Court of Appeal Holds Attorney's Fees Are Not Recoverable For Claims For Meal Or Rest Period Violations

By Christopher S. Andre and Scott K. Dauscher 

Not every cloud has a silver lining, but some do, and the California Court of Appeal's decision today in Thomas McGann v. United Parcel Service, Inc., contains a terrific silver lining for employers.  Thomas McGann was employed by United Parcel Service, Inc., ("UPS") for a number of years and worked as an On Road Supervisor.  UPS classified Mr. McGann as an exempt employee and therefore did not pay Mr. McGann premium pay (i.e., overtime pay) for hours worked in excess of eight hours in a workday.

Mr. McGann filed suit against UPS alleging six causes of action: (1) failure to pay overtime pursuant to Labor Code sections 510 and 1194, (2) failure to provide meal periods and rest periods pursuant to Labor Code section 226.7, (3) failure to provide compliance wage statements pursuant to Labor Code sections 226 and 226.3, (4) common law conversion premised on the theory Mr. McGann had a property interest in the premium pay he alleged UPS owed to him but failed to pay to him, (5) injunctive and other equitable relief, and (6) unfair competition pursuant to Business and Professions Code section 17200, et seq. 

UPS prevailed on all six of Mr. McGann's causes of action, and the trial court made an award of attorney's fees and costs in favor of UPS.  Mr. McGann appealed the award of attorney's fees and costs.

On appeal, in a somewhat paradoxical decision, the court reversed the trial court's award of attorney's fees in favor of UPS and affirmed the trial's court's award of costs to UPS.  The Court of Appeal held UPS was not entitled to an award of prevailing party attorney's fees because Labor Code section 1194 permits only an award of attorney's fees to an employee who prevails on a claim for alleged unpaid minimum wages or overtime compensation and does not permit an award of prevailing party attorney's fees to an employer that defeats such a claim.  The Court of Appeal held, also, that there was no basis for the trial court to award prevailing party attorney's fees to UPS as to Mr. McGann's other claims because no statute permits such an award.

The Court of Appeal's decision to affirm the award of costs to UPS is good news for employers, but it is not the silver lining alluded to above.  The silver lining alluded to above is the court's holding the prevailing party attorney's fees provisions of  Labor Code section 218.5 do not apply to claims for additional compensation under Labor Code 226.7 for an employer's alleged failure to provide required meal periods and/or rest periods.   In Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, the California Supreme Court held the additional compensation to be awarded to employees under Labor Code section 226.7 when an employer fails to provide required meal periods and/or rest periods is more akin to a wage than a penalty and was therefore subject to a three-year statute of limitations and not the one-year statute of limitations applicable to statutory penalties.  Based on that decision, it was widely believed that the prevailing party attorney's fees provisions of Labor Code section 218.5 for claims for unpaid wages other than minimum wages or overtime wages applied to claims for additional compensation under Labor Code section 226.7 for meal and/or rest period violations.  However, in today's decision, the Court of Appeal held the additional compensation payable under Labor Code section 226.7 is more like a wage than a penalty for purposes of determining which statute of limitations applies to such claims, as the Supreme Court held in Murphy, but not sufficiently like a wage to be subject to the prevailing party attorney's fees provisions of Labor Code section 218.5. 

This is a terrific silver lining for employers.  It means employees who are determined to be the prevailing parties on claims for an employer's failure to provide required meal periods and/or rest periods are likewise not entitled to an award of attorney's fees based on such claims and such claims are very, very commonly asserted in wage and hour class action lawsuits.  But there is more.  Because the Court of Appeal held the additional compensation payable under Labor Code section 226.7 is not sufficiently like a wage to be subject to the prevailing party attorney's fees provisions of Labor Code section 218.5, it follows that claims for such non-wage additional compensation cannot be the basis for an award of "waiting time" penalties under Labor Code section 203 because section 203 provides for an award of "waiting time" penalties only when there has been a "willful" failure to pay wages due and owing at the time of termination. 

Given the amount of the attorney's fees award at state (approximately $100,000) and other considerations, we doubt UPS will petition the California Supreme Court for review of today's decision, and it is not immediately clear that there would be a viable basis for Mr. McGann to petition for review of today's decision.  The more likely risk to today's decision would be a request by the plaintiff's bar or by labor unions to depublish the decision so it becomes unciteable.  We will monitor this issue and will report any further significant developments. 

California Supreme Court Denies Review Of Decision Holding PAGA Penalties Are Available For Seating Requirment Violations

By Scott K. Dauscher and Christopher S. Andre 

As we previously reported here and here, two recent decisions of the California Court of Appeal hold an employee may seek Private Attorney General Act ("PAGA") penalties for alleged violations of an Industrial Welfare Commission ("IWC") wage order requirement that employers provide employees suitable seats in the workplace when the nature of the work reasonably permits the use of seats.  For example, in Bright v. 99¢ Only Stores (2010) 189 Cal.App.4th 1472, the court held civil penalties available under PAGA, consisting of $100 per each "aggrieved employee" per pay period for the first violation and $200 per "aggrieved" employee per pay period for each subsequent violation, could be recovered because no other penalties for violating the seating requirements were provided by law.

This week, during the California Supreme Court's (usually) weekly conference, the court declined the petition for review of the Court of Appeal's decision in Bright v. 99¢ Only Stores.  Review by the California Supreme Court is nearly always discretionary, meaning the court can simply decline to review a lower court decision if it chooses to within its discretion.

Now that the Supreme Court has declined review of Bright v. 99¢ Only Stores, it is especially important that employers make certain they are in compliance with the seating requirements contained in the IWC wage orders. The penalties can be quite substantial, and we believe most courts would conclude that the nature of the work reasonably permits the use of seats in many instances. 

Court of Appeal Clarifies What Must Be Proven To Recover Damages For Non-Compliant Wage Statements And Clarifies Reporting Pay Requirements

By Christopher S. Andre and Scott K. Dauscher

On February 17, 2011, the California Court of Appeal ordered published (and therefore citable) its previously unpublished (and therefore not citable) decision in Drake Price v. Starbucks Corporation, a decision that should prove helpful to employers defending against claims for allegedly non-compliant wage statements, which are nearly always included in wage and hour class action lawsuits.

Labor Code Section 226(a)  requires employers to provide to employees with their paychecks a wage statement (sometimes referred to as a check stub) accurately stating the following nine items of information:  (1) gross wages earned, (2) total hours worked by the employee (except exempt salaried employees), (3) the number of piece-rate units earned and any applicable piece-rate(s) if the employee is paid on a piece-rate basis, (4) all deductions, (5) net wages earned, (6) inclusive dates of the pay period, (7) the name of the employee and the last four digits of the employee's social security number or the employee's identification number other than the social security number, (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.  

When an employee suffers injury as a result of an employer's knowing and intentional failure to provide a compliant wage statement, the employee can recover the greater of either the employee's actual damages or $50.00 "for the initial pay period in which a violation occurs" and $100 "per employee for each violation in a subsequent pay period, not exceeding an aggregate penalty of four thousand dollars, and is entitled to an award of costs and reasonable attorney's fees."  See Labor Code section 226(e).

Drake Price, who was employed by Starbucks for a total of 13 shifts before he was fired after failing to report to work for a scheduled shift, alleged, among other things, that Starbucks was liable to him and to each member of the purported class for Labor Code section 226.1 damages because, according to Mr. Price, the wage statements Starbucks issued do not list total hours worked, net wages earned, and all applicable hourly rates."  Mr. Price contended "'total' means grand total, the sum of the regular and overtime rates."  Price contended Starbucks' use of the words "'amount paid' following gross pay and deductions does not comply with the requirement to show 'net wages.'"  Mr. Price contended, also, that the wage statements "lists the regular rate of pay, but fails to list the overtime rate of pay, requiring him to ensure that the overtime rate is one and one-half his regular rate of pay."  

Recognizing that a non-compliant wage statement is not actionable without injury, Mr. Price contended he was injured because, according to him, "[t]his lack of information 'caused confusion and possible underpayment of wages due,' required the putative class to file [suit], and forced the putative class to attempt to reconstruct their time and pay records."

The Court of Appeal affirmed the trial court's decision that Mr. Price failed to allege a cognizable injury.  Notably, the court distinguished a troublesome decision of the United States District Court for the Central District of California in Wang v. Chinese Daily News, Inc. (C.D. Cal. 2006) 435 F.Supp.2d 1042 essentially holding that injury occurs if the employee must perform mathematical calculations to determine whether he or she was paid correctly.  Distinguishing Wang v. Chinese Daily News, the court explained: "Price alleged a 'mathematical injury,' that required him to add up his overtime and regular hours and to ensure his overtime rate of pay is correct, but the allegedly missing information from Price's wage statement is not the type of mathematical injury that requires 'computations to analyze whether the wages paid in fact compensated [him] for all hours worked.'"  Simply put, "[t]he injury requirement in section 226, subdivision (e), cannot be satisfied simply if one of the nine itemized requirements in section 226, subdivision (a) is missing from a wage statement."

As part of its decision, the Court of Appeal clarified, also, the requirements for reporting time pay.  The court rejected Mr. Price's contention Starbucks was required to pay him the one-half of the average of the 13 scheduled shifts he worked as reporting time pay for reporting to his place of work for a brief meeting with his supervisor during which Mr. Price's supervisor informed Mr. Price his employment was terminated effective that date.  The court held because Mr. Price was not scheduled to work that day, Starbucks did not violate Industrial Welfare Commission Wage Order 5-2001 by paying him two hours pay to report for that meeting (which lasted approximately 45 seconds, according to Mr. Price). 

9th Circuit Holds Pharmaceutical Salespersons Qualify As Exempt Employees Under The FLSA Outside Salesperson Exemption

By Yona Conzevoy

In Christopher v. SmithKline Beecham Corporation, an overtime case brought by pharmaceutical sales representatives (“PSR’s”), the United States Court of Appeals for the Ninth Circuit affirmed the District Court’s summary judgment for the employer, holding the plaintiffs were outside salespersons and therefore exempt from the overtime pay requirements of the Fair Labor Standards Act ("FLSA"). 

SmithKline Beecham Corporation (“Glaxo”) hired plaintiffs in 2003 to meet with physicians and encourage them to prescribe Glaxo pharmaceuticals.  Plaintiffs spent most of their time traveling to the offices of physicians within their assigned territories.  Plaintiffs claimed they worked between 10 and 20 hours each week outside of normal business hours, for which they received no overtime wages.  Plaintiffs did not sell the drugs or negotiate prices or contracts with physicians, rather, they attempted to, and did obtain commitments from physicians to use Glaxo products when appropriate.  Plaintiffs received a salary and incentive-based compensation, which was paid if market share, sales volume, revenue, or dose volume increased in their sales territory.

Plaintiffs, and the Secretary of the Department of Labor ("DOL") appearing as amicus curiae (friends of the court) in a similar case in the United States Court of Appeals for the Second Circuit, In re Novartis Wage & Hour Litig., 611 F.3d 141 (2d Cir. 2010), claimed that the PSR’s did not meet the FLSA Outside Sales Exemption for overtime because  they did not “make sales” as defined by the Department of Labor regulations 29 C.F.R. §541.501(b).  The Novartis court held: “Where the employee promotes a pharmaceutical product to a physician but can transfer to the physician nothing more than free samples and cannot lawfully transfer ownership of any quantity of the drug in exchange for anything of value, cannot lawfully take an order for its purchase, and cannot lawfully even obtain from the physician a binding commitment to prescribe it, we conclude that it is not plainly erroneous to conclude that the employee has not in any sense, within the meaning of the statute or the regulations, made a sale.”  Id. at 154. 

However, the Ninth Circuit court rejected the reasoning of the Secretary and the Novartis court on the grounds the Secretary of Labor's interpretation of the FLSA was merely a restatement of the statutory language, and the Secretary of Labor's position was inconsistent with the DOL’s own regulations and prior practices.  Since 1940, the Secretary has defined the phrase “other disposition” in the statute’s definition of “sale” as a broad catch-all category, and has allowed PSR’s to fall under the outside salesmen exemption.  Because salespersons in the pharmaceutical industry are not selling to patients (who cannot legally choose which drug to use and therefore cannot be characterized as buyers) and are instead obtaining commitment from physicians to prescribe Glaxo's products, the PSR's are in effect making sales.  Further, even though the commitments to prescribe pharmaceuticals is not binding on the physicians, the pharmaceutical manufacturers value these commitments enough to reward pay to PSRs sales commissions based on those non-binding commitments.  Finally, the Court applied the paradigm outside salesperson case Jewel Tea Co. v. Williams 118 F.2d 202 (10^th Cir. 1941), which justified the application of the outside sales exemption to the Glaxo PSR's because the activities of the PSR’s were substantially the same as the outside salespersons in Jewel Tea.  . . . 

While this case establishes that PSR's qualify for the outside sales exemption under Federal law, under California State law, it is not quite as clear whether the PSR's qualify for the outside salespersons exemption under Labor Code section 1171 Industrial Welfare Commission wage orders.  While federal law focuses on whether the employee's primary function is making sales, California law focuses exclusively on whether the individual works more than half the working time selling or obtaining orders or contracts.  The language of the wage orders define an Outside Salesperson as "any person . . . who customarily and regularly works more than half the working time away from the employer's place of business selling tangible . . . items or obtaining orders or contracts for products . . ."  The PSR's in this case clearly spent more than half their working time obtaining commitments from physicians, but it is unclear whether California would interpret the language of the Wage Orders broadly enough to allow the PSR's to be considered outside salespersons given that PSRs typically do not make actual sales.  Furthermore, now that the Ninth Circuit's ruling conflicts with the Second Circuit's holding in Novartis, it is possible that the United States Supreme Court will address this issue.

 

Court Of Appeal Doubles Potential Exposure For Meal And Rest Period Claims

By Christopher S. Andre and Scott K. Dauscher

Labor Code section 226.7 states that if an employer fails to "provide" an employee a meal period or a rest period in accordance with an applicable Industrial Welfare Commission wage order, "the employer shall pay the employee the employee one additional hour of pay at the employee's regular rate of compensation for each work day that the meal or rest period is not provided."

In our experience, many if not most judges and most attorneys have understood Labor Code section 226.7 to mean the employer could be liable for one such penalty per workday regardless of how many rest periods or meal periods the employer failed to "provide" to an employee during a single workday, and, before today, there was no reported California decision to the contrary.

Today, in United Parcel Service, Inc. v. Superior Court, the Court of Appeal held Labor Code section 226.7 "permits up to two premium payments per work day."  In other words, the court held Labor Code section 226.7 authorizes the recovery of up to two additional hours of compensation per workday per non-exempt employee where the employer is found to have failed to "provide" in a workday both  one or more meal periods and one or more rest periods.  The court held Labor Code section 226.7 is reasonably susceptible to two contrary interpretations and therefore relied greatly on legislative history to reach its conclusion that up to two section 226.7 penalties can be recovered per workday per employee.  The court states as follows:"[w]e conclude, based upon the wording of section 226.7, subdivision (b), the legislative and administrative history of the statute and IWC wage orders, the public policy behind the statue and wage orders, and also the principle that we are to construe section 226.7 broadly in favor of protecting employees, that the employees in this case may recover up to two additional hours of pay on single work day for meal period and rest period violations -- one for failure to provide a meal period and another for failure to provide a rest period."

Today's decision also potentially opens the door to various derivative claims that might be based on an alleged failure to pay to an employee two Labor Code section 226.7 penalties when the employer fails to provide both one or more meal periods and one or more rest periods in a workday.  For example, if an employer fails to pay two such penalties when they are required, that could open the door to claims the employer failed to provide fully complaint wage statements as required by Labor Code section 226 by failing to accurately state all wages earned during a pay period by failing to reflect all required 226.7 payments during a pay period and could open the door to claims the employer is liable for Labor Code section 203 "waiting time" penalties because the employer ailed to pay to employees who quit or who are terminated all wages due and owing, which would include any required Labor Code section 226.7 penalties, which the California Supreme Court holds are wages. 

Today's decision further underscores the need for employers to have in place compliant meal period and rest period policies and practices. 

Court of Appeal Issues Additional Decision Holding An Employer Is Required To Make Meal Periods Available But Is Not Required To Ensure Employees Take Their Meal Periods

By Christopher S. Andre and Scott K. Dauscher

Today, in Kevin Tien v. Tenet Healthcare Corporation, et al., the California Court of Appeal affirmed the trial court's denial of class certification of the plaintiff's claims and held an employer's obligation to "provide" non-exempt employees all meal periods required by Labor Code section 512 and by the applicable Industrial Welfare Commission Wage Order means the employer is required to make such meal periods available and is not required to ensure the employees take the meal periods made available to them.  

As part of its decision regarding the plaintiff employees' meal period claims, the court held substantial evidence supported the trial court's decision that class certification would not be appropriate because individual issues of fact predominated over common issues of fact and because class treatment would not be superior because "there are numerous and substantial questions affecting each class member's right to recover, following determination of liability to the the class as a whole."  The court explained the trial court's findings "coincide with the common-sense notion that individual questions about the reasons an employee might not take a meal period are more likely to predominate if the employer need only offer meal periods, but need not ensure employees take those periods."  The court reached a similar conclusion regarding the plaintiffs' rest period claims, and stated, "Given that Tenant was obligated only to offer rest breaks, liability arose for Tenet only if its policy was a policy in name only and not observed in practice."

In addition, the court held substantial evidence supported the trial court's denial of class certification of the plaintiffs' claims for allegedly non-compliant wage statements, quoting with approval the trial court's determination that, "[t]he Court would have to determine whether each individual class member actually suffered injury or damages as a result of the pay stubs lacking the information required under the Labor Code . . . . Such highly individualized determinations would render the class mechanism impracticable . . . ."  

Unfortunately, we think the California Supreme Court will very likely grant review of this decision pending its long awaited decision in Brinker Restaurant Corp. v. Superior Court which would make today's decision uncitable.  As we previously reported here, the Supreme Court has granted review of every other post Brinker Court of Appeal decision holding an employer is required to make meal periods available but is not required to ensure employees take the meal periods made available to them. 

We are continuing to closely follow this developing area of the law and will report further significant developments as they occur. 

Court of Appeal Holds Attorney's Fees Not Recoverable By Or Against The State In FEHA Actions

By Sun Hi Ahn and Christopher S. Andre

In Department of Fair Employment and Housing v. Mayr, the California Court of Appeal held defendants who prevailed against the Department of Fair Employment and Housing ("DFEH") in an action asserting alleged housing discrimination under the Fair Employment and Housing Act ("FEHA") could not recover from the DFEH attorney's fees or costs.  The Court held the language of Government Code section 12989.2 dictates that attorney's fees and costs may neither be recovered by or recovered against the government in such actions.  The court held Code of Civil Procedure section 1028.5 providing for an award of attorney's fees and costs to a small business or licensee that prevails in a civil action between the small business or licensee and s state regulatory agency if the court finds the agency acted without substantial justification does not apply to such actions because, according to the court, Government Code section 12989.2 is more specific and more recent than Code of Civil Procedure section 1028.5. 

Although Government Code section 12989.2 applies to actions for alleged housing discrimination in violation of FEHA, we think a court presented with the issue would likely apply the same reasoning to actions for alleged employment discrimination under FEHA because Government Code section 12965(b) applicable to claims for alleged employment discrimination in violation of FEHA is worded very similarly to Government Code section 12989.2.  Government Code section 12988.2 and Government Code section 12965(b) both contain language exempting actions brought by the state.  Section 12989.2 states in part: "The court may, at its discretion, award the prevailing party other than the state, reasonable attorney's fees and costs, including expert witness fees, against any party other than the state."  Emphasis added.  Section 12965(b) states in part: "In actions brought under this section, the court, in its discretion, may award to the prevailing party reasonable attorney's fees and costs, including expert witness fees, except where the action is filed by a public agency or a public official, acting in an official capacity." Emphasis added. 

Sexual Harassment Claims By Women Are Declining, But Sexual Harassment Claims By Men Are On The Rise

By Christopher S. Andre and Scott K. Dauscher

Relying on data from the U.S. Equal Employment Opportunity Commission, the Daily Journal reports sexual harassment claims have generally declined over the last decade from 15,222 claims in 1999 to 11,717 claims in 2010 (a decline of approximately 23%).  However, in 2010, sexual harassment claims by men rose to an all-time high of approximately 16% of the sexual harassment claims filed.  The Daily Journal reports that observers attribute this trend generally to a challenging job market and a greater public awareness of workplace rights.  

Anecdotally, jurors have generally become more willing to find in favor of men asserting claims of sexual harassment than jurors were in years past.  This applies both to claims of alleged male on male sexual harassment and to claims of alleged female on male sexual harassment.  

Employers should remain mindful of their obligations to thoroughly investigate reports of alleged harassment and to take reports of sexual harassment made by male employees as seriously as reports of sexual harassment made by female employees.  An employer failing to treat reports of alleged sexual harassment made by a male employees as seriously as reports of alleged sexual harassment made by a female employee could lead to an additional allegation that the employer discriminates against male employees in the way the employer responds to reports of sexual harassment by male employees, regardless of whether the alleged harassment is male on male sexual harassment or female on male sexual harassment.

Court of Appeal Upholds Explicit Mutual Wage Agreement Doctrine Permitting Non-Exempt Employees To Be Paid A "Salary" If Certain Requirements Are Met

By Andres C. Hurwitz and Christopher S. Andre

On February 7, 2011, in Arechiga v. Dolores Press, Inc., the California Court of Appeal upheld California’s “explicit mutual wage agreement” doctrine.  “Under that doctrine,” said the court, “an employer and [non-exempt] employee may lawfully agree to a guaranteed fixed salary so long as the employer pays the employee for all overtime at least one and one-half times the employee’s basic rate” so long as the employer and the employee enter into an agreement specifying: (1) the days the employee will work each workweek, (2) the number of hours the employee will work each workday, (3) the specific amount of the salary the employee is guaranteed to be paid, (4) the employee is informed and agrees to the basic hourly rate of pay upon which the salary will be based, (5) the employee is informed and agrees the agreed-upon salary covers the employees straight-time hours and overtime hours, and (6) the agreement is reached before the work is performed.  

According to trial testimony Carlos Arechiga agreed to work as a janitor for Dolores Press, Inc., for a weekly salary of $880 per week for 66 hours of work each week (i.e., 40 straight-time hours per week at a straight-time rate of $11.74 per hour and 26 overtime hours each week at an overtime rate of 1 ½ times the straight-time rate or $16.71 per hour).  A co-worker and a supervisor testified Mr. Arechigia was jubilant about his pay because his straight time hourly rate was more than double what he was paid at his previous job.

Some three years later, after Dolores Press terminated his employment, Mr. Arechiga filed suit alleging Dolores Press failed to pay him all the wages owed to him.  Specifically, Mr. Arechiga contended his $880 weekly salary he received for three years while employed by Dolores Press covered only his straight time wages (at a claimed straight-time rate of $22.00 per hour) and contended Dolores Press owed him overtime wages of $33.00 for each of the 26 overtime hours he agreed to work each week going back three years.  The trial court and, ultimately, the Court of Appeal rejected all of Mr. Arechiga’s contentions.

Mr. Arechiga agreed he entered into an agreement specifying (1) the days he would work each workweek, (2) the number of hours he would work each day, and (3) the amount of salary he would be paid each week, but he unsuccessfully contended the other requirements were not satisfied because he did not agree to an hourly straight-time rate of $11.74 and because, among other things, the written agreement he signed did not specify the hourly straight-time rate.  The Court of Appeal held the trial court properly admitted evidence that Mr. Arechiga was shown before he signed the written agreement a separate piece of paper specifying his hourly straight-time rate would be $11.74 per hour.  The Court of Appeal held also that the trial court properly admitted expert witness testimony to the effect that the median straight-time hourly rate paid to janitors in the Los Angeles area was $7.90 per hour, approximately one-third the $22.00 hourly rate Mr. Arechiga claimed under his interpretation of the agreement at issue.

Mr. Arechiga contended Labor Code Section 515(d), enacted in 2000, outlawed explicit mutual wage agreements for non-exempt employees, such as Mr. Arechiga.  Section 515(d) merely states “[f]or the purpose of computing the overtime rate of compensation required to be paid to a nonexempt full-time salaried employee, the employee’s regular hourly rate shall be 1/40th of the employee’s weekly salary.”  The Court of Appeal rejected Mr. Arechiga’s proposed interpretation of section 515(d).  Notably, the Court of Appeal expressly rejected the California Division of Labor Standards Enforcement’s interpretation that section 515(d) does forbid such explicit mutual wage agreements, citing the California Supreme Court’s admonishment in Martinez v. Combs (2010) 49 Cal.4th 35, 50, fn. 15, reported here, that “[W]e give the DLSE’s current enforcement policies [as stated in the DLSE’s enforcement manual] no deference because they were not adopted in compliance with the Administrative Procedure Act.”

This case provides two take-aways for employers: First, explicit mutual wage agreements providing for the payment of a “salary” to non-exempt employees are enforceable if they meet the six requirements set forth above.  Second, the employer in this case was fortunately able to establish by testimony all of the terms of the explicit mutual wage agreement.  However, the employer in this case was fortunate to be able to do that.  Witnesses come and go (mostly go), and memories fade.  To avoid the sorts of evidentiary challenges and uncertainty the employer faced in this case, California employers wishing to enter into and enforce explicit mutual wage agreements should include all of the required terms of the agreement in a signed written agreement.

Employer Tip: Be Sure To Comply With California Lactation Accomodation Laws

By Christopher S. Andre

Hopefully, most employers are aware of California's laws requiring employers to reasonably accommodate an employee who desires to express milk for the employee's infant child.  In a nutshell, California Labor Code sections 1030 and 1031 require an employer to provide a reasonable amount of break time to accommodate an employee's desire to express milk for her infant child and to provide the employee the use of a room or other location that is not a bathroom stall to express milk in private.  The room or other location can be the room or location where the employee works if it provides sufficient privacy.  

There are sound reasons for an employer to provide the required accommodation.  To begin with, the law requires it and provides for civil penalties to be imposed against an employer that fails to comply with the requirements of Labor Code sections 1030 and 1031.  Further, and perhaps even more significantly, in some circumstances, an employee who is not provided with the required accommodation could introduce into evidence the facts surrounding an employer's failure to provide the required accommodations to help support a claim or claims for alleged violation(s) of the Fair Employment and Housing Act based (e.g., a claim or claims based on alleged sex discrimination and/or medical condition discrimination).

Employer's Meal Period Obligations Remain Uncertain While Employers Await Guidance From The California Supreme Court

By Christopher S. Andre and Scott K. Dauscher

On July 22, 2008, in Brinker v. Superior Court, the Court of Appeal held that while an employer is required to "provide" to non-exempt employees at least one an unpaid, duty-free meal period of at least 30 minutes each workday of more than 6 hours, the obligation to "provide" required meal  periods means to make the required meal periods available and not to ensure that employees take all required meal periods.  This was good news for employers and especially good news to numerous employers defending against claims of alleged meal period violations. 

The good news was short lived, however.  Just two months later, on October 22, 2008, the California Supreme Court granted the plaintiff's petition for review of the Court of Appeal's decision in Brinker.  As a consequence, employers defending lawsuits alleging violation of meal period requirements could no longer cite Brinker as authority that an employer is not required to ensure that employees take all required meal periods made available to them, and plaintiffs could once again contend an employer has a duty to ensure all required meal periods are taken and to document that all required meal periods are taken.  

After the California Supreme Court granted review of Brinker, the Court of Appeal issued four additional Court of Appeal Decisions holding an employer is required to make required meal periods available but is not required to ensure that employees take all required meal periods made available to them.  See Brinkley v. Public Storage, Faulkinbury v. Boyd & Associates, Brookler v. Radio Shack Corp., and Hermandez v. Chipotle Mexican Grill. However, the California Supreme Court promptly granted review of each of those four decisions, too, and, like Brinker, those four decisions can no longer be cited as authority that an employer is not required to ensure that employees take all required meal periods made available to them. 

The Brinker decision has been fully briefed for well over a year, since July 20, 2009, but the Supreme Court still has not scheduled the case for oral argument.  As a result, it remains uncertain whether the law requires an employer to make required meal periods available or requires an employer to ensure employees take all required meal periods. No one can be certain how the Supreme Court will decide this issue until the court conducts oral argument and issues its decision.

Meal period violations can be a source of very substantial liability for employers.  When an employer is found to have failed to "provide" a required meal period, Labor Code section 226.7 requires the employer to pay the employee one additional hour of compensation at the employee's regular rate of pay for each workday the employer failed to "provide" a required meal period.  In addition, the employer will generally be liable also for the plaintiff(s) "reasonable" attorney's fees and costs, and, possibly, for additional penalties.  Many if not most meal period cases are brought as class actions.  

In the class action context, the numbers can add up quickly.  For example, assume a class size of 500 current and former employees (many classes are much larger).  Assume, also, there is a finding the employer failed to "provide" required meal periods approximately half the time because the employer did not "provide" the meal periods within the first five hours of the employees' shift, because the meal period was not completely duty free, or because the meal periods were not uninterrupted for at least 30 minutes each day.  Assume, also, that the violations go back four years.  Finally, assume an average hourly wage of $20.00.  In that scenario, the liability just for the Labor Code section 226.7 additional hour of compensation would be approximately $5 Million.  

If anything, the legal climate in California has grown more challenging for employers during the last five years as appellate decisions have generally not been favorable for employers, and we think this situation is not likely to improve in the foreseeable future.  Fortunately, there are steps an employer can take to reduce the likelihood of being sued to begin with and to help defend against meal period claims if the employer is sued.  One of the most important steps an employer can take is to have a written meal period policy and to require employees to acknowledge their receipt of that policy and their understanding of that policy.  Some other important steps employers can take are to require employees to document ithat they took all required meal periods and to promptly notify the employer in writing if the employee did not take for any reason a required meal period.  Further, employers should consider disciplining employees who fail to follow such policies. 

Court of Appeal Decision Reiterates That Courts Will Look Beyond The Parties' Agreement When Determining Whether A Worker Is An Independent Contractor Or An Employee

By Yona Conzevoy and Christopher S. Andre

In Arzate v. Bridge Terminal Transport, Inc., a wage and hour class action case brought by members of the Teamsters Union who own and operate their own trucks against defendant Bridge Terminal Transport, Inc., a common carrier engaged in the business of transportation, the California Court of Appeal reversed the trial court’s grant of summary judgment, holding that whether the plaintiffs were employees of defendant, and not independent contractors, was a triable issue of fact. 

Defendant Bridge Terminal Transport, Inc. arranges for the transportation of its customers’ cargo between ports or terminals and the customers’ facilities.  Plaintiffs leased their trucks to defendant to be used for hauling cargo for defendant.  According to the signed lease agreements, the parties “intended to create a relationship of independent contractor, not employer-employee,” and plaintiffs had control over the “method and means by which the motor vehicle equipment is operated.”  However, the Collective Bargaining Agreement the truck owners were subject to provided that they “shall work exclusively for their Employer and for no other interests,” and the terms of the Collective Bargaining Agreement “shall have precedence” where they conflict with the lease agreements.

The Court of Appeal held that defendant could not establish as a matter of law that plaintiffs were independent contractors, based on S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal. 3d 341.  According to S. G. Borello, there are several factors that must be considered in determining the existence of an employment relationship; while the employer’s right to control the work is the most significant, other factors that must be taken into consideration include “(a) whether the one performing services is engaged in a distinct occupation or business; (b) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision; (c) the skill required in the particular occupation; (d) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work; (e) the length of time for which the services are to be performed; (f) the method of payment, whether by the time or by the job; (g) whether or not the work is a part of the regular business of the principal; and (h) whether or not the parties belief they are creating the relationship of employer-employee.” (Id. at 351.)

The Court of Appeal found that the defendant could not establish that plaintiffs did not have independent contractor status just because defendant did not control the manner and means by which plaintiffs hauled loads.  There were multiple factors that weighed against calling plaintiffs independent contractors: (1) Defendant executed the collective bargaining agreement with plaintiffs’ union, which represented the owner-operators of trucks in the role of “employees’ of the company; (2) Defendant issued W-2 forms to plaintiffs, withheld taxes, and offered health plan benefits that included paying 70 percent of the cost; (3) Defendant paid hourly rates for some parts of plaintiffs’ work day, such as waiting time, drivers’ meetings; (4) Defendant could terminate the lease agreements on 24 hours’ notice; (5) the work plaintiffs do (transportation of property) is part of the regular business of defendant.

This case serves as an important reminder that California courts will look beyond parties' agreements when evaluating whether a person is an "employee" or an "independent contractor" or purposes of determining whether the numerous provisons of the Labor Code applicable to employees apply.  Typically, the more control a business exercises over how work is done, the more likely it is a California court will find the relationship to be an "employment" relationship and therefore subject to the numerous requirements of the Labor Code and of the Industrial Welfare Commission wage order applicable to the particular industry or occupation.  The consequences of misclassifying a worker as an independent contractor who should have been classified as a non-exempt hourly employee can be substantial.  For example, if, because of misclassifying a worker as an independent contractor, the business failed to provide the worker with required meal and rest periods, failed to pay the worker for all hours worked, failed to pay premium pay for overtime hours, and/or failed to provide properly itemized wage statements, the business could become liable for substantial damages for unpaid wages, for various civil penalties, and for attorney's fees. 

Nine AALRR Attorneys Recognized as 2011 Super Lawyers

Atkinson, Andelson, Loya, Ruud & Romo is pleased to announce that nine attorneys have been named to the 2011 edition of Southern California Super Lawyers: Steven D. Atkinson, Michael J. Baker, Helen R. Frazer, Edward C. Ho, Thomas W. Kovacich, Irma Rodríguez Moisa, Mark T. Palin, Robert R. Roginson, and Robert L. Wenzel.

Southern California Super Lawyers is an annual publication produced by Thomson Reuters and serves to identify attorneys reaching high levels of peer recognition and professional achievement. Attorneys in Southern California Super Lawyers are selected through a multiphase rating process that begins with a statewide survey of attorneys.

California Appellate Court Holds Anti-Labor Injunction Laws Unconstitutional

By Ronald W. Novotny

In another case brought by the Ralph’s grocery chain challenging the enforceability of California’s anti-labor injunction statutes, a California appellate court held on January 27, 2011 that Labor Code Sections 527.3 and 1138.1 are unconstitutional because they grant greater free speech rights in “public forums” to unions engaged in labor disputes than are allowed to others.  In Ralphs Grocery Co. v. U.F.C.W. Local 8, the court overturned an order denying a preliminary injunction to Ralph’s based on the application of those statutes, which severely limit the ability of courts to issue injunctions during labor disputes and impose onerous requirements on private property owners which seek to enjoin union, picketing on their premises.

The case arose out of a dispute between Ralphs and United Food & Commercial Workers Local 8, during which the union picketed a Ralphs Grocery store in Fresno, aggressively confronted patrons with leaflets, and attempted to inform patrons of the benefits employees would receive under a union contract.  Contending that the picketers failed to comply with the rules Ralph’s established for their presence on its property, and that the local police were unwilling to remove the picketers from the premises, Ralph’s sought a preliminary injunction aimed at halting any future labor protests at that store.  The trial court denied the injunction based on Labor Code sections 527.3 and 1138.1, which the court held protected the union’s conduct.  Ralphs appealed.

The appellate court held that by permitting unions to engage in picketing on private property while denying that right to others who might seek to publicize their disputes in the same kind of forum, the legislature unconstitutionally discriminated against certain kinds of speech based on its content.  The court specifically concluded that the “actual impact of the statutes is to discriminate” by providing a means of public protest to labor unions that are not available to persons engaged in speech relating to the free exercise of religion, the collection of signatures for ballot initiatives, or the right not to be discriminated against based on sexual orientation or other prohibited grounds. 

A spirited dissent issued by one of the appellate judges concluded that Ralph’s did not even have standing to challenge the laws because its own freedom of speech was not burdened by them.  Another judge issued a strong concurring opinion concluding that a private property owner necessarily has legal standing to contest a claim by others that they have a right to use property they do not own.  These opinions will undoubtedly be raised in a petition seeking review of this decision by the California Supreme Court, which has already granted review in a prior case involving the same parties, reported here on July 21, 2010.

Supreme Court Expands Right to Sue for Retaliation Under Title VII

By Ronald W. Novotny

Is the fiancé of an employee who has made a sex discrimination charge against her employer protected by the anti-retaliation provisions of the federal anti-discrimination law? Yes, said the U.S. Supreme Court in the case of Thompson v. North American Steel decided January 24, 2011.

The case was filed by Eric Thompson, who was terminated three weeks after his bride-to-be Miriam Regalado filed a charge with the Equal Employment Opportunity Commission (EEOC) against their mutual employer, North American Steel (NAS). The lower courts dismissed Thompson’s claim on the ground that Title VII of the U.S. Civil Rights Act of 1964 "does not permit third party retaliation claims." Reversing those decisions, the Supreme Court held that Thompson could pursue his retaliation claim against NAS because a reasonable worker "might be dissuaded from engaging in protected activity if she knew that her fiancé would be fired."

The Court refused to define how close or attenuated a relationship could be to qualify for a third-party retaliation claim, noting that a "close family member" will almost always be protected from retaliation while a "mere acquaintance" will not. However, it had no difficulty concluding that Thompson fell within the "zone of interests" sought to be protected by the statute, because injuring him was the employer’s alleged means of harming Regalado.

This decision follows the Court’s 2006 decision in Burlington Northern & Santa Fe Railway Co. v. White, in which it also interpreted the anti-retaliation guarantees of Title VII very expansively. Employers should accordingly remain particularly careful about taking adverse actions against anyone who has claimed discrimination or harassment in the workplace, as well as those associated with them, given the extremely broad protections the law affords such persons.