Wage and Hour Case Notes

by

Wage and Hour Case Notes

By Leonard H. Sansanowicz

Leonard H. Sansanowicz is the principal of Sansanowicz Law Group, P.C. and represents employees in all aspects of employment law. He is a member of the Executive Board of the California Lawyers Association, as well as the Executive Committee of the Labor and Employment Section of the Los Angeles County Bar Association. He can be contacted at: leonard@law-slg.com.

Only Fixed Amounts, Not Wage Component, Comprise 558 PAGA Penalty

ZB, N.A. v. Lawson, 8 Cal. 5th 175 (2019)

In a much-anticipated decision, the California Supreme Court definitively decided that the wage component of Labor Code § 558 ("an amount sufficient to recover underpaid wages")1 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).2 Rather, it is a compensatory remedy only available to the Labor Commissioner (DLSE), because § 558 does not create a private right of action. Thus, even though "[w]ages recovered pursuant to [§ 558] shall be paid to the affected employee,"3 the wages may only be collected through a DLSE claim. The decision overturns the court of appeal’s decision in Thurman v. Bayshore Transit Mgmt., Inc. (2012) 203 Cal. App. 4th 1112 and its recent progeny4 holding that the wage component is part of the PAGA civil penalty, as opposed to a separate claim for damages. In so ruling, the court also laid waste to the argument that such damages are the type of "victim-specific relief" that could be compelled to arbitration;5 after all, if employees cannot claim wage damages under § 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,"6 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,"7 and which are "additional to actual losses incurred."8 The court then reviewed the legislative history of § 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." The court found 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 § 1197.1 for guidance on harmonizing the fixed penalty portions of § 558(a) ($50/$100) and the wage component. The court found that § 1197.1 was analogous to § 558, and "remarkably similar" in structure, language, and purpose. The court, reading both sections in tandem, concluded that the citations the Labor Commissioner may issue for wage loss pursuant to § 558 were compensatory in nature and not penalties.9 This finding resolved the inconsistency created by Zakaryan v. The Men’s Wearhouse, Inc.10, which held that 75% of the wage portion had to go the State of California despite the statute’s clear language directing such payments to go directly to the affected employee.11

The court also noted that the "vast majority" of civil penalties in the Labor Code are "fixed, arbitrary amount[s],"12 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, 8 Cal. 5th 111 (2019)

[Page 19]

In OTO, L.L.C., the California Supreme Court once again addressed the unconscionability of arbitration agreements that waive statutory rights to "Berman hearings" and expedited DLSE wage dispute hearings, which often benefit workers by, for example, dispensing with the formal rules of discovery or evidence.13 In Sonic-Calabasas A, Inc. v. Moreno (2011) 51 Cal. 4th 659 (Sonic I), the California Supreme Court held that such agreements were categorically unconscionable because requiring employees to waive their Berman rights as a condition of employment violated public policy and was substantively unconscionable (i.e., decidedly unfair). However, the court did not completely invalidate these agreements, instead 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 Sonic I and remanded in the wake of its decision in AT&T Mobility LLC v. Concepcion.14 Thus, in Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal. 4th 1109 (Sonic II), the California Supreme 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. Further, that waiver of Berman hearings, though not dispositive, remains a significant factor in the unconscionability analysis. The court initially granted review in OTO, L.L.C., 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 the case showed an extraordinarily high degree of procedural unconscionability, particularly oppression. Indeed, the supreme court noted the agreement was "a paragon of prolixity" and "visually impenetrable." The court, however, deviated from the court of appeal and found 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 circumstances in which the defendant obtained the 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 the plaintiff understood what he was giving up or getting in return and, therefore, the agreement was sufficiently one-sided so 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 (2019)

Subdivision 11(A) of the Industrial Welfare Commission (IWC) Wage Order No. 5-2001 mandates that an employer provide its employees uninterrupted meal periods of not less than 30 minutes. It also 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." Subdivision 11(E) creates an exception to subdivision 11(A), providing that in residential care facilities for the elderly, blind, or developmentally disabled, employees may be required to work an on-duty meal period when necessary if one of two criteria is met.

In L’Chaim House, Inc., the 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 that subdivision 11(A) "contemplate[s] instances where an employee’s meal period may be less than 30 minutes," and thus 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 the defendant for misunderstanding that "an on-duty meal period is not the functional equivalent of no meal period at all." The court of appeal held that "[o]n-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 court of appeal 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, 7 Cal. 5th 1141 (2019)

[Page 20]

In Voris, 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 court acknowledged that prompt and complete payment of wages has long been the public policy of this state.15 However, it also cited longstanding authority that "money cannot be the subject of an action for conversion unless a specific sum capable of identification is involved."16 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.17, 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.18

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.19, 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 the 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 an FLSA Collective Action

Tijerino v. Stetson Desert Project, LLC, 934 F.3d 968 (9th Cir. 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 the plaintiffs’ 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 29 U.S.C. § 216(b). The United States Court of Appeals for the Ninth Circuit, relying on Arbaught v. Y & H Corp., 546 U.S. 500 (2006),20 held that the district court erred because the dancers’ employment status was a merits-based determination, not a jurisdictional issue; the limitation on the scope of § 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 had not. The Ninth Circuit also noted that courts historically have not treated the employment status provisions of §§ 203(e) and 216(b) as jurisdictional. The Ninth Circuit further found that the plaintiffs’ claims were not so lacking in merit as to justify dismissal for lack of subject-matter jurisdiction on that basis, either.

"Duty-Integrated" Walk Time Is Compensable for California State Employees; "Entry-Exit" Walk Time Is Not

Stoetzl v. Department of Human Resources, 7 Cal. 5th 718 (2019)

Plaintiffs represented a certified class of state correctional employees claiming unpaid time for pre-work and post-work activities, which the California Supreme Court labeled "walk time" (even though the activities encompassed more than mere walking). The 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,21 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.

[Page 21]

The majority acknowledged that Wage Order No. 4 governed the type of employees at issue, and that the 2001 amendment expressly applied 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.22, which found that 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 in this case. However, the court chose the Manual over the wage order, a different regulatory scheme that has been given great deference and force of statutory law by the California Supreme Court,23 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 court found "the provisions of the Pay Scale Manual at issue here are best characterized as quasi-legislative rules."24 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, "[t]oday’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.

[Page 22]

——–

Notes:

1. Cal. Lab. Code § 558(a)(1)-(2).

2. Cal. Lab. Code §§ 2698, et seq.

3. Cal. Lab. Code § 558(a)(3).

4. See Atempa v. Pedrazzani, 27 Cal. App. 5th 809 (2018), Carrington v. Starbucks Corp., 30 Cal. App. 5th 504 (2018), Zakaryan v. The Men’s Wearhouse, Inc., 33 Cal. App. 5th 659 (2019), and Mejia v. Merchants Bldg. Maintenance, LLC, 38 Cal. App. 5th 723 (2019).

5. Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348, 386-88 (2014).

6. Id. at 381.

7. Arias v. Superior Court, 46 Cal. 4th 969, 986 (2009).

8. Murphy v. Kenneth Cole Prods., Inc., 40 Cal. 4th 1094, 1104 (2007).

9. 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.").

10. Zakaryan v. The Men’s Wearhouse, Inc., 33 Cal. App. 5th 659 (2019).

11. Id. at 673-74.

12. Murphy, supra n.8, 40 Cal. 4th at 1107.

13. See, e.g., DLSE’s Policies and Procedures for Wage Claim Processing, available at: https://www.dir.ca.gov/dlse/Policies.htm.

14. 563 U.S. 333 (2011).

15. In re Trombley, 31 Cal. 2d 801, 809-10 (1948).

16. Haigler v. Donnelly, 18 Cal. 2d 674, 681 (1941).

17. 23 Cal. 4th 163, 178.

18. Cal. Bus. & Prof. Code §§ 17200, et seq.

19. 55 Cal. App. 4th 1084 (1997).

20. "[W]hen Congress does not rank a statutory limitation on coverage as jurisdictional, courts should treat the restriction as nonjurisdictional in character." Arbaught v. Y & H Corp., 546 U.S. 500, 515-16 (2006).

21. See Gov’t Code §§ 19826, 19843, 19844, 19845, 19849.

22. 22 Cal. 4th 575 (2000).

23. Brinker Restaurant Grp. v. Superior Court, 53 Cal. 4th 1004, 1027 (2012).

24. Stoetzl v. Department of Human Resources, 7 Cal. 5th 718, 745 (2019).