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June 2006

Trial Court Invalidates General Release of Overtime Claims

One of the tactics employers often use to get around overtime class actions is the standard general release upon termination. We have encounted a few of these, and employers generally use the release as a bargaining chip to try to minimize the settlement. Most do not try to test the validity of the release in court. Hence, we know of few actual court decisions in which such releases have been considered. The most recent was a San Mateo County case in which Judge Weiner held that the releases were not valid, allowing an overtime class action to proceed. The ruling includes a decent analysis of Labor Code § 206.5. We have a copy of the order if you'd like to read it.

Harris v. Investor's Business Daily, Review Denied

The California Supreme Court on Wednesday denied a petition for review in Harris v. Investor's Business Daily, Inc. (2006) 138 Cal.App.4th 28.

In Harris, aggrieved telemarketers alleged Fair Labor Standards Act (29 U.S.C. §§200 et seq.) claims as the underlying basis for a UCL claim under Business & Professions Code § 17200. Investor's Business Daily argued that the UCL claim was preempted by the FLSA, in that FLSA collective actions required members to opt in rather than the typical class action opt out procedures. The Court of Appeal found no preemption, and therefore reversed the trial court's order sustaining a demurrer. The Court of Appeal also reversed a summary adjudication order, on the ground that the defendant had not proven both that commissions made up more than half of the telemarketers' compensation, and that they received more than one and one-half times the minimum wage. Finally, the Court of Appeal reversed a summary adjudication order determining that the employer's chargeback policy was lawful under Labor Code § 221.

Our Strangest Settlement Ever

That Britney Spears story we mentioned yesterday brought back some old and fond memories. We have enjoyed the privilege of litigating wage claims against very famous people from time to time. Our most curious settlement ever occurred in a wage case where we represented the personal assistant of an extremely famous person who will undoubtedly still be famous 500 years from now. During the settlement conference, when we got to be about $10,000 apart, our client became frustrated and observed that the defendant could easily make up the $10,000 difference just by signing his name 100 times. What, then, we asked, if he agreed to sign his name 100 times and we were done with it? In an age of eBay and other efficient markets, the client thought it might work.

The judge, the defense lawyer and his client all looked at us like we were crazy when we made that our "last and best offer" at the end of the day. The negotiations then got even stranger.

Them: He'll sign 50 times. Not 100.
Us: Okay, but then he has to sign 50 of those limited edition thingies.
Them: Done.

Our fee on the 50 signed limited edition thingies was, believe it or not, a percentage of the signed limited edition thingies. We donated some, sold some and hung a few as objects d'art in the office.

Britney Spears To Arbitrate Wage Claims

According to an Associated Press report, a Los Angeles judge has ruled that three former security guards employed by companies operated by Britney Spears (Britney Brands Inc. and Britney Touring Inc.) must take their overtime wage claims to arbitration. While we empathize with plaintiffs Silas Dukes, Lonnie DeShawn Jones and Randy Jones, as well as their lawyer, Stephen Madoni, we enjoy the fact that this court ruling has people in the United Kingdom and all over the world talking about California wage and hour law. Maybe our kids' penpals in England will read about it.

Starbucks Faces New Overtime Class Action

Steve White, a former manager at two Starbucks stores in California, has filed a new class action against the Seattle coffee seller, alleging that supervisors were not paid overtime and were denied meal and rest breaks. The case was filed June 21, 2006, in U.S. District Court in San Francisco, seeking relief for several thousand managers who worked at California Starbucks stores within the past four years.

In 2002, Starbucks paid $18 million to settle an overtime lawsuit filed in California on behalf of store managers and assistant managers. After that settlement, Starbucks managers were converted to hourly wage earners. White's attorney, Scott Edward Cole of Oakland, has been quoted by various news sources suggesting that Starbucks Corporation's current compensation arrangement with managers is a "gimmick" or an "end run around California's wage laws." The lawsuit alleges off-the-clock work by supervisors, failure to provide meal and rest periods, and failure to provide accurate and complete wage statements.

Dollar Tree Stores Argues Over Managers' Personal Liability For Penalties. If You Guessed They Argued Against Such Recoveries, You Guessed Wrong.

Last year, the holding in Reynolds v. Bement (2005) 36 Cal.4th 1075 put to rest most direct wage claims employees might make against individuals in connection with any failure by a corporate defendant to pay wages. The Supreme Court deferred, however, expressing any opinion about whether employees could assert penalty claims against the corporate officers and individuals responsible for the wage violations. Some plaintiffs still pursue such claims, while employers invariably discount any reasonable likelihood that individuals will be held personally liable for any part of any wage claim against a corporation, absent a finding of alter ego; but amazingly, not all employers and not all employers' counsel argue against such personal liability.

In our pending class action against Dollar Tree Stores, Inc., the employer and its counsel (attorneys with the defense firm Thelen, Reid & Priest, LLP) argued vociferously that Dollar Tree's managers could be found liable, individually, for civil penalties, writing that

Plaintiff ... overlooks key sections of the Labor Code which provide for the imposition of penalties against corporate agents ... if they fail to permit employees to take rest and meal breaks. See Cal. Lab. Code §§ 558, 2966.

Plaintiff ... completely misconstrues the holding in Reynolds v. Bement (2005) 36 Cal.4th 1075. ... While the Reynolds court did conclude that "corporate agents acting within the scope of their agency are not personally liable for the corporate employer’s failure to pay its employees’ wages," the court also noted that its holding did not preclude employees ... from recovering penalties against corporate agents. Reynolds, supra, 36 Cal.4th at 1087 and 1089. Specifically, the court stated that "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."  Id. at 1189. The court further stated that "the Legislature has provided that aggrieved employees may under certain circumstances maintain civil actions to recover such penalties." Id. Accordingly, under Reynolds, Plaintiff could conceivably seek to recover penalties ... pursuant to Sections 558 and 2699 of the Labor Code for ... alleged failure to provide her rest and meal breaks.

Why would an employer want to argue such a thing? In this case, it was a lawyer's tactical maneuver, trying (unsuccessfully) to disqualify a member of our legal team who had previously represented a Dollar Tree manager. Nonetheless, it was a curious move that probably wouldn't be well received by most managers and officers at most corporate employers.

Another Broker Overtime Settlement: Citigroup

Citigroup's and its Smith Barney brokerage group have agreed to pay $98 million to settle overtime and expense reimbursement claims asserted in a class action filed on behalf of several thousand current and former brokers. The settlement, reached last month in a case pending in the U.S. District Court, Northern District of California, is another obtained by Nevada attorney Mark Thierman and his legal team that also secured impressive settlements against Morgan Stanley, Merrill Lynch and UBS. As in the prior cases, the brokers were classified as exempt administrative employees, but their job duties actually made them more akin to non-exempt salespeople. Thierman is currently preparing similar cases against more than a dozen other retail brokerage firms with similar compensation arrangements.

First Circuit Joins California On Class Action Bans in Arb Agreements

We just read an interesting class action arbitration decision case from the First Circuit. In Kristian v. Comcast Corp. (1st Cir. 2006) __ F.3d __, Apr. 20, 2006, WL 1028758, the First Circuit Court of Appeals held that a class action ban in an arbitration clause was unconscionable. According to the plaintiff's lawyers,

The Court of Appeals pointed to evidence that the ban deprived subscribers of any practical means of recovering overcharges resulting from Comcast's alleged antitrust violations. The Court also invalidated provisions that prohibited treble damages and attorneys' fees, both of which federal antitrust law entitles prevailing plaintiffs to recover.

We find the opinion, which can be read in full here, to be quite interesting in that it agrees with the California Supreme Court's prior holdings that, under state law, such bans are unconscionable. Defendants often argue, rarely with success, that the Federal Arbitration Act trumps such views by state courts. The Kristian holding was based upon federal law, even considering the implications of Green Tree Financial Corp. v. Bazzle (2003) 539 U.S. 444, finding that such clauses prevent the vindication of statutory rights under state and federal law. Nevertheless, the arbitration agreements contain savings clauses that provide for severance of these invalid provisions. With these provisions severed, the arbitration can go forward.

In that sense, Comcast succeeded, because the forum for the class action will be an arbitrator's office. However, its true goal of eliminating the class action liability was not achieved.

How Not To Sue To Recoup Lost Wages

In an unpublished opinion in the case of Utgard v. Employment Development Department, (G035811, Superior Court. No. 04CC09382), the 4th District Court of Appeal affirmed Orange County Superior Court judge Gregory Munoz's order sustaining a demurrer by the Employment Development Department (EDD) and the Department of Industrial Relations (DIR) for denial of unemployment benefits and failure to act on a claim for nonpayment of wages and unfair labor practices.

In connection with the wage portion of the claims, the plaintiff, representing himself, filed 10 complaints with the Labor Commissioner and the DIR, in the form of mere emails and letters, for unpaid wages and unfair labor practices in violation of the Labor Code. He alleged they were never answered, and thus, he filed a complaint against the DIR for “due process,” “negligence,” and “misfeasance.” After the court sustained a demurrer without leave to amend as to all causes of action except negligence (we are curious as to how that one remained), the plaintiff filed a second amended complaint with two causes of action: (i) “failure to discharge a statutory duty” (Government Code § 815.6); and (ii) negligence per se. He claimed general and a variety of special damages on both causes of action, including loss of wages, personal property and income, damage to his credit, "loss of the ability to seek restitution from his employers", and costs. He also requested "that the state investigate the manner in which its agencies operate." The court sustained the demurrer to the second amended complaint without leave to amend.

For a myriad of reasons, the Court of Appeal affirmed, including the trial court's refusal to grant leave to amend. On appeal, the plaintiff had the burden to show “there is a reasonable possibility the defect in the pleading can be cured by amendment." Mr. Utgard would not or could not do so. Consequently, his wage claims are now gone. As he learned the hard way, sometimes it is best just to get a lawyer.

Guitar Center Claim Forms Due

For our Guitar Center clients, please note that claim forms are due on Monday, July 3, 2006. You must have your claim forms postmarked by that Monday or you will forfeit your share of the settlement in Rodriquez v. Guitar Center Stores, Inc. and McClain v. Guitar Center Stores, Inc. More information can be found in the class notice, which you can download here. If you have lost your claim form, please contact the claims administrator immediately. A sample claim form can be downloaded here.

The claims administrator is:

Rust Consulting, Inc.
625 Marquette Avenue, Suite 880
Minneapolis, MN 55402 USA
Toll-free: 800-999-7940
Phone: 612-359-2000
Fax: 612-359-2050
[email protected]

Objections to Class Settlements

In a consumer case, the Fourth District Court of Appeal has upheld Judge Jonathan Cannon's order approving a class action settlement over the objection of an absent class member who sought to reduce the attorney's fees awarded. It makes for interesting reading for any class action attorneys with practices before the complex civil panel in Orange County. The case is Edelist v. First USA Bank, Inc.

When Do Workers Who Have an Alternative Workweek Agreement Get Overtime?

In Singh v. Superior Court (UHS of Delaware, Inc.), the Second District Court of Appeal considered an interesting case of first impression: whether section 3(B)(1) or section 3(B)(8) of Wage Order 5 regulates overtime pay for health care employees on the 3/12 alternative workweek schedule.

The employer argued that, under section 3(B)(8), health care employees on the 3/12 alternative workweek schedule are entitled to overtime (time-and-a-half) pay only after completing their 40th hour of work in a workweek. The employee argued that the general overtime provision under section 3(B)(1) entitles them to overtime pay whenever they exceed their regularly scheduled alternative workweek schedule.

The employer won. The court held that the plain language of Wage Order 5 makes clear that section 3(B)(8) controls overtime pay for health care employees working a 3/12 alternative workweek schedule. Healthcare workers on an alternative workweek agreement do not qualify for daily overtime.

You can download Singh here in pdf or Word format.

Voters Open Their Mouths and Remove All Doubt

Here we go with another off topic post, but we were shocked by the election results for one of the Los Angeles County Superior Court races. Incumbents almost never win those races, and we've rooted against a couple over the years, even secretly assisting their opponents by working phone banks. In Orange County, we had a judge a few years ago who was caught downloading child pornography and carrying on an affair with an underage boy, and he was still the largest votegetter in an election that required a runoff and the sitting judge's withdrawal from the race before he actual lost his post.

So when Lynn Diane Olson, a bagel shop owner who has been an inactive member of the bar for all but about 17 months since 1996, and was rating "not qualified" by the L.A. County Bar Association, beat 20-year incumbent Judge Dzintra Janavs, we were shocked. We've had some experience before her in the writs and receivers department, and we never had a problem with her, even though she has a reputation for being a bit more stern than necessary.

No one seems to know how or why she lost this race. Speculation centers upon her unusual Latvian name, and her small campaign budget of $35,000, compared to Olson's $120,000. Though the election is non-partisan, the ballot guides she sent out pointing out that Janavs was a Republican probably mattered. What did not matter? All significant endorsements belonged to Janavs, who was one of only 2 candidates (out of 28 for all of the judicial positions up for election) who rated as "exceptionally well qualified." The ballot designation noted she was a judge of the Superior Court, while her opponent was identified simply as "attorney at law."

Go figure. The lesson to be learned is this: if you want to be a judge, all you need is a plain surname, $100,000 to let voters know that your opponent is a Republican, and an opponent whose last name sounds strange to the bottom 50th percentile of the voting public.

[Update: It has been brought to our attention that the governor has re-appointed Judge Janavs as a Superior Court judge, which taught us a new lesson in civics: as a practical matter, the voters have no power to remove a sitting judge without the governor's approval. Interesting.]

Harpreet Brar Suspended By The Bar

We're a bit late coming with this news, but apparently Harpreet Brar was suspended by the California State Bar, for 30 days, from April 16, 2006 to and May 15, 2006 (04-O-11096 - Discipline with actual suspension). Perhaps the suspension can help explain why Brar was being sanctioned again, according to a tentative ruling by Orange County Superior Court Judge John Watson on May 22, 2006:

05CC08759 BRAR VS SADDLEBACK LIQUOR Cross-complainant’s Motion to Compel Compliance with prior Court Order of 3-6-06 and for Sanctions is GRANTED. The Court finds that cross-defendant has failed to obey the Court’s 3-6-06 Order compelling him to provide full and complete discovery responses within 20 days of the notice of ruling on the motion. Pursuant to CCP § 2030.290 and 2023.010, Harpreet Brar, Esq. is ordered to pay defendant Crown Empire Liquor and its attorney Dilip Vithlani, Esq. $2200.00 within 20 days from the date of notice of ruling. The Court’s previous Order of 3-6-06 remains in full force and effect. Cross-complainant to serve notice of ruling.

If the hearing was on May 22, 2006, the opposition would have been due on May 9, 2006, at a time when Brar was barred from acting as an attorney. Having already been sent to jail once for contempt of court, we're sure Brar wasn't foolish enough to file something in his capacity as a lawyer when he was, at least temporarily, not a licensed one, but if he is at all successful in his "practice," one would think he could afford a co-counsel to come in and do the job. But no, he failed to oppose the motion, and now Of course, that doesn't explain why Brar would disobey the court in the first instance by refusing to answer discovery by the court-ordered March 26, 2006 deadline. Brar, whose complaints have all been dismissed and is now just fighting against cross-complaints for abuse of process, faces an order to show cause on Monday, at which time the court may strike his pleadings and enter default judgments against him.

Once just a local embarrassment, Brar is now attracting nationwide attention, being featured in newpapers in Indianapolis and New York. These most recent articles included the following remarkable comment:

Mr. Brar said his experience in jail was a "nightmare," which he said included watching several inmates be beaten by guards. Mr. Brar said he planned to represent several of them.

How's that for a lousy place to find your next lawyer -- in jail in the next cell over.

Unpublished Opinion To Call Break Pay a Penalty

In Banda v. Richard Bagdasarian, Inc. the Fourth District Court of Appeal, Division Two, has issued a tentative opinion, not to be published, calling meal and rest period pay a penalty.

The opinion is peculiar in several respects. First and foremost, it admits that "the hour of pay in section 226.7 ... is calculated to compensate an employee for the employer's statutory violation." That's a good enough start for one's analysis. But that sentence ends with "and as such is a penalty." We don't see the connection.

We might expect that conclusion to follow after a statement that the hour of pay is intended to punish the employer for breaking the law. But if it is to compensate the employee, the remedy is compensatory, not penal. Nobody ever says, for example, that someone who recovers $100,000 in damages and $5,000,000 in punitive damages was "compensated" $5.1 million. They were compensated $100,000, and awarded another $5 million in punitive damages.

The Court of Appeal also found "incalculable" the monetary value of a lost 10-minute break, saying that it "more accurately should be called a restroom break." While we admit that the loss of the ability to kick back for ten minutes is hard to measure, the monetary loss is easy to calculate, because what was lost was ten minutes of pay for one's first ten minutes of rest. If the employee has to work through what should be ten minutes of leisure, the value of the ten minutes of labor is the minimum value of the loss.

The opinion was not a total loss for the workers, however. The Court of Appeal reversed a finding by the trial court that there is no private right of action for meal and rest pay, relying upon the Caliber Bodyworks holding entitling workers to sue directly  for "statutory" penalties, without pursuing claims through the DLSE or under the PAGA. The opinion also holds that grape pickers who are forced to sample the crops, without washing the grapes or their hands first, can seek injunctive relief outside the scope of the Workers' Compensation Act. And the opinion rejects any applicability of the "primary jurisdiction" doctrine.

[Update: The opinion was filed later in the day. You can read the whole thing for yourself here. We did not post about this decision earlier because we did not get a copy of the tentative ruling until June 7, 2006. Neither side requested oral argument. It is still possible that one side or the other will file petitions for review.]

Congratulations, Tony Strickland

This is way off topic, and for employee side wage and hour lawyers, the news of a victory by an extremely conservative politician is usually nothing to celebrate, but we offer our sincerest congratulations to former Assemblyman Tony Strickland, who won the Republican nomination for Controller, notwithstanding early data, published in the morning newspapers, that had him trailing.

In the general election, Tony will battle John Chiang, who won a close contest against Joe Dunn (one of our favorite legislators) in the Democratic primary. We've known Tony for more than a decade, dating back to when he and Mark Walsh played basketball for the Whittier College Poets. We wish him luck.

We do not wish the same, however, for Arnold Schwarzenegger, who won the Republican primary for governor in an 89.9% landslide. We find it interesting, however, that almost ten percent of Republicans voted against Arnold and selected one of three practically unknown candidates. With the exception of the friends and family vote, most of those votes probably represent a Republican who will be casting a ballot for Phil Angelides in November.

Arbitration and Preemption in Meal Break Cases

In an unpublished opinion issued last week, the Second District Court of Appeal upheld an order by Los Angeles County Superior Court judge Wiliam Fahey rejecting a petition to compel arbitration in a meal and rest period case. Zavala v. Scott Brothers Dairy, Inc. includes no novel issues, but has a good discussion of recent meal and rest period precedent in the context of arbitration rights and LMRA preemption for claims advanced on behalf of unionized workers. You can download the unpublished opinion here.

Arbitration Bill Fails

A bill that would have barred companies from forcing workers to consent to binding arbitration of disputes arising under the Fair Employment and Housing Act was defeated in the California Assembly last week. The bill, AB 2371 (Levine), received "Yes" votes from Assembly members Arambula, Baca, Bass, Bermudez, Berg, Chan, Chu, Coto, De La Toree, Dymally, Evans, Goldberg, Hancock, Jerome Horton, Jones, Karnette, Klehs, Koretz, Laird, Leno, Levine, Lieber, Lieu, Liu, Montanez, Mullin, Nation, Nava, Negrete-McLeod, Oropeza, Pavley, Ridley-Thomas, Ruskin, Saldana, Salinas, Umberg, Yee and Nunez. Surprisingly, the "No" vote included several Democrats, including Calderon, Canciamilla, Chavez, Cohn, Frommer, Matthews and Parra. Members Torrico, Vargas and Wolk abstained.

Headed to Vetoville: Minimum Wage Hike Passed

The California Legislature has passed a minimum wage hike of $1.00 per hour over the next two years, with increases thereafter according to consumer price indices. AB 1835 (Lieber) and SB 1162 (Cedillo). The minimum wage would increase each July, with half dollar increases in 2007 and 2008, and cost-of-living increases each year thereafter, starting in 2009. Governor Schwarzenegger has already warned that he would veto any bill that includes automatic COLA increases. He previously vetoed two other minimum wage hikes. However, it could be politically dangerous for him to carry out the threat in an election year, given that public opinion polls favor inclusion of the COLA increases. It appears that the governor's strategy will be to activate the previously de-funded Industrial Welfare Commission, which currently has just one board member on a five member board, and have the IWC pass a one dollar wage increase through amendment of existing wage orders.

Justices Hint That Day Workers Should Get Waiting Time Penalties

Our extensive network of spies in San Francisco include a few folks who sat in on the oral argument before the California Supreme Court this week in Smith v. Superior Court (L’Oreal USA, Inc.), S129476. This was the case where a model worked for L'Oreal for one day and didn't get her check until two months later, then sued to recover waiting time penalties. The issue was whether the conclusion of a fixed term of employment constituted a "discharge" within the meaning of Labor Code S 201, so as to trigger waiting time penalties under Labor Code S 203.

Kevin Ruf argued the case for Smith. William Carroll represented L'Oreal. While handicapping the vote is never a precise science, here, it appears likely that a majority of the Supreme Court disagree with L'Oreal's contentions. Specifically, we suspect that the majority opinion will point out the absurdity that a day worker who is fired, or who quits in the middle of the day would be entitled to immediate payment of wages (if fired) or payment within 72 hours (upon resignation), while the good workers who finish out their job can be forced to wait around to be paid at the employer's leisure.