Wage Law

A defense judgment in a case brought by employees against their former employer after the conclusion of Labor Commissioner proceedings has been reversed in part and affirmed in part. Contrary to the trial court's determinations, civil claims other than wage and hour claims, such as causes of action alleging fraudulent inducement to enter employment, are not precluded by the prior pursuit of wage claims in an administrative forum before the Labor Commissioner pursuant to Labor Code §§ 98 et seq. Noble v. Draper (2008) __ Cal.App.4th __. In an unpublished portion of the opinion, the Court of Appeal held that, to the extent that an employee's claims rely upon the finding of an employer/employee relationship, an undisturbed Labor Commissioner’s ruling that the plaintiff was not an employee can preclude them. Section II-B has been ordered not to be published. The rest of the opinion is published. You can download the opinion in Noble v. Draper here in pdf or word format.

If the son of Aeacides had ever become a lawyer, this is exactly the kind of case he'd have taken, all the way to the Supreme Court. Technically, the wage and hour attorney representing the plaintiff/employee won the appeal. Technically. But make no mistake about it, when the parties read the opinion issued this morning in Harrington v. Payroll Entertainment Services, Inc. (2008) __ Cal.App.4th __, it wasn't Mr. Harrington who was smiling.

Here's what the Second District Court of Appeal had to say in its opening paragraph:

This was a dispute about $44.63 in unpaid overtime, which was settled for $10,500, after which the plaintiff asked the trial court for about $46,000 for his attorneys’ fees. The trial court denied the motion outright, and the plaintiff now appeals on the ground that he has a statutory right to recover his reasonable fees. We agree, reverse the order, and award him $500 for his fees.

No, those are not typos. Those are the numbers. Suffice it to say, the rest of the opinion included little praise for the plaintiff or his lawyers. We suspect, although we didn't attend Tuesday's oral argument (yes, the opinion was published just a day and a half later), that the justices were quite hostile to the appellant during those proceedings. If you want to read their entire opinion, you can find it here in pdf or word format.

The Supreme Court has just issued a ruling in Olson v. Automobile Club of Southern California (2008) __ Cal.4th __, regarding the recovery of expert witness fees under Code of Civil Procedure § 1021.5. Or, we should say, the non-recovery of expert witness fees under Code of Civil Procedure § 1021.5. The statement of issues on review was as follows:

Petition for review after the Court of Appeal modified and affirmed the judgment in a civil action. The court limited review to the following issue: Is a prevailing plaintiff who is awarded attorney's fees under the private attorney general statute (Civ. Code § 1021.5) entitled to recover expert witness fees?

The holding:

Code of Civil Procedure section 1021.5 provides, in pertinent part, that “[u]pon motion, a court may award attorneys’ fees to a successful party . . . in any action which has resulted in the enforcement of an important right affecting the public interest if . . . a significant benefit . . . has been conferred on the general public . . . .” We granted review in this matter to decide whether, under this statute, a prevailing plaintiff who is awarded attorney fees is also entitled to recover expert witness fees. In Davis v. KGO-T.V., Inc. (1998) 17 Cal.4th 436 (Davis), we considered a similar issue, and concluded that Government Code section 12965, former subdivision (b), which then provided for an award of “ ‘reasonable attorney fees and costs’ ” to a prevailing party, did not permit an award of expert witness fees. (Davis, supra, 17 Cal.4th at pp. 438, 446; Gov. Code § 12965, former subd. (b), as amended by Stats. 1992, ch. 912, § 7.1, p. 4276.) Consistent with Davis and the plain language of the statute, we hold that a prevailing plaintiff is not entitled to an award of expert witness fees in addition to attorney fees under Code of Civil Procedure section 1021.5.

For most wage and hour lawyers and plaintiffs, the ruling changes little. Expert witness fees are relatively modest in wage and hour cases, and most wage claims have attorney's fee statutes that do not require the plaintiffs to rely upon the UCL or section 1021.5, and there are few wage and hour cases in which section 1021.5 is an important issue. If it's important to you, however, you can find the opinion here in pdf or word format.

In July 2007, we discussed a case called Ticconi v. Blue Shield of California Life & Health (2007) 153 Cal.App.4th 1123 (Diverse Facts and Legal Arguments Concerning Equitable Defenses in UCL Claims Do Not Bar Class Certification). It held that unclean hands and other equitable defenses could not be used to defeat class certification in an unfair competition lawsuit based upon violations of statute, even if the defenses might be taken into account when fashioning a remedy, and even if they involve the determination of facts and legal issues that vary greatly among class members. In August, on the Court granted rehearing on its own motion, to make non-substantive changes to the opinion. The opinion on rehearing was issued in December. The holding remained undisturbed. If anything, it looks a bit worse for the defendant.

On January 3, 2008, the court granted the defendant's petition for rehearing. The third opinion has now been issued. Again, the holding is not meaningfully different, at least not with respect to the issues relevant to wage and hour lawyers who litigate UCL class actions. On those counts, if anything, it looks a bit worse for the defendant.

The trial court denied plaintiff’s motion for certification of a class of similarly situated insureds on the ground that Blue Shield Life’s defenses of fraud and unclean hands raised individual issues that predominated over the common issues related to liability. Plaintiff appeals.

We conclude that the trial court erred as a matter of law in ruling on the motion for class certification. The equitable defense of unclean hands is not available in a UCL action based on the violation of statutes such as sections 10113 and 10381.5. Also, sections 10113 and 10381.5 preclude an insurer from raising the defense of fraud based on statements that an insured made in an application for insurance if the application had not been attached to or endorsed on the policy when issued (§§ 10113 & 10381.5). Therefore, the trial court relied on erroneous legal assumptions in ruling that the individual issues raised by the defenses of unclean hands and fraud predominated over the common issues pertaining to liability. Accordingly, we reverse the order with instructions.

There remain some questions about whether the plaintiff is still a suitable class representative, but that doesn't look like it will impair the ability to certify the class.

The indications are that plaintiff had standing when he filed this lawsuit but was paid some money thereafter. “Even if the named plaintiff receives all the benefits that he seeks in the complaint, such success does not divest him of the duty to continue the action for the benefit of others similarly situated.” (La Sala v. American Sav. & Loan Assn., supra, 5 Cal.3d at p. 871.) We observe that plaintiff has declared “his desire to continue with this case[] . . . . after being publicly called a fraud by Blue Shield Life.”

“If, however, the court concludes that the named plaintiff[] can no longer suitably represent the class, it should at least afford plaintiff[] the opportunity to amend the[] complaint, to redefine the class, or to add new individual plaintiffs, or both, in order to establish a suitable representative. [Citations.] If, after the court has thus extended an opportunity to amend, the class still lacks a suitable representative, the court may conclude that it must dismiss the action. At this point, the further issue arises whether the court must notify the class of the proposed dismissal.” (La Sala v. American Sav. & Loan Assn., supra, 5 Cal.3d at p. 872.) All of these issues must be considered by the trial court on remand.

You can download the new opinion here in pdf or word format.

Earlier this month, a prominent former class action attorney, William Lerach, was sentenced to two years in prison for his role in a scheme to pay huge cash kickbacks to class action plaintiffs. It was the maximum sentence possible under his guilty plea agreement. He'll pay about $8 million in fines, too. The thing that struck us about his case was the assertion that Lerach's kickback scheme was widespread among all class action lawyers. Lerach has been quoted saying:

"Believe me, it was industry practice. We kept it quiet because obviously if a judge knew about it you're not going to get appointed as lead counsel and the class representative is not going to get certified because it's an ethical violation and you're not allowed to split a fee with a non-lawyer."

An industry practice? It's not an industry practice. Basically, it's capping. Some lawyers need to do it to get the cases they want, but not everyone is doing it. Most are not, which is why most of us only have a handful of these cases at a time.

It's like cheating on your wife. If you do it, your brain feels better if you convince yourself that everyone does it, even though we don't. Have you ever met a cheater who didn't think everyone else was doing it, too? It reminds us of an expression our grandfather used to say. We can't repeat verbatim because he said it in French, but it translates like this: "No man ever looks under the bed unless he has hidden there himself." Lerach thinks we're all hiding under the bed.

Last week, the Supreme Court denied a petition for review in Lewis v. Robinson Ford Sales, Inc. (2007) 156 Cal.App.4th 359. We discussed the case in a previous post you can find at this link. The Fourth Appellate District had reversed an order denying class certification in a case involving negative equity financing under the Automobile Sales Finance Act, Consumer Legal Remedies Act, and Unfair Competition Law. The matter was ordered remanded with directions to enter an order certifying the class. The remittitur has been issued.

An unpublished January 2008 opinion regarding NLRA preemption has been ordered published. In Luke v. Collotype Labels USA, Inc. (2007) __ Cal.App.4th __, the First District Court of Appeal affirmed a summary judgment against an employee who asserted, among other things, wrongful termination in violation of public policy. One of the public policies at play was that set forth in Labor Code § 923:

Negotiation of terms and conditions of labor should result from voluntary agreement between employer and employees. Governmental authority has permitted and encouraged employers to organize in the corporate and other forms of capital control. In dealing with such employers, the individual unorganized worker is helpless to exercise actual liberty of contract and to protect his freedom of labor, and thereby to obtain acceptable terms and conditions of employment. Therefore it is necessary that the individual workman have full freedom of association, self-organization, and designation of representatives of his own choosing, to negotiate the terms and conditions of his employment, and that he shall be free from the interference, restraint, or coercion of employers of labor, or their agents, in the designation of such representatives or in self-organization or in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.

The other was Section 232.5:

No employer may do any of the following:

(a) Require, as a condition of employment, that an employee refrain from disclosing information about the employer's working conditions.

(b) Require an employee to sign a waiver or other document that purports to deny the employee the right to disclose information about the employer's working conditions.

(c) Discharge, formally discipline, or otherwise discriminate against an employee who discloses information about the employer's working conditions.

(d) This section is not intended to permit an employee to disclose proprietary information, trade secret information, or information that is otherwise subject to a legal privilege without the consent of his or her employer.

The plaintiff alleged that he was terminated because he told other employees that they should keep a record of problems they encountered and express their concerns to management, “provided support and ideas to other employees who complained about working conditions" and discussed “working conditions such as heat, bathroom availability, no seating during breaks and lunch, and promotion decisions.” The trial court granted the defendant employer's motion for summary judgment on the basis that plaintiff's claims were preempted by the National Labor Relations Act, finding that the complaint alleged “nothing more than unfair labor practices that are preempted by federal law and, therefore, are not properly heard in this tribunal.” The Court of Appeal affirmed.

You can download Luke v. Collotype Labels USA, Inc. here in pdf or word format. One is left to wonder to what extent Grant-Burton v. Covenant Care (2002) 99 Cal.App.4th 1361 (plaintiff can assert wrongful termination claim under Labor Code § 232's prohibition against discipline for disclosing wages with other employees) remains viable.

Do you remember the last time U.S. Supreme Court Justice Clarence Thomas spoke? We heard him talk about football during the USC - Nebraska game last September (which we fondly recall as "departing of the Red Sea"), but when was the last time Justice Thomas spoke up during session? It was in a death penalty case heard on February 22, 2006. That makes two years and 142 cases without an utterance by Justice Thomas.

One might suggest that Justice Thomas is strictly construing and personally adhering to the prohibitions of 40 U.S.C. 6134, which makes it "unlawful to discharge a firearm, firework or explosive, set fire to a combustible, make a harangue or oration, or utter loud, threatening, or abusive language in the Supreme Court Building or grounds." But that's probably not it. When he started his dissent earlier this month in Preston v. Ferrer (2008) __ U.S. __, with the words "as I have stated on many previous occasions," we chuckled just a little, but not nearly as much as our liberal friends chuckled when we praised Justice Thomas's dissent in that case and suggested that we would love to see at least four more justices just like him.

The dissent, for what it's worth, read as follows:

JUSTICE THOMAS, dissenting. As I have stated on many previous occasions, I believe that the Federal Arbitration Act (FAA), 9 U. S. C. § 1 et seq. (2000 ed. and Supp. V), does not apply to proceedings in state courts. See Allied-Bruce Terminix Cos. v. Dobson, 513 U. S. 265, 285–297 (1995) (THOMAS, J., dissenting); see also Buckeye Check Cashing, Inc. v. Cardegna, 546 U. S. 440, 449 (2006) (same); Green Tree Financial Corp. v. Bazzle, 539 U. S. 444, 460 (2003) (same); Doctor’s Associates, Inc. v. Casarotto, 517 U. S. 681, 689 (1996) (same).Thus, in state -court proceedings, the FAA cannot displace a state law that delays arbitration until administrative proceedings are completed. Accordingly, I would affirm the judgment of the Court of Appeals.

We'd love to hear more from him on these matters, although it may become moot if the Arbitration Fairness Act of 2008 passes.

Do defense lawyers owe any duty to putative class members when interviewing them on behalf of their employer prior to certification of the class? While there is still little guidance from the courts of appeal on the subject, if you've never read it before, you might consider reviewing a September 2005 order by Judge Brick (Alameda County Superior Court) in a case called Shahrokhshahi v. Round Table Pizza. Although Judge Brick denied the plaintiff's motion to disqualify the defense firm for conducting interviews of putative class members without making full and fair disclosures to them beforehand, he did rule that the firm had violated ethical rules by not disclosing to putative class members when they first contacted them that:

• The class members' potential rights to overtime wages were at issue in the pending litigation;
• Their interests were adverse to the corporation's in the litigation;
• The defense firm represented only the corporation's interests, not those of the putative class members;
• Information given to the defense firm was not confidential and could be used against the class members' interests in the overtime litigation; and
• The managers may want to speak to independent counsel about their interests in the litigation.

Because the defense firm failed to make any such disclosures, he ordered the distribution of a curative letter, on employer letterhead, to all putative class members. The firm's writ petition was summarily denied in Round Table Pizza, Inc. v. Superior Court, Case No. A111674. We've had the issue come up several times recently, and our judges have all been receptive to Judge Brick's rationale.

The Supreme Court denied a request last month to depublish the Second District Court of Appeal's opinion in Fitz-Gerald v. SkyWest Airlines, Inc. (2007) 155 Cal.App.4th 411. The case affirmed a trial court decision that a flight attendant's claims under California labor law regarding minimum wages, overtime and meal/rest breaks were preempted by the Railway Labor Act (45 U.S.C. § 151 et seq.). We previously discussed the case in a post you can read at this link.

Unlike statutory claims for discrimination and other claims under the Fair Employment and Housing Act, employees who pursue wage claims have no duty to exhaust or pursue any administrative remedies before the California Labor Commissioner. However, an employer seeking to vacate an award entered upon its default does need to pursue administrative remedies by seeking relief from their default before the Labor Commissioner prior to challenging the judgment in Superior Court.

In Gonzalez v. Beck (2007) __ Cal.App.4th, the plaintiff filed a claim for unpaid wages with the Labor Commissioner. The defendants failed to answer or appear at the administrative hearing on her claim, and the plaintiff received an award upon which a judgment was entered in the trial court. The defendants filed a motion to set aside the judgment in the Superior Court, which was denied on the grounds that they had failed to exhaust their administrative remedies pursuant to Labor Code § 98(f).

On appeal, the defendants contended that they were not required to exhaust their administrative remedies under section 98(f) because they did not receive actual notice of the administrative proceedings until after the judgment was entered in the trial court. The Court of Appeal affirmed the judgment, holding that section 98(f) requires defendants, in accordance with Code of Civil Procedure § 473, to move to set aside the award before the Commissioner prior to seeking judicial relief from their default in the administrative proceeding.

You can download the opinion in Gonzalez v. Beck here in pdf or word format.

Pursuant to California Labor Code § 226, California employers are required to provide certain information on employees' pay stubs, which information may include the employees' social security numbers. However, effective January 1, 2008, employers are only permitted to print the last four digits of an employee's social security number, or an employee identification number other than a social security number, on the paystubs.

Labor Code § 226(a) provides that:

Every employer shall, semimonthly or at the time of each payment of wages, furnish each of his or her employees, either as a detachable part of the check, draft, or voucher paying the employee's wages, or separately when wages are paid by personal check or cash, an accurate itemized statement in writing showing

(1) gross wages earned,

(2) total hours worked by the employee, except for any employee whose compensation is solely based on a salary and who is exempt from payment of overtime under subdivision (a) of Section 515 or any applicable order of the Industrial Welfare Commission,

(3) the number of piece-rate units earned and any applicable piece rate if the employee is paid on a piece-rate basis,

(4) all deductions, provided that all deductions made on written orders of the employee may be aggregated and shown as one item,

(5) net wages earned,

(6) the inclusive dates of the period for which the employee is paid,

(7) the name of the employee (and the last four digits of his or her social security number or an employee identification number other than a social security number may be shown on the itemized statement),

(8) the name and address of the legal entity that is the employer, and

(9) all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee.

Under Labor Code § 226(e), an employee suffering injury as a result of a knowing and intentional failure by an employer to comply is entitled to recover the greater of all actual damages or fifty dollars ($50) for the initial pay period in which a violation occurs and one hundred dollars ($100) per employee for each violation in a subsequent pay period, not exceeding an aggregate penalty of four thousand dollars ($4,000), and is entitled to an award of costs and reasonable attorney's fees. Because these penalties can accrue at a clip of four thousand dollars per employee, plus attorney's fees, such errors can create substantial exposure to employers.

The statute requires strict compliance. In Cicairos v. Summit Logistics, Inc. (2005) 133 Cal.App.4th 949, the Court of Appeal held that Section 226 must be followed exactly, concluding that paystubs identifying the employer in that case as "Summit" rather than "Summit Logistics, Inc." violated the statute. We warned our clients and readers about the change in the social security number requirements three years ago, but another reminder can't hurt.

The Supreme Court has denied petitions for review and depublication in McCoy v. Superior Court (Kimco Staffing Services, Inc.) (2007) 157 Cal.App.4th 225. For claims brought under Labor Code § 203, seeking waiting time penalties only, and not also seeking payment of the underlying unpaid wages, the statute of limitations is one year under Code of Civil Procedure § 340(a). We previously discussed the case is a November post that can be found here.

When parties agree to arbitrate all questions arising under a contract, the Federal Arbitration Act ("FAA"), 9 U. S. C. § 1 et seq., supersedes state laws lodging primary jurisdiction in another forum, whether judicial or administrative, including, in the case of Preston v. Ferrer (2008) __ U.S. __, proceedings before the California Labor Commissioner, for a determination that a contract is invalid and unenforceable under California’s Talent Agencies Act. The U.S. Supreme Court opinion, issued this morning, reverses the earlier state court opinion in Preston v. Ferrer (2006) 145 Cal.App.4th 440.

Disputing fees claimed by Arnold Preston, an attorney, Alex Ferrer, a judge, had petitioned the Labor Commissioner for a determination that the contract was invalid under the Talent Agencies Act because Preston had acted as a talent agent without the required license. Preston demanded arbitration. The Labor Commissioner denied Ferrer’s motion to stay the arbitration, so Ferrer filed suit in state court seeking to enjoin arbitration, while Preston moved to compel arbitration. The Superior Court denied Preston’s motion and enjoined him from proceeding before the arbitrator unless and until the Labor Commissioner determined she lacked jurisdiction over the dispute.

While the appeal was pending, the U.S. Supreme Court decided Buckeye Check Cashing, Inc. v. Cardegna (2006) 546 U.S. 440, 446, holding that that challenges to the validity of a contract requiring arbitration of disputes ordinarily “should ... be considered by an arbitrator, not a court.” Nonetheless, the California Court of Appeals upheld the trial court's decision, concluding that the Talent Agencies Act vested the Labor Commissioner with exclusive original jurisdiction over the dispute. The court distinguished Buckeye Check Cashing on the ground that it did not involve a dispute where state law required the parties to first to exhaust any administrative remedies and found the case inapposite because it had not addressed whether the FAA “preempts application of the exhaustion doctrine.”

The Supreme Court disagreed. You can download the full opinion here. The talent in this case is "Judge Alex", Alex E. Ferrer.

"In Hollywood, talent — the actors, directors, and writers, the Jimmy Stewarts, Frank Capras, and Billy Wilders who enrich our daily cultural lives — is represented by two groups of people:  agents and managers.  Agents procure roles; they put artists on the screen, on the stage, behind the camera; indeed, by law, only they may do so.  Managers coordinate everything else; they counsel and advise, take care of business arrangements, and chart the course of an artist’s career. This division largely exists only in theory. The reality is not nearly so neat. The line dividing the functions of agents, who must be licensed, and of managers, who need not be, is often blurred and sometimes crossed.  Agents sometimes counsel and advise; managers sometimes procure work.  Indeed, the occasional procurement of employment opportunities may be standard operating procedure for many managers and an understood goal when not-yet-established talents, lacking access to the few licensed agents in Hollywood, hire managers to promote their careers." In Marathon v. Blasi (2008) __ Cal.4th __, the Supreme Court considered whether certain licensing requirements of the Talent Agencies Act (Labor Code §§ 1700 et seq.) are applicable to personal business managers as well as talent agents, and whether the doctrine of severability of contracts applicable to violations of the Act.

In upholding the lower court's decision, the Supreme Court held that:

• (i) the strictures of the Talent Agencies Act do apply to managers as well as agents;
• (ii) the Labor Commissioner has the authority to void manager-talent contracts ab initio for unlawful procurement, but also has discretion to apply the doctrine of severability to partially enforce such contracts; and
• (iii) a genuine dispute of material fact exists over whether severability might apply to allow partial enforcement of the parties’ contract.

You can download Marathon v. Blasi here in pdf or word format. The talent, in this case, was actress Rosa Blasi. A petition for rehearing is pending, and there may be some interesting wrinkles before this case is over.

Here in California, we don't have a Labor Commissioner known for protecting the rights of employees against business interests, but at least our Labor Commissioner isn't seen as a drunk who gets detained by the police and hauled away to a detox center ("an alternative to the county jail intended to give a person a chance to keep his or her record clean") after trying to steal a guitar.

Oklahoma's is, allegedly.

About a month ago, the blogging here ground to a halt. Many of you already know why. In November and December, I ran into a string of misfortunes that included the loss of a family member and a car accident. When my pickup truck broke down while my bent-fendered regular ride was in the shop, I remarked to a friend that these things tended to come in threes, so perhaps my misfortunes would be about over for the time being. He responded, "I don't think the truck being at the repair shop for a day compares with the other two." Curse him for being right. A short time later, I became sick and, to make a long story short, it turned out to be my appendix. I didn't much like the idea of getting an IV, much less undergoing surgery, but apparently, the only real alternative is to let the thing burst and kill you. So off to surgery I went.

The surgery caused me to miss the Rose Bowl, and forced me to cancel a flight to Maui for a week-long family vacation scheduled to precede the mediation there of a substantial wage and hour case. However, after reading about how Grant Hill was planning to be back on the court just two weeks after his appendectomy, and concluding that my work was decidely less strenuous than his, I made plans to try to get back to work quickly. And by "get back to work," I mean, for starters, traveling to Maui for the mediation and scheduling appointments immediately upon my return. It was a mistake in judgment. Not only was the trip extremely painful and unpleasant, but once I got home, complications set in. The next thing I knew, in addition to the ordinary recovery difficulties, like constant and severe pain, I was on a regimen of nasty medications that left me in a constant fog.

By the middle of January, even with Mark's help, the blogging had to take a back seat to, well, just about everything else. But that was then. I've now recovered, not as quickly as the aforementioned world-class athlete, but just as completely. More importantly, I'm beginning to conquer the two-foot-tall beast of papers that buried my in-basket. I managed to get continuances for all my trials set in January, with the stipulation of all but one opposing counsel (and I'm seriously considering making the one miserable exception famous for her refusal), and a normal schedule of paper-pushing, deposing, mediating and trying cases is now underway. Next up: the return to blogging. I'm going to start today with something on a lighter note, and tomorrow, we'll start posting about all the substantive developments that have arisen while I was off recuperating.

--Mike