Wage Law

While we were off trying cases last month, the Second District published an opinion in an interesting case involving arbitration of rest period cases. In Zavala v. Scott Brothers Dairy, Inc., the plaintiffs filed a class action for unfair business practices, failure to provide accurate itemized wage-statements and failure to provide rest periods. The trial court denied the employer’s petition to compel arbitration, and the employer appealed.

Plaintiffs were union members represented by the Chino Valley Products Dairy and Teamsters Local Number 63. It entered into a collective-bargaining agreement (CBA) which defined grievances as “all disputes or controversies arising under this Agreement” and set out a grievance procedure that culminated in a binding arbitration. The CBA required wage-stub itemization and coffee breaks in similar, but not identical, language to the Labor Code and IWC wage orders. Based upon those provisions, the dairy argued that plaintiffs' claims arose under the CBA and were subject to arbitration. The plaintiffs argued that the claims arose from statutes and regulations, not the CBA, and thus were not subject to the CBA's arbitration requirements.

The Court of Appeal agreed and affirmed the trial court's order. "The requirement that every employee have a net 10-minute rest period every four hours or major fraction thereof is a state-mandated minimum labor standard.’ ” Cicairos v. Summit Logistics, Inc. (2005) 133 Cal.App.4th 949, 954. Labor Code § 226(a), specifies the form and content of paycheck stubs. "[T]he obligation to list the total hours worked during the pay period can only be satisfied by listing the precise, actual number of hours worked." If it is left to the employee to add up the daily hours shown on the time cards or other records so that the employee must perform arithmetic computations to determine the total hours worked during the pay period, the requirements of section 226 would not be met. Labor Code § 219(a) provides that “no provision of this article [including sections 226 and 226.7] can in any way be contravened or set aside by a private agreement, whether written, oral, or implied.” Thus, a CBA cannot prohibit resolution of plaintiffs’ claims in a judicial forum.

The holding is also consistent with a 2005 Ninth Circuit decision providing that California’s statutorily guaranteed meal periods are not subject to waiver by a collective-bargaining agreement. Valles v. Ivy Hill Corp. (9th Cir. 2005) 410 F.3d 1071, 1082. Meal periods are “designed to protect individual employees,” “address some of ‘the most basic demands of an employee’s health and welfare’ [citation],” and Labor Code § 219(a) makes them “plainly nonnegotiable.” And "certainly, plaintiffs’ injunctive relief claim under the unfair business practices act (Bus. & Prof. Code, § 17200) is not arbitrable." Cruz v. PacifiCare Health Systems, Inc. (2003) 30 Cal.4th 303, 316.

The Court of Appeal further held that the plaintiffs were not precluded from bringing their statutory claims to state court by the fact that the Union had already grieved the rest-break issue under the CBA. "[C]ourts have repeatedly held that the prior submission of certain statutory claims to final and binding arbitration does not bar a subsequent lawsuit where the employees have not waived their statutorily protected rights to a judicial resolution. Barrentine v. Arkansas-Best Freight System, 450 U.S. at p. 740 [statutory wage claim]" [other citations omitted].  "When enacting these minimum labor standards, the Legislature granted to individual employees the right to vindicate them in court, separate from the enforcement tools it gave to the Labor Commissioner. (Lab. Code, § 218; see also, Lab. Code, §§ 218.5 – 218.6 & 217.) These are “minimum substantive guarantees” (Barrentine v. Arkansas-Best Freight System, supra, 450 U.S. at p. 737), because the Legislature has categorically forbidden the modification of any provision of these laws. (Lab. Code, § 219, subd. (a).) Consequently, the rights plaintiffs seek to assert in this civil action stand independent of the collective-bargaining process."

You can read Zavala here in pdf or Word format.

Most of the cases we've seen, and all of the cases we've been involved with, regarding the Littler Mendelson drafted DRP (dispute resolution procedure) and its mandatory arbitration provision, have ended up with trial courts and courts of appeal finding the agreements unenforceable under the Armendariz standards. A recent article by Marlene S. Muraco, published on Littler Mendelson's website in August, suggests that Littler's clients might soon abandon the tactic of seeking arbitration, and may try instead to accomplish the same goals with agreements for judicial reference. The article spins a recent decision in the Woodside Homes case and analogizes it to employment contracts as a way to give employers a shot at judicial review if they fail at arbitration.

Does the existence of the collateral estoppel doctrine trump the right to proceed as a class action? We recently read a ruling issued earlier this year by Los Angeles County Superior Court Judge Ronald Sohigian in which he denied certification of a case involving overtime, missed meal and rest periods and inadequate payroll statements largely on the ground that “this is not a case in which substantial benefits accrue to both litigants and the court that cannot be achieved by other means.” Citing Lindner v. Thrifty Oil, the court wrote that the case would be better served by a series of individual actions because the doctrine of collateral estoppel would give the other employees who would otherwise be members of the class "much of the benefit of prior adjudication if plaintiff wins.”

We would have expected the ruling to be overturned on appeal, because the order does not reflect the discretion and balancing of benefits and burdens expected under the Sav-on case and its progeny. Instead, it looks almost like a standing order from judge who simply does not believe in the concept of class litigation. How can any class action ever be certified in the courtroom of a judge who believes that the availability of collateral estoppel makes individual lawsuit superior to class action litigation?

[Update: We just learned that the plaintiffs accepted a 998 offer and abandoned the appeal, so we'll never know what the Second District thinks about the superiority of collateral estoppel doctrine.]

On Monday, the Fifth District Court of Appeal published an interesting opinion involving an attorney malpractice lawsuit. For wage and hour lawyers, it is interesting because the opinion begins with a summary of issues and conclusions concisely setting forth the Fifth District's view on statutes of limitation under the Labor Code. In Church v. Jamison the Court writes:

Business Expense Reimbursement. First, when does an employee’s claim under Labor Code section 2802 for reimbursement of business expenses accrue for statute of limitation purposes? Answer: The date the employee incurs the particular expense. Second, which statute of limitations applies to claims for business expenses brought under Labor Code section 2802? Answer: The three-year limitations period applies because the employer’s liability under Labor Code section 2802 for business expenditures is “a liability created by statute.” (Code Civ. Proc., § 338, subd. (a).)

Wages. First, which statute of limitations applies to Church’s Labor Code claims for unpaid wages? Answer: The two-year statute of limitations applicable to oral contracts. Second, when did the claims accrue for statute of limitations purposes? Answer: The date the Labor Code requires the wages to be paid. In this case, Labor Code section 204 required that the wages be paid twice each month—labor performed during the first 15 days of the month must be paid no later than the 26th of that month and wages from the last half of the month must be paid no later than the 10th of the following month.

Vested Vacation. First, when does an employee’s claim under Labor Code section 227.3 for payment of vested but unused vacation time accrue for statute of limitations purposes? Answer: The day the employee is terminated. Second, which statute of limitations applies to such a claim? Answer: We need not decide this issue.... Third, does the statute of limitations apply a second time, but in reverse from the date of termination, to limit the employer’s liability for vacation time to only that which vested within but not before that period? Answer: No. The creation of a look-back period that limits an employer’s liability for vested vacation is contrary to the fundamental principles of law governing statutes of limitations and is contrary to the text of Labor Code section 227.3.

The last part of the opinion was published because, as the court wrote,

our analysis conflicts with the analysis adopted in Sequeira v. Rincon-Vitova Insectaries, Inc. (1995) 32 Cal.App.4th 632 (Sequeira) and the position taken by California’s Division of Labor Standards Enforcement (DLSE) regarding a “look-back” application of the statute of limitations.

Most of the opinion, including the statement of issues and conclusions and the discussion of everything except part of the vacation pay issue, is unpublished, and with respect to the two-year statute of limitations, we aren't entirely sure the opinion is right. Most actions for unpaid wages are subject to the three-year statute of limitations applicable to statutory liabilities under Code of Civil Procedure § 338(a). Aubry v. Goldhor (1988) 201 Cal.App.3d 399, which was discussed and distinguished by the court. The court held that claims for wages due under an employment contract are subject to the normal statute of limitations for actions on a contract: two years for oral agreements (CCP § 339) and four years for agreements in writing (CCP § 337(1)); Cuadra v. Millan (1998) 17 Cal.4th 855, 859. But most wage claims involve an element that arises purely under statute. Did this?Usually you would assume that it didn't, or someone would have mentioned it. But that assumption might not be well placed here, because Business & Profession Code § 17200 also never came up.

The issue in Church v. Jamison boiled down to this: did the employee "blow his statute" before he ever met his lawyer, or did the lawyer sit on the case for a few months and thereby blow the statute for his client. If the statutes are all two years, the lawyer is off the hook, because the client had no case when he came in the door. The employee and his new lawyers argued that the statutes ran while the first attorney was sitting on the file.

The opinion notes that the underlying case is still pending. "In the malpractice case, the superior court granted Jamison’s motion for judgment on the pleadings based on its conclusion that Jamison could not be held liable for legal malpractice because he had timely filed the complaint in the employment case. Thus, the superior court judge in the malpractice case disagreed with the superior court judge in the [underlying] employment case. Church appealed the judgment in favor of Jamison in the malpractice case. The employment case is still pending, on the remaining claims of breach of contract and misrepresentation." (our emphasis).

Proceeding on breach of contract and misrepresentation? Haven't any of these judges and lawyers ever heard of recovering wages under the unfair competition law? The failure to pay earned wages violates the Unfair Competition Law under Business and Professions Code § 17200 et seq., and as a result, such claims are subject to a four-year statute of limitations.BPC § 17208; Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 178. That pending complaint should have an unfair competition claim in it. A well written amended complaint and a citation to Cortez might have avoided this whole mess.

You can download Church v. Jamison here in pdf or Word format.

In Alvarez v. May Department Stores Co., the Second District Court of Appeal has upheld a demurrer to a wage and hour class action on the basis of collateral estoppel arising out a previous denial of class a certification motion in another matter, brought by other employees of the same employer, seeking the same class order and asserting the same claims.

In Alvarez, other plaintiffs had filed previous wage and hour class actions against May Department Stores seeking overtime pay for area sales managers. The first two were commenced in 1997 and 1999. Alvarez filed in 2003. The first plaintiffs tried and failed to certify a class. Alvarez never got past the demurrer stage.

Instead, the employer successfully demurred to the class allegations on the ground of collateral estoppel, based upon the prior denial of certification motions on other class representatives' claims. The Alvarez plaintiffs appealed, arguing that the doctrine of collateral estoppel "is inapplicable to an order denying class certification in another lawsuit brought by other plaintiffs because absent putative class members are not bound prior to the certification of a class.”

The Court of Appeal framed the issue by determining the "precise nature of appellants’ right at issue" in the new case, and finding the issue limited to whether the right to represent others can be disposed of without notice and hearing if, after balancing all parties' interests, the court finds it appropriate to relieve the defendant from defending a series of identical representative actions.

Our decision will not eliminate appellants’ substantive right to bring their lawsuit. Instead, it could potentially deny them the ability to serve as a representative of other litigants. The distinction may be crucial when we balance appellants’ due process rights against the competing interests promoted by the doctrine of collateral estoppel. If the right to proceed as a class plaintiff is a property right, we must keep in mind the general principle “in Anglo-American jurisprudence that one is not bound by a judgment in personam in a litigation in which he is not designated as a party or to which he has not been made a party by service of process.”

Ordinarily, to apply collateral estoppel: (1) the issue must be identical to that decided in the prior proceeding; (2) the issue must have been actually litigated in the prior proceeding; (3) the issue must have been necessarily decided in the prior proceeding; (4) the decision must have been final and on the merits; and (5) preclusion must be sought against a person who was a party or in privity with a party to the prior proceeding. Here, the Court held that the right to proceed as a class representative had been adjudicated and that the prior adjudication was binding upon other putative class members.

In analyzing the facts, we conclude the Duran plaintiffs were the “virtual representatives” of appellants. The only difference we can discern between the parties is the name of the representative plaintiff. The interested parties, their claims, and their counsel are the same.

It is unclear how other courts would apply these facts. Some of the facts of this case could be troublesome. Had the classes been truly identical, rather than "approximately" the same, and had the prior class certification been based upon inability of the putative class to present common claims in a single action, the decision would seem more fair. But here, the classes were not actually identical. The first case was four years old by the time the Alvarez case was filed. The time periods overlapped, but were not identical. Moreover, one of the two bases for denying class certification in the first case was that the proposed class representatives were unsuitable because they had unsatisfactory employment histories. On the other hand, the fact that the same counsel had brought both the previously unsuccessful actions and the new action -- including yet another case now pending in the Orange County Superior Court -- seemed to be one of the driving forces behind the decision, if not the single overriding factor. The court notes: "When appellants’ counsel was asked in oral argument when the string of unsuccessful lawsuits would end, his answer in essence was - when the pursuit is no longer economically feasible.”

Can a defendant avoid a meritorious class action simply by showing that an unpaid wage claimant was a job-hopper? Can they avoid meritorious certifiable class actions by delaying one action, perhaps brought by a suitable representative, while encouraging an early certification motion in another action with a less suitable representative? The answers to both questions should be no, but in some trial courts, the answer might be yes. Others disagree. at The UCL Practitioner, Kimberly Kralowec writes:

It does nothing to prevent copycat actions filed by new attorneys who can argue that the prior lawyers failed to adequately represent the putative class. The opinion is quite clear that under such circumstances, the doctrine of collateral estoppel would not apply.

You can download the full text of Alvarez v. May Department Stores here in pdf or Word format.

California Labor Code § 200 expressly provides that en employees "wages" include all forms of compensation for labor, including commissions.

"Wages" includes all amounts for labor performed by employees of every description, whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other method of calculation.

California Labor Code § 221 provides that an employer cannot have his or her wages docked.

It shall be unlawful for any employer to collect or receive from an employee any part of wages theretofore paid by said employer to said employee.

So can an employer ever collect or receive from an employee a previously paid commission? When that commission is not exactly a wage. And when is a commission not exactly a wage? The answer to that question can be found by reading last month's decision in the Koehl v. Verio, Inc. (2006) ___ Cal.App.4th ___, 48 Cal.Rptr.3d 749.In Koehl, four former sales associates working for internet service provider Verio, Inc. filed a wage and hour class action lawsuit claiming that Verio’s compensation system of paying a base salary plus chargeback-eligible commissions violated Labor Code § 221. The dispute arose because Verio sought to impose chargebacks for commissions previously paid on transactions which later failed to meet the criteria for a fully vested commission payment.

Verio cross-complained against the class representatives to recover the chargebacks. The trial court ruled that the commissions were not wages, and entered judgment in favor of Verio for the amount of previously paid commissions which, under the commission plan, were unearned (or de-earned, as the case may be). Curiously, though finding the money not to constitute wages, the court still awarded attorney's fees to the prevailing employer. The employees appealed, and on appeal, the court found that

"the fundamental question presented by this appeal is whether the commissions were wages, thus making the chargebacks unlawful under section 221 of the Labor Code. The trial court concluded that the commissions were not wages, and entered judgment for Verio. Our review leads to the same conclusion, and we affirm."

The compensation plan was described as follows: Sales associates earned base salaries, described as their “standard wage” or “base pay,” of between $40,000 and $70,000 per year; this amount remained constant regardless of the number of deals they booked. In addition to their base salaries, sales associates also earned commissions on sales pursuant to a series of compensation plans described in detail below. They earned commissions for sales that resulted in revenue for Verio. When an order was “booked”, the sales associate received an "advance payment for the anticipated commission." Later, if the customer was not legitimate, the signature was not authentic, or the customer did not pay, the commission would be refused and the "advance payment" would be paid back in the form of a "reduction in revenue credit in the month following the account cancellation" which could occur as long as 270 days after the account was established. The plan expressly asserted that "Verio is paying commission in some instances prior to when the commission is actually earned, which does not occur until the service or product has been delivered, accepted and payment has been received by Verio.”

The case was certified in April 2003 and went to a bench trial in July 2004, apparently concluding after six court days. In December 2004, Judge Dondero issued tentative findings of fact and conclusions of law finding in Verio’s favor on both the complaint and the cross complaint, and awarding $548,076.66 to Labor Code § 218.5,

The employees made eight contentions on appeal, claiming that the trial court erred: (1) in finding that Verio’s commission plans did not violate section 221; (2) in finding that Verio’s commission plans were lawful under section 224; (3) in finding the acknowledgment constituted a contract between Verio and its employees; (4) in failing to recognize that consent is not possible because section 219 prohibits and nullifies any agreement contrary to section 221; (5) in applying a “legislative purpose” analysis to a statute that is clear on its face; (6) in finding that the chargebacks were against new advances, not earned commissions; (7) in failing to recognize that, if a contract did exist, it was an unconscionable contract; and (8) in relying upon an unpublished decision in violation of California Rules of Court, rule 977(a). In affirming the decision, the Court of Appeal ruled that

"the determination of the fundamental question of the enforceability of Verio’s commission plan disposes of contentions numbered 1, 3, 4, and 6. Contention number 2 is simply wrong. Contentions numbered 5 and 8 could not be ground for reversal. And contention number 7 was not even urged below and, in any event, is groundless.

Curious points in the opinion include:

• Commission payments can be wages under the express description of section 200 and applicable cases. (Hudgins v. Neiman Marcus Group, Inc. (1995) 34 Cal.App.4th 1109, 1118 (Hudgins) [“Commissions are wages within the meaning of section 221. (§ 200.)”]; Reid v. Overland Machined Products (1961) 55 Cal.2d 203, 207 208 [holding commissions are “wages”].) and

• If the commissions at issue here are wages, then Verio’s attempt to recover them back could run afoul of section 221, which provides in its entirety that “[it] shall be unlawful for any employer to collect or receive from an employee any part of wages theretofore paid by said employer to said employee.” However,

• The right of a salesperson or any other person to a commission depends on the terms of the contract for compensation. (Steinhebel v. Los Angeles Times Communications, LLC (2005) 126 Cal.App.4th 696, 705 (Steinhebel); Commeford v.Baker (1954) 127 Cal.App.2d 111, 117 (Commeford). And “it is clearly the law in California that a sales[person] is required to repay the excess of advances made over commissions earned when there is an express agreement on the part of the sales[person] to repay such excess.” (Agnew v. Cameron (1967) 247 Cal.App.2d 619, 622, citing Korry of California v. Lefkowitz (1955) 131 Cal.App.2d 389, 391-392 (Korry).) • An advance, therefore, by definition is not a wage because all conditions for performance have not been satisfied.” (Steinhebel, supra, 126 Cal.App.4th at p. 705.)

• Harris v. Investors Business Daily is unpersuasive because "Harris merely reversed a summary adjudication, on the basis that a “triable issue of fact exists as to whether the chargeback plan . . . violates Labor Code section 221.” (Harris, supra, 138 Cal.App.4th at p. 41.) The setting here is clearly distinguishable, Judge Dondero having made extensive factual determinations after a full blown trial. Harris is also inapposite factually, the court there noting that, “Unlike the employees in Steinhebel and Hudgins, appellants did not expressly agree to the chargeback policy in writing. Even if they knew about the policy, IBD’s materials suggested that the points were earned at the time of the sale, not at some designated point in the future. . . .” (Harris, supra, 138 Cal.App.4th at p. 41.)

• Labor Code section 224 provided an independent basis to uphold Verio’s chargebacks. “The provisions of Sections 221, 222, and 223 shall in no way make it unlawful for an employer to withhold or divert any portion of an employee’s wages when . . . a deduction is expressly authorized in writing by the employee to cover . . . deductions not amounting to a rebate or deduction from the standard wage . . . .” Thus, even if payments are “wages,” an employer may withhold or divert them if the two conditions in section 224 are met: the deduction (1) is authorized in writing, and (2) does not reduce the employee’s standard wage."

• Although “standard wage” is not defined in section 224, ... common usage of the term refers to an employee’s base pay, as shown by the testimony of Appellants, who referred to their base pay as their “standard” wage.

Sadly, one of the most interesting issues about the case -- how a prevailing defendant recovers attorneys fees under section 218.5 after persuading the court that it is prevailing on a claim that does not involve "wages" -- gets swept under the rug by the Court of Appeal because, well, it was swept under the rug by the appellants, who clearly expected to prevail on the merits.

Appellants do not even mention the issue in their opening brief or, for that matter, in their reply brief. The rule is that “[i]ssues not raised in an appellant’s brief are deemed waived or abandoned.” (Reyes v. Kosha (1998) 65 Cal.App.4th 451, 466, fn. 6.

The opinion is interesting, especially for those who are interested in actually taking a wage class action to trial. You can read it here in pdf or Word format. The employees have filed a petition for review.

As we expected, last month the Supreme Court granted review of the unpublished opinion in Banda v. Richard Bagdasarian, Inc., maintaining its practice of issuing a "grant and hold" review order for all cases -- published or unpublished -- involving the issue meal period and rest period pay under Labor Code S 226.7. There are now five related cases. Murphy v. Kenneth Cole Productions, meanwhile, is fully briefed by the parties, but various amici briefs are being filed and answered.

After numerous stays (lifted), motions for reconsideration (denied), motions to strike (denied), motions for summary adjudication (denied) and a petition for writ of mandate (denied), notices were sent out this week to all class members in our case against Main Street Restaurant Group, the largest franchisee of TGI Friday's restaurants. Anyone who worked at a California TGI Friday's owned or managed by Main Street and Main (now known as Main Street Restaurant Group, Inc.) from January 1999 to the present should receive a notice in the mail this month. Anyone in that group who does not receive his or her notice by the end of the month should contact the third party administrator, Rust Consulting:

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
E-mail: [email protected]
http://www.rustconsulting.com

This was the first large rest period class action case certified in the State of California. There have been others certified since. A copy of the notice can be downloaded here.

Our class action settlement in the Guitar Center case has funded, and class member distribution checks were mailed out on October 12, 2006. Class members who have moved since submitting their claim forms should contact the claims administrator, Rust Consulting, immediately.

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
E-mail: [email protected]
http://www.rustconsulting.com

We had to answer ready for trial four times during the past month, so the blog posting had to take a back seat. We have, however, been saving up a lot of information, because it's been a busy month in the California wage and hour field. In another day or two, we'll be caught up and will start posting, probably starting with updates on our most active cases, and then, on Monday, reporting some of the recent developments in the case law.