issue here are best characterized as quasi-legislative rules.” The Court held that the IWC adopted “general background rules” for all employees, whereas CalHR was delegated the more specific authority of establishing salary ranges for state employees and adopting FLSA overtime criteria, and to the extent the specific CalHR standards conflict with the more generally applicable standards of the wage order the Manual should prevail.
Justice Liu, joined by Justice Cuéllar, dissented, lamenting, “Today’s opinion takes insufficient account of our long history of deference to IWC wage orders and unnecessarily suggests that the Legislature’s delegation of authority to CalHR is enough to afford its manual the same dignity as IWC wage orders.” Justice Liu referred to the Court’s discussion on this issue as mere dictum, but it remains to be seen how far-reaching the effects of this decision will be on the IWC wage orders moving forward.
[i] Cal. Lab. Code § 558(a)(1)-(2).
[ii] Cal. Lab. Code § 2698, et seq.
[iii] Cal. Lab. Code § 558(a)(3).
[iv] See Atempa, et al. v. Pedrazzani (2018) 27 Cal.App.5th 809, Carrington v. Starbucks Corp (2018) 30 Cal.App.5th 504, Zakaryan v. The Men’s Wearhouse, Inc. (2019) 33 Cal.App.5th 659, and Mejia v. Merchants Bldg Maintenance, LLC, 38 CalApp5th 723.
[v] Iskanian v. CLS Transp. Los Angeles, LLC (2014) 59 Cal.4th 348, 386-388.
[vi] Iskanian, supra, 59 Cal.4th at 381.
[vii] Arias v. Super. Ct. (2009) 46 Cal.4th 969, 986.
[viii] Murphy v. Kenneth Cole Prods., Inc. (2007) 40 Cal.4th 1094, 1104.
[ix] See Cal. Lab. Code § 1197.1(c)(3) (petitioners for a writ of mandate must post a bond “equal to the amount of any…overtime compensation…due and owing as determined pursuant to subdivision (b) of Section 558…The bond amount shall not include amounts for penalties.”
[x] Zakaryan, supra, 33 Cal.App.5th at 673-674.
[xi] Murphy, supra, 40 Cal.4th at 1107.
[xii] In re Trombley (1948) 31 Cal.2d 801, 809-810.
[xiii] Haigler v. Donnelly (1941) 18 Cal.2d 674, 681.
[xiv] “[W]hen Congress does not rank a statutory limitation on coverage as jurisdictional, courts should treat the restriction as nonjurisdictional in character.” Id. at 515-516.
[xv] See Gov’t Code §§ 19826, 19843, 19844, 19845, 19849.
[xvi] Brinker Rest. Grp. v. Super. Ct. (2012) 53 Cal.4th 1004, 1027.