First District Dismisses Appeal Challenging Trial Court’s Refusal to Compel Arbitration of “Individual” PAGA Claims: Reyes v. Macy’s, Inc.

On January 19, 2012, the First District (Division 3) published its opinion in Reyes v. Macy’s, Inc., __ Cal.App.4th __ (2012), which dismissed Macy’s appeal “from an order granting Macy’s motion to compel arbitration of plaintiff’s individual claims but denying the request to dismiss class allegations and plaintiff’s claim under the Labor Code Private Attorneys General Act of 2004 (PAGA)….” See Slip Opinion, at 1. As reasoned by the Court, the trial court's ruling on Macy's motion to dismiss the class allegations and the PAGA claim was a non-appealable interlocutory order, and could not be construed as a denial of the motion to compel arbitration insofar as Macy’s did not seek to compel arbitration of the class allegations and the PAGA claim. See Slip Opinion, at 2-3.

In reaching its holding, the Court expressly rejected Macy’s argument that the trial court’s failure to order arbitration of plaintiff’s individual PAGA claim affected a denial, in part, of the motion to compel arbitration. Relying on the analysis of Brown v. Ralphs Grocery Co., 197 Cal.App.4th 489 (2011) – previously discussed here and here – and Arias v. Superior Court, 46 Cal.4th 969 (2009), the Court reasoned that a “plaintiff may not and does not bring the PAGA claim as an individual claim, but ‘as the proxy or agent of the state’s labor law enforcement agencies.” See Slip Opinion, at 3. As further explained by the Court, a PAGA action can only be pursued as a representative claim. See id., at 4 (“The PAGA statute does not enable a single aggrieved employee to litigate his or her claims, but requires an aggrieved employee ‘on behalf of herself or himself and other current or former employees to enforce violations of the Labor Code by their employers.’”) (emphasis in original). Based thereon, the Court expressly rejected the conclusions of three Federal District Court opinions finding that PAGA claims were “personal” claims which an individual employee could agree were arbitrable in the first instance:

Macy’s argues that Machado was incorrectly decided, relying on three district court cases for the proposition that PAGA permits plaintiffs to maintain individual claims. (See Grabowski v. Robinson (S.D.Cal. Sept. 19, 2011, No. 10cv1658-WQH-MDD) 2011 U.S.Dist. Lexis 105680; Valle v. Lowe’s HIW, Inc. (N.D.Cal. Aug. 22, 2011[]) 2011 U.S.Dist. Lexis 93639; Quevedo v. Macy’s, Inc. (C.D.Cal., June 16, 2011[]) 2011 U.S.Dist. Lexis 83046.) None of these cases, however, addresses PAGA’s statutory language and purpose. They rely on AT&T Mobility LLC v. Concepcion (2011) 563 U.S. __ [179 L.Ed.2d 742, 131 S.Ct. 1740], which does not address the question of whether a PAGA claim may be asserted individually. The court in Brown v. Ralphs Grocery Co., supra, 197 Cal.App.4th 489 pointed out that Quevedo v. Macy’s, Inc. failed to mention Machado, although Machado explicitly concluded that a PAGA claim cannot be brought on an individual basis. (197 Cal.App.4th at p. 503, fn. 8.)

See Slip Opinion, at 4 n. 3

Second District Creates Division in Authority on Whether Denial of Certification May Have Collateral Estoppel Effect: Bridgeford v. Pacific Health Corp.

On January 18, 2012, the Second District (Division Three) issued an opinion “holding that the unnamed putative members of a class that was never certified cannot be bound by collateral estoppel.” See Bridgeford v. Pacific Health Corp., __ Cal.App.4th __ (2012).  The Court’s opinion adopts the U.S. Supreme Court’s analysis in Smith v. Bayer Corporation, 131 S.Ct. 2368 (2011), which I discussed previously in a post found here.  As the Bridgeford Court’s opinion acknowledges, the decision creates a split among various Courts of Appeal on this issue (including within the Second District itself):

California courts have held or suggested that the denial of class certification can establish collateral estoppel against absent putative class members on issues that were actually decided in connection with the denial. (Alvarez v. May Dept. Stores Co. (2006) 143 Cal.App.4th 1223, 1236; Bufil v. Dollar Financial Group, Inc. (2008) 162 Cal.App.4th 1193, 1202-1203 (Bufil); see also Johnson v. GlaxoSmithKline, Inc. (2008) 166 Cal.App.4th 1497, 1510-1513 & fn. 8 (Johnson) [assuming the point while expressing reservations].) Alvarez stated that the principles of collateral estoppel ensure that the absent putative class members‟ interests were adequately represented in the prior proceeding. (Alvarez, supra, at p. 1236.) We conclude to the contrary that if no class was certified by the court in the prior proceeding, the interests of absent putative class members were not represented in the prior proceeding and the requirements for collateral estoppel cannot be established….

See Slip Opinion, at 11.

California Supreme Court Rejects Finding That Insurance Claims Adjusters Are Non-Exempt As Matter of Law: Harris v. Superior Court

On December 29, 2011, the California Supreme Court overturned a court of appeal opinion finding that insurance claims adjusters are categorically “non-exempt” employees in Harris v. Superior Court, __ Cal.4th __ (2011).  The Supreme Court found that the court of appeal’s conclusion that work “not carried on at the level of policy or general operations” is not administrative, thereby falling outside of Wage Order 4’s administrative exemption as a matter of law, failed to consider the facts under all relevant components of FLSA regulations incorporated by reference in 8 CCR 11040(2)(a)(f).  As explained by the Court “[t]he essence of our holding is that, in resolving whether work qualifies as administrative, courts must consider the particular facts before them and apply the language of the statutes and wage orders at issue.”  Slip Opinion, at 22.  The judgment of the court of appeal – which had reversed the trial court’s denial of a plaintiff-filed MSJ – was reversed with instructions to apply the correct legal standard.  The Court expressed no opinions on the propriety of certification, declining the defendant’s request to decertify the class.  Id., at fn. 9.

Northern District Court Declines to Decertify Rule 23(b)(2) Restitutionary Class In Light of Dukes: In re Conseco Life Ins. Co.

On December 20, 2011, Northern District Court Judge, Susan Illston, denied a request to decertify a nationwide Rule 23(b)(2) class based on the premise that the U.S. Supreme Court’s decision in Wal-Mart v. Dukes bars certification of claims seeking money damages under Rule 23(b)(2).  See In re Conseco Life Ins. Co., 2011 U.S. Dist. LEXIS 146139 (N.D. Cal. Dec. 20, 2011).  Defendant Conseco challenged certification of the plaintiffs’ lawsuit – which alleges that defendant increased monthly cost-of-insurance deductions and expense charges in breach of the policy terms – on the grounds that individualized damage determinations for each policyholder would predominate over injunctive and declaratory relief, precluding certification under Rule 23(b)(2).

Although the Court did conclude that Dukes required that Rule 23(b)(2) classes involving monetary claims be limited exclusively to individuals impacted by ongoing conduct, which in this case required the exclusion of former policyholders from the certified class [In re Conseco Life Ins. Co., 2011 U.S. Dist. LEXIS 146139, at 17 (concluding that monetary claims for former policyholders “would by definition predominate over claims for injunctive or declaratory relief”)], the Court found certification appropriate with regard to existing policyholders notwithstanding Dukes because the plaintiff’s theory of damage flowed directly from the harm at issue in the underlying claim. In reaching this conclusion, the Court adopted the Fifth Circuit’s “incidental test”, which permits (b)(2) certification where the monetary relief sought is predicated primarily on the same facts and law relied upon to establish liability in the underlying claim:

In Dukes, the Supreme Court discussed but did not explicitly adopt the Fifth Circuit's "incidental test." Dukes, 131 S.Ct. at 2560. In Allison v. Citgo Petroleum Corp., 151 F.3d 402, 415 (5th Cir. 1998), the Fifth Circuit held that a (b)(2) class would permit the certification of monetary relief that is "incidental to requested injunctive or declaratory relief," which it defined as "damages that flow directly from liability to the class as a whole on the claims forming the basis of the injunctive or declaratory relief." According to the Allison court, such "incidental damage should not require additional hearings to resolve the disparate merits of each individual's case; it should neither introduce new substantial legal or factual issues, nor entail complex individualized determinations." Id. Numerous courts within the Ninth Circuit have since adopted the incidental test to determine proper certification under (b)(2). See Delarosa v. Boiron, Inc., 275 F.R.D. 582, 2011 WL 4389919 (C.D.Ca. Aug. 24, 2011) (Tucker, J.); Aho v. AmeriCredit Financial Services, Inc., 2011 U.S. Dist. LEXIS 80407, 2011 WL 3047677 (S.D.Ca. Jul. 25, 2011) (Sabraw, J.) This Court also adopts the incidental test as the appropriate test for Conseco's motion for decertification of the current policyholders.

See In re Conseco Life Ins. Co., 2011 U.S. Dist. LEXIS 146139, 21-22.

The Court reasoned that while a damage theory seeking broad return of all monies paid toward premiums would be incapable of satisfying this inquiry [In re Conseco Life Ins. Co., 2011 U.S. Dist. LEXIS 146139, 24 (“The Court agrees with Conseco that if plaintiffs' theory of damages required return of premiums paid, there would necessarily be individualized inquiries of the type that fail the incidental test”)], the plaintiffs here had put forward a more limited theory of damage that was tailored to the amounts of the alleged inflated costs of insurance and expense charges that formed the basis of liability. See id., at 25. As explained by the Court, such a damages theory permitted adjudication of damages based largely on the same facts and law without complex individualized damage calculations:

Seeking return of wrongfully charged costs and fees of this sort will not require additional hearings to resolve the disparate merits of each individual's case; nor will it introduce "substantial legal or factual issues, nor entail complex individualized determinations." Allison, 151 F.3d at 415. It will simply entail "computation by means of objective standards" based on data in Conseco's records. Id. As a result, the return of the improper deductions would flow directly from the claims forming the basis of the declaratory and injunctive relief. Damages arising from the costs of insurance and expense charges are therefore incidental to the declaratory and injunctive relief sought, and allowed under 23(b)(2).

In re Conseco Life Ins. Co., 2011 U.S. Dist. LEXIS 146139, 25-27.

Thus, “[t]he primary inquiry post-Dukes for classes seeking monetary damages under 23(b)(2) is the theory of damages that the class seeks” [Id ., at 24], which based on the forgoing analysis, would be appear to encompass claims seeking restitutionary disgorgement (rendering (b)(2) certification a useful vehicle for many claims brought under the UCL).

Fourth District Upholds Trial Court's Refusal to Enforce Arbitration Provision, Post-Concepcion: Roberts v. El Cajon Motors, Inc.

On November 8, 2011, the Fourth District (Division 1) upheld a trial court order denying a motion to compel individual arbitration of a class action case, post Concepcion, in Roberts v. El Cajon Motors, Inc., __ Cal.App.4th __ (2011). The Court upheld the trial court’s denial based on the finding that the defendant had waived any right to arbitration by actively engaging in litigation rather than promptly moving to compel:

Assuming, without deciding, the waiver of classwide claims in the arbitration provision at issue here is valid and enforceable in light of Concepcion, as El Cajon argues, we nonetheless conclude El Cajon waived arbitration when it waited five months to invoke arbitration.

Indeed, if El Cajon either had promptly moved to compel arbitration at or near the time it answered the complaint or informed Roberts at that time of its intention to compel arbitration (such as in its answer to the complaint), Roberts likely would not have propounded extensive written discovery involving the class action allegations in her complaint. Of course, if Roberts had been given timely notice by El Cajon of its intent to arbitrate and propounded the discovery in any event, it would have been at her peril.

However, because the record shows El Cajon waited months after Roberts propounded extensive written discovery (undoubtedly at great expense) to notify Roberts of its intent to arbitrate and because most, if not all, of this discovery would—under El Cajon's own analysis of Concepcion—be useless in arbitration, we conclude there is ample evidence in the record showing El Cajon's conduct (including in responding to this discovery) was inconsistent with the intent to arbitrate and that Roberts was prejudiced by that conduct. (See St. Agnes Medical Center v. PacifiCare of California, supra, 31 Cal.4th at p. 1196.)

See Slip Opinion, at 18-19.

The Court’s decision joins the ever growing list of potential exceptions to the U.S. Supreme Court’s ruling in Concepcion. (See previous posts here, here and here).

Debriefing Brinker: A Few Surprises and 7 Minutes of Frustrating Silence

I have spent the better part of the morning reviewing and digesting oral argument in Brinker. Initially, I had planned on attending the hearing in person, but cancelled my ticket yesterday after learning that the California Channel would be televising the event. Obviously, that was a mistake. However, notwithstanding the nearly seven minutes of dead air (due to problems with the feed), oral argument has left me with a few overarching impressions.

First, it would seem to be universally apparent that claims predicated on barriers impeding access to meal and rest periods will be largely unaffected by Brinker. Both the Court and the Parties seemed to agree on the point that whatever the standard ultimately is deemed to be, an employee must at a minimum have the opportunity to access a break. In the words of Justice Baxter when this issue arose in the context of rest breaks, “you cannot waive something that you were not authorized to take.” As my firm only takes cases which implicate this type of theory, this was good news to me.

Second, the Court appears to be seriously leaning in the direction of meal and rest period standards having a temporal component. With regard to meal breaks, the Court appears to believe that an employee is entitled to a new meal break on a “rolling 5 hour basis” (this is discussed in detail below). With regard to rest periods, the Court appears to be at least warm to the proposition that rest breaks must be provided before the employee completes a work period of 4 hours (as opposed to making the employee work 4 hours as the triggering event).

Finally, as expected, the Court appears to be grappling with multiple facets of a construction utilizing the “ensure” standard. Questioning on this front not only appeared to test the underlying scope and meaning of the rights at issue, but also the administrative feasibility and equitable impact of implementing an ensure standard. While popular thought on this issue seems to be that it cannot be done, or that it is simply bad for business, all of these very same arguments were asserted to the advent of overtime compensation. Of course, the Court has already analogized the right at issue with overtime compensation in Murphy to conclude that meal period premium pay is compensation (as opposed to a penalty). Whether the Court ultimately continues down that path is the $64,000 dollar question.

That said, here are my observations of the oral argument, with my own delineation of the various issues in play:
 

Real Party In Interest (Plaintiffs) (Kralowec)

Issue #1 (Are The Break Statutes A Ceiling or Floor?): Justice Kennard opens questioning by asking whether the Statutes (i.e. Labor Code 226.7 and 512) could be harmonized with the meal and rest period provisions of the Wage Orders, and if not, which would govern? First, Real Parties In Interest maintained that the statutes can be harmonized, asserting as an example the fact that the term “provide” contained in the Section 226.7 expressly incorporates the Wage Order standards by reference. See Cal Lab Code § 226.7(b) (“If an employer fails to provide an employee a meal period or rest period in accordance with an applicable order of the Industrial Welfare Commission….”). Second, Real Parties further contend that if the Court were to find that the Wage Orders provide more protection that the statutes, the Wage Orders should be given effect on the grounds that the statutes provide a baseline “floor” which the IWC would be entitled to go beyond in the Wage Order.

Justice Kennard questioned the premise that both statutes incorporated the Wage Orders by reference to Labor Code § 516, which she asserted overtly contradicts an intention by the Legislature to incorporate the Wage Orders into Section 512. [See Cal Lab. Code § 516 (“Except as provided in Section 512, the Industrial Welfare Commission may adopt or amend working condition orders with respect to break periods, meal periods, and days of rest for any workers in California consistent with the health and welfare of those workers.”)].

Before Real Party was able to complete a response to this issue, Chief Justice Cantil-Sakauye interrupted, inquiring as to the impact of the Court’s previous decision in Industrial Welfare Com. v. Superior Court, 27 Cal. 3d 690, 725 (1980) [which concluded that “[n]either federal nor state labor relation legislation precludes the IWC from establishing minimum wages, maximum hours or standard conditions of employment to protect the health and welfare of California employees”], and whether that decision permitted the IWC to construct wage order imposing more stringent requirements. Real Party acknowledged this seeming softball pitch by noting that to the extent that the current Wage Orders are more protective, this would be entirely permissible under this general principle.

Issue #2 (What Exactly Is the Right At Issue?): Thereafter, Justice Liu raises what he perceives to be a dilemma – namely, as the principle right at issue with regard to meal breaks is suspension of control over the employee, once released of that control, can’t an employee exercise that right by simply choosing to work? Real Party states no, asserting that control is only part of the equation. In addition to relinquishing control, the employer must also prevent an employee from being permitted to work. [Admittedly, this proposition is consistent with the definition of “hours worked” under the Wage orders, which includes both of these components. See e.g. 8 CCR 11050(2)(K) (“‘Hours worked’ means the time during which an employee is subject to the control of an employer, and includes all the time the employee is suffered or permitted to work, whether or not required to do so….)]. Real Party asserted that the employer can, and must, ensure that the employee is not performing work for an employee to even enjoy the underlying right.

Issue #3 (Can An Employer Comply With An Ensure Standard?): Real Parties’ statement in this regard immediately invokes questioning by Justice Kennard on the central issue at play – how does an employer implement a standard requiring it to ensure that hundreds (or thousands) of employees are actually not performing work during a meal period? Real Party responded by noting that employers control employee conduct in this regard all the time, such as scheduling standard workdays to avoid incurring overtime.

Issue #2 (What Exactly Is the Right At Issue): Justice Liu returns to his prior line of questioning exploring the nature of the right at issue. Justice Liu asks – based on the interpretative policy of the Court to construe labor provisions in favor of the employee – whether it is true that the most worker friendly construction the Court could provide is a construction that permits the employee to do whatever they chose during the meal period? Real Party disagrees, stating that a construction that also precludes the employee from being suffered or permitted to work is the most the most expansive construction [and technically Real Party is correct considering the dual definitional standards for “hours worked” under the wage orders]. Real party further asserts that a construction that prevents any work from being performed is necessary to protect the average employee, who otherwise would be deprived of any meal period for their entire shift absent such a construction (presumably under the guise that the employer would always claim that the employee simply chose to continue working).

Issue #3 (Can An Employer Comply With An Ensure Standard?): This prompted a question from Justice Baxter – should employees be punished or terminated for working through their break? Real Party asserts yes, eliciting a response from Justice Baxter highlighting the paradox; namely, that an employee who works through a break because he/she loves the job being fired would not serve to protect the employee. Real Party responds that this is no different than an employee being terminated for repeatedly working unauthorized overtime, and that employers can, and in fact do, control employee behavior in this scenario by imposing a system of incremental discipline.

Justice Baxter further questions what should happen when an employee disobeys the employer's order to take a meal break and not work, and the employer is aware of it – does the employer then have to compensate the employee with premium pay? Real Party responds in the affirmative, highlighting that this is analogous to the same scenario in the context of overtime; an employer must compensate the employee with premium pay when it knew or should have know that the employee was working though breaks, even if the employee is ultimately terminated for violating the employer's directive not to work.

[It is important to highlight that the analogy to overtime in this context was not happenstance, as the Court’s holding in Murphy that Section 226.7 proscribed a wage (as opposed to a penalty) rested upon the finding that Section 226.7 was squarely analogous to daily overtime compensation in all material respects, including (1) that Section 226.7 compensation, exactly like daily overtime compensation, represents a statutorily proscribed rate of pay assigned by the Legislature to a situation “[w]here damages are obscure and difficult to prove…” (Murphy, 40 Cal. 4th at 1112-13), (2) that Section 226.7 compensation, exactly like daily overtime compensation, was intended from the outset to create an immediate statutory entitlement to compensation that would be due and payable without filing an enforcement action (Murphy, 40 Cal. 4th at 1108), and (3) that the objective of the premium compensation provided by Section 226.7, exactly like daily overtime compensation, was intended to shape employer behavior regarding the maximum hours an employee should work. (Murphy, 40 Cal. 4th at 1110, 1113-14)]

 Real Party In Interest (Rubin)

Issue #4 (Are Rest Period Claims Susceptible to Class Adjudication?): Justice Liu opens up questioning on rest breaks, asking how rest breaks, which do not have a recordation requirement like meal breaks under the wage order, may be susceptible to class treatment? Acknowledging that rest periods operate under the differing “authorize and permit” standard, Real Party contends that class treatment is proper where there is class-wide evidence that an employer “impedes, discourages or dissuades” an employee from taking a rest break. Real Party asserts three grounds, including a practice which deprives the employee of taking tips when they leave for break [later, Justice Liu questions the foundation for the assertion that the employees in this case have a legal entitlement to tip money.  In my opinion, this issue would not seem to be material here, as that issue is one relating to the merits of the case which would play out post certification].

Issue #5 (Are Rest Periods Governed by a Timing Requirement?): Justice Werdegar interrupts, questioning on whether Brinker has a uniform rest period policy susceptible to common resolution. At issue is whether Brinker’s policy of not permitting a rest period until the end of the fourth hour violates Wage Order 5 because it only permits a single rest break over the course of an 8 hour shift. Justice Werdegar essentially communicates that she is of the view that this would be a proper issue for class adjudication, as the issue of whether this policy complied with the Wage Order would be resolved as to the class as a whole.

Justice Baxter asks whether the fact that company policy did not permit an employee the option to take this second rest period precludes a claim of waiver (in the words of Justice Baxter, “you cannot waive something that you were not authorized to take.”). Real Party responds in the affirmative, stating an employee can waive a rest period only if there is no pressure from the employer.

[This is where the feed disruption occurred, which cut off the end of questioning of Real Party and approximately 7 minutes of oral argument by Petitioner]

Petitioner (Defendant)

Issue #6 (Does the Employer Have An Obligation to Remove Pressures To Perform Work?): The feed resumes with Justice Liu – in a devils’ advocate line of questioning (at least in relation to his questioning above) – asking Petitioner whether an employer must adjust the workload to enable the employee exercise his or her ability to take a break. In the words of Justice Liu, “the employer can’t say that I am giving you this 30-minutes and you are not expected to work, but meanwhile your work is piling-up and you are obligated to discharge the work later.” Petitioner agreed that the employer must adjust the workload for the 30 minutes to be 30 duty-free minutes.

Issue #7 (Does the Wage Order Require Meal Periods on a Rolling 5-Hour Basis?): Justice Baxter thereafter asks whether its Petitioner’s position that the Wage Order does not impose a “rolling 5 hour” requirement (i.e. that the Order requires a meal break every 5 hours, as opposed to before the 5th hour of a shift only), or that the Wage Order does impose this requirement, but that this requirement conflicts with the statutes (Section 226.7 and 512). Petitioner states that it believes both positions are true. Justice Baxter is quick to note, however, that the Wage Order in question has no provision for a section meal period.

[Note: There was some confusion on this point, as Section 11(D) technically refers to a second break, but upon close reading, that section only makes passing reference to waiver of a second meal break by persons employed in the health care field. Thus, it is clear that the point being made here is that if Section 512 constitutes the “floor”, and if Section 512 imposes two meal breaks (one at the 5th and the other at the 10th hour), then the Wage Order necessarily must be interpreted as requiring meal breaks be provided on a “rolling 5 hour” standard. This is so because a contrary construction would force the Wage Order to fall below the “floor.” This becomes more apparent based on Justice Liu’s follow-up questioning below].

Justice Liu follows up, noting that although Section 11(a) of the Wage Order does not clearly state that the standard is a rolling 5 hour requirement, the Wage Order provides that a 30 minute meal period is required for every 5 hour work period, EXCEPT 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. Justice Liu states that he believes the language of this exception logically requires a rolling 5 construction. To demonstrate this point, Justice Liu poses a hypothetical of an employee who works a shift between 9am to 6pm, with lunch taken at 12:30, leaving 5 ½ remaining hours to finish the work day. Justice Liu asserts that the plain language of the Wage Order requires a meal period to be provided during this 5½ hour period (despite the lack of reference to a second meal break in the Wage Order language), and that not adhering to this construction would render the second clause meaningless because if it did not there would be nothing to be waived.

Issue #1 (Are The Break Statutes A Ceiling or Floor?): Petitioner thereafter poses his own hypothetical in response to Justice Liu’s. Petitioner’s hypothetical involves an employee scheduled to work 9 hours, who takes a meal break at the 4th hour, and then works another 5 hours. Petitioner contends that under Real Party’s construction, the employer would be required to provide an additional meal period – a proposition which Petitioner believes violates the 10-hour requirement imposed by Section 512. Justice Liu disagreed, stating “it’s not contrary, it’s just more protective.” According to Justice Liu, that the Wage Order would require a second break at the 9th hour "is not inconsistent with the statute, it’s just more protective."

Justice Werdegar poses the question to Petitioner as to whether, assuming the Section 512 only imposes a set number of meal breaks (as opposed to standards relating to timing), whether he would concede that the Wage Orders can properly go beyond the statute to impose meal breaks based on timing? Petitioner dodged the premise of the question, claiming that the language of the Wage Order does not impose a meal break requirement based on timing. Justice Werdegar overtly stated her disagreement this proposition, citing the IWC’s use of the phrase “work period”, which she stated meant a “sub-set of a shift.” Based on this construction, meal breaks must be provided based on “blocks of time” during any given shift.

Issue #8 (Will The Court’s Opinion Have Retroactive Application?): At the close, Justice Baxter inquired whether a decision of the court would have prospective application only, or whether it would have retroactive application. Petitioner conceded that he was not in a position to respond on that point (as this exceeded the scope of issues), but that he believed that under applicable U.S. Supreme Court standards, a decision would have retroactive application.

Real Party In Interest Rebuttal (Kralowec)

On rebuttal, Real Party asserted several points, without much direct questioning by the Court.

First, that without a timing requirement, an employer could require an employee to work an entire 9 hour shift without providing a meal break (presumably, the employer complies in this hypothetical by proving a meal period at the very end of the shift).

Second, that there are numerous methods for employers to comply with the timing requirement, such as (1) by scheduling the meal period during the window of the 3rd and 5th hour, (2) scheduling short shifts, (3) pay the premium wage. Justice Werdegar questioned whether an employer and employee could utilize a mutual waiver, which Real Party agreed was permitted, but only if the specific requirements for waiver are met. Real part asserted that to permit a universal waiver would render the express waiver provisions meaningless.  This proposition was not really explored by the Court.

Second District Upholds Order Finding Arbitration Provision Unconscionable, Post-Concepcion: Sanchez v. Valencia Holding Co.

On October 24, 2011, the Second District (Division 1) upheld a trial court order denying a motion to compel arbitration of a class action case, post Concepcion, in Sanchez v. Valencia Holding Co., __ Cal.App.4th __ (2011). Although the trial court had denied the defendant’s motion on the grounds that the class action waiver was unenforceable because it violated statutory rights under CLRA, the Court of Appeal did not affirm the trial court’s order on these grounds, finding instead that the arbitration agreement was unconscionable under the Armendariz balancing test. As held by the Court, this test continues to survive notwithstanding Concepcion:

Before applying Armendariz to the present case, we note that Concepcion, supra, 131 S.Ct. 1740, does not preclude the application of the Armendariz principles to determine whether an arbitration provision is unconscionable. Concepcion disapproved the "Discover Bank rule," stating: "In Discover Bank, the California Supreme Court applied [the doctrine of unconscionability] to class-action waivers in arbitration agreements and held as follows: [¶] '[W]hen the [class action] waiver is found in a consumer contract of adhesion in a setting in which disputes between the contracting parties predictably involve small amounts of damages, and when it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money, then . . . the waiver becomes in practice the exemption of the party "from responsibility for [its] own fraud, or willful injury to the person or property of another." Under these circumstances, such waivers are unconscionable under California law and should not be enforced.'" (Concepcion, at p. 1746, italics added.) With the exception of the Discover Bank rule, the Court acknowledged that the doctrine of unconscionability is still a basis for invalidating arbitration provisions. (Concepcion, at pp. 1746, 1747; see Kanbar v. O'Melveny & Myers (N.D.Cal. 2011) 2011 U.S. Dist. Lexis 79447, pp. *15-*16, *23-*24, 2011 WL 2940690, pp. *6, *9.) Thus, Concepcion is inapplicable where, as here, we are not concerned with a class action waiver or a judicially imposed procedure that conflicts with the arbitration provision and the purposes of the Federal Arbitration Act (FAA) (9 U.S.C. §§ 1-16). (See Concepcion, at pp. 1748-1753.)

Slip Opinion, at 11-12.

The Court's decision joins a growing list of potential exceptions to the U.S. Supreme Court’s ruling in Concepcion. (See previous posts here and here)