Wage Law

We just learned that the class action for Verizon advertising sales reps has been certified by the Orange County Superior Court.  In Gabriel v. Verizon Communications Inc. (OCSC Case No. 04 CC 00591), three former Verizon telephone directory advertising sales representatives allege that the company unlawfully deducted business losses from their wages by taking "charge backs" against incentive compensation revenues lost when a customer does not pay for its ads or when the company gives discounts or credits to its advertisers for business reasons, whether or not the discount was due to the sales rep's own mistake.

Suppose you sue, not for unpaid wages, but for discrimination. Part of your claim of damages is that you lost earnings from the time you were fired, or forced to quit, or got demoted. You also might seek some front pay -- the lost earnings which will follow. Finally, you want some general damages, such as emotional distress damages. After a long battle in court, you settle. The employer is going to pay you $40,000, including back and front pay, but not including any punitives damages. The settlement agreement says you will get "forty thousand ($40,000) less all lawfully required withholdings." How much might you expect?

In Jack Rivera's case, $25,140 was about right, after the entire payment was processed as payroll, with deductions for state and federal income tax withholdings, plus FICA. Rivera cried foul, and refused to dismiss his case, even after cashing the check. Rivera argued that the payment including compensation for physical injuries, and should have been excluded from his taxable income under 26 U.S.C. Sec. 104(a)(2), but that even if it was all taxable, it was not subject to withholding. The employer responded with a motion to dismiss, which the trial court granted. The pay was clearly not intended to compensate him for physical injuries. It was in the nature of back pay, said the U.S. District Court.

The 9th Circuit agreed, finding that there was no basis for excluding the pay from Rivera's income, and that the trial court had reasonably construed the pay as compensation for back pay. Rivera v. Baker West, Inc. (9th Cir. 2005) 430 F.3d 1253. The moral of this story: if some of the money is intended to cover attorney's fees, general damages or other non-wage compensation, expressly include it in the agreement (but don't bother trying to characterize it as physical injury; it won't fly).

Among the ten largest verdicts in the nation in 2005, only one was a wage and hour case. That one was the Wal-Mart break case, Savaglia v. Wal-Mart Stores, Inc. Not surprisingly, we learned of this from the Wurth firm, which represented the Wal-Mart employees in that case.

Last week, in Best Buy Stores, L.P. v. Superior Court, the 4th District Court of Appeal upheld an Orange County Superior Court order authorizing discovery in a class action case to locate a suitable class representative in cases where the existing class representative has been found to be unsuitable or, in this case, while the court is in the process of determining the suitability of the putative class representative.

In Best Buy, the trial court (Judge Jonathan Cannon) issued an order to show cause why the case should not be dismissed due to the putative class representative's joint status as class counsel. After last year's published opinion in Apple Computer, Inc. v. Superior Court (2005) 126 Cal.App.4th 1253, it is well established that a conflict of interest prohibits a lawyer from serving both as class representative and as counsel for the class." Class counsel responded with a "motion compelling precertification discovery to seek class representatives," which proposed to send a notice to the class informing them of the existence of the lawsuit, and inviting them to participate as class representatives. Judge Cannon granted the request and the defendant appealed by filing a petition for a writ of mandate.

Best Buy argued four points: (1) that the contemplated contact between class counsel and the potential substitute plaintiffs would constitute prohibited solicitation; (2) even if another plaintiff was found, class counsel would continue to control the litigation; (3) Judge Cannon violated the canons of judicial ethics by "conspiring with [counsel] to facilitate an illegal solicitation"; and (4) the letter to be sent to Best Buy’s customers violated their privacy rights.

Each ground was rejected. The Rules of Professional Conduct do not prohibit written communications soliciting clients for representation in legal matters. Only phone and in-person contact is barred. Class counsel would be no more likely to control the litigation on behalf of a new plaintiff than any counsel representing any plaintiff. With respect to the privacy issue, the court ordered the letter revised for the further protection of the recipients’ privacy, so that only those who responded with interest in joining the suit would have their names disclosed to class counse. As to the accusation against Judge Cannon, the appellate court wrote "We not only reject the proposition that the trial court violated the canons of judicial ethics, but caution counsel against making such a serious, unsupported allegation."

The case did not involve employment issues, but should be of interest to wage and hour class action attorneys because the issue of representative suitability is often used by defense counsel to try to turn class actions into individual lawsuits. However, it is well-established (even if trial courts sometimes disregard the obligation) that “should the trial court conclude that plaintiff cannot suitably represent the class, it should afford [him] ‘the opportunity to amend [his] complaint, to redefine the class, or to add new individual plaintiffs, or both, in order to establish a suitable representative.’  [Citation.]”  (Kagan v. Gibraltar Sav. & Loan Assn. (1984) 35 Cal.3d 582, 596.)

The full text of Best Buy can be read here in pdf or Word format.

First shift production workers at Northrop Grumman's El Segundo manufacturing facility will share in a $2 million settlement involving meal period violations dating from January 2001 to April 2004, pursuant to a settlement approved by a court-appointed referree this afternoon. The settlement resolves two cases pending in the Los Angeles County Superior Court. Our law firm is one of two firms involved in the action. The primary claims alleged in both cases arose from non-compliant meal period scheduling at the facility. Approximately 900 current and former production workers will be eligible to share in the proceeds.

The settlement will require the company to mail claim forms to all eligible employees. Workers must submit these forms in order to be eligible to receive their payments under the settlement. More information about the lawsuit can be obtained at a website we set up for the employees. We will post copies of the claims forms and notices as soon as they are printed, which will be sometime in April.

Source/Contact: Walsh & Walsh, P.C. Michael J. Walsh, Esq. 420 Exchange, Suite 270 Irvine, CA 92602 Tel: (714) 544-6609 Fax: (714) 544-6621 E-mail: [email protected]. The employees were represented by Walsh & Walsh, P.C. (Michael J. Walsh and Mark A. Walsh) of Irvine, California, Langford & Langford, APLC (Michael S. Langford and Karin A. Langford) of Santa Ana, California.

California Labor Code § 226 governs what employers must include on their wage statements that accompany payroll checks. Section 226(a) sets forth the list of necessary information:

an accurate itemized statement in writing showing (1) gross wages earned, (2) total hours worked by the employee, except for any employee whose compensation is solely based on a salary and who is exempt from payment of overtime under subdivision (a) of Section 515 or any applicable order of the Industrial Welfare Commission, (3) the number of piece-rate units earned and any applicable piece rate if the employee is paid on a piece-rate basis, (4) all deductions, provided that all deductions made on written orders of the employee may be aggregated and shown as one item, (5) net wages earned, (6) the inclusive dates of the period for which the employee is paid, (7) the name of the employee and his or her social security number, except that by January 1, 2008, only the last four digits of his or her social security number or an employee identification number other than a social security number may be shown on the itemized statement, (8) the name and address of the legal entity that is the employer, and (9) all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee. The deductions made from payments of wages shall be recorded in ink or other indelible form, properly dated, showing the month, day, and year, and a copy of the statement or a record of the deductions shall be kept on file by the employer for at least three years at the place of employment or at a central location within the State of California.

If the employer does not comply, penalties may be imposed under Labor Code § 226(e), which states:

An employee suffering injury as a result of a knowing and intentional failure by an employer to comply with subdivision (a) is entitled to recover the greater of all actual damages or fifty dollars ($50) for the initial pay period in which a violation occurs and one hundred dollars ($100) per employee for each violation in a subsequent pay period, not exceeding an aggregate penalty of four thousand dollars ($4,000), and is entitled to an award of costs and reasonable attorney's fees.

So what does it mean to be knowing and intentional? According to Los Angeles County Superior Court Judge Tricia Ann Bigelow, you have to show not only that the defendant knew and intended to put incorrect information on the pay stub, but also that the defendant knew about Section 226, and intended, by its actions, to willfully violate its terms.

In a ruling on a motion for summary adjudication in a case entitled Mutec v. Huntington Memorial Hospital , Judge Bigelow granted summary adjudication of the claim for damages (penalties) against the employer because the plaintiffs did not have evidence that the employer knew about Section 226, and how its actions violated section 226.

Judge Bigelow accepted as true the defendant's self-serving claims that, although their violations of Section 226 were "knowing," and there was no evidence that the mistakes were inadvertent, they did not mean to violate the statute, specifically, and therefore, the violations were not "knowing and intentional." In other words, knowingly provided false information on a paystub is not necessarily an intentional violation of the law. The court agreed with their analysis, and focused on the lack of evidence that the violation of 226 was motivated by a desire or a "deliberate decision to violate Labor Code § 226."

The ruling was a bit surprising because normally, where the issue is the moving party's intent, or where the defendant is the sole witness to the facts stated in its declaration, the court has discretion to deny summary judgment so that the moving party's credibility can be determined at trial (Code of Civil Procedure§ 437c(e)) and most judges, in fact, do let such disputes get resolved by trial.

More remarkably, however, the statement of decision began with this remarkable preface that would have made us certain that the employees were going to prevail:

"Huntington concedes that in Phillips v. Huntington Memorial Hospital (2005) 2005 Ca;.App. LEXIS 7880 the court of appeal determined that Huntington's pay stubs violated Labor Code § 226."

In the Phillips case, the trial court had determined that Huntington Memorial Hospital's pay stub policies did not violate Section 226. However, on appeal, the Court of Appeal reversed, holding "we necessarily reject the hospital's contention that section 226 permits it to knowingly provide incorrect figures for "gross wages and "total hours worked," thereby putting the burden on employees to determine the correct amounts."

Judge Bigelow, however, said that the conclusions of the appellate court should be disregarded.

The DCA [Court of Appeal] found that the defendant has "knowingly provide incorrect figures for "gross wages and "total hours worked," thereby putting the burden on employees to determine the correct amounts, [but] the evidence does not support the statement."

We had never seen a trial court purport to correct the Court of Appeal, but it seems that this is precisely what the judge did here. If this ruling stands, there is no such thing as a provable violation of Labor Code 226. If an existing court of appeal opinion finding that a defendant knowingly put false information on their paystubs is not enough, nothing will ever be enough. We wish the plaintiffs and their counsel the best of luck on appeal.

On a side note, the plaintiffs bolstered their claim with an expert declaration, to which no objection was made or sustained, by Donna Dell. Ms. Dell, the former Labor Commissioner (appointed by Arnold Schwarzenegger) does not have a reputation as a great friend of labor, so her declaration in support of the plaintiffs makes for fascinating reading.

At 3L Epiphany, a law student is assembling a list of every legal blog in the U.S. We are pleased to have been found easily. The list is assembled alphabetically, so we are at the beginning of the W section, where we have been since we were in preschool.

This afternoon, the Supreme Court denied review of Armenta v. Osmose, Inc., the 2005 case holding that minimum wage appies on an hour-by-hour basis in California. California workers are entitled to minimum wage for every hour they work. Congratulations to James Cordes and Carol Janssen, who represented they employees in that case.

Though we saw only limited wiggle room after Reynolds v. Bement (2005) 36 Cal.4th 1075, there was a school of thought that said individual officers and directors could be held responsible for failure by a corporation to pay wage, if the claim was made directly by the Labor Commissioner. In Jones v. Gregory (March 14, 2006, G030347) the Fourth District Court of Appeal affirmed that there is no liability as an "employer" for officers and directors whose companies fail to pay wages, unless there is an allegation that the person was the entity, or that the entity was an alter ego of the person. The holding states:

William Gregory appeals from a judgment holding him individually liable for his corporation’s “delinquencies in paying outstanding wages, expenses, interest and penalties, not because he ‘did business as’ or through any ‘veil-piercing’ analysis, but simply because he was a ‘corporate officer who ha[d] operational control of the corporation’s covered enterprise,’” quoting Lopez v. Silverman (S.D.N.Y 1998) 14 F.Supp.2d 405, 412-413. The Labor Commissioner, by the Division of Labor Standards Enforcement (DLSE), brought this suit against Gregory on behalf of the corporation’s unpaid California employees. Relying on assertedly analogous federal authorities, DLSE argued Gregory fell within the meaning of “employer” in various Labor Code wage provisions and Industrial Welfare Commission (IWC) wage orders. Attacking the judgment, Gregory contends California law does not support imposing personal liability on corporate officers or agents as “employers.” Guided by our Supreme Court’s recent decision in Reynolds v. Bement (2005) 36 Cal.4th 1075 (Reynolds), we agree.

The DLSE argued that Reynolds was limited to civil actions brought by private litigants. In Reynolds, the Supreme Court made the curious statement that they "have no occasion in resolving this private dispute to address questions concerning DLSE’s use, in administrative proceedings, of the IWC employer definition...." However, the 4th District found that the distinction "evaporates" when the DLSE files its action in court rather than before an administrator. The court even added that this distinction "may be an empty one, since Berman hearings are reviewed de novo in superior court at request of either party."

This case doesn't much affect employees' lawyers, since most of us are not the Labor Commissioner, but there is some interesting language for any person who also found Reynolds interesting. You can download the full text of the opinion here in pdf or Word format.

We wish they had an organization like Young Worker's United back when we were bussing tables to pay our way through college. For that matter, we wish there had been websites like the Stained Apron. We wish there had been class action lawsuits enforcing overtime, break and uniform laws.

Instead, when we were required to do things like show up ten minutes before work to attend unpaid meetings about daily specials and side work, or pay $20 for cheap T-shirts with the restaurant's logo and the monthly theme Valentine's Day in February, St. Patrick's Day in March, etc., all we could do was gripe and complain. They literally laughed at us and said "So, sue us." They tend not to say that to workers today, though.

Here again, the public availability of tentative ruling in Orange County lets class action practitioners see what the courts are doing in other cases, and the rulings continue to show that class action settlements are closely scrutinized here in our home county. In Shields v. PPS Parking Inc., a recent application for final approval of class settlement was, at least temporarily, denied.

There is no supporting evidence regarding the amount of attorney hours spent on this case. The action was filed eight (8) months ago. There has not been any law and motion or discovery disputes. There is nothing to indicate why the claimed 135.75 attorney hours is reasonable or necessary. The result for the class was not very good. Only 19% of the eligible class members filed a claim. (Yet counsel is asking for 39% of the fund.) There is no documentation with regard to the named Plaintiff enhancement of $5,000.00. There is no substantiation as to the costs of the administrator or Plaintiffs’ costs.

The parties will get another chance to explain why the settlement should be approved, but it is entirely possible that the terms will change. We like that, because such reviews given credence to the class action system, and show that the system can and does work properly when the courts and the lawyers do what the law expects of them.

Although the depublication requests are opposed, the employees in National Steel & Shipbuilding have filed a notice of non-opposition to the petition for review. Presumably, they want to be heard when the Supreme Court makes its decision on meal and rest break premium pay in the Murphy case.

The Supreme Court has already granted review in the first significant published case dealing with how Labor Code 226.7 pay should be classified. There are two other published cases which analyze the issue. A petition for review was filed in National Shipbuilding a few days ago. Now a petition has been filed in Mills  v. Superior Court. We will be dumbfounded if this petition is not granted, though it may be given a "grant and hold" status rather that a full review in coordination with the determination of Murphy v. Kenneth Cole Productions.

As we expected, Judges Cannon and Sundvold in Orange County are back to ruling that 226.7 pay is a wage. In one ruling last week, Judge Cannon wrote:

The merits of this demurrer with regard to the meal and rest break claims turns on whether Plaintiffs are seeking a “penalty” or merely damages for unpaid “wages.” The California Supreme Court has granted review in Murphy v. Kenneth Cole Productions, Inc. (2005) 134 Cal.App.4th 728. Hopefully the question of whether the §226.7 remedies constitute a penalty or a wage will be shortly resolved. Until then, this Court considers the remedies to be wages. Therefore, the Demurrer will be overruled in its entirety. IF and when the Supreme Court comes down with a contrary position, Defendants may again address the issue.

Judge Sundvold sees the issue the same:

As this Court has ruled many times, the better reasoned cases are those that find that the meal and rest break payments are wages and not penalties. The National Steel decision should therefore be followed. Until the Legislature changes the law or the Supreme Court decides to determine otherwise, the Demurrer on the grounds of wages v. penalties and the Motion to Strike will be denied.

The other three judges, we have seen or heard, have similar views: Judge Velasquez calls the pay a "hybrid" that is at least part wage (not unlike the view in NASSCO); Judge Bauer was calling it a wage when last we heard; and Judge Colaw is inclined to stay things until the Supreme Court rules.

Once again, we go slightly off topic and into the broader subject of employment decisions in general. We were disheartened by the apparent pro-employer views of Justice Roberts, but were somewhat encouraged when the first case decided by the Roberts court was a pro-worker wage and hour decision in the IBP case. We were similarly disheartened by Justice Alito's apparently similar pro-employer views, and were also somewhat encouraged by his last 3rd Circuit decision. Now, the first employment law case decided by the Roberts court with Justice Alito has been handed down, and it was an interesting per curiam decision favoring workers.

On February 21, 2006, in Ash v. Tyson Foods, Inc., the court remanded a case to the 11th Circuit for further review of its holding that a verdict in favor of two employees was correctly vacated.

Petitioners Anthony Ash and John Hithon, both African-Americans, were superin­tendents at a poultry plant owned and operated by re­spondent Tyson Foods, Inc. in Alabama. They sought promotions to shift manager positions, losing out to two white males. They sued for race discrimination.

At the close of the plaintiffs’ evidence, Tyson moved for judgment as a matter of law. The District Court denied the motion, and the jury found for petitioners, awarding compensatory and punitive damages. The em­ployer renewed its motion for judgment under Rule 50(b).The District Court granted the motion and, in the alterna­tive, ordered a new trial as to both plaintiffs under Rule 50(c). The employees appealed, and the 11th Circuit affirmed in part and reversed in part. 129 Fed. Appx. 529, 536 (2005) (per curiam). As to Ash, the court found the trial evidence insufficient to show pretext. As to Hithon, the court reversed, finding there was enough evidence to go to the jury. The court, however, affirmed the District Court’s alternative remedy of a new trial under Rule 50(c), holding that the evidence supported neither the decision to grant punitive damages nor the amount of the compensatory award, and thus that the District Court did not abuse its discretion in ordering a new trial. The Supreme Court disagreed.

"[T]he Court of Appeals erred in two respects, requiring that its judgment now be vacated and the case remanded for further consideration.

First, there was evidence that Tyson’s plant manager, who made the disputed hiring decisions, had referred onsome occasions to each of the petitioners as “boy.” Peti­tioners argued this was evidence of discriminatory ani­mus. The Court of Appeals disagreed, holding that “[w]hile the use of ‘boy’ when modified by a racial classifi­cation like ‘black’ or ‘white’ is evidence of discriminatory intent, the use of ‘boy’ alone is not evidence of discrimina­tion.” Id., at 533 (citation omitted). Although it is true the disputed word will not always be evidence of racial animus, it does not follow that the term, standing alone, is always benign. The speaker’s meaning may depend on various factors including context, inflection, tone of voice, local custom, and historical usage. Insofar as the Court of Appeals held that modifiers or qualifications are necessary in all instances to render the disputed term probative of bias, the court’s decision is erroneous.

Second, the Court of Appeals erred in articulating the standard for determining whether the asserted non­discriminatory reasons for Tyson’s hiring decisions were pretextual. Petitioners had introduced evidence that their qualifications were superior to those of the two successful applicants. (Part of the employer’s defense was that the plant with the openings had performance problems and petitioners already worked there in a supervisory capac­ity.) The Court of Appeals, in finding petitioners’ evidence insufficient, cited one of its earlier precedents and stated: “Pretext can be established through comparing qualifica­tions only when ‘the disparity in qualifications is so ap­parent as virtually to jump off the page and slap you inthe face.’ ” Ibid. (quoting Cooper v. Southern Co., 390 F. 3d 695, 732 (CA11 2004)).

Under this Court’s decisions, qualifications evidence may suffice, at least in some circumstances, to show pre­text. See Patterson v. McLean Credit Union, 491 U. S. 164, 187–188 (1989) (indicating a plaintiff “might seek to demonstrate that respondent’s claim to have promoted abetter qualified applicant was pretextual by showing that she was in fact better qualified than the person chosen forthe position”), superseded on other grounds by 42 U. S. C. §1981(b); Texas Dept. of Community Affairs v. Burdine, 450 U. S. 248, 259 (1981) (“The fact that a court may think that the employer misjudged the qualifications of the applicants does not in itself expose him to Title VII liabil­ity, although this may be probative of whether the em-ployer’s reasons are pretexts for discrimination”); cf. Reeves v. Sanderson Plumbing Products, Inc., 530 U. S. 133, 148 (2000) (“[A] plaintiff’s prima facie case, combined with sufficient evidence to find that the employer’s as­serted justification is false, may permit the trier of fact to conclude that the employer unlawfully discriminated”).

The visual image of words jumping off the page to slap you (presumably a court) in the face is unhelpful and imprecise as an elaboration of the standard for inferringpretext from superior qualifications. Federal courts, including the Court of Appeals for the Eleventh Circuit in a decision it cited here, have articulated various other standards, see, e.g., Cooper, supra, at 732 (noting that “disparities in qualifications must be of such weight and significance that no reasonable person, in the exercise ofimpartial judgment, could have chosen the candidateselected over the plaintiff for the job in question” (internalquotation marks omitted)); Raad v. Fairbanks North Star Borough School Dist., 323 F. 3d 1185, 1194 (CA9 2003) (holding that qualifications evidence standing alone may establish pretext where the plaintiff’s qualifications are “ ‘clearly superior’ ” to those of the selected job applicant); Aka v. Washington Hospital Center, 156 F. 3d 1284, 1294 (CADC 1998) (en banc) (concluding the factfinder may infer pretext if “a reasonable employer would have found the plaintiff to be significantly better qualified for thejob”), and in this case the Court of Appeals qualified its statement by suggesting that superior qualifications may be probative of pretext when combined with other evi­dence, see 129 Fed. Appx. at 533. This is not the occasion to define more precisely what standard should govern pretext claims based on superior qualifications. Today’s decision, furthermore, should not be read to hold that petitioners’ evidence necessarily showed pretext. The District Court concluded otherwise. It suffices to say here that some formulation other than the test the Court of Appeals articulated in this case would better ensure that trial courts reach consistent results.

The Court of Appeals should determine in the first instance whether the two aspects of its decision heredetermined to have been mistaken were essential to its holding. On these premises, certiorari is granted, the judgment of the Court of Appeals is vacated, and the case is remanded for further proceedings consistent with this opinion.

So there you have it -- another pro-worker opinion from the Roberts Court.

Morgan Stanley announced yesterday that it had agreed to pay $42.5 million to settle a class action lawsuit filed on behalf of 5,000 California brokers and trainees who claimed that they had been denied overtime pay and had been forced to pay the securities firm's administrative expenses. U.S District Judge Roger T. Benitez will oversee the settlement.

The employees were represented by a group of lawyers, including Mark Thierman, who was quoted in the Los Angeles Times, saying "I think that there's got to be a change in the way the industry pays brokers." Thierman is correct. Perhaps the settlement of this case, as well as similar cases against UBS and Merrill Lynch, will mark a change in the way brokers can be chewed up and spit out by their employers.

The firm issued the usual denial of liability, stating: "We believe financial advisers are exempt professionals under the law and should not be paid on an hourly basis or be forced to keep track of their work time. However, we have settled this litigation to put the matter behind us."

Although the IRS view of meal and rest break premium pay will not control the current debate headed to the California Supreme Court regarding its characterization as a wage or a penalty, it is still important to know how the IRS views such pay. For example, employers often like to pay settlements of meal and rest break pay by issuing lump sum payments, without withholding, and later reporting the expense with a form 1099. Then they ask the employees to agree to indemnify the employer if the IRS later assesses penalties. Thus, it is important for employees' counsel to know if the IRS would find fault with such an arrangement. So how do the feds see it?

It is a wage.

In a March 2005 opinion letter, an assistant chief counsel for the IRS provided this analysis:

You have asked whether a payment required to be made under section 226.7 of the California
Labor Code (Labor Code) is a wage payment subject to the Federal Insurance Contributions Act (FICA), Federal Unemployment Tax Act (FUTA), and income tax withholding provisions of the Internal Revenue Code (Code).

Under a proposed regulation promulgated by the California Division of Labor Standards Enforcement (DLSE), any amount paid or owed by an employer to an employee under Labor Code section 226.7(b) for failing to provide the employee a meal period or rest period is a penalty and not a wage. Thus, the employer is not required to include the additional hour of pay required by section 226.7(b) in calculating wages for state employment tax purposes.

Generally, for FICA and FUTA purposes, the term “wages” means all remuneration for employment, unless specifically excepted. The provisions relating to the withholding of income tax contain a similar definition. None of the exceptions to the definition of wages for purposes of FICA, FUTA and income tax withholding are applicable to the additional hour of pay authorized by section 226.7(b) of the Labor Code. Additionally, the regulations that implement the Code provide that the name by which the remuneration for employment is designated is immaterial. See Employment Tax Regulations sections 31 .3121 (a)-1 (c), 31 .3306(b)-I (C), and 31 .3401(a)-i (a)(2). Thus, the characterization of the additional hour of pay as a penalty by the proposed DLSE regulation has no bearing on whether the payment is wages for purposes of FICA, FUTA or income tax withholding.

Although the employees in this case may not perform services directly related to receipt of the additional hour of pay, the payment arises from the employment relationship and is analogous to the “idle time” payments made by the employer in Rev. Rul. 76-217, 1976-1 C.B. 310. Under the facts of that ruling, an employer paid its employees for a minimum number of hours each pay period whether the employees worked less than the minimum number of hours or performed no services at all. The ruling concluded that the idle time payments made to employees are remuneration for employment and are wages for purposes of FICA, FUTA and income tax withholding.

Thus, for at least some purposes, such pay is a wage. This opinion does not address whether sums allocated to interest or other penalties should be treated as wages.

Later this month, the Supreme Court is expected to grant or deny review of an excellent appellate decision in the case entitled Armenta v. Osmose, Inc., which was published on December 29, 2005. Armenta held that minimum wage aplpies on an hour-by-hour basis in California, rejecting the application of the method of "averaging" wages over a week to determine if minimum wage has been paid. The latter method is permissible under federal standards.

The plaintiffs in Armenta were union workers whose CBA (collective bargaining agreement) provided that employees would be paid wages of $9.08 to $20.00 per hour. Work was classified as "productive" or "nonproductive." Productive time was time spent maintaining utility poles for the employer. Nonproductive time was everything else, including travel time, maintenance work and paperwork. Essentially, the nonproductive was non-paid time. The employer argued that the average wage for each worker was more than $6.75 per hour, after including all time and all compensation. The trial court found that this violated California law, even though minimum wage averaging is permissible under the FLSA (Fair Labor Standards Act), if the employer does not pay at least the minimum wage for all hours worked in the pay period. The appellate court affirmed the decision.

The employer filed its petition for review on February 7, 2006. Armenta has filed its answer, and the petition should be fully briefed next week. The primary argument for the review or depublication requests are that the case conflicts with a U.S. District Court case entitled Medrano v. D'Arrigo Bros. of California (ND Cal. 2000) 125 F.Supp.2d 1163 (decided by the same judge who recently made the news by finding California method of execution to be unconstitutional). We see this conflict as a rather weak one. When a published California appellate opinion conflicts with a decision by a federal trial court, the California case controls. Moreover, the Armento case involves hourly wages, whereas the Medrano case pertained to piecemeal work. Frankly, we do not see how, under California law, one can argue that a person can work on an hourly wage basis for any given hour and be paid less than $6.75.

Interested persons can send letters to the Supreme Court urging them to grant or deny review. The letters should be addressed to the Honorable Chief Justice Ronald M. George and Honorable Associate Justices, Supreme Court of California, 350 McAllister Street, San Francisco, CA 94102-4783. Copies must be served upon the attorneys for the petitioner and the respondent, whose addresses can be found here.