Wage Law

Most Popular Blawgs of All Time

We had a reader point out that the blawgsearch website has compiled rankings of the "most popular blawgs of all time. With our somewhat narrow focus on a particular state and a niche within a niche of employment law, we didn't expect to rate very high among all of the blawgs. We'd have just been happy to make the list. To our pleasant surprise, we are listed as the 51st most popular blawg of all time. After that sank in for a bit, we were slightly disappointed to have missed the top 50. Oh well.

The list of the top 200 can be found here. Quite a few of our own personal favorites are on the list. Notably, and above us: The UCL Practitioner and the Class Action Defense Blog. Just behind us: The Volokh Conspiracy. For whatever it's worth, we are the highest rated blawg devoted to wage and hour law, or, for that matter, employment law. And in the current month's ratings, we were number 33.

Blogging isn't for everyone, however. Under the "don't try this at home" tab, you might want to file away the recent sad story of Dr. Robert P. Lindeman, aka Flea, who anonymously liveblogged his medical malpractice trial, revealed a few things that would have been best left unsaid, and got caught, leading to a quick and substantial settlement that readers of his blog wouldn't have expected. Do any of your clients blog? Or any of your client's employees? You might want to find out before your jury gets sworn in.

CELA Annual Conference September 27-29

The California Employment Lawyer's Association's 20th Annual Employment Law Conference has been set for Thursday, Friday and Saturday, September 27-29, 2007, at theFairmont Hotel in San Jose. Luncheon speakers will include California Supreme Court Justice Carol Corrigan on Friday, and former Justice Cruz Reynoso on Saturday at the diversity luncheon. CELA will also be awarding the Joseph Posner Award at this event. To register, go to www.cela.org.

An Interesting Read From the 9th Circuit re Attorney Fees

A recent 9th Circuit case entitled Welch v. Metropolitan Life Insurance Company offers some insight as to how to avoid getting your fees slashed in U.S. District Court. In Welch, an ERISA case in which the plaintiff prevailed and was awarded attorney's fees, the trial court reduced the plaintiff's fee application by 20%, across the board, to account for the plaintiff's firm's block-billing practices, and another 20%, across the board, to account for billing in increments of quarter-hours. The court also disallowed portions of time spent on memos, office conferences and fee applications, reducing the total amount of time from 98.5 hours to 43.05 hours. The court also cut the hourly rate from $400 to $250.

Justice Ray Fisher affirmed part of the trial court's order that drastically reduced the amount of fees from the requested sum, but reversed two portions of the trial court order, finding that the plaintiff's counsel had adequately established that $375 to $400 was a reasonable hour rate and that reducing the rate to $250 was arbitrary and an abuse of discretion, and that the 20% reduction for block billing was also inappropriate.

We were somewhat amazed that the plaintiff's counsel billed less than 100 hours and still litigated a federal case to a successful resolution in six months. In more than a decade of representing employees, we've tried a case to verdict in less than 100 billable hours exactly once, and that was a case that involved no depositions, four trial exhibits, and just a two day jury trial. Yet, the trial court cut the plaintiff's fees by more than half. For the most part, those cuts were upheld.

Some of the lessons to be drawn from the case:

• Avoid block billing, where you list all the tasks you performed, and then put down a large amount of time for all of the items as a group. Instead, itemize every task and give each an allocation of time.
• Do not bill in quarter hours unit. Use tenths of any hour. For some reason, courts seem to find a billing entry of .25  to be excessive if the task seems simple, but an entry of .30 rarely fails the smell test.
• Don't expect to be paid for inter-office conferences between lawyers in the firm unless there is a very good explanation for it. Granted, the greatest accomplishments of the President of the United States are usually achieved through meetings with advisors and discussions of strategy and the execution of well-devised plans, but the President doesn't have to account for his time to a judge.
• Don't bill your fee application with a heavy pencil.
• Persuade your trial court judge, because the Court of Appeal will show great deference to his or her determinations about how many hours you should have worked.

Nothing Today

If you've followed this blog for a long time, you may have noticed that we rarely post anything on court holidays. Today isn't really an exception. This post was typed on Friday and set to automatically publish on Monday to simply wish everyone a happy Memorial Day. Automatic publishing is a great blogging tool, especially for bloggers like us who don't have time to touch the blog on a daily basis, but who want to maintain a steady stream of posts. Every once in a while, it results in an unfinished post coming up for a few minutes by mistake, but our audience doesn't seem to mind. Today, We'll be at the beach, unless we burn on Saturday or Sunday, in which case, we'll be outside the Pond Honda Center trying to buy tickets from a scalper. Good luck to the Ducks.

Federal Minimum Wage Raised to $7.25 Over Two Years

In April, the U.S. House of Representatives and the Senate passed a bill to raise the federal minimum wage from the $5.15 to $7.25 in three steps: $5.85 per hour 60 days after the bill is signed; $6.55 per hour one year later; and $7.25 per hour two years later. The bill was vetoed by President Bush on May 1 because it was attached to the Iraq war spending bill that included terms opposed by the White House.

Now, another Iraq spending bill has passed both houses of Congress, and it includes the same minimum wage increases. President Bush has announced that he will sign the bill today. This link on CNN has a video link of the president's comments about the bill, including his intention to sign it. Senators Clinton and Obama voted against the bill, but it had broad bipartisan support, passing by nearly a 2-1 margin in the House and more than a 5-1 margin in the Senate.

Reconsideration of Penalty Rulings

Though we never had a trial court shave our meal and rest period complaints down to a single year's worth of claims, many cases in Los Angeles, Riverside and elsewhere have proceeded after motions were granted striking references in the pleadings to any meal and rest periods that were missed more than a year before the filing of the complaint. Now that the Supreme Court has confirmed that the hour of pay due for a meal period or rest period violation is a wage, those complaints should be able to reach back farther than one year. Reconsideration is appropriate. In general, motions to reconsider must be made within ten days after notice of the applicable order is served. However, Code of Civil Procedure § 1008(c) states in pertinent part:

"If a court at any time determines that there has been a change of law that warrants it to reconsider a prior order it entered, it may do so on its own motion and enter a different order."

Most plaintiffs are reacting by bringing Murphy to the attention of the court in writing, often in connection with a motion for leave to amend to add waiting time penalties to the claim, including, among other things, allegations (i.e., class definitions) that would effectively restore the claims the court previously struck. In support of the motion, there is a mention and "request" that the court reconsider its prior rulings regarding the statute of limitations in light of Murphy. Such a request is appropriate to invoke the court's inherent power to correct prior rulings under section 1008(c) and LeFrancois v. Goel (2005) 35 Cal.4th 1094. In anyone has obtained rulings granting or denying such motions, we'd like to know how various judges are ruling.

Another Class Action Ban Struck Down

In Massie v. Ralphs Grocery Company, another Second District Court of Appeal panel has declared invalid an arbitration agreement that purports to forbid employees from bringing class actions or representative suits. The opinion is unpublished, but the discussion in the opinion should be of interest to parties arguing this issue while we await the Supreme Court's decision in Gentry.

The arbitration agreement Ralphs uses provides, among other things, that

unless controlling legal authority requires otherwise, there will be no right or authority for any dispute to be heard or arbitrated on a class action basis, as a private attorney general, or on bases involving disputes brought in a representative capacity on behalf of the general public, of other Ralphs employees (or any of them), or of other persons similarly situated. The individual claim of any Employee bound by this Policy is subject to this Policy. Any action brought against Ralphs (or any of them) by any other person (whether an Employee bound by this Policy or not) in a representative capacity on behalf of or for the benefit of any Employee bound by this Policy will be designated as a ‘Representative Action.’ To the fullest extent permitted by law, any individual claim by an Employee for a remedy pursuant to or under the authority of a Representative Action is subject to this Policy. Thus, even though some of the Federal Rules of Civil Procedure apply as set forth above, there shall be no judge or jury trials, and there shall be no class actions or Representative Actions permitted, unless controlling legal authority requires otherwise.

¶ The Store Member must not challenge, or have challenged, the legality, validity, or enforceability of this Bonus Plan or any predecessor or successor plan(s) on behalf of the Store Member himself or herself, in any type of representative capacity on behalf of any other current or former employees of the Company, or as a participant in any type of representative action making any such challenge(s). . . .

The terms were set forth in the complany's 2003 bonus plan. The following year, Ralphs got even bolder, adding this to its 2004 Bonus Plan, in which the company violated Labor Code § 206.5 by forcing employees to forego their bonus unless they waived wage claims brought in other representative and class actions:

Acceptance of any payment under this Bonus Plan by any participant constitutes a waiver, release, relinquishment and discharge of any and all claims the participant has, had or may have against Ralphs Grocery Company (and/or its predecessor, successor, parent, subsidiary and/or affiliated entities) arising out of or related to any and all previous bonus plans (and the payments made thereunder) and/or any actual or claimed misclassification as a salaried employee rather than as an hourly employee, as previously, now or hereafter made or asserted by such participant, regardless of whether such claims were or are made or asserted by or for such participant individually, collectively, putatively, on a representative basis, or otherwise, including without limitation in connection with the following litigation: Eddy Korkiat Prachasaisoradej vs. Ralphs Grocery Company, Los Angeles County Superior Court Case No. BC254143 (commenced July 13, 2001), California Court of Appeal (Second Appellate District) Case No. B165498 (commenced March 3, 2003); David Swanson vs. Ralphs Grocery Company, Los Angeles County Superior Court Case No. BC284875 (commenced November 7, 2002), California Court of Appeal (Second Appellate District) Case No. B168257 (commenced June 30, 2003); and James Massie, Eddie Korkiat Prachasaisoradej, Teresa Lee, Jose Mendez and Jaime Rosales vs. Ralphs Grocery Company, Los Angeles County Superior Court Case No. BC321144 (commenced September 7, 2004).

The court found that the opportunity to opt out of the bonus plan was not an opportunity to opt out of the arbitration agreement, and that this was still a "take it or leave it" imposition. The court noted that:

"Without even addressing the brief (apparently 14-day) window of time in which the employees were required to exercise the “opportunity to opt out,” the obstacles presented to communicating the exercise of this purported option (given the vague reference to the registered agent for service of process without contact or other information) and other such issues, the point is the employees were merely given the opportunity to “opt out” of the Bonus Plan (after working for almost the entirety of the fiscal year on which it was based); as to the arbitration provision, the employees were still forced to “take it or leave it,” with no meaningful opportunity to negotiate the arbitration provision or class action waiver. As such, the purported “opt out” opportunity is effectively illusory. (Cf. Circuit City Stores, Inc. v. Mantor (9th Cir. 2003) 335 F.3d 1101, 1107 [in light of “Circuit City’s insistence that Mantor sign the arbitration agreement under pain of forfeiting his future with the company the fact that in 1995 Mantor was presented with an opt-out form does not save the agreement from being oppressive, for Mantor had no meaningful choice nor any legitimate opportunity, to negotiate or reject the terms of the arbitration agreement”].)"

The court found no basis for distinguishing the reasoning of Discover Bank in the employment setting, as in the consumer credit context, in that the contract is adhesive, and the “manifest onesidedness” of the class action waiver is “blindingly obvious,” since Ralphs would have no reason to use the class action device in disputes with its employees.

While the advantages to [Ralphs] are obvious, such a practice [prohibiting class or representative actions under these circumstances] contradicts the California Legislature’s stated policy of discouraging unfair and unlawful business practices, and of creating a mechanism for a representative to seek relief on behalf of the general public as a private attorney general. (See, e.g., Bus. & Prof. Code § 17200 et seq.) It provides the [employee] with no benefit whatsoever; to the contrary, it seriously jeopardizes [employees’] rights by prohibiting any effective means of litigating [Ralphs’] business practices. This is not only substantively unconscionable, it violates public policy by granting [Ralphs] a ‘get out of jail free’ card while compromising important consumer [and employee] rights.” (See also Civ. Code § 1668.)

There is a pending request to publish this opinion. If the names of the parties sound familiar, you may want to note that this Massie is different from the Massie whose suit against Ralphs led to the 2004 appellate opinion in Ralphs Grocery Co. v. Massie (2004) 116 Cal.App.4th 1031, regarding arbitration agreements and DLSE claims, that was subsequently ordered depublished.

NELA Annual Convention June 27-30

The National Employment Lawyers Association will be holding its Eighteenth Annual Convention in San Juan, Puerto Rico on June 27-30, 2007 at the Westin Rio Mar Beach Golf Resort & Spa. Programs will include Trial & Appellate Advocacy, Emerging Issues In Employment Law, Discovery, and Client Counseling. Topics discussed will include recent developments, negotiation and mediation, juror persuasion, ethics, executive compensation, damages and legal trends in class actions, wage and hour law, federal employee rights, the Family and Medical Leave Act, the Americans with Disabilities Act and more. You can download a brochure here and obtain a registration form here.

Murphy-Related Cases Dismissed or Transferred Back to Courts of Appeal

In light of the decision in Murphy v. Kenneth Cole Productions, Inc., the Supreme Court has transferred Mills v. Superior Court (Bed, Bath & Beyond), Chalecki v. Superior Court (State Farm Mutual Insurance), Banda v. Richard Bagdasarian, Inc., to their respective courts of appeal for further proceedings consistent with the holding in Murphy. In National Steel & Shibuilding v. Superior Court (Godinez), review has been dismissed, and the case was remanded. The same happened to the writ petition matter in Albertson's v. Wilcox. However, Dunn v. Superior Court (Kroger Company) is still with the high court, but it is also related to the Gentry class action arbitration case on next month's calendar, so a dismissal or transfer isn't expected in that case for several months.

Pursuant to Rule 8.528(b)(3), after an order dismissing review, the Court of Appeal opinion remains unpublished unless the Supreme Court orders otherwise. There was no order republishing the Fourth District's wage-penalty hybrid opinion, so National Steel & Shipbuilding remains unciteable.

Wal-Mart Class Action Filings Unsealed

A whole lot of pleadings filed under seal in Savaglio v. Wal-Mart Stores, Inc. are now a matter of public record, thanks to the Berkeley Daily Planet and a ruling by the First District Court of Appeal, which held last month that a litigant who has not properly brought a motion to seal documents under California Rules of Court is not entitled to have publicly filed records in Court of Appeal writ proceedings sealed, even if they had been filed under seal in Superior Court. You can read the opinion here in pdf or word format.

Assembly Passes AB 1043

Authored by Assemblyman Sandre Swanson (D-Oakland), AB 1043 passed the California Assembly on May 17, 2007, and heads to the Senate. The vote was split down straight party lines. AB 1043 would prohibit mandatory forum selection and choice-of-law provisions in employment cases, and establish a public policy against any provision in an employment contract that requires an employee, as a condition of obtaining or continuing employment, to use a forum other than California, or to agree to a choice of law other than California law, in any dispute with an employer regarding employment-related issues that arise in California.

O'Melveny DRP Thrown Out by 9th Circuit

In Davis v. O'Melveny & Meyers, the 9th U.S. Circuit Court of Appeals has determined that O'Melveny's DRP (dispute resolution procudure) is both procedurally unconscionable and substantively unconscionable, and therefore unenforceable. The ruling means that plaintiff Jacquelin Davis, a paralegal who left the firm in 2003, can proceed directly to court with her claims, and so can any of the 1,044-lawyer firm's employees. Among the reasons the agreement failed: (i) it was a take-it-or-leave-it deal forced upon employees in 2002 via an e-mail that said it "applies to and is binding on all employees (including associates) hired by -- or who continue to work for -- the firm on or after November 1, 2002"; (ii) the firm had the greater bargaining power; (iii) it imposed improper confidentiality restrictions on employees; (iv) it allowed the firm to opt out of arbitration in cases involving attorney-client issues; (v) it limited employees' ability to bring administrative actions with public agencies; and (vi) it purported shortened the workers' claims period to one year.

Though a firm spokesman has refused to say whether O'Melveny attorneys or outside counsel drafted the DRP, our guess is that the same attorneys who wrote the firm's arbitration agreement also wrote a lot of their client's DRPs. (On its website, O'Melveny & Myers touts that "much of our work and advice is preventive in nature, conducted with the goal of minimizing or eliminating the employer's exposure to liability and costly litigation." ) If you have a case against that firm in which arbitration is an issue, Davis should be required reading immediately.

Supreme Court Declines Review of Small v. Brinderson

The Supreme Court will not review Small v. Superior Court, a published case we discussed in March, in which an Orange County Superior Court ruling declaring invalid a wage order promulgated by the California Industrial Welfare Commission (IWC) was reversed by the Fourth District Court of Appeal.  The trial court had ruled that IWC Wage Order No. 16-2001 (wages, hours and working conditions for employees in the on-site construction industry and other occupations) was not accompanied by a sufficient statement of the basis, was not properly published, and contained an unworkable definition of “given craft,” which made the order "unreasonable, arbitrary, capricious and unfair."

Corrales v. Dell To Be Argued This Morning

The case of Corrales v. Dell, Labor Commissioner, will be argued in the Third District Court of Appeal on this morning at 9:30 a.m. The case involves a challenge by the California Labor Federation to DLSE precedent decisions and the DLSE policy of holding ODAs in abeyance and issuing one-year awards for rest and meal period claims. We are curious to find out how Murphy has affected the issues in that case.

Supreme Court Declines to Publish Prevailing Wage Decision

The Supreme Court has denied a request to publish a decision by the First District Court of Appeal in Southern California Labor/Management Operating Engineers Contract Compliance Committee v. Rea (Ford Construction Company), S150828, A113481, affirming a judgment that denied a petition for writ of mandate against acting director John M. Rea of the California Department of Industrial Relations. The judgment upheld Rea's “Decision on Administrative Appeal” that certain work done under contract in the remediation of a toxic waste site pursuant to a consent decree obtained by the Environmental Protection Agency, is not subject to this state’s Prevailing Wage Law because it is not a “public works” project as defined by the PWL..

Can All Meal Periods Can Be Waived At All Times?

We know of at least five large class actions which have been certified, for all purposes, on rest period violations: Main Street Restaurant Group (TGI Friday's); Brinker (Chili's, Romano's Macaroni Grill, On The Border Mexican Grill & Cantina), Albertson's (hourly store managers), Smart & Final, and UPS.

Smart & Final settled. UPS settled. A writ petition in Main Street Restaurant Group was denied. A writ petition in the Albertson's case was denied, and review was denied. However, Brinker Restaurant Corporation v. Superior Court is on appeal and was set for oral argument today in San Diego (Brinker Restaurant Corporation v. Superior Court (Hohnbaum). A significant issue in that appeal is whether the use of the word "provide" in Labor Code § 512 means "make available or "ensure," or whether it means something more akin to "authorize and permit" as is required for rest periods.

Labor Code § 512 states in part:

An employer may not employ an employee for a work period of more than five hours per day without providing the employee with a meal period of not less than 30 minutes, except that if the total work period per day of the employee is no more than six hours, the meal period may be waived by mutual consent of both the employer and employee.

Brinker reads this statute to imply that any meal period is waivable. The applicable wage orders also specify the conditions under which meal periods can be waived:

(A) No employer shall employ any person for a work period of more than five (5) hours without a meal period of not less than 30 minutes, except that when a work period of not more than six (6) hours will complete the day's work the meal period may be waived by mutual consent of the employer and employee. In the case of employees covered by a valid collective bargaining agreement, the parties to the collective bargaining agreement may agree to a meal period that commences after no more than six (6) hours of work.

(B) An employer may not employ an employee for a work period of more than ten (10) hours per day without providing the employee with a second meal period of not less than 30 minutes, except that if the total hours worked is no more than 12 hours, the second meal period may be waived by mutual consent of the employer and the employee only if the first meal period was not waived.

The certification order states that the issue of whether an employer must force an employee to take meal periods is itself a predominating common question. If we've heard correctly, Brinker seems to be arguing that "provide" simply means "not prevent," such that meal periods can be waived at any time; and therefore determination of each employee's waiver or lack thereof in each shift requires an individual analysis making the case unsuitable for class certification. However, under the classic canon of statutory construction "expressio unius est exclusio alterius" (Latin for "the mention of one thing may exclude others"), the specification of when a waiver is and is not valid generally precludes any reasonable interpretation that provides that an employee can waive the meal period except as provided in the wage orders. Thus, an individualized inquiry into waiver is not needed, particularly when the shifts exceed six hours.

In prior cases addressing the same issue, courts have found that the term “mutual consent of both the employer and employee” is significant. By using the term “mutual consent”, the Legislature clearly indicated that there must be a meeting of the minds prior to waiver occurring. Otherwise, the Legislature would have eliminated “mutual” from section 512. In Cicairos v. Summit Logistics, Inc. (2005) 133 Cal.App.4th 949, the Court of Appeal held that "employers have ‘an affirmative obligation to ensure that workers are actually relieved of all duty.’ (Dept. of Industrial Relations, DLSE, Opinion Letter 2002.01.28, p. 1.). See also Valles v. Ivy Hill Corp. (9th Cir. 2005) 410 F.3d 1071 (no waiver via CBA) Employers also have a duty, under wage order No. 9, to record their employees' meal periods." Id. at 963. Thus, unless the 4th District disagrees with the analysis in Cicairos, the certification should withstand appellate scrutiny. The Supreme Court denied review in Cicairos. Should Brinker prevail, Supreme Court review would be necessary to review the resulting conflict between the 3rd and 4th Districts.

Justices Nares, Haller, and O'Rourke were scheduled to hear the matter, but the court vacated the oral argument, sua sponte, and will reschedule it in due course. No reason was given, but it might have something to do with Murphy. We think there is some good language in Murphy disposes of Brinker's best arguments. Perhaps the 4th District will invite further post-Murphy letter briefing.

Wage & Hour Conference in Orange County

We'll be involved in this one, so we thought we'd give it a plug:

Wage & Hour Litigation Conference

Costa Mesa, CA, June 20, 2007

About the Program: This is the first major conference following the important ruling in Murphy v. Kenneth Cole. This one-day program explores in detail the critical aspects of Wage & Hour litigation with a focus on California. The well-balanced program offers the perspective of very experienced litigators.

This one day program is designed for attorneys and corporate counsel as well as risk and claims managers. The Program includes breakfast and handouts. This unique, fast-paced program will incorporate both plaintiff and defense perspectives.  Topics include:

• Wage & Hour Case Update
• What happens after Kenneth Cole?
• Class Action & Individual Wage & Hour Actions
• Preparing for and Excelling in Mediations 
• Class Certification, Dual filed Actions, Claims Administration
• The Intricacies of Wage & Hour Cases in California
• Discovery in Wage & Hour Actions
• Plaintiff & Defense Case Analysis
• Meal & Break Period Case Analysis
• Overtime Case Analysis
• An Analysis of Attorneys Fees in Wage & Hour Cases

Faculty: Rene Barge of the Class Action Litigation Group, Michael Walsh of Walsh and Walsh, Greg Labate of Sheppard Mullin, Andrew Satenberg of Manatt Phelps and Phillips, Marc Primo of the Initiative Law Group and more speakers to be confirmed.

Seminar Details: For additional seminar information http://reconferences.com/upcomingprograms2.html

Location: Westin South Coast Plaza Hotel

Time:  9:00 a.m. to 4:30 p.m.

To Register:

Register online at: http://www.reconferences.com

By phone: (818) 783-7156
By fax: (818) 784-7701
By mail: 13636 Ventura Blvd. #215 Sherman Oaks, CA 91423

The Largest Meal/Rest Period Settlement To Date

Last month, U.S. District Court Judge Thelton E. Henderson gave final approval to an $87 million settlement in a meal and rest period class action brought by a class of drivers against United Parcel Service for forcing employees to work off the clock. A pre-certification mediation with David Rottman was unsuccessful. After the case was certified and the class members won several key rulings, the case settled. Fully 94% of the class members participated in the settlement. The court approved attorney's fees of 25%, along with $15,000 to $25,000 in class representative enhancements. Approximately $4 million in settlement fund residue will be donated to food banks.

The lawsuit alleged that UPS package car drivers who worked more than ten hours a day routinely worked through their meal and rest breaks. They routinely had to wait more than five hours for their first meal break. The class action was filed after the class representatives were unable to change the policies through union grievances. Some of the 23,000 affected drivers received award of nearly $20,000. Congratulations to William Kershaw (Kershaw, Cutter & Ratinoff, LLP), Lyle Cook, Wendy York, Scott Cole and their entire team, for obtaining what is undoubtedly the largest meal and rest period settlement we've seen.

Defense Firms Weigh In on Murphy

The Supreme Court has denied a petition to modify the opinion in Murphy v. Kenneth Cole Productions, Inc., filed by Steven Drapkin, who argued the defense side for amicus curiae. The petition sought to add a blurb stating that the Supreme Court was not expressing any view about about the applicability of the many consequences, adverse to employers, that could will flow from the Supreme Court's designation of the hour of pay as a wage, and which formed the basis of many of the defense arguments as to why the hour of pay shouldn't have been declared a wage. The opinion will continue to be discussed at great length over the next few months in courtrooms, at seminars and in places like this blog, but with the denial of this petition, the underlying material for the discussion has finally been completed.

With notable exceptions, such as Sheppard Mullin, with its Labor & Employment Law Blog, larger firms tend not to discuss important cases on their firm websites for a few days or weeks. By now, however, most of the large firms who have anything interesting to say about Murphy v. Kenneth Cole Productions, Inc. have said it. Here is a collection of what they had to say:

Littler Mendelson has published this: Missed Meal & Rest Periods Will Cost Employers More Following California Supreme Court Decision. Their first article, on the first appellate decision in Murphy ("an early Christmas present") can be read here. Their new one begins with "Everything you need to know about how the Kenneth Cole decision will cost you." That'll get an employer's attention.

Nixon Peabody wrote: California Supreme Court increases stakes for violations of meal and rest period rules. After calling the decision infuriating, they list several different ways an employer could be found liable for break violations, and end by listing ways to modify employer behavior to prevent liability. Curiously, they note that Murphy "leaves open the possibility" that a court would permit a fourth year of recovery. We don't see that as an issue that remains unanswered, and consider it well-established that a wage can be recovered under the UCL for four years.

Sedgwick Detert wrote: California Supreme Court Triples Employers' Exposure. In it, they claim to have found a "silver lining" in that the Murphy decision is that the court disagreed with the plaintiff's argument that the premium pay exposure was two hours per day if both the meal and rest periods were missed. However, that issue was never part of the appeal, and the Supreme Court did not discuss, much less hold, that a plaintiff can only recover meal period pay or rest period pay, but not both, in a single work day. Perhaps that will be the next big issue in meal and rest period litigation.

Jackson Lewis wrote: California High Court Triples Exposure for Missed Meal and Rest Periods, which includes a good laundry list of practices that employer's should avoid and practices employers should implement, such as, if a meal or rest period is interrupted, it must start over from the beginning, so that the break is a "net" 30 or "net" 10 minutes.

Fenwick West wrote California Supreme Court Rules that Payment for Missed Meal and Rest Periods is a "Wage" Subject to Three-Year Statute of Limitations, saying that the decision "not only significantly increases employers' potential exposure for meal and rest period violations, but it is also a sobering reminder to employers to ensure that their exempt employees are properly classified."

Bingham McCutchen wrote the similarly entitled: California Supreme Court Rules Payments for Missed Meal and Rest Periods Are Wages Subject to Three-Year Statute of Limitations, with a list of four lessons learned by employers.

Ford & Harrison wrote: California Supreme Court Classifies Pay for Missed Meal/Rest Breaks as Wages, which preaches this truth: "California wage and hour law is very different from the federal FLSA, so simply complying with the FLSA is not enough to protect employers from significant exposure in California." If more employers understood that, our caseload would be cut in half.

Pillsbury Winthrop wrote: Meal and Rest Period Claims: California Supreme Court Hands Employers a Setback, observing that the decision "will clearly result in the filing of even more meal and rest period cases against employers. Jury awards and settlement amounts will very likely increase." We think that is is technically correct that there will be even more of these cases filed, but there would be more cases filed either way. The real impact is that the amounts of the awards and settlements will increase.

Proskauer Rose wrote: California Supreme Court Gives Employers No Break. The gist of the article is that the court took it upon themselves to quadruple employers' liability for meal period and rest period violations. Of course, we've never seen it that way. Our view is that the Supreme Court has undone the appellate court's mistaken slashing of employee claims for meal and rest period pay.

Sidley & Austin wrote: California Supreme Court Refuses to Give Employers a “Break”, which included a list of six issues that they believe to be unresolved after Murphy: • Are the meal and rest period provisions adopted by the Industrial Welfare Commission legally void? • Is Section 226.7 limited to a total of one hour of pay per day for meal and rest period violations, regardless of the number of violations? • Does the duty to “provide” a meal period mean only that employees must be afforded the opportunity to take a meal? Or, must the employer force the employee to eat? • Are statutory attorneys’ fees and interest recoverable for Section 226.7 actions? • Are late wage payment penalties triggered by a failure to make Section 226.7 payments? • Are Unfair Competition Law claims permitted for purposes of collecting Section 226.7 payments? We think have of those issues are already decided.

Fisher & Phillips wrote: California Supreme Court Ruling Could Quadruple Potential Damages For Meal and Rest Period Violations, which was the first defense firm article that reinforced our belief that we might be correct in our decision to start adding paystub violation claims (Labor Code section 226) to our meal and rest period cases.

And Hogan & Hartson wrote: California Supreme Court Rules in Favor of Employees in Long-Awaited Meal and Rest Break Case, which echoed our opinions. "Employees who have quit or been terminated without receiving all Section 226.7 pay can now assert claims under Labor Code section 203 ... employees also may seek penalties for the failure to provide properly itemized wage statements if Section 226.7 pay is not included on pay stubs or other wage statements ... [and add] claims for unfair competition and conversion, previously not available for the recovery of penalties ... and employers will face increased claims for punitive damages and significant penalties under the Labor Code Private Attorneys General Act because the argument that such damages constitute a double penalty is no longer viable now that Section 226.7 pay has been declared not to be a penalty. Finally, employees now have a greater chance of collecting attorneys fees and statutory interest in actions based solely on meal and rest period violations." The authors of that update also recently published an article about Murphy in the Daily Journal. The link is subscription-only.

If your firm isn't mentioned, it isn't because we meant to skip you. The problem is that you haven't figured out how to make Google love you. We noticed, interestingly enough, that a Google search for "murphy kenneth cole" puts a pair of Wage Law posts at the top, but not the post we'd have chosen, nor the one we think most relevant. We haven't figured Google out completely ourselves, but we think one reason we're near the top is that we apparently have 45 different pages that discuss the Murphy case.

Graham v. DaimlerChrysler Corporation Goes Back To Trial Court

Graham v. DaimlerChrysler Corporation and its catalyst theory issues continue to work their way up and down the California courts. The latest appellate case is now done, and the case is headed back to Superior Court for a third time.

Robert Graham, Truman Trekell, and Daniel Hawkins, on behalf of a nationwide class, sued DaimlerChrysler Corporation for breach of warranty on trucks which Chrysler represented could tow 6,400 pounds but which actually could tow only 2,000 pounds. Shortly after the suit was filed, Chrysler offered plaintiffs and all other similarly situated buyers various remedies, including repurchase or replacement of the trucks without any reduction for usage. Because plaintiffs had obtained full remedies, the trial court dismissed the case as moot, but, under the “catalyst theory,” awarded plaintiffs $762,830 in private attorney general attorney fees pursuant to Code of Civil Procedure section 1021.5, using a multiplier of 2.25.

The Court of Appeal affirmed the judgment, but on review, the Supreme Court reversed (Graham v. DaimlerChrysler Corp. (2004) 34 Cal.4th 553), holding that in order to recover attorneys fees, in addition to demonstrating that the lawsuit was a “catalyst” for the defendant’s changed conduct, plaintiffs must show that they made a reasonable attempt to settle the dispute before litigation, and that their lawsuit has merit. The Supreme Court also clarified that any multiplier for fees incurred in litigating attorney fees ("fees on fees") generally should be lower than that applied to fees for the underlying litigation, and held that the trial court had erred in partially basing its multiplier for fees on fees on the “results obtained” factor. The case was then remanded for a hearing on the two new elements of the catalyst theory, and if plaintiffs succeeded, for the trial court to make a new fee award based on the criteria discussed in the opinion.

On remand, the trial court found that the plaintiffs had proven both of the new elements of the catalyst theory and awarded them fees on fees by applying a multiplier of 2.0 for the work done before appeal and applying no multiplier for the work done after remand. The trial court award no fees for work on the appeals. Plaintiffs appealed and Chrysler cross-appealed.

On appeal, the award of fees was upheld, except that the trial court was ordered to reconsider whether to enhance some of the fees, and award fees for appellate work.

Those portions of the order enhancing plaintiffs’ attorney fees on fees for the first trial court proceeding by a 2.0 multiplier and denying plaintiffs appellate attorney fees are reversed. The case is remanded for the court to reconsider whether to enhance any of plaintiffs’ fees on fees for the first trial court proceeding, and if so by what multiplier, in accord with the views expressed in section III, and further to determine plaintiffs’ entitlement to and the amount of appellate attorney fees for the three appeals, including this one. In all other respects (plaintiffs’ entitlement to attorney fees in both trial court proceedings, the related lodestar amounts, and the decision not to multiply the fees for the second trial court proceeding) the judgment is affirmed. The parties shall bear their own costs on this appeal.

The defendant sought review. The Supreme Court has denied DaimlerChrysler's petition for review. Justices Chin and Baxter voted in favor of review. The appellate decision was unpublished, but interesting reading for any attorney dealing with catalyst theory issues. You can get a copy of the unpublished opinion on Westlaw or Lexis, and Google has a copy of the opinion cached at this webpage.

AB 1505 Dies in Committee

AB 1505, Assembly Member Nicole Parra's attempt to rewrite California's class action procedural rules, died in the Assembly Judiciary Committee yesterday. Parra's proposed legislation, backed by California Chamber of Commerce organizations, would have made it more difficult to file and succeed in class-action lawsuits, including wage and hour claims against large employers who violate the California Labor Code. The issue in committee was framed as follows:

ARE THE STANDARDS FOR CERTIFYING AND ADMINISTERING CLASS ACTION LAWSUITS SO UNCLEAR OR UNFAIR TO DEFENDANTS THAT THEY SHOULD BE REPEALED AND REWRITTEN IN A WAY THAT SUBSTANTIALLY DEPARTS FROM LONGSTANDING STATE AND FEDERAL PRACTICE?

The most glaring problems with the bill included:

• It eliminates California's long standing public policy in favor of class actions. Section 1(d). This policy has been upheld consistently for over 30 years by judges appointed by Republican and Democratic Governors. See Sav-On Drug Stores v. Superior Court (2004) 34 Cal. 4th 319, 340.
• It would require each individual class member to prove his or her claim and extent of damages. 383(c)(4). This essentially would make any large class case impossible since it would require an individual trial for each class member. No court - federal or state - has ever adopted this radical notion. Imagine what this means in the classic case where a company has committed widespread fraud in small amounts. For example, years ago a lot of lenders fraudulently increased loan fees by using a 360 day year (rather than 365) to compute interest. Individual amounts of loss were miniscule--maybe a few dollars per loan, but cumulatively the loss was great. There would be no way to challenge this conduct in a class case under this bill unless millions of individuals came in and proved their claims. But this is the point of class cases--by aggregating claims, an efficient means of redress is established and wrongdoing is punished and deterred.
• It imposes all the costs of notice on the plaintiffs, even if the defendant's conduct made expensive notice necessary (i.e. it destroyed records that would allow identification of class members), 383( c)(5)(C). This is of particular concern to nonprofit organizations whose funding is limited.
• It creates a novel right for a defendant to bypass class counsel and communicate directly with class members to make a settlement offer. 383(d)(2)(C). This would allow great mischief -- it would undermine the attorney client relationship of class counsel to the class and allow a defendant to "divide and conquer". Such conduct would never be permitted in an individual case. In a class case it would further undermine the role of class counsel as a representative of the class. No case we are aware of --federal or state - has ever allowed this overreach.
• It allows for a stay of all discovery directed to merits until class is certified. 383(d)(6) -- a classic catch 22 since in (c)(3) the merits can be considered -- except plaintiffs can now be barred from discovery into the merits.
• It allows a direct appeal from an order granting class certification. 383(f). California law only allows appeal when a class motion is denied, essentially dismissing the case. Under federal law, there is no automatic appeal - only a right to request leave to appeal, which is supposed to be rarely granted. See FRCP 23(f). This provision thus goes beyond federal and state law.
• It requires class counsel's attorney's fee motion to be served on all class members. 383((h)(1). This would raise substantial expense in any large class since voluminous motions would have to be mailed to all class members at plaintiff's expense. Neither federal nor state law requires this.
• The expense of seeking attorney's fees, which can be substantial, would not be recoverable if the plaintiff prevails. 383((h)(5). This is contrary to both federal and state law which recognizes that if "fees on fees" are not awarded when a defendant refuses to pay fees, a defendant has an incentive to litigate and drag out the proceedings, and class lawyers are forced to work for free to obtain their rightful fees.

The bill was opposed by AARP, Amalgamated Transit Union, California American Civil Liberties Union, American Television and Radio Artists, Asian Law Caucus, Asian Pacific American Legal Center, CALPIRG, California Applicant Attorneys Association, California Conference of Machinists, California Employment Lawyers Association, California Federation of Teachers, California Labor Federation, California Nurses Association, California Teamsters, Congress of California Seniors, Consumer Action, Consumer Attorneys of California, Consumer Federation of California, Consumers for Auto Reliability and Safety, Disability Rights Advocates, Engineers and Scientists of California, IFPTE Local 20, Equal Rights Advocates, Fair Housing Law Project, Foundation for Taxpayer and Consumer Rights, Gray Panthers of California, Impact Fund, International Longshore and Warehouse Union, Jockeys' Guild, Legal Aid Society of San Francisco - Employment Law Center, Mexican American Legal Defense and Educational Fund, National Center for Lesbian Rights, National Association of Consumer Advocates, Older Women's League, Professional and Technical Engineers, IFPTE Local 20, Protection and Advocacy, Inc., Public Counsel SEIU, California State Council Sierra Club, California Speak Out, California United Food and Commercial Workers, Western States UNITE-HERE!, Utility Consumers' Action, Network Western Center on Law and Poverty, and the Women's Employment Rights Clinic.

Not All Wage Cases Subject to Armendariz Arb Requirements

Under California law, wages "are jealously protected by statutes for the benefit of employees." Boothby v. Atlas Mechanical, Inc. (1992) 6 Cal.App.4th 1595. Public policy has long favored the full and prompt payment of wages due an employee. Wages are not ordinary debts. Because of the economic position of the average worker and, in particular, his dependence on wages for the necessities of life for himself and his family, it is essential to the public welfare that he receive his pay promptly. Mamika v. Barca (1998) 68 Cal.App.4th 487. Wages are preferred over all other claims because of the economic position of the average worker, who depends upon the regular payment of wages for the necessities of life. I.W.C. v. Superior Court Kern County (1980) 27 Cal.3d 690. But what about the wages of a rich guy? Is the payment of a fat bonus to a well-to-do employee as important under the law? One Court of Appeal says no.

In California, if an employment case involves discrimination or matters of important public policy, under Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, any agreement to arbitrate will be deemed substantively unconscionable unless the agreement has mutuality (meaning it also requires the employer to arbitrate any claims it would likely want to bring against its employees) and it complies with five procedural requirements, including a neutral arbitrator, adequate discovery, a written award, all of the types of relief that would otherwise be available in court and no provision or condition that requires employees to pay either unreasonable costs or any arbitrators’ fees or expenses as a condition of access to the arbitration forum. Common provisions that violate Armendariz include waivers of punitive damages or tort remedies; shortened statutes of limitation; complete or partial unilaterality (i.e., providing that "either party" reserves the right to litigation in Superior Court over the theft or disclosure of trade secrets); requirements that claimants exhaust remedies under internal company ADR plans; splitting of arbitration costs; or rights to appeal large arbitration awards.

Arbitration agreements governing wage and hour disputes are generally considered to be subject to Armendariz's requirements. However, in Giuliano v. Inland Empire Personnel, Inc., the Second District Court of Appeal held that not all wage and hour cases involve such important public policy issues as to trigger the safeguards of Armendariz. In Giuliano, B190771, the plaintiff was an executive vice president and chief financial officer of the defendant. He alleges that Inland Empire Personnel owes him a $5 million to $8 million profit-sharing bonus and a $500,000 severance payment under his employment agreement. His complaint alleges claims for statutory wages under Labor Code § 200; breach of contract; and declaratory relief regarding the arbitration agreement and a requirement that he sign a waiver and release in order to receive a severance payment. The defendant argued that his claim was a “garden variety” breach of contract action, not subject to Armendariz. The trial court invalidated the arbitration agreement, and Inland Empire Personnel appealed.

The Court of Appeal reversed, finding that Armendariz only applies to unwaivable claims that are “carefully tethered to statutory or constitutional provisions;” and that Giuliano didn't present such a claim. Thus, the employer's failure to comply with Armendariz did not render the arbitration agreement unconscionable, and the order denying the motion to compel arbitration was error. The opinion also contains a good discussion of FAA preemption of the Labor Code, and specifically, section 229, with regard to arbitration agreements which involve or affect interstate commerce, which, oddly enough, appears to be about the only ground on which Giuliano opposed the motion. The opinion notes that Giuliano did not argue that the arbitration agreement was unconscionable or unenforceable under Armendariz, or that the arbitration agreement was ambiguous as to which parties were bound by the agreement, but both of those grounds were cited by the trial court in its order denying the motion.

On the Armendariz issue, the opinion focuses upon whether the claims present unwaivable rights involving public policy matters. "If a right or duty can be waived by agreement, it is not rooted in a substantial public policy, absent other factors to the contrary.” Giuliano argued that his statutory wage claim is an unwaivable claim because “[t]he right to be paid wages earned is part of the public policy of the State of California and is not waivable.”  However, the Court of Appeal found that Giuliano’s contract claim for a $5 million to $8 million bonus and a $500,000 severance payment is distinguishable from the statutory overtime or minimum wage claims that were at issue in the cases cited by Giuliano.

We distinguish the above cases because they involved unwaivable statutory claims for federally mandated overtime and minimum wage payments, whereas this case involves a breach of contract claim for a multimillion dollar bonus and severance payment. ... As we have concluded that Armendariz does not apply to this case, Giuliano’s claim of procedural unconscionability fails.

The case was decided in March, and ordered published on April 19. Petitions for review and/or depublication are likely. If reviewed, the case would present plenty of fascinating issues for the Supreme Court and its many friends. You can download Giuliano v. Inland Empire Personnel, Inc. here in pdf or word format.

Supreme Court to Hear Arguments in Prachasaisoradej

The Supreme Court has set a date to hear arguments in Prachasaisoradej v. Ralph’s Grocery Company, Inc. (2004) 122 Cal.App.4th 29, to determine whether it is a violation of California’s wage laws and the Unfair Competition Law for an employee bonus plan to be based on an amount of profits that can be reduced by a store’s expenses, such as workers compensation insurance, and cash or merchandise losses. The arguments will be heard on Wednesday, June 6, 2007, at 9:00 a.m. in the Supreme Court's Los Angeles venue. The issue on appeal in Prachasaisoradej reads as follows:

Does an employee bonus plan based on a profit figure that is reduced by a store's expenses, including the cost of workers compensation insurance and cash and inventory losses, violate (a) Business and Professions Code section 17200, (b) Labor Code sections 221, 400 through 410, or 3751, or (c) California Code of Regulations, title 8, section 11070?

The Court of Appeal held that deducting such expenses from revenue in calculating the profit on which a bonus is based amounts to an unlawful recovery of business expenses out of an employee’s wages.

Supreme Court to Hear Arguments in Gentry

The Supreme Court has set a date to hear arguments in Gentry v. Superior Court, to determine whether its holding Discover Bank makes it substantively unconscionable to impose a class action ban upon employees whose wage and hour claims might sometimes be large enough to pursue individually. The arguments will be heard on Tuesday, June 5, 2007, at 2:00 p.m. in the Supreme Court's Los Angeles venue. The issue on appeal in Gentry reads as follows:

Petition for review after the Court of Appeal denied a petition for peremptory writ of mandate. This case presents issues regarding the enforceability of an arbitration provision that prohibits employee class actions in litigation concerning alleged violations of California's wage and hour laws.

There are currently at least four companion cases: S148581 Dunn v. Superior Court (Kroger Co.), S141677 People v. Vasquez, S141753 Jones v. Citigroup, and S150386 Firchow v. Citibank (South Dakota), N.A. The case we thought might become a fifth companion case, In re Cingular Cases, was never presented to the Supreme Court for review (two requests for publication were denied.)

The list of amici is long and distinguished. We haven't heard yet who will actually argue the case. The scheduling of argument in Gentry assures that there will be at least two blockbuster cases discussed at your 2007 wage and hour year-in-review MCLE classes.

To Stay in Federal Court, Defendant Must Show Plaintiffs Are "Legally Certain to Recover" $5M+

Suppose a plaintiff files a class action complaint in state court alleging aggregate damages "in an amount less than $5 million." What must the defendant do to invoke the Class Action Fairness Act and keep the case in U.S. District Court. In Tate v. U.S. Bank National Association (D. Or. 2007) 2007 WL 1170608, an Oregon judge has followed a 9th Circuit case, Lowdermilk v. U.S. Bank National Association (9th Cir. 2007) 479 F.3d 994, slip op. at 10, and remanded a case back to state court, finding that

Where, as here, there is no evidence of bad faith on the part of the plaintiff, defendant must not only contradict the plaintiff's own assessment of damages, but must overcome the presumption against federal jurisdiction by showing that plaintiff is legally certain to recover at least five million dollars.

"Legally certain to recover." We're bound to see those words pop up quite a bit in future proceedings.

Darden Restaurants Pays Another $11 Million To Settle Overtime Class Actions

We haven't seen a press release, but according to its most recent SEC filings, it looks like Darden Restaurants Inc. (Red Lobster and Olive Garden restaurants) has agreed to pay up to $11 million to settle five wage and hour class actions pending in Los Angeles, Orange and Sacramento Counties. Unlike our case, which settled for $9.5 million, these cases included overtime claims on behalf of service managers, beverage and hospitality managers and culinary managers who were classified as exempt employees.

Here is what DRI had to say about our case:

Like other restaurant companies and retail employers, we have been faced in a few states with allegations of purported class-wide wage and hour violations. In March 2002 and March 2003, two purported class action lawsuits were brought against us in the Superior Court of Orange County, California by three current and former hourly restaurant employees alleging violations of California labor laws with respect to providing meal and rest breaks. Although we continue to believe we provided the required meal and rest breaks to our employees, to avoid potentially costly and protracted litigation, we agreed during the second quarter of fiscal 2005 to settle both lawsuits and a similar case filed in Sacramento County, for approximately $9.5 million. Terms of the settlement did not include any admission of liability by us, and all settlement proceeds were paid as of the end of the third quarter of fiscal 2006.

Here's what they had to say about the latest settlement:

Beginning in 2002, a total of five purported class action lawsuits were filed in Superior Courts of California (two each in Los Angeles County and Orange County, and one in Sacramento County) in which the plaintiffs allege that they and other current and former service managers, beverage and hospitality managers and culinary managers were improperly classified as exempt employees under California labor laws. The plaintiffs sought unpaid overtime wages and penalties. Two of the cases were removed to arbitration under our mandatory arbitration program, one was stayed to allow consideration of judicial coordination with the other cases, one is proceeding as an individual claim, and one remains a purported class action litigation matter. Although we continue to believe we correctly classified these employees, to avoid potentially costly and protracted litigation, we agreed in February 2006 to a tentative settlement. Without admitting any liability, we agreed to pay up to a maximum total of $11 million to settle all five cases, of which $9 million was recognized during fiscal 2006 and is included in selling, general and administrative expenses. The tentative settlement will be documented in a full settlement agreement and must have court approval. We cannot predict when the settlement will be final but estimate preliminary court approval will occur in the first half of fiscal 2007, with final court approval and payment of the settlement proceeds no earlier than the second quarter of fiscal 2007.

That last bit makes it sound like the final approval will come before the preliminary approval, which can't be the case, but we infer from it that the payments will be made shortly.

Judge Limits Hiring of Outside Law Firms to Prosecute UCL Claims on Contingent Basis

Santa Clara County Superior Court Judge Jack Komar has ruled that public-entity plaintiffs may not retain outside attorneys on a contingency fee basis to handle public nuisance lawsuits. Judge Komar cited People ex rel. Clancy v. Superior Court (1985) 39 Cal.3d 740, which held that a contingent fee arrangement between a city government and a private attorney whom it hired to bring abatement actions against alleged pornography distributors, under the city's nuisance ordinance, was inappropriate under the circumstances, and in the interests of justice, the outside attorney was disqualified. A copy of his order can be downloaded and read here. Santa Clara County is likely to appeal. County Counsel Ann Ravel remarked "if that decision stands, it will impair the ability of cash-strapped public entities from proceeding against defendants who create nuisances in their communities." The issue could make for an interesting debate regarding the role of Business & Professions Code § 17200, and any time Section 17200 is discussed, there is a potential to affect wage and hour cases. However, we've never heard of a public entity hiring outside counsel to enforce wage and hour provisions, much less hiring them under contingent fee arrangements. Most of the time, enforcement of Labor Code and other wage and hour provisions are enforced via class actions or representative actions on behalf of affected representative employees, or are brought under PAGA.

Employer May Not Force Employees to Exhaust Vacation/Sick Pay Before Invoking FMLA

A recent opinion published by the Seventh U.S. Circuit Court of Appeals holds that employees may not always be compelled by their employers to exhaust vacation or sick leave before invoking the Family Medical Leave Act (FMLA). In Repa v. Roadway Express, Inc. (7th Cir. 2007) __ F.2nd __, defendant Roadway Express, Inc. violated the FMLA (29 U.S.C. § 2601 et seq.) when it required an employee on FMLA leave to concurrently use her accrued paid sick and vacation leave. Interpreting 29 C.F.R. § 825.207(d)(1), the court concluded that Roadway could not require its workers to substitute paid leave for unpaid FMLA leave because the employee was receiving disability benefits from a benefit plan to which Roadway was required to contribute under a CBA.

Roadway argued, among other things, that the FMLA permits employers to substitute paid leave for FMLA leave under such circumstances. Repa responded that, because she was receiving disability benefits from a multi-employer benefit plan, the FMLA provision allowing the substitution of paid leave did not apply. The 7th Circuit agreed.

The FMLA guarantees certain employees up to twelve weeks of unpaid medical leave each year. However, employees may elect and/or employers may sometimes require, that the employee substitute any accrued paid vacation time, PTO or sick leave personal leave, for all or part of the time given under the FMLA. 29 U.S.C. § 2612(d)(2). However, this substitution is limited by Department of Labor regulations. One such regulation (Section 825.207(d)(1)) provides, in pertinent part, that:

"... Because the leave pursuant to a temporary disability benefit plan is not unpaid, the provision for substitution of paid leave is inapplicable. However, the employer may designate the leave as FMLA leave and count the leave as running concurrently for purposes of both the benefit plan and the FMLA leave entitlement. If the requirements to qualify for payments pursuant to the employer's temporary disability plan are more stringent than those of FMLA, the employee must meet the more stringent requirements of the plan, or may choose not to meet the requirements of the plan and instead receive no payments from the plan and use unpaid FMLA leave or substitute available accrued paid leave."

Employers often require that an employee substitute all paid leave for FMLA leave to avoid giving the worker more than twelve weeks leave. However, under the DOL regulations, as interpreted and applied by the 7th Circuit here, it would appear that any employee receiving disability pay might be permitted to extend their FMLA leave by other paid leave offered by the employer, such as PTO, vacation or sick leave.

You can download a pdf of the Repa decision here.