Wage Law

We were told that this governor wasn't going to be controlled by special interests. Specifically, the governor said he was going "to represent your interests, not special interests." What happened?

The California Restaurant Association has donated a sizeable amount to Governor Schwarzenegger's political campaigns this year, and it has hosted successful fundraisers for Schwarzenegger's future campaigns. Why? Primarily because they want an end to the laws that force them to give breaks to their employees.

If you have time to lean, you have time to clean.

Restaurants were so accustomed to violating the meal and rest period laws in California that most workers thought that lunch breaks and ten minute rest breaks were not permitted, much less required, in the restaurant business. And before the enactment of Labor Code § 226.7, the law didn't provide enough incentive for workers to actually enforce their rights in court. However, since 2001, when the law began to require an hour of pay for each day of meal or rest period violations, most restaurant chains in California have been brought into court for meal and rest period violations. We aren't aware of even a single company that has prevailed in defending such lawsuits.

Not content to simply adjust their business practices, the restaurants have looked to the Schwarzenegger administration for their salvation. Lobbyists for the California Restaurant Association were instrumental in the drafting of the ill-fated proposed emergency regulations to effectively end meal period obligations the restaurant and other industries.

An administration undersecretary testified in a recent deposition that he was approached on the day of Schwarzenegger's inauguration by a Chamber of Commerce lobbyist who wanted changes made to the meal and rest break rules. The chief lobbyist for the California Restaurant Association testified that he met with administration officials in February 2004 to complain about the meal and rest break rules. They even asked to have new rules applied retroactively, to affect pending lawsuits.

And the administration is trying everything in its power to accommodate them. Apparently, when the governor said he was going "to represent your interests, not special interests," he was speaking to what the rest of us would consider special interests. And when he said "special interests" he actually meant regular working people. Or perhaps when he said "special interests," he just wasn't considering the restaurant business, because, after all, there's nothing special about modern restaurant chains.

However you want to spin this, one thing is clear: Schwarzenegger is all about special interests, and like any other actor, he can be bought, but he can't be bought cheap.

We had an employee come to us recently to complain that, although she had been working full time at her current place of employment for almost two years, she had never received any paid vacation whatsoever. She was surprised when we told her that the "no paid vacation" policy was perfectly legal. Right now, there is no statutory requirement that private sector employees receive any paid vacation time whatsoever. Most first world nations do require paid vacations. Austria, Denmark, France, Luxembourg and Sweden require five full weeks of paid time off. The United Kingdom, Germany, Italy, Spain and the Netherlands require four weeks. Even many third world countries, including El Salvador and Indonesia require two weeks or more of paid time off for full time workers. The norm in the U.S. is, by contract, not by law, workers earn more paid time off the longer they've been with a company. The average for full time workers with just one year of seniority is less than two weeks. But those are just averages. A vacation policy of zero weeks, even after several years of employment, is not illegal.

Several years ago, we had a wage and hour lawsuit against a very, very famous celebrity. Indeed, we would go so far as to call him a historical figure. If they still have Jeopardy on TV in the year 2305, most contestants will know this man's name. So we were at a settlement conference, and we got to the point where we had agreed on everything except the total dollar compensation. We were $10,000 apart.

Exasperated, our client blurted out "This is bullshit. [Greedy Famous Employer] could make $10,000 just by signing his autograph a hundred times." "Oh well," came the response, "he's not putting another dime on the table."

"What if he didn't put another dime on the table," we suggested, "but he signed his name a hundred times for us on something marketable." Everyone at the table, including our client, cocked their heads like dogs hearing a strange noise for the first time.

About thirty minutes later, we had a deal. Our client insisted that our fee from the autograph portion of the settlement be taken in autographs. Eventually, we donated most of ours to charity, but kept one for each lawyer's office as a trophy.

Another area in which wage violations are the rule, not the exception, is in the domestic help industry, formally called "Household Occupations." This includes all services related to the care of persons or maintenance of a private household or its premises by an employee of a private householder. Said occupations shall include but not be limited to the following: butlers, chauffeurs, companions, cooks, day workers, gardeners, graduate nurses, grooms, house cleaners, housekeepers, maids, practical nurses, tutors, valets, and other similar occupations. The "industry" is governed, in California, by Wage Order 15, which is full of overtime requirements, break requirements, restrictions on hours and days of work and similar rules.

Employers often tend to hire undocumented workers, and they then often tend to underpay and overwork these people, who have few realistic options to fight back. They usually have no contracts, timecards or written records, not even tax records. But when a domestic worker gets hold of a lawyer, the cases can be powerful.

It is not uncommon to hear of a worker who works 10 hours per day, every day, for four years at $5 per hour. This scenario can lead to huge minimum wage and overtime claims -- 6,240 hours of overtime. If every hour was paid, the accrued liability can be lower, but often, that $5 per hour is really a salary that assumes a 40 hour work week, even though the actual work time is far greater. A worker who made $200 per week over that time period could receive $63,180 in overtime pay, on top of another
$14,560 in unpaid minimum wage for the hours actually compensated. Waiting time penalties of at least $1,620 are added, as is interest (roughly 20% of the total underlying claim) and attorney's fees.

These workers, for whom $1,000 is a lot of money, tend to be quite grateful when the $80,000 settlement check arrives.

The U.S. Department of Labor issued new regulations last year concerning overtime exemptions for white collar workers. Richard J. Simmons of Sheppard, Mullin, Richter & Hampton LLP requested an opinion concerning issues of interest to California wage and hour lawyers and litigants, and the opinion letter's details are posted on Sheppard Mullin's employment law blog.

The letter addresses the addition of the two items ("planning and controlling the budget" and "monitoring or implementing legal compliance measures") to the list of exempt managerial duties, and characterizes them as a clarification of existing law. It also references the inclusion of "concurrent duties" language and the republication of the "directly and closely related" standard. If we get a copy of the entire opinion letter, we'll probably upload and post it.

Even so often, we get telephone calls from current or former clients, or friends of clients, or from strangers who read this blog, and they tell us that there is some outrageous wage and hour violation going on at this company or that company. Then they ask us if we'd like to speak to one of the aggrieved employees. Usually, we are willing to speak to that person, even if it looks like a case too small for us to take.

But often, before they give us the name and number of the person who supposedly wants and needs our services, they add a request for a referral fee. And they are bitterly disappointed when we tell them we can't pay one. In fact, sometimes, we think they believe we're lying. We're not.

And if we did pay referral fees, we could find ourselves disciplined or sued, maybe even in a class action. So thanks, but no thanks.

In an unpublished opinion, the California Court of Appeal, Second District, Division Four has affirmed an attorney's fee award of $800 per hour for employment lawyer Ian Herzog. In the case, Clifford v. American Drug Stores, Inc. (Sav-On Drug Stores), Clifford prevailed on Fair Employment and Housing Act claims and moved for an award of reasonable attorney's fees in the amount of $800 for every hour her lawyer was forced to spend beating back Sav-On's meritless defenses.

Sav-On argued that the trial court erred in setting Clifford’s attorney fees, because it did not correctly determine the lodestar figure.

“[T]he lodestar is the basic fee for comparable legal services in the community; it may be adjusted by the court based on factors including, as relevant herein, (1) the novelty and difficulty of the questions involved, (2) the skill displayed in presenting them, (3) the extent to which the nature of the litigation precluded other employment by the attorneys, (4) the contingent nature of the fee award. [Citation.] The purpose of such adjustment is to fix a fee at the fair market value for the particular action. In effect, the court determines, retrospectively, whether the litigation involved a contingent risk or required extraordinary legal skill justifying augmentation of the unadorned lodestar in order to approximate the fair market rate for such services.” (Ketchum v. Moses (2001) 24 Cal.4th 1122, 1132 (Ketchum), citing Serrano v. Priest (1977) 20 Cal.3d 25, 49 (Serrano III).) The hourly rate used to determine the lodestar amount has typically been described as the “prevailing hourly rates,” or “the basic fee for comparable legal services in the community” (Ketchum, supra, 24 Cal.4th at p. 1132); “‘comparable salaries earned by private attorneys with similar experience and expertise in equivalent litigation,’” or “‘hourly amount to which attorneys of like skill in the area would typically be entitled’” (Serrano v. Unruh (1982) 32 Cal.3d 621, 640, fn. 31 (Serrano IV); and “that prevailing in the community for similar work” (PLMC Group, Inc. v. Drexler (2000) 22 Cal.4th 1084, 1095).

The unadorned lodestar reflects the general local hourly rate for a fee-bearing case; it does not include any compensation for contingent risk, extraordinary skill, or any other factors a trial court may consider. Such adjustments to the lodestar figure, for example, to provide a fee enhancement reflecting the risk that the attorney will not receive payment if the suit does not succeed, may be made to approximate market-level compensation for such services, which typically includes a premium for the risk of nonpayment or delay in payment of attorney fees.

In this case, the trial court offered no enhancement, but found that an hourly rate of $800 for trial attorney Ian Herzog was reasonable, and concluded that this amount was the lodestar rate. Sav-On argued that there was no evidence that lawyers in Los Angeles "are paid anything close to $800/hour in non-contingent fee cases.” The appellate court found that to be unimportant, noting that there "is no requirement ... mandating that the “prevailing hourly rates” be determined without regard to the skill and experience of the particular attorney before the court, or that they be equal to the prevailing rate charged by attorneys in noncontingent cases. The lodestar rate may be based upon "the skill and experience of the attorneys, as well as the nature of the work performed," as long as those considerations are not duplicated in the application of an adjustment to the lodestar rate.

For a short while, the opinion will be available on the court's website here. Our congratulations go out to Ian Herzog. It takes a lot more skill and expertise to win a huge can than it takes to lose one. For once, a court has recognized that fact.

A client came to us recently with a wage case. She had heard that the law had changed (actually, the law had no changed, but her employer had just started obeying it), and that she might now be entitled to back overtime. The problem was, she had no time records to support her claim. We told her not to worry, because the employer is required to keep those records, and we can get them from the employer through a written demand or via pre-trial discovery.

Employers must keep records of the names and addresses of all employees, the ages of any minors working, and daily hours worked and wages paid to all employees. Labor Code § 226, 1174, 1175. They must keep such records for a minimum of two years, and a year longer for wage deductions. The employer must allow inspection by the employee (and the DLSE, too). Labor Code §§ 226(a), 1174(d). Furthermore, the employer must provide an employee or former employee copies of his or her payroll records within 21 days after a request, or permit the employee to inspect those records. Failure to comply results in a $750 fine, and the employee may sue to obtain the information and recover costs and fees. Labor Code § 226(c),(f), (g).

Federal law imposed similar obligations. Every employer subject to the FLSA must "make, keep, and preserve such records of the persons employed by him and of the wages, hours, and other conditions and practices of employment maintained by him, and shall preserve such records" for specified periods of time. 29 USCA § 211(c). Those specified times are:

Three years: payroll records, including each employee's name, address, occupation, hours worked each day and week, wages paid and date of payment, amounts earned as straight-time pay and overtime, and deductions; plans, trusts and collective bargaining agreements; employee notices; and · sales and purchase records. (29 CFR § 516.5)

Two years: time and earnings cards; wage rate tables; work schedules; order, shipping and billing records; and records of additions to or deductions from wages. (29 CFR § 516.6)

What if the employer throws out the work schedules, time cards or other records required to be kept?

It is the employer who is penalized, not the employee. If their employer fails to keep adequate records, employees suing to recover wages can meet their burden of proof simply by testifying that they performed work for which they have not been properly compensated. They do not have to prove the precise hours worked. They need only produce sufficient evidence to show the estimated amount and extent of such work, and an inference will be drawn that the estimate is correct, because the employer failed to maintain the most accurate records. See Beliz v. W.H. McLeod & Sons Packing Co. (5th Cir. 1985) 765 F.2d 1317, 1330-1331 ("Because precise evidence of the hours worked by each individual is not available due to the failure of [employers] to keep adequate records, the workers may satisfy their burden with admittedly inexact or approximate evidence.").

The burden of proof then shifts to the employer to come forward with evidence of the precise amount of work performed or sufficient evidence to refute the inference drawn from the employee's testimony. If the employer fails to meet that burden, the court awards damages to the employee according to the estimate provided by the employee. Anderson v. Mt. Clemens Pottery Co. (1946) 328 U.S. 680, 687-688, 66 S.Ct. 1187, 1192. And that happens quite frequently in our trials.

In Maria L. Banda et al. v. Richard Bagdasarian, Inc., in the 4th District Court of Appeal, Division 2, the court, which previously granted leave to file an amicus brief to the Employers Group and to Western Growers, who support the employer's position, has denied the California Employment Lawyers Association leave to file an amicus brief in support of the employees' position. There is no tentative ruling yet issued and no timetable for oral argument.

In Murphy v. Kenneth Cole in the 1st District Court of Appeal, the court has permitted the California Labor Federation to file an amicus brief, which was filed on August 8, 2005. Kenneth Cole's response to that brief is due August 29, 2005. The case involves two related appeals: case no. A107209 and case no. A108346.

The class action claims forms and notices of settlement were mailed out in the California Red Lobster class action cases on July 29, 2005. If you have not received a notice, you can download a copy of the notice here (RedLobsterNotice.pdf), and can download an exemplar proof of claim form here (RedLobsterClaimform.pdf).

However, if you are an eligible class member, and you have not received your claim form, you should contact the claims administrator immediately to receive a claim form with your employment data on it. The claims administrator is:

Rosenthal & Company
P.O. Box 6177
Novato, CA 92948-6177
(800) 207-0343

Merrill Lynch & Company agreed this month to pay $37 million to settle a class action, but, for a change, the plaintiffs in this case were its own employees. Merrill Lynch brokers are paid primarily on a commission basis, and the company denied them overtime, treating them as exempt from state and federal overtime laws. Last year, the federal Fair Labor Standards Act (FLSA) was amended to exempt from overtime pay all white-collar workers earning more than $100,000, as long as those earing included $455 or more per week in salary. The brokers typically received no such salary.

The settlement is the first of its kind, and is likely to lead to other similar cases (we are preparing a similar action ourselves) because the industry standard was to treat brokers exactly as Merrill Lynch did. As many as 3,000 current and former brokers will be paid up to $15,000 each, depending upon length of service and time worked. San Francisco District Court Judge Maxine M. Chesney will review and approve or reject the settlement terms in a hearing set for September 9, 2005.

There are certain defense firms in California who are starting to use this tactic:

Employee has a claim, be it for wages, discrimination, wrongful termination or anything else employment related. He hires a lawyer, who, being the reasonable sort, tries first to see if the case can settle.

Settling a case without litigation offers a number of advantages to the employer: it keeps the dispute private; it saves almost all of the costs of defense; it frees managers to do their jobs, rather than focus energy and time to litigation; and it often results in a lower payout than an employee will demand after going through the litigation process (and sometimes paying a higher fee to his lawyer).

So the employee's lawyer sends out a "demand letter," which is intended to put the employer on notice of the opening settlement offer, explain the facts and evidence underlying the claim, and give the employer fair notice that litigation could result if the matter isn't resolved to everyone's mutual satisfaction.

These certain defense firms (whom I will not identify), who have advised their clients to respond to such letters by filing a suit for declaratory relief in Superior Court, against the employee.

There are three primary reasons employers might do this: (i) it gives the employers the title of "plaintiff," which they seem to covet; (ii) it lets the employer choose the venue, which is sometimes significant; and (iii) it puts word on the street to existing workers: complain to us, and we'll just sue you.

So far, those we have heard about have been thrown out quickly, either on demurrer or on an anti-SLAPP motion. But a very bad precedent has been set. We will never write a pre-litigation demand letter again, because we do not know, before filing suit or sending the letter, who the defense lawyer will be. And if we do not know that it won't be one of these firms, we can't be sure we won't have to "defend" one of these bad faith declaratory relief cases first. And that's a risk we will no longer take.

So when an employer or its lawyers complain that "we could have resolved this without resort to litigation," we will tell them that frivolous employer lawsuits have driven us to file first and ask [settlement] questions later.

And the next time you hear about plaintiff's lawyers filing frivolous suits, don't forget that some of those "plaintiffs" are employers who sue employees to get a "declaration" of whether the employer violated a worker's rights; and also don't forget that those "plaintiff's lawyers" include some of the largest so-called defense firms in the state.

Coming soon to a theater, parking lot, home or business near you:

WAL-MART: The High Cost of Low Price

This film promises to take the viewer "on a deeply personal journey into the everyday lives of families struggling to fight goliath. From a family business owner in the Midwest to a preacher in California, from workers in Florida to a poet in Mexico, dozens of film crews on three continents bring the intensely personal stories of an assault on families and American values."

We don't know if they will be focusing on employee wages, but we hope they do. Wal-Mart is the number one target for class actions alleging things like gender discrimination, off-the-clock work and other wage and hour violations. We never have understood how Wal-Mart does it, but it manages to keep unions out and suppress wages to as little as one-third of the prevailing rates in certain communities, all the while motivating its employees to show up early to work to participate in workplace "rallies," doing "Wal-Mart spellouts" and cheer about their barely-over-minimum-wage jobs with an almost religious fervor.

You can view a trailer for the film here.

In a hearing yesterday in Sacramento County Superior Court, Judge Lloyd Connelly ruled that the Labor Commissioner’s practice of holding complaints for violations of Labor Code § 226.7 claims in abeyance was unlawful, and that the December 20, 2004 DLSE memo withdrawing certain opinions letters (including the opinion letter characterizing Labor Code § 226.7 pay as a wage) was an “underground regulation.” The court did not find fault with the DLSE's internal procedural designation of the Hartwig case as a Precedential Decision in June 2005. (Coralles v. Donna Dell, Sacramento County Superior Court #05CS00421)

There are still no court rulings concerning the legality of the proposed meal and rest period regulations, but such a ruling would clearly be premature, given that the regulations have not yet been enacted.

(Thanks to Chico attorney Mike Carver, our co-counsel in the Red Lobster case, who's been following this case closely.)

A long awaited California Supreme Court decision involving corporate executive liability for wage violations was handed down this morning, and, in a unanimous decision, the Supreme Court has held that officers and directors are generally not personally liable for wage and hour violations by the corporations for whom they work. The decision affirms a trial court's order sustaining a demurrer and the Court of Appeal's decision affirming that order.

In Reynolds v. Bement (2005) --- Cal.4th --- (Supreme Court case no S115823, 2nd District case no. B158966, Los Angeles County Superior Court case no. BC226353) the court addressed the issue of whether the officers and directors of a corporate employer can personally be held civilly liable for causing the corporation to violate the statutory duty to pay minimum and overtime minimum wages., on the ground such officers and directors fall within the definition of “employer” in the Industrial Welfare Commission Wage Orders.

Reynolds involved unpaid overtime claims brought as a class action against Earl Scheib, Inc., and Earl Scheib of California, Inc., along with eight officers and directors of Earl Scheib. The Supreme Court case involved the determination of whether the plaintiff stated a cause of action against any of the eight individuals who were officers or directors and shareholders of the Delaware corporation, or its California subsidiary, that owns the automobile painting business. Plaintiff initially filed a complaint only against Scheib, seeking damages and equitable relief on behalf of himself, the general public, and similarly situated employees who worked at Scheib’s automobile painting shops in California from March 13, 1996, to the present. Plaintiff later added claims against Scheib's president, Bement, who cross-complained and removed the case to federal court. After the case was remanded to state court, plaintiff named the seven remaining individual defendants, who demurred. The trial court sustained demurrers with leave to amend. Plaintiff chose to appeal rather than amend (somewhat limiting the Supreme Court's analysis). The Court of Appeal affirmed, and the Supreme Court granted plaintiff’s petition for review.

Plaintiff's argument arose from IWC wage orders which, since 1947 have defined “employer” to include an individual who “exercises control over the wages, hours, or working conditions of any person.” Any such person, plaintiff argued, is liable for wage violations such as failure to pay overtime. However, the defendants correctly noted that the same definition is found nowhere in the California Labor Code, and particularly not in Section 1194, upon which the overtime claims are based.

The Supreme Court found no evidence that the legislature intended to apply such liability to corporate officers and directors. To the contrary, the court noted that, under the common law, corporate agents acting within the scope of their agency are not personally liable for the corporate employer’s failure to pay its employees’ wages, whether the failure to pay wages is viewed as a breach of contract or a tort. For those reasons, they agreed that the plaintiff could not state a section 1194 cause of action against the individual defendants.

Had the Legislature meant in section 1194 to expose to personal civil liability any corporate agent who “exercises control” over an employee’s wages, hours, or working conditions, it would have manifested its intent more clearly than by mere silence after the IWC’s promulgation of Wage Order No. 9.

As amicus curiae, the DLSE warned (and we wonder if the governor knew what the DLSE was up to here) that the failure to accept plaintiff’s theory of corporate agent liability based on the IWC employer definition may pose an obstacle to the Labor Commissioner’s ability to recover some wages owed to California employees, since they often pursue such claims against responsible officers and directors.

The Supreme Court responded with this observation:

We previously have determined that the DLSE’s administrative policies are not due general interpretive deference unless they are promulgated in accordance with the Administrative Procedure Act, section 11340 et seq. of the Government Code. (See Tidewater, supra, 14 Cal.4th at pp. 568-577.) And while it is true that “[f]ederal decisions have frequently guided our interpretation of state labor provisions the language of which parallels that of federal statutes” (Building Material & Construction Teamsters’ Union v. Farrell (1986) 41 Cal.3d 651, 658), “where the language or intent of state and federal labor laws substantially differ, reliance on federal regulations or interpretations to construe state regulations is misplaced” (Ramirez v. Yosemite Water Co. (1999) 20 Cal.4th 785, 798). While the FLSA contains an express definition of “employer” (29 U.S.C. § 203(d)), section 1194 does not.

In an interesting bit of dicta, the Supreme Court apparently approved of an employee's private right of action for penalties under Labor Code § 558:

"In addition to the foregoing avenues for the recovery of wages, the Labor Commissioner or the employee may seek certain civil penalties when the employee is not paid statutorily guaranteed wages. (See, e.g., §§ 210 [penalty for failure to pay statutorily prescribed wages], 225.5 [penalty for unlawfully withholding wages], 558 [penalty for violating chapter or IWC order].)"

[NOTE: Section 226.7 was not among the "penalties" mentioned....]

The court also left open the possibility of other theories of liability against corporation officers and directors:

Imposition of individual civil liability under the IWC employer definition is not the only means by which an employee can seek recovery against a corporate agent. ... [N]othing ... precludes hearing officers from finding individual corporate agents liable for unpaid wages when such liability is proven on established common law or statutory theories. Moreover, pursuant to section 558, subdivision (a), any “person acting on behalf of an employer who violates, or causes to be violated” a statute or wage order relating to working hours is subject to a civil penalty, payable to the affected employee, equal to the amount of any underpaid wages. As noted earlier, the Legislature has provided that aggrieved employees may under certain circumstances maintain civil actions to recover such penalties. (§ 2699, subd. (a).) In Frances T. v. Village Green Owners Assn. (1986) 42 Cal.3d 490 (Frances T.), we recognized that corporate directors may be “jointly liable with the corporation and may be joined as defendants if they personally directed or participated in the tortious conduct.” (Id. at p. 504 , citing numerous authorities.) “Their liability, if any,” we noted, “stems from their own tortious conduct, not from their status as directors or officers of the enterprise.”

Justice Moreno offered a concurring opinion observing that

"as a legal argument, plaintiff’s position is not untenable, but it has a certain labyrinthine quality that, ultimately, cannot conceal the absence of any clear indication of legislative intent that the wage order’s definition of “employer” apply to section 1194 actions."  ... Taking a leaf from federal law, the Legislature could similarly authorize section 1194 actions against such individuals. I urge the Legislature to do so."

Many of our wage and hour cases -- though generally not our class action cases -- have included claims against certain corporate officers and directors. But our practice has always been to include officers or directors only if there was a bona fide alter ego claim (which succeeded in the one such case that went to trial), or if there was some other violation by the officer or director that would have brought in a guilty verdict if he or she had been charged with a misdemeanor for his or her conduct. Unless the legislature amends the Labor Code to adopt the IWC definition of an "employer," we will continue with that cautious practice.

You can download the full text of the Reynolds opinion in pdf or Word format.

We saw this on the California Supreme Court's website today:

SUPREME COURT OF CALIFORNIA NOTICE OF FORTHCOMING FILING:

The Supreme Court has indicated that the filing of a written opinion in the following case(s) is forthcoming. At the filing time designated below, the filed opinion(s) will be accessible at the judicial branch web site (www.courtinfo.ca.gov) and copies will be made available at the Supreme Court Clerk’s Office.

(Generally, the description set out with regard to each case is reproduced from the original news release issued when review in the matter was granted, and is provided for the convenience of the public and the press. The description does not necessarily reflect the view of the court, or define the specific issues that will be addressed by the court.)

IN RE MARRIAGE OF BENSON S122254 [description omitted by California Wage Law blog]

REYNOLDS v. BEMENT S115823 (B158966; Los Angeles County Superior Court – BC226353)

Argued in Los Angeles 6-01-05 This case includes the following issue: Can the officers and directors of a corporate employer personally be held civilly liable for causing the corporation to violate the statutory duty to pay minimum and overtime minimum wages, either on the ground such officers and directors fall within the definition of “employer” in Industrial Welfare Commission Wage Order 9 or on another basis?

YANOWITZ v. L’OREAL USA INC.  S115154 (A095474; San Francisco County Superior Court – 304908)

Argued in San Francisco 5-25-05 This case includes the following issue: How should “adverse employment action” be defined for purposes of an employee’s claim of unlawful retaliation under the Fair Employment and Housing Act (Gov. Code, § 12900 et seq.)

Opinions in the above cases will be filed on:
Thursday, August 11, 2005 at 10:00 a.m.

Obviously, we will be reading Reynolds quite carefully, and because our practice includes employment matters other than wage and hour violations, we'll probably give Yanowitz a look, too. We just won't talk about it in this forum.

This is slightly off topic, but on August 8, 2005, the U.S. Court of Appeals for the Ninth Circuit heard oral arguments in the Wal-Mart sex discrimination case, Dukes v. Wal-Mart. The reason this is of interest to wage and hour practitioners is because of the unique argument Wal-Mart is making in opposition to the certification of the case as a class action by the U.S. District Court. Wal-Mart has argues that due process requires that the company be given the right to defend the claim of each class member individually, such that allowing a class action actual violates the U.S Constitution.

The plaintiffs, quite obviously, counter with the argument that such a claim has been rejected in other class action cases by every court from the District Court to the U.S. Supreme Court, and that finding in favor of Wal-Mart would essentially end the class action procedure entirely.

Brad Seligman argued for the plaintiffs, and did a fine job. Wal-Mart's counsel ran into a buzzsaw when the court complained about the arrogance and lack of civility and courtest toward the court in its brief. The argument can be downloaded and heard in its entirety here.

California voters passed Proposition 64 in November, buying into the argument of business (mostly the dirtiest industries, such as automotive repair) that Business & Professions Code § 17200 was allowing "shakedown" lawsuits wherein dirty lawyers were filing mass litigation assaults on small businesses, extracting nuisance value settlements from a large number of defendants to enrich the dirty lawyers without serving any public good.

They were right. Dirty lawyers were doing this. But the initiative's proponents were wrong in tying Business & Professions Code § 17200 representative suits to the scam. Yes, the lawyers were twisting, abusing and using that statute as their tool. But removing that proper use of that statute did not solve the problem. Why?

Because Prop 64 is preventing the proper use of Section 17200 by environmental groups, consumer advocacy groups and employee advocacy groups. But it is not preventing the same dirty lawyers from filing shakedown lawsuits.

Exhibit 1: Orange County attorney Harpreet Brar.

Brar, a 2000 admittee, and one of the "Big 5" shakedown artists targeted by the California Bar and the Attorney General, has been ordered to pay almost $1.8 million for abusing the state’s unfair business practices law by filing frivolous lawsuits against small businesses. The Orange County Superior Court also decided that Brar had repay 11 businesses a total of $11,200 in connection with the "shakedown settlements."

Brar sued hundreds of small business in Southern California based on technical and even non-existent violations in order to force their owners to pay quick settlements. For instance, according to Kevin Nguyen of Francis Nails in Redlands, California, Brar threatened to sue nail salon for using the same bottle of nail polish on more than one customer. Brar would offer to settle the matters almost immediately for $1,000, raising the cost of settlement with each new letter. "The litigation brought by Brar was not only frivolous, it was abusive," the Attorney General said. "It’s only purpose was to line Brar’s pockets with unjust profits."

Now that Section 17200 no longer aids Brar, and he's been fined and punished, business must be in the clear, right? Wrong.

In spite of the passage of Prop 64 and the imposition of an injunction, Brar filed a new lawsuit against several dozen liquor stores that charge a fee for use of their debit machines without posting the surcharge fee in the store. In this new case, in which Brar is "representing" his wife, Satinder Brar, the ground for the lawsuit is a California Financial Code provision. Pomona Superior Court Judge Daniel Buckley dismissed part of that lawsuit, and the rest will soon follow.

Brar also sued Starbucks in a class action, not as a lawyer, but as the plaintiff, using two of his colleagues as his lawyers. An Orange County Superior Court judge recently disqualified those attorneys and Brar, finding that the law firm and Brar had "significant financial relationships" and that Brar "is not and cannot ever be a proper class representative. He has brought abusive and frivolous lawsuits, had a judgment entered against him in that regard and an injunction imposed upon him by the Orange County Superior Court."

Eventually, like the Trevor Law Group lawyers, Brar will probably lose his law license, and this string of nonsense will come to an end. Hopefully, the voters and the legislature won't repeal every law Brar tries to twist for his benefit between now and then.

Now that Assembly Concurrent Resolution No. 43 has been chaptered, the Assembly and Senate have passed a resolution agreeing, making clear that the proposed regulations declarating meal and rest period violation claims to be "penalties" are inconsistent with the legislature's intent.

ACR 43 provides:

This measure would declare that the Division of Labor Standards Enforcement does not have the authority to promulgate a specified regulation relating to meal and rest periods, that this authority rests with the Legislature or the Industrial Welfare Commission, and that the specified regulation is inconsistent with existing law.

WHEREAS, Section 1 of Article XIV of the California Constitution declares, "The Legislature may provide for minimum wages and for the general welfare of employees and for those purposes may confer on a commission legislative, executive, and judicial powers"; and

WHEREAS, Pursuant to this constitutional authorization, the Legislature enacted Section 1173 of the Labor Code, conferring upon the Industrial Welfare Commission (IWC) the authority "to ascertain the hours and conditions of labor and employment in the various occupations, trades, and industries in which employees are employed in this state, and to investigate the health, safety, and welfare of those employees"; and

WHEREAS, The California Supreme Court has affirmed that the IWC "is the state agency empowered to formulate regulations (known as Wage Orders) governing employment in the State of California" (Tidewater Marine Western, Inc. v. Bradshaw (1996) 14 Cal.4th 557, 561); and

WHEREAS, Exercising its statutory powers, the IWC has promulgated 17 industry and occupational Wage Orders regulating the wages, hours, and working conditions of California employees and these Wage Orders are required by law to be posted at every workplace in California; and

WHEREAS, The IWC must follow the procedures set forth in Sections 1171 to 1188, inclusive, of the Labor Code to promulgate regulations through convening wage boards consisting of equal representation of employers and employees in a particular industry or occupation, except in instances where there has been a specific legislative mandate to follow other procedures; and

WHEREAS, By establishing the detailed IWC process the Legislature has ensured that the commission charged with establishing workplace protections for California workers does so only after a comprehensive process ensuring participation of equal numbers of employers and employees is completed in compliance with Sections 1171 to 1188, inclusive, of the Labor Code; and

WHEREAS, The Legislature has conferred upon the citizen members of these wage boards the unique authority to recommend changes in wage and hour law which are binding upon the IWC when enacted by a two-thirds vote of the wage board; and

WHEREAS, No other agency, department, or division, including the Division of Labor Standards Enforcement (DLSE), has been additionally delegated these powers to regulate wages, hours, and working conditions; and

WHEREAS, In Section 516 of the Labor Code, the Legislature reiterates this explicit grant of power to the IWC to "adopt and amend working condition orders with respect to break periods, meal periods, and days of rest for any workers in California consistent with the health and welfare of those workers"; and

WHEREAS, The DLSE has recently proposed a meal and rest break regulation at Section 13700 of Title 8 of the California Code of Regulations that would significantly diminish long-standing protections in California wage and hour law concerning the provision of meal and rest periods to employees; and

WHEREAS, The DLSE does not have the authority to promulgate a regulation that weakens the substantive protections and remedies afforded to California employees under Sections 226.7 and 512 of the Labor Code and the 17 Wage Orders; and

WHEREAS, The proposed regulation is inconsistent with existing law and regulations which require, among other protections, that the employer provide a meal break to all employees within the first five hours of work unless a statutory waiver is entered into between the employer and the employee; and

WHEREAS, The Legislature has granted DLSE discrete rulemaking authority that is limited in scope to the internal operations of DLSE and to areas of labor law enforcement that are not expressly delegated to another officer, board, or commission and the Legislature has expressly delegated authority to regulate wages, hours, and working conditions to the IWC; and

WHEREAS, Two separate entities promulgating contradictory regulations on the same subject will create confusion concerning an employee's right to meal and rest breaks; now, therefore, be it

Resolved by the Assembly of the State of California, the Senate thereof concurring, That the Legislature of the State of California hereby declares that the DLSE does not have the authority to promulgate the proposed regulation concerning meal and rest periods; and be it further

Resolved, That this authority rests exclusively with the Legislature or, in the alternative, the IWC, pursuant to legislative delegation of power; and be it further

Resolved, That the proposed regulation on meal and rest breaks is inconsistent with existing law and will create confusion concerning these rights; and be it further

Resolved, That the Chief Clerk of the Assembly transmit copies of this resolution to the Governor of the State of California, to the Secretary of the Labor and Workforce Development Agency, and to the State Labor Commissioner.

Now that this resolution has passed, the DLSE has done nothing with its proposed regulations, even though the last comment period closed on July 25.

And the proposed regulations should be abandoned. We have contended, from the time they were first proposed, that the DLSE's new proposed regulations concerning meal and rest period violations, and particularly, their proposed "regulation" interpreting Labor Code 226.7, were unconstitutional. Although Labor Code § 512 and the IWC wage orders specify that employers cannot allow employees to work more than five hours without taking a 30-minute meal period, the proposed regulations provide that a meal period may begin before the end of the sixth hour of the work period. In addition, the additional hour of pay under Labor Code § 226.7 The proposed regulations also provide that any amount paid or owed by an employer under Labor Code § 226.7 is a "penalty" and not a "wage," even though the legislative history is clear that Section 226.7 originally had both a "compensatory" element and a penalty element, and that the penalties were omitted from the final bill.

The California Supreme Court issued its opinion this morning in Grafton Partners, L.P. v. Superior Court (2005) --- Cal.4th ---, invalidating pre-dispute jury trial waivers. Such waivers were a popular "poor man's arbitration agreement" used by employers who were afraid of the occasional whacky non-appealable arbitration award, but still didn't want to subject themselves to a jury of 12 employed or formerly employed peers of the plaintiff. The holding was succinct:

At issue is Code of Civil Procedure section 631, a provision prescribing the six means by which parties to a civil lawsuit may waive their right to have their disputes adjudicated in a jury trial rather than in a court trial. Petitioners contend a contractual agreement that is entered into prior to any dispute arising between the contracting parties is not one of the means authorized by statute. In consequence, they claim, their predispute agreement that any lawsuit between them and real party would be adjudicated in a court trial, and not by jury trial, was unenforceable. The Court of Appeal agreed with petitioners’ contention, as do we....

The opinion has no bearing upon the waivers that are implicit in arbitration agreements under the California Arbitration Act or the Federal Arbitration Act ("The analogy to arbitration agreements is not persuasive. Unlike predispute jury waivers, predispute arbitration agreements are specifically authorized by statute."). The opinion did leave open the possibility that the legislature could authorize, by statute, a method for pre-dispute waivers of the right to jury trial, but no such method has been enacted, nor, in the foreseeable future, is likely to be enacted.

The full text of the opinion can be downloaded here in pdf or Word format.

The sheer volume of cases fighting to send its employees to arbitration suggests that Circuit City must be one of  the worst retail establishments to work for in California, if not the entire nation. The latest opinion, issued today by the 9th Circuit Court of Appeals (Circuit City v. Mantor) brings yet another loss to the Circuit City legal team. The 9th Circuit is so throughly familiar with Circuit City and its arbitration demands under its Associate Issue Resolution Program (AIRP) that the opinion was rendered without oral argument, under FRCP 34(a)(2).

This was the second time this case made its way to the 9th Circuit. The first time came when Mantor filed a state court action and Circuit City responded with a petition to compel arbitration in U.S. District Court, under the Federal Arbitration Act. After District Court Judge Manuel Real ordered the parties to arbitration and ordered the state court action dismissed, Mantor appealed and the 9th Circuit reversed.

After losing on appeal, Circuit City made a remarkable procedural move, filing something called a "renewed petition to compel arbitration," based upon a subsequent ruling by the same panel in EEOC v. Luce, Forward, Hamilton & Scripps (9th Cir. 2003) 745 F.3d 742. Even more remarkably, the District Court granted the "renewed petition" and dismissed the case again.

On appeal a second time, the 9th Circuit rejected the entire concept of a "renewed petition to compel arbitration," holding that

there is no such animal as a "renewed petition to compel arbitration."

So three years and nine months after first compelling arbitration, Circuit City will be back in state court, where it belonged in the first place. Congratulations to Mantor's attorney, Michael Crosby.

An appellate ruling in a recent overtime case favored Northwest Oregon and Washington automobile dealers at the expense of workers who were required to work long hours without extra pay. A federal appeals court reversed lower court decisions in Oregon and Washington holding that auto dealers could not classify finance and insurance managers aka "finance writers" as exempt workers ineligible for overtime pay. The 9th Circuit found that, under the FLSA, finance writers' work was an "integral part of the dealerships' retail business." Such workers are commonly paid by commission based on supplemental sales, such as roadside insurance plans, extended warranties, fabric guards and similar aftermarket products. (They are often found liable for consumer fraud, too, but that is a different subject matter entirely.)

In the Oregon case, Bennett v. Thomason Auto Group, the employer had been ordered to pay $75,100 in back wages to three such employees. Similar rulings went against a Ford dealership in Oregon and a Buick-Pontiac dealership in Washington. Each ruling was reversed on appeal.

In California, such employees, whose job duties include selling some of the most profitable products of the core business, would not be exempt under the administrative exemption, but they might very well be exempt under the commissioned sales exemption, which is available to employers subject to IWC wage order seven, applicable to the mercantile industry, whichn included automobile dealerships.

There is much truth to the expression that "money doesn't buy happiness." Though we like a big payday as much as the next guy, what really brings a wide smile to our faces is when we settle or win a case and start getting unsolicited letters from class members. This one (with names and personal details redacted) had us grinning from ear to ear today:

Hi, I just received the letter in the mail about the lawsuit. I have not heard about it awhile. I worked with [Jane Doe] at [company]. .... I am VERY happy to know that something is being done about the unfair practices of [company] and that the people who are involved have stuck with this and are continuing to fight.  ... I remember my [manager] saying that it was a bunch of crap and that nothing would ever come of it. He said that the type of lawyers handling [Jane Doe's] case were just out to make money off of a large company. When I asked him what was going to happpen he said "nothing, our lawyers show up by private jets and those guys show up to court driving old Volkswagon bugs" I will never forget that ... Employees were told ... that they would never see a dime of lawsuit money to discourage them from joining the class action. We were told that we were doing nothing against the law by having people work 12 hours straight with only a pee break and what I fear most is that the kitchen crew did not understand their right to a break because most of the time not one manager could speak spanish when their crew back there were 99% hispanic. [Managers told] the crew that by joining the lawsuit they would suffer financially because they would not be paid for breaks; if they won they would really lose. I could go on for hours about big and small injustices I have seen, been a part of, and been the victom of during the course of my employment at [company]. What I truly want to say, is Thank You for following through, Thank You for giving people a voice that did not have one. I appreciate the time and effort that this has taken and I admire [Jane Doe] for standing up for what is right when that wasn't the easiest thing to do. ... Thank You for listening.

It's funny how different the tune is from the employer, depending on their audience. If speaking to employees, the plaintiff's lawyers are depicted as bumbling fools who can't afford a car that runs, who will be easily dispatched by the company lawyers, to whom the company will happily pay such a fortune that the lawyers can afford to take a private jet to court. But when lobbying their legislators, employers depict the plaintiff's lawyers as greedy, rich opportunists, making millions off legal technicalities. We are quite neither.

So what are we really? Well, in our case, we are former restaurant workers who went to law school and now fight to eliminate exploitation of restaurant workers. It's an impossible task, but one worth attempting. And no, we don't drive old Volkswagons, but in retrospect, it might have been even more rewarding if we had.