An Orange County Superior Court ruling declaring invalid a wage order promulgated by the California Industrial Welfare Commission (IWC) has been reversed by the Fourth District Court of Appeal. In Small v. Superior Court, the trial court ruled that IWC Wage Order No. 16-2001 (wages, hours and working conditions for employees in the on-site construction industry and other occupations) was not accompanied by a sufficient statement of the basis, was not properly published, and contained an unworkable definition of “given craft,” which made the order "unreasonable, arbitrary, capricious and unfair."
The Court of Appeal found this determination to be an abuse of discretion where the Wage Order was recommended by the statutorily required two-thirds majority of wage board made up of labor and management representatives and was not found by IWC to be unsupported by substantial evidence. Upon a writ petition by the employees, supported by the IWC, the trial court has been ordered to issue a new and different order ruling (1) the statement as to the basis for Wage Order 16 is valid with regard to the items challenged; (2) whether Wage Order 16 was properly published was not within the scope of the preliminary legal issue submitted by stipulation to the court to determine, and in any event there is a presumption the IWC complied with its official duty to publish the order in the specified cities; and (3) Wage Order 16 was not unreasonable, arbitrary, capricious or unfair with respect to the definitions of “work unit” and “given craft.”
At issue is the validity of an alternative work schedule imposed by Brinderson Constructors, Inc., the defendant contractor. You can download the full text of Small here in pdf or Word format.
We've learned that mediator Carla Barboza, former EEOC attorney and formerly with Allred, Moroko & Goldberg, has started taken engagements with Littler Mendelson as an "independent investigator" of sexual harassment claims. Some of our readers are interested in knowing about such arrangements. Now you know.
Review has been denied in Sarka v. The Regents of the University of California, upholding a determination that a UCLA doctor was terminated for insubordination, rather than for advocacy on behalf of his patients. The case has been discussed at length at other employment law blogs. You can read it here in pdf or Word format. What few commentators knew about Dr. Sarka was that, in addition to his wrongful termination claim, he also brought a wage claim.
Earlier this month, the Supreme Court denied publication of a different opinion -- the Superior Court Appellate Division decision in the other Sarka v. The Regents of the University of California (Case No. 04T01682) -- in which Dr. Sarka prevailed in his effort to assert waiting time penalty claims against the Regents. The issue was whether the California Constitution, Article IX, Section 9, provided the Regents with immunity from such claims. The trial court ruled that the Regents were immune, and sustained a demurrer without leave to amend. The Appellate Division held that the Regents were not immune. You can download a pdf of the Appellate Division's opinion here. While the opinion may not be published, because the issue is truly unique to claims against the University of California, it may be of great value to litigants with similar wage claims.
Last month, the Ninth Circuit held that, for CAFA (Class Action Fairness Act) removal purposes, an amended class action cross-complaint did not “commence” a new action permitting the cross-defendant to invoke CAFA jurisdiction. Progressive West Insurance Company v. Preciado (9th Cir. 2007) __ F.3d __. The holding was interesting in two respects: first, the court found that the cross-action commenced when it was filed, not when the cross-complaint was amended, even if the amendment substantially changed the nature of the action from an individual action (not removable under CAFA) to a class action; second, the court found that CAFA only authorizes a defendant to remove the case. As a plaintiff and cross-defendant, Progressive was not authorized to remove the case under CAFA.
We've added to the rolls a blog which might have the single best blog name we've seen in quite some time: Gruntled Employees. So far, its wage and hour post list is just one entry long, but we don't limit the blogrolls to just wage and hour blogs, otherwise it would be, well, just us.
A union has standing, as assignee, to assert the claims of union members who have assigned to the union their rights to recover wages owing to them. Unions may not, however, assert claims on behalf of members who have not assigned their claims. Thus, although a laborer can sued in a representative capacity, an entity which receives a wage assignment cannot, even if the wage assignment purports to transfer the laborer's right to sue in a representative capacity on behalf of current and former employees. So said the Second District Court of Appeal in Amalgamated Transit Union, Local 1756, AFL-CIO v. Superior Court. The opinion was spit 2-1, and a petition for rehearing was denied by a 2-1 margin. On the petition for rehearing, the court made the following modifications, which, for most practitioners, tell you all you need to know about the case:
(1) An individual’s assignment of a cause of action to a third party does not carry with it the individual’s statutory right to sue in a representative capacity conferred under the Labor Code Private Attorneys General Act of 2004 (Labor Code section 2699) and under the unfair competition law (Business and Professions Code section 17203).
The assignment of a cause of action, as authorized by Civil Code sections 953 and 954, is the transfer “by the owner” of “a right to recover money or other personal property” in a judicial proceeding. An individual’s statutorily conferred right to sue on behalf of others is not itself a cause of action, or any other form of property, that is owned and therefore assignable within the meaning of the Civil Code. Accordingly, while a person may assign his own cause of action to another, the assignment does not carry with it the right to sue in a representative capacity. Nothing in Vermont Agency of Natural Resources v. United States ex rel. Stevens (2000) 529 U.S. 765 (Vermont Agency), upon which the Unions rely, supports a contrary conclusion.
In a petition for rehearing, the Unions asserted they do not rely on the language in the employee’s assignment, which states that the employee’s assignment of his right to sue to recover wages owing to him ‘includ[es] my right to sue in a representative capacity ….’ At oral argument, counsel stated this language was ‘a mistake’ and is ‘surplusage’ because, by virtue of the assignment of the employee’s cause of action or injury, the assignee-union has all the rights the employee had, including the right to sue in a representative capacity. We agree it does not matter whether or not the assignment by its terms purports to assign the right to sue in a representative capacity. We disagree, however, with the Unions’ conclusion that the assignment of the employee’s cause of action effectively transfers ‘[a]ll of the rights to which the assignor may have been entitled had the assignor brought the action himself ….’ In short, the question at issue is the legal effect of the assignment of the employee’s cause of action, that is, whether or not it includes, by operation of law, the employee’s right to sue in a representative capacity.
Authorization to bring a representative suit is conferred by the Legislature, and persons authorized to bring suit have no power to assign that authorization to a third party, nor does an assignment of a cause of action include, by operation of law, the authorization to bring a representative suit.
While an employee may assign his own cause of action, the statutes defining causes of action and the law of assignment clearly demonstrate that the right to sue in a representative capacity is not a cause of action, or any other form of property right, and is therefore not assignable, either expressly or by operation of law.
Stated differently, because the assignor (the employee), although authorized by section 17203 or PAGA to bring an action on behalf of others, has no ownership interest in the causes of action owned by others, the employee necessarily has no right, expressly or by operation of law, to transfer those causes of action to a third party.
The original opinion can be viewed here in PDF or Word format, but be sure to read the modified opinion, too, which can be downloaded here. We'll be watching this one to see if review will be granted by the Supreme Court.
According to a SEC Form K-8 filed by Rubio's Restaurants, Inc., the company will pay $7.5 million over 36 months to settle a consolidated class action lawsuit filed in Orange County Superior Court on behalf of current and former general managers and assistant managers who were classified as exempt executive employees. One third of the settlement will be paid within 65 days after the court's final approval of the settlement and dismissal of the case; another third will be paid within 18 months; and the last third shall be paid 36 months after final approval. An additional interest charge of $337,500 will be paid with the final installment. The case, filed in 2001, was scheduled to go to trial in June 2007. The settlement is subject to approval by Orange County Superior Court Judge Thierry Colaw.
In what one of our colleagues called a "billion dollar roll of the dice," review was granted in Miller v. Bank of America NT&SA (S149178). The case is not wage and hour related, and the holding is unlikely to develop the body of law governing class action litigation in general, but it's a popular topic of discussion around our lunch table, so we figured we'd give it a mention. Miller involved a question of whether banks can exercise self-help in withdrawing certain funds from its customers' accounts. The trial court awarded $300 million in damages and restitution, plus penalties and fees that brought the value of the award into ten figures. The Bank appealed, among other things, arguing that its conduct did not violate the underlying statutes, including the unfair competition law and the CLRA; and that federal law preempts state laws prohibiting banks from taking Social Security and other governmental benefits out of customers' accounts to pay overdraft fees. Last year, the Court of Appeal reversed the $1.3 billion award, holding that a bank can prevent (and pay itself for) an overdraft in one of its accounts by using government benefit funds in that account, distinguishing a Supreme Court decision (Kruger v. Wells Fargo Bank (1974) 11 Cal.3d 352) that had banned banks from using government benefit funded accounts to pay outside creditors.
With such a large amount of money at stake, a petition for review was certain, and now the case will be heard by the Supreme Court. The plaintiffs have a broad coalition of support, including the AARP, the National Senior Citizens Law Center, the National Consumer Law Center, the Center for Responsible Lending, the National Association for Consumer Advocates, and the State of California through the Office of the Attorney General. The defendant will have the support of every bank doing business in California, as quite a few similar actions are now pending. The Supreme Court will be greeted by many friends during the briefing of this one.
It looks like all of those Proposition 64 cases in which the Supreme Court issued "grant and hold" review orders cases during the consideration of last year's Mervyn's and Downey Savings cases are being sent back to the Courts of Appeal from which they came. Dismissals and transfers were issued in those cases this week as follows:
BIVENS v. COREL CORPORATION S132695 D043407 Dismissed - to CA 4/1 BIVENS v. GALLERY CORPORATION S140396 D045557 Dismissed - to CA 4/1 COHEN v. HEALTH NET S135104 G033868 Dismissed - to CA 4/3 CONSUMER ADVOCACY GROUP v. KINTETSU ENTERPRISES S135587 B158840 Transferred after hold HARTFORD FIRE INSURANCE v. S.C. (TURNER) S140272 A109257 Transferred after hold LYTWYN v. FRYS ELECTRONICS S133075 D042401 Dismissed - to CA 4/1 SCHULZ v. NEOVI DATA CORPORATION S134073 G033879 Transferred after hold SCHWARTZ v. VISA INTERNATIONAL SERVICE ASSOCIATION S138751 A105222 Dismissed - to CA 1/ THORNTON v. CAREER TRAINING CENTER S133938 D044598 Dismissed - to CA 4/1 YOUNG AMERICA CORPORATION v. S.C. (LYNCH) S141766 C049337 Transferred after hold
The Supreme Court conference this week was of more interest than usual to wage and hour attorneys who handle class actions or representative actions, even though none of the cases were wage and hour cases. Probably the most interesting was the order depublishing Sony Electronics, Inc. v. Superior Court (2006) 145 Cal.App.4th 1086. In the published opinion, the Fourth District Court of Appeal found that the trial court erred in defining the class as "[a]ll persons or entities [in the United States] who purchased Sony Vaio GRX [Series Notebook computers]"] in which the memory connector pins for either of the two memory slots were inadequately soldered" because an ascertainable class must be defined according to objective facts, not conclusions of liability:
the class definition requires a merits-based determination in order to establish whether a particular GRX Series Notebook owner is a member of the class. The members of such a class are thus not readily identifiable so as to permit appropriate notice to be given and the definition would not permit persons who receive notice of this action to determine whether they are part of the class.
The case was remanded with directions for further proceedings to determine whether an ascertainable class could be determined. Apparently, Martin Hapner (the plaintiff) and his team of lawyers from California, Connecticut and Pennsylvania, were content to return to the trial court and tighten up their class definition, because no petition for review was filed.
The opinion was originally unpublished, but after Sony Electronics filed a request for publication, the case was ordered published at 145 Cal.App.4th 1086 (and two weeks after that, Sony asked the court to add two more of its attorneys to the published opinion). In February, San Diego attorney Timothy Cohelan filed a request to depublish the opinion, and as a result, Sony Electronics, Inc. v. Superior Court (2006) 145 Cal.App.4th 1086 is no longer good law. So forget what we said about it back in January.
The National Law Journal has published an article entitled "Drug Salespeople Sue for Unpaid Overtime," which discusses one of the latest trends in wage and hour litigation -- pharmaceutical representatives suing for overtime, challenging the commissioned sales exemption and seeking 10-20 hours per week of unpaid overtime. The article includes a quote from Eric Kingsley, who was our co-counsel in wage and hour class actions against Guitar Center and Darden Restaurants (Oliver Garden and Red Lobster):
"These reps aren't making sales. They're marketing products to doctors ... They are not sales reps, but pharm-bots who do and say as they are told."
Among the companies being sued under for such claims: AstraZeneca, Pfizer Inc., Johnson & Johnson, Amgen Inc., Eli Lilly & Co., GlaxoSmithKline PLC, Bayer Corp. and Hoffman-LaRoche Inc.
Effective April 1, 2007, the Orange County Superior Court complex litigation departments are implementing an all-electronic filing program. For details on how to register and use their e-filing system, check out these links:
Judge Jonathan Cannon is leaving the Orange County Superior Court complex litigation panel as of the end of March 2007. Judge Gail Andler, a former prosecutor who has served on the Orange County Superior Court since 1994, will take over in Department CX-102 effective April 2, 2007.
The Supreme Court has reversed the Court of Appeal's dismissal of an appeal by the plaintiffs in a class action entitled Alan v. American Honda Motor Co. Inc. (2006) 131 Cal.App.4th 886. The order granting review framed the issue as follows:
The court limited review to the following issue: Did the Statement of Decision and Minute Order dated January 2, 2003, trigger the 60-day period within which to notice an appeal under California Rules of Court, rule 8.104 (formerly rule 2(a)(1))?
The Court of Appeal granted a motion to dismiss on two grounds: (i) the superior court’s order denying the motion for class certification was immediately appealable under the so-called death knell doctrine; and (ii) Alan’s notice of appeal was untimely because it came more than 60 days after the clerk mailed two documents: a file-stamped document entitled "statement of decision" which included a sentence indicating that the motion to certify was denied, and a minute order entitled "ruling on submitted matter" which was not file-stamped.
Alan argued that neither of these documents satisfied Rule 8.104(a)(1), which requires either “a document entitled ‘Notice of Entry’ ” or “a file-stamped copy of the judgment.” Honda argued that the two documents, read together, satisfied the elements of Rule 8.104(a)(1) and triggered the running of the 60 day appeal period. The Supreme Court agreed with Alan:
We granted review to decide whether the Court of Appeal properly dismissed as untimely an appeal from an order denying class certification. In dismissing, the Court of Appeal concluded the notice of appeal was untimely because certain documents the superior court had mailed to the parties to inform them of its order satisfied rule 8.104(a)(1) of the California Rules of Court and, thus, commenced the 60-day period specified in the rule for filing a notice of appeal. We hold, to the contrary, that the documents in question did not satisfy the rule and that the notice was timely filed.
Because no “document entitled ‘Notice of Entry’ ” exists, the clerk’s mailing cannot have triggered the 60-day period for noticing an appeal unless it contained “a file-stamped copy of the judgment” or appealable order. It contained no such document. The copy of the appealable minute order, was not file stamped. A notation that the minutes were entered by the clerk is not a file-stamp.
The Court noted that its order specifying the issue in this case also fairly includes the question whether rule 8.104(a)(1) requires a single, self-sufficient document that satisfies all the rule’s conditions. The parties have briefed this issue, its resolution offers an alternative basis for our decision in this case, and it has importance for future cases. Therefore, the Court addresses it:
We conclude that rule 8.104(a)(1) does indeed require a single document—either a “Notice of Entry” so entitled or a file-stamped copy of the judgment or appealable order—that is sufficient in itself to satisfy all of the rule’s conditions, including the requirement that the document itself show the date on which it was mailed. That having been said, we see no reason why the clerk could not satisfy the single-document requirement by attaching a certificate of mailing to the file-stamped judgment or appealable order, or to a document entitled “Notice of Entry.” Obviously a document can have multiple pages. But the rule does not require litigants to glean the required information from multiple documents or to guess, at their peril, whether such documents in combination trigger the duty to file a notice of appeal. Neither parties nor appellate courts should be required to speculate about jurisdictional time limits.
Because Alan's appeal was filed less than 60 days after the first document triggering the 60-day deadline, the Court of Appeal erred in dismissing the appeal. You can download Alan v. American Honda here in pdf or Word format.
Can an employer who illegally hires an undocumented alien and then refuses to pay wages due to that employee raise the worker's immigration status as a defense to nonpayment of wages? A Superior Court said yes, but the Second District Court of Appeal says "No."
In Reyes v. Van Elk, four workers hired by a public works contractor filed suit alleging failure to pay prevailing wages (Labor Code §§ 1720-1861) on a public work of improvement. The Superior Court granted summary judgment in favor of defendants on the grounds undocumented workers were precluded by the federal Immigration Reform and Control Act of 1986 (“the IRCA”) (8 U.S.C. §§ 1101 et. seq.) and Hoffman Plastic Compounds, Inc. v. NLRB (2002) 535 U.S. 137 from asserting such claims. The Superior Court also found the Supremacy Clause preempted California statutes declaring immigration status irrelevant to claims under California’s labor, employment, civil rights and employee housing laws (e.g., Labor Code § 1171.5, Civil Code § 3339, Government Code § 7285). The plaintiffs argued that the IRCA and Hoffman do not preclude undocumented workers from asserting such claims, and that the California statutes are not preempted. On appeal, the trial court was reversed, and the trial court was ordered to enter an order denying the motion for summary judgment.
The court did not express an opinion about whether the wage claim would survive a showing that the undocumented workers submitted false work authorization documents to the employer. However, it did not that “Earned but unpaid salary or wages are vested property rights.” (Loehr v. Ventura County Community College Dist. (1983) 147 Cal.App.3d 1071, 1080.) And noncitizens are guaranteed the same property rights as citizens. (Cal. Const, art. I, § 20.) It is well established that California’s prevailing wage law is a minimum wage law. (Road Sprinkler Fitters Local Union No. 669 v. G & G Fire Sprinklers, Inc. (2002) 102 Cal.App.4th 765, 778.) The duty to pay prevailing wages is mandated by statute and is enforceable independent of an express contractual agreement. (§§ 1771, 1774-1775.) Thus, while the obligation to pay prevailing wages arises from an employment relationship which gives rise to contractual obligations and claims, the duty to pay the prevailing wage is statutory. (§§ 1771, 1774.) For these reasons we conclude that, because the prevailing wage law is a minimum wage law mandated by statute and serves important public policy goals, section 1194 provides an employee with a private statutory right to recover unpaid prevailing wages from an employer who fails to pay that minimum wage. (Id., at p. 779.)
Moreover, Hoffman only held that allowing the National Labor Relations Board (“NLRB”) “to award backpay [wages that would have been earned but for an unlawful firing] to illegal aliens would unduly trench upon explicit statutory prohibitions critical to federal immigration policy, as expressed in IRCA." It did not speak to payment of wages already earned by the actual provision of labor. In Patel v. Quality Inn South (11th Cir. 1988) 846 F.2d. 700, 704), the 11th Circuit held the IRCA did not purport to limit remedies for unpaid wages available to undocumented aliens under the Fair Labor Standards Act (“FLSA”) reasoning that if the FLSA did not cover undocumented aliens, employers would have an incentive to hire them. The court concluded the legislative history of the IRCA “strongly suggest[ed]” Congress believed undocumented workers would continue to be protected by state and federal wage laws. (Ibid.) The also court reasoned that minimum wage laws supported the IRCA policy of reducing illegal immigration because such laws offset the most “attractive feature” of such workers -- their willingness to work for less than the minimum wage. Other courts have also agreed that the IRCA did not foreclose all remedies for undocumented workers under FLSA, NLRA or other federal labor statutes. (See e.g., cases cited in Patel, supra, 846 F.2d at p. 703 & p. 703, fn. 4; Mester Mfg. Co. v. I.N.S. (9th Cir. 1989) 879 F.2d 561, 567; Contreras v. Corinthian Vigor Ins. Brokerage, Inc. (N.D.Cal. 1998) 25 F.Supp.2d 1053, 1056.)
The Court also found no preemption intended by the IRCA:
Because legislation providing for the payment of prevailing wages comes under the historic police powers of the state, the presumption is that legislation is not superseded by the IRCA. Defendants do not cite any provision in the IRCA preempting state wage and hour legislation. The only specific preemption provision prohibits state or local law from imposing civil or criminal sanctions upon those who employ unauthorized aliens. (8 U.S.C. § 1324a(h)(2).) That provision is irrelevant to the wage claims asserted by plaintiffs. Thus, the IRCA does not expressly preempt state wage laws.
You can download Reyes v. Van Elk here in pdf or Word format.
The court limited review to the following issue: Did the Statement of Decision and Minute Order dated January 2, 2003, trigger the 60-day period within which to notice an appeal under California Rules of Court, rule 8.104 (formerly rule 2(a)(1))?
We mentioned the case in January, because the Statement of Decision and Minute Order pertained to the denial of a class certification motion, which makes the case of some interest to wage and hour class action attorneys. Perhaps Fireside Bank, which was argued one day earlier, will be decided soon as well.
Harpreet Brar has been "ordered inactive" by the State Bar. Brar was one of the few bad apples whose unethical practices caused the old unfair competition laws to be by gutted by Proposition 64. This is the second time Brar's license to practice has been taken away by the Bar.
If you do wage and hour litigation, class action or otherwise, and/or you'd like a tax-deductible trip to Las Vegas later this month, check out The American Conference Institute's seminar on Wage & Hour Compliance, which will be held at the MGM Grand Hotel, Las Vegas, NV.
For wage and hour attorneys, Wednesday's hearing in Murphy v. Kenneth Cole Productions, Inc. was one of the most anticipated California Supreme Court oral arguments in a long time. What follows here is our longest single blog post yet. There were two issues being heard, but the heart of the matter involved the characterization of the "additional hour of pay" under Labor Code § 226.7 as a penalty, a wage, or some other former of compensation. At stake: the statute of limitations, which would be one year if the pay is a penalty, three years if it is compensation, and, if it is a wage, four years (with the fourth year recoverable via Business and Professions Code § 17200). In more than a few pending cases, the difference represents several million dollars. The less newsworthy issue is whether, when an employee obtains an award on such a wage claim in administrative proceedings and the employer seeks de novo review in superior court, the employee can pursue additional wage claims not presented in the administrative proceedings.
For the employees, Donna Ryu of the Hastings Civil Justice Clinic argued on behalf of plaintiff John Paul Murphy. For the employers, Robert Tollen of Seyfarth Shaw LLP, for defendant Kenneth Cole Productions, split his time with amicus counsel Steven Drapkin. By all accounts, Ryu did an outstanding job for the employees, with Drapkin also performing quite well. Tollen, from what we've read and heard, focused more of his attention on less interesting points.
Ms. Ryu began by asserting that the purpose of the statute was to compensate employees for the tangible harms of having to work without breaks. However, almost immediately, Justice Kennard interrupted her and said, “let’s get to heart of issue.” She then quoted the statute, observed that it was undisputed that meal breaks weren’t given to Mr. Murphy, and then noted that this left us with the key question of whether the remedy under Section 226.7(b) is a wage or a penalty. Ryu responded that the plain language of the statute called it "pay." The legislature didn't use the word "penalty," and expressly rejected the use of that word. Justice Moreno responded by asking if her position then was that the statute is unambiguous. Ryu said it was. The use of the word "pay" is unambiguous, and the legislature has never had any trouble using the word "penalty" when it means to do so, as that word is used in other penalty statutes.
Justice Werdegar pointed out that the statute is grouped with other statutes that impose penalties. Ryu replied that initial versions of Section 226.7 included bona fide penalties ($50/$100). Justice Chin then posed his only question of the afternoon, asking what the legislative history offered. Ryu explained that the bill began with two elements: one to compensate, and one to impose a penalty. The legislature then dropped the penalty, leaving only compensatory remedy.
Justice Baxter then asked whether the fact that compensation was tied to employees’ compensation hurt or helped Murphy. He seemed to find that fact quite important, and later observed that he found it hard to believe that that the legislature, if it intended a penalty, would enact one that exacted a lower penalty for lower wage workers. "I can't see how the Legislature would want to go on record saying that denying a minimum wage employee is less important than denying a higher compensated employee." Anyhow, Ryu predictably responded by saying that this fact favored a finding that the remedy was compensatory, noting that it was calculated like other forms of pay, and reminding the justices that, unlike penalties, the hour of pay under section 226.7 is vested.
Justice Moreno asked about significance of the IWC calling it a penalty and whether this was binding upon the Supreme Court. Some observers have opined that this tipped Moreno's hand as favoring the penalty analysis, but we viewed this question as the proverbial "lobbed softball." At one point, Justice Moreno asked about comparisons to split shift and reporting time premium pay, and Ryu answered with "exactly." However, Justice Moreno also contrasted this hour of pay with the bonus pay for overtime work, asking whether the amount bears a rational relationship to the harm, as it does with overtime premium pay. Ryu answered that it was compensation, "and more importantly, it's the only compensation." (Editor's note: we're not at all sure we agree that it is the only compensation available.) There were many questions dealing with these analogies.
Justice Werdegar then asked: if meal periods are unpaid, and if an employee works through them, and they already got paid for the work, and then this statute gives them another hour of pay on top of it, "why is that not a penalty?" This line of questioning was one of the more obvious clues about a justice's position. We'll be shocked if Justice Werdegar finds the hour of pay to be a wage.
Justice Kennard noted that for meal periods, the extra pay is double. She then noted that one could argue (an interesting choice of words) that is could be viewed as a penalty." The justices then clarified that the meal period is supposed to be unpaid, but the rest period is paid, after which Justice Kennard summarized the employee's contention as one based upon a clear statutory scheme calling the remedy "pay," but asked Ryu to assume that the Court accepted the other side's argument and looked at extrinsic sources, such as legislative history, to interpret the statute. Ryu then focused on the overall context of the Labor Code. The hour of pay acts like all other premium pay provisions, and pointed out that if the pay is anything other than a penalty or forfeiture, the longer statute of limitations applies. It is, she said, a form of compensation for missed meal breaks. There is a real loss if someone doesn’t get a break and the one hour is merely a reasonable figure to compensate for this, “rough justice”, as she later called it.
Justice Moreno asked about other penalty provisions in the Labor Code, and how they are different. Ryu answered that, among other things, the legislature calls them all penalties, and added that the legislature knows how to draft a penalty provision if that is what it intends, i.e., Labor Code § 203, which coincidentally enough, we also part of the award in this case.
Justice Baxter asked about ramifications other than the statute of limitations, most specifically income tax. We thought this was also a softball, since there is an IRS opinion letter saying that such pay is a wage, taxable by the federal government as W-2 wage compensation. We recall this being mentioned in one of the companion briefs and/or requests for judicial notice. Ryu handled the question quite ably. At one point during the discussion, Ryu made the assertion again that the intent was to compensate, and Justice Werdegar interrupted her and called her statement conclusory: "To say it is compensation is conclusive. We have to determine whether it is or it isn't."
Werdegar cited court of appeal opinion (we didn't get the name or cite) finding that the amount was arbitrary. Ryu then began a discussion of other penalty cases outside the context of the Labor Code, and Moreno noted that this is an employment case and asked whether the Court had an obligation to interpret the statute liberally in favor of the employee.
One of Ryu last bits of discussion was among the more interesting. Justice Werdegar asked about the fact that the DLSE called the hour of pay a penalty. Ryu responded by reminding the Court that at the trial court level the DLSE was on Murphy’s side and took the position that it was a wage, and that position was backed up by a number of DLSE opinion letters, but by the time it got to appellate court the administration had changed from Davis's to Schwarzenegger's, and although there was no change in the statute and no change in the regulations, suddenly, there was a change in the DLSE position, and in the place of several opinion letters, there was a new precedent decision calling it a penalty. Such inconsistency makes those opinions worthless. Werdegar asked if the DLSE explained the reasons for its change (noting that she didn't think the Labor Commissioner would explain it quite as Ryu did), and Ryu enthusiastically answered that it gave none. This response elicited some puzzled expressions on certain justices' faces, and several took notes after that comment.
Justice Moreno asked for a comparison to Labor Code § 226 wage statement penalties, and Ryu responded by noting that en employee could elect either "actual damages" or the penalty under section 226(e), making it quite different from section 226.7 (again, we aren't so sure that there couldn't be a claim for damages or restitution for break violations). Ryu's time ended with a dry discussion of the secondary issue of whether new claims can be brought in a de novo proceeding in Superior Court.
The first thing Mr. Tollen did was address the new claims issue. No questions were asked. At one point, he complained that the “plaintiff’s bar” should sue the DLSE for being too slow. Once he finished with that issue, he began discussing the hour of pay and break violations. He argued several times, that breaking the law regarding meal periods was like a victimless crime. What is the harm if someone misses a thirty minute break? he asked. He characterized meal and rest breaks as a frivolous indulgence, and argued that employees who missed them lost nothing compensable.
Moreno asked about the fact that at the time 226.7 came into being, other statutes in same bill were enacted and those expressly imposed penalties. Every justice looked up to see Tollen's response. He answered by saying the Legislature had just adopted language that the IWC had put in its amendments to the wage orders in 2000. Justice Moreno noted that the bill kept penalty language in sections 203.1 and 226, but not 226.7. Tollen essentially blamed the Labor Commissioner, and went on to note that the Legislature sometimes actually called penalties "wages", such as section 203's mandate that delaying one's final paycheck results in "wages" continuing as a "penalty" for 30 days.
Chief Justice George, who to this point had been quiet, said that using the word “pay” is “very different” than using the word "penalty" and if intended the Legislature had intended a penalty, wouldn’t they have used the word “penalty”? He also asked if Tollen placed any weight on the placement of section 226.7 within the Labor Code. Tollen responded by reminding the Court that it was lumped in with a string of other penalty statutes.
Justice Baxter then brought the discussion back to what we considered the most relevant. The amount of a penalty is usually related more rationally to the culpability of the offender's conduct, rather than the value of the victim's labor. Worse conduct yields a greater penalty. But here, the "penalty" is smaller if the employee's labor is worth less. A minimum wage employee gets a smaller "penalty" than a highly compensated employee. Tollen answered by noting a similar valuation for penalties awarded under Labor Code § 203, and went back to his argument that it is a penalty because it pays the employee for a violation that causes no actual harm or injury.
Justice Corrigan then asked whether employees were being so overcompensated for missed breaks that it amounted to a penalty. She raised this point several times throughout the argument, and in so doing, probably revealed how she will vote. More importantly, she seemed to be unfamiliar with the break requirements (referring once to 15 minute breaks) and she oversimplified the analysis, commenting that the pay was double. In reality, the percentages vary depending upon which break is denied and how many breaks are denied. Before running out of time, Tollen briefly mentioned the use of the word penalty in a letter written by the author of the bill, and it was Mr. Drapkin's turn to speak.
He argued that the very definition of a penalty is compensation without reference to the damage caused. Kennard asked him whether, in a claim arising under the Labor Code, the Court had obligation to construe the statute liberally. He responded that the statute being construed wasn't a Labor Code statute, it was a section of the Code of Civil Procedure. In general, Drapkin did not draw many questions (which bodes well for the employer), and our spies had fewer notes regarding his argument because the questions were of more interest to us than the prepared remarks. For a good summary of his argument, check out the UCL Practitioner's post on the matter.
When Ryu stood up for rebuttal, she was peppered with questions that began before she uttered her first comment. First, Justice Corrigan asked how an employee is harmed by missing a meal break, adding that, since the employee already gets paid to work through lunch this additional payment seems like a penalty. Justice Werdegar seemed to agree, noting that an award that is not tied to amount of time worked or the value of the injury seems like a penalty. Ryu responded with her "rough justice" argument, that the pay compensates a worker for the extra value of putting in long hours without the needed and legally mandated breaks. The final point was a reiteration of the disagreement over whether this is a Labor Code issue (liberally construed in favor of employees) or a CCP matter, with no policies favoring one side or the other. Justice Kennard answered that one for her: it's not just a CCP issue, it's also a Labor Code matter. With that, the arguments concluded.
Along the spectrum, Justices Baxter and George appeared to be solidly favoring the wage/compensation argument; Justices Kennard and Moreno each asked several questions which could suggest a predisposition either way; Justice Chin asked only one question, which shed little light on his views; and Justices Werdegar and Corrigan seemed firmly behind the penalty argument. We were surprised by both Baxter and Werdegar, and would have expected them to hold views contrary to what their questions suggested.
How you see it seems to be depend upon where you sit. Kim Kralowec, whose firm represents the class against Wal-Mart, believes there will be a split decision calling it a wage. Jon-Erik Storm, with Employer Advocates Group LC, sees a split decision favoring Kenneth Cole Productions. At a seminar today, defense attorney Richard Simmons expressed his belief that the Court would find the hour of pay a penalty and Werdeger would write the opinion. Of the five employee's attorneys we spoke to, three saw it 4-3 in favor of the employee, two said it would be 5-2 in favor of the employee. Of the three defense attorneys we spoke to, one saw it 5-2 in favor of the employer, one saw it 4-3 or 5-2 for the employer, and one said he was preparing for a "bad decision" but hoping he misread Moreno and Kennard.
Thank you to Mary Dumont, Alan F. Cohen, and three other attorneys who sent me some quite detailed notes.
We've received a large volume of emails, including detailed notes from a few people who attended the oral arguments in Murphy v. Kenneth Cole Productions, Inc. We're sifting through it all and will have a more substantive post later today, after we've taken care of a couple of deadlines.
Tomorrow afternoon in San Francisco, the Supreme Court will be hearing oral arguments in Murphy v. Kenneth Cole Productions. As our regular readers know, we're extremely interested to see what questions are posed, how well the parties present their arguments, and how well each argument is received. We are so interested in the case, we wanted to fly up just to watch, but some personal setbacks have cost us too much time this month, and we must stay glued to our desks. To our dismay, a request for extended media coverage was denied on Friday. If you are thinking about attending, let us know. If you attend, and you would like to send us your comments, we'd be happy to post them, with or without attribution as you see fit.
The Daily Journal just published an article by Jones Day's Steven Katz regarding Pioneer Electronics. We got a kick out of it because it mentioned this blog, as well as two others we read regularly.
The California Supreme Court's decision in Pioneer Electronics (USA) Inc. v. Superior Court (Olmstead), 2007 DJDAR 1187 (Jan. 25, 2007), holding that California's right to privacy is satisfied by "opt-out" notice before disclosure of contact information for putative class members, has been greeted by the plaintiffs' bar as a great victory. Kimberly A. Kralowec, in her excellent Web log, The UCL Practitioner (www.uclpractitioner.com), heralded Pioneer Electronics as "a pro-class-action decision." The California Wage and Hour Web Log (wagelaw.typepad.com), called it "a resounding victory for plaintiffs." Many in the defense bar seem to agree with this assessment. Cal Biz Lit (www.calbizlit.com) concluded that the "ruling is not good for the defense."
There is, however, less to Pioneer Electronics than meets the eye.
Mr. Katz downplays the importance of the decision, and points out that it might not be equally applicable to cases in which the class counsel is, as the defense likes to call it, "fishing for a representative." While that is almost certainly true, Pioneer Electronics was not about fishing for reps, but was, instead, about giving both sides equal access to witnesses and information. It that regard, it provided precisely what the plaintiffs' bar fought to achieve.
Several critics among the defense bar complained bitterly that Pioneer Electronics gave plaintiffs' lawyers the right to bring a plaintiffless case and get unfettered access to the class so they could solicit their clients after the fact. If that is what you thought Pioneer Electronics was about, then Steven Katz is quite right -- there's much less to the case than meets the eye. However, if you read Pioneer Electronics to hold that a trial court can and should give class counsel the same access to witnesses, via discovery, that the defense already has, via business records, then you are not reading too much into the opinion.
In a unanimous, but unpublished opinion (Scott v. County of Los Angeles, 2nd District Court of Appeal, B192591), the Court of Appeal has reversed an order by Los Angeles County Superior Court Judge Conrad Aragon which limited the plaintiff's attorney's fee award to an amount equal to her $100,000 jury award. The court held that Judge Aragon abused his discretion by not applying the loadstar system and a multiplier to the fee application.
In Scott, a sexual harassment case, the jury awarded damages of $100,000 against the County of Los Angeles and Los Angeles County Sheriff’s Department, as well as an individual harasser. After prevailing at trial, the plaintiff moved for $456,425 in attorney fees -- a lodestar of $228,212.50, with a multiplier of two -- under Government Code § 12965(b) and Code of Civil Procedure § 1021.5. Judge Aragon awarded precisely $100,000, finding “compelling justification for limiting fees to no greater than the monetary [damages] award given by the jury." The Court of Appeal reversed.
Although the trial court has wide discretion in determining the amount of reasonable attorney fees to be awarded, the California Supreme Court has mandated that the exercise of that discretion be based upon the lodestar adjustment method. In other words, the trial court must determine the appropriate lodestar figure, and then may increase or decrease that amount after considering certain factors. The trial court in this case did not follow that method, and therefore abused its discretion.
Judge Aragon's order showed that he clearly gave maximum weight to the amount of the recovery. “To put the matter in context, it should be first noted that the total verdict amounted to $100,000 as and for non-economic damages only. In this context, the fee request, exclusive of a multiplier, more than doubles the jury’s verdict." After a lengthy discussion of the lodestar method, including a list of various factors the trial court could have used to limit the recovery, the Court of Appeal found Judge Aragon's analysis improper. The case shall be remanded for recalculation of the hours and correct application of the loadstar multiplier. The opinion can be read here in pdf or word format. It does not set any new standard, and we can't imagine it would be reviewed or published, but it certainly would be of interest to any counsel with cases assigned to Judge Aragon. Since we know of a few such persons, we thought we'd pass it along.
The Supreme Court has granted review in Konig v. U-Haul Company of California (2006) ___ Cal.App.4th ___, which held that a class action waiver in an employment contract’s arbitration clause is not unconscionable where the class action would have involved more than "predictably...small amounts" of damages to individual class members. The case has been named a companion case to Gentry v. Superior Court (2006) 135 Cal.App.4th 944.
Petition for review GRANTED. Further action in this matter is deferred pending consideration and disposition of a related issue in Gentry v. Superior Court, S141502 (see Cal. Rules of Court, rule 8.512(d)(2)), or pending further order of the court. Submission of additional briefing, pursuant to California Rules of Court, rule 8.520, is deferred pending further order of the court. Votes: George, C.J., Kennard, Baxter, Werdegar, Chin, Moreno, and Corrigan, JJ.
The order granting review means that Konig may no longer be cited. We didn't think it would last long. Back in December, when the decision came out, we wrote: