Central District Concludes Employer’s Failure to Record Meal Breaks Precludes Employer MSJ As A Matter of Law, Post-Brinker: Ricaldai v. US Investigations Servs.

On May 25, 2012, Central District Judge Dean D. Pregerson, concluded that the California Supreme Court’s decision in Brinker (discussed previously here) precluded a defense summary judgment of a plaintiff’s meal period claims where the employer failed to main records of meal breaks having been taken:

[T]he court notes its agreement with Justices Werdegar and Liu that it is the employer's burden to rebut a presumption that meal periods were not adequately provided, where the employer fails to record any meal periods. Otherwise, employers would have an incentive to ignore their recording duty, leaving employees the difficult task of proving that the employer either failed to advise them of their meal period rights, or unlawfully pressured them to waive those rights. See Brinker, 139 Cal. Rptr. 3d at 353 & n.1 (Werdegar, J., concurring) (citing Cicairos, 133 Cal. App. 4th at 961 ("[W]here the employer has failed to keep records required by statute, the consequences for such failure should fall on the employer, not the employee." (internal quotation marks omitted))). Here, as mentioned, there is no dispute that USIS failed to record any meal periods.

See Ricaldai v. US Investigations Servs., LLC, 2012 U.S. Dist. LEXIS 73279, at 14 (C.D. Cal. May 25, 2012).

In addition, summary judgment was denied on the further ground that the plaintiff was unable to access off-duty breaks.  The Court’s opinion demonstrates the extremely low “discouragement” threshold necessary to establish a barrier to breaks, post-Brinker.  Despite the fact that the plaintiff in this case worked independently, and purportedly had control over her schedule, summary judgment was denied based on evidence that plaintiff was “implicitly trained” to take on-duty meal breaks and precluded from using time for her own purposes: 

However, even if the burden of proof were on Ricaldai, the court would still find a genuine issue of material fact….   

Ricaldai offers evidence that she was implicitly trained to take working lunches, expressly told that personal errands were prohibited without prior authorization, specifically directed to fill her entire day in each geographic area with job duties, and correspondingly discouraged from taking any time off. Viewing this evidence in the light most favorable to Ricaldai, a rational trier of fact could conclude that USIS pressured her to take working lunches instead of duty-free meal periods, in violation of California meal period law under Brinker.

Contrary to USIS' argument, it does not change the summary judgment analysis that USIS exerted no direct control over Ricaldai during her work day and allowed for overtime, and that Ricaldai therefore admitted at deposition that she technically could have scheduled her work day to incorporate a duty-free meal period while still completing her tasks. As discussed, there is sufficient evidence that, viewed in the light most favorable to Ricaldai, USIS nonetheless unlawfully discouraged Ricaldai from scheduling a meal period during her workday.

Ricaldai v. US Investigations Servs., LLC, 2012 U.S. Dist. LEXIS 73279, at 17-18.

Two New Arbitration Decisions of Note: Samaniego v. Empire Today LLC and O'Brien v. Am. Express Co.

In Samaniego v. Empire Today LLC, 2012 Cal. App. LEXIS 540 (April 5, 2012), the First District (Division Three) upheld a trial court order which declined to enforce arbitration of class-wide wage claims based on a finding of unconscionability under the Armendariz test.  The Court’s decision builds on a growing list of circumstances satisfying the Armendariz factors which may be relied upon to overcome enforcement of an arbitration provision in the employment context.

With regard to the first element, the Court concluded that the evidence “amply” supported a finding of procedural unconscionability, as (1) employees “were told that they were ‘required’ to sign these documents, including the agreement, if they wanted to work for Empire” [See id., at 10], (2) “Empire failed to provide plaintiffs with a copy of the relevant arbitration rules”  [See id., at 11 (concluding that “[n]umerous cases have held that the failure to provide a copy of the arbitration rules to which the employee would be bound, supported a finding of procedural unconscionability.”)], and (3) the language of the arbitration provision was buried at the end of an 11 page document that was “neither flagged by individual headings nor required to be initialed by the subcontractor.” See id., at 12.

• [Note: In Morvant v. P.F. Chang's China Bistro, Inc., 2012 U.S. Dist. LEXIS 63985 (N.D. Cal. May 7, 2012), Northern District Court Judge, Yvonne Gonzalez Rogers, concluded that continued employment – standing alone – does not prove acceptance of the terms of the Arbitration Agreement.  Rather, “[a]n employee's continued employment has been found to constitute implied acceptance of the changed terms of employment where the employee was informed that his or her continued employment would constitute acceptance of those changed terms.”  See Morvant, 2012 U.S. Dist. LEXIS 63985, at 8.]

With regard to substantive unconscionability, the Court concluded that the agreement was rendered one sided by terms that (1) unilaterally shifted fees only for the employer [which the Court noted was unlawful in the wage context], and (2) limited the statute of limitations of wage claims to 6 months.  As to the later issue, the Court refused to extend authority approving of this practice into the wage context, finding that an arbitration provision cannot be used as a means to undermine statutory rights:

[Empire] supports its argument only with authority for the general proposition that a contractual provision that unilaterally shortens a limitations period to six months, taken alone, does not necessarily render an adhesion contract substantively unconscionable. (See Soltani v. Western & Southern Life Ins. Co. (9th Cir. 2001) 258 F.3d 1038, 1043 [citing California cases].) The import of such a clause is quite different in the context of the statutory wage and hour claims asserted here.  The Labor Code provides the bases for the class claims, and it affords employees three or four years to assert them. (See Nyulassy v. Lockheed Martin Corp. (2004) 120 Cal.App.4th 1267, 1283 []; Martinez v. Master Protection Corp. (2004) 118 Cal.App.4th 107, 117 [].)  Where, as in this case, arbitration provisions undermine statutory protections, courts have readily found unconscionability. (Nyulassy, supra, at p. 1283; Martinez, supra, at p. 117; Wherry v. Award, Inc. (2011) 192 Cal.App.4th 1242, 1249 [] (Wherry).) As noted in Armendariz, supra, “an arbitration agreement cannot be made to serve as a vehicle for the waiver of statutory rights created by the FEHA.” (24 Cal.4th at p. 101.)

See Samaniego, 2012 Cal. App. LEXIS 540, at 14.

In the second opinion – O'Brien v. Am. Express Co., 2012 U.S. Dist. LEXIS 64553 (S.D. Cal. May 8, 2012) – Southern District Magistrate Judge, Bernard G. Skomal, concluded that “under California law, Plaintiff may obtain limited discovery to make the argument that the arbitration agreement is unconscionable.”  See O'Brien, 2012 U.S. Dist. LEXIS 64553, at 11. As reasoned by the Court, “Concepcion … reaffirmed that the FAA ‘permits agreements to arbitrate to be invalidated by 'generally applicable contract defenses, such as fraud, duress, or unconscionability…’” and “[b]ased on these available defenses to the validity of an arbitration agreement, courts have permitted parties opposing a motion to compel arbitration to take discovery on the unconscionability of an arbitration provision, including ones with class action waivers, post-Concepcion.”  See id., at 7-9 (collecting cases). 

Post-Concepcion, engaging in discovery prior to opposing a motion to compel arbitration is becoming increaringly more important (if not essential) in the wage and hour context.  This was recently highlighted in the Second District’s decision in Kinecta Alternative Financial Solutions, Inc. v. Superior Court, __ Cal.App.4th __ (2012) – previously discussed here.  In that opinion, the Court held that an “AT&T Mobility LLC v. Concepcion … did not overrule Gentry”, but explained that an employee is “required to establish that the arbitration provision invalidly prohibited arbitration of class claims by making a factual showing of the four factors showing that class arbitration is likely to be a significantly more effective practical means of vindicating employees' rights than individual arbitration.”  Making such a showing in most cases would require discovery.

Southern District Finds Waiver Argument Unpersuasive Post-Brinker; Certifies Meal and Rest Period Claims On Behalf of “Piece Rate” Workers: Schulz v. Qualxserv

On April 26, 2012, Southern District Court Judge, Hon. Anthony J. Battaglia, certified a swath of wage and hour claims on behalf of computer repair “field service technicians” who were paid by way of a piece-rate compensation.  See Schulz v. Qualxserv, LLC, 2012 U.S. Dist. LEXIS 58561, 1-2 (S.D. Cal. Apr. 26, 2012).  The Court’s opinion contains excellent discussion on various issues, many unique to alleged wage violations occurring in the context of fixed piece-rate compensation (as opposed to an hourly compensation).  Moreover, the Court’s opinion would seem to be the first district court opinion addressing the impact of Brinker Restaurant Corp. v. Superior Court [discussed previously here, here and here] on the certification of meal and rest period claims.

Here, the plaintiffs sought certification on the grounds that liability could be commonly established based on the employer’s failure to maintain a policy affirmatively relieving employees for meal and rest periods, coupled with a systematic failure to record meal periods.  [The employer apparently did not maintain detailed break policies or record meal breaks because employees were paid by project and free to determine their own breaks.  See Schulz, 2012 U.S. Dist. LEXIS 58561, 12].  The employer opposed certification – citing to Brown v. Fed. Express Corp., 249 F.R.D. 580, 585-87 (C.D. Cal. 2008) – on the grounds that plaintiffs had failed to provide “evidence that it ‘deprived’ technicians of meal or rest breaks as a general policy and, therefore, highly individual questions predominate over any common issue.”  See Schulz, 2012 U.S. Dist. LEXIS 58561, at 22.

Significantly, the Court rejected the defense argument based on Brinker’s finding that an employer must first establish it maintained a policy of actually relieving employees of duty (and control) for legally compliant meal/rest period before leaping to the question of waiver [this is discussed more thoroughly in a previous post, here (at paragraph 2)].  As the Court explained, the standard articulated in Brinker provides “that ‘an employer's obligation is to relieve its employees of all duty with the employee thereafter [being] at liberty to use the meal period for whatever purpose he or she desires….’” See Schulz, 2012 U.S. Dist. LEXIS 58561, at 22-23 (quoting Brinker, at page 8).  In granting certification, the Court reasoned that “common questions [predominated] under this standard because Plaintiffs' challenge the Defendants' common corporate policy of failing to relieve the technicians of all work during the rest and meal breaks.”  See id., at 23-24.  Thus, as the plaintiff’s theory of liability was focused on the legal adequacy of the employer’s policy itself, issues of pertaining to waiver were not implicated and certification was appropriate.

In addition to the forgoing, the Court also rejected the employer’s argument based on the fact “Plaintiff's meal break claim is … based on Defendants' alleged failure to comply with Wage Order No. 4-2001, which requires the employer to ‘record’ unpaid meal periods.”  See id., at 24.  As previously discussed here (at paragraph 4), Brinker precludes an employer who fails to record meal breaks from benefitting from its misconduct by claiming individualized issue of waiver must now prelude class-wide adjudication. 

In all, the Court’s analysis signifies a fairly dramatic departure from the pre-Brinker treatment of waiver as a defense to certification.

[As an aside, the fact pattern in this case raises other interesting questions.  For example, an employer who pays employees on a piece rate basis presumably cannot simply assume by default that employees took meal breaks, as such a policy would impermissibly compensates employees who work through their breaks the exact same amount as those employees take breaks.  At a minimum, employees must receive compensation for all hours worked, even if the employee waived his or her break.  Similarly, would an employee ever receive a "paid" rest period (as required by the Wage Orders) absent a separate piece-rate dedicated solely to rest break pay?  Absent such a policy, employees are technically only paid for the piece-rate tasks performed and would necessarily receive the same compensation regardless of whether an off-duty rest break was ever authorized (resulting in the employer extracting 20 minutes of “free work” from the employee).  See Murphy v. Kenneth Cole Productions, Inc., 40 Cal. 4th 1094, 1104 (2007) (“If denied two paid rest periods in an eight-hour workday, an employee essentially performs 20 minutes of ‘free’ work, i.e., the employee receives the same amount of compensation for working through the rest periods that the employee would have received had he or she been permitted to take the rest periods.”). ]

California Supreme Court Splits the Baby on Fee Issue: Kirby v. Immoos Fire Protection, Inc

On April 30, 2012, the California Supreme Court issued its ruling in Kirby v. Immoos Fire Protection, Inc, __ Cal. 4th __ (2012), concluding that neither section 1194 nor section 218.5 authorizes an award of attorney’s fees to a party that prevails on a section 226.7 claim:

We granted review to consider when, if ever, a party who prevails on a section 226.7 action for an alleged failure to provide rest breaks may be awarded attorney’s fees. We conclude, in light of the relevant statutory language and legislative history, that neither section 1194 nor section 218.5 authorizes an award of attorney’s fees to a party that prevails on a section 226.7 claim. We accordingly reverse the judgment of the Court of Appeal on this claim and affirm the judgment on plaintiffs‟ other claims.

Slip Opinion, at 2.

As held by the Court, “the most plausible inference to be drawn from [the relevant legislative] history is that the Legislature intended section 226.7 claims to be governed by the default American rule that each side must cover its own attorney’s fees.”  See id., at 17. 

IMPORTANT NOTE: It is important to highlight that the Court’s ruling will not preclude the recovery of attorneys fees by plaintiff’s counsel pursuing break claims on a class-wide basis.  Although “[t]he general rule is that a party is entitled to an award of attorney fees if there is specific authorization therefor by statute or private agreement…[,][t]here are… three well-established equitable exceptions to the general rule, known as the common fund, substantial benefit, and private attorney general theories.”  See Consumers Lobby Against Monopolies v. Public Utilities Com., 25 Cal. 3d 891, 906 (1979) (citing Serrano v. Priest, 20 Cal. 3d 25 (1977)).  Any of these doctrines may be asserted by a prevailing plaintiff in the class context to justify an award of fees. 

Thus, as the Court of Appeal's opinion (which upheld an award of attorney's fees to the employer)  stood to forclose employees from even attempting to bring a break claim in the first instance (due to the chilling impact of having to pay the employer's attorneys fees), the Kirby decision is unquestionably a positive ruling for employees.

California Supreme Court to Issue Ruling in Kirby v. Immoos Fire Protection, Inc. on Monday (April 30, 2012)

The statement on the California Supreme Court Website is as follows:

04/27/2012

Notice of forthcoming opinion posted

To be filed on Monday, April 30, 2012 at 10 a.m.

As previously discussed here, the issue on review in Kirby pertains to whether meal and rest period claims are governed by Labor Code 218.5’s two-way fee shifting provisions, rather than the one way fee shifting of Section 1194.

Second District (Division 3) Declines to Weigh-in on Gentry Issue: Kinecta Alternative Financial Solutions, Inc. v. Superior Court

On April 25, 2012, the Second District (Division 3) issued an opinion concluding that a trial court erred by denying a motion to dismiss class allegations from the plaintiff’s complaint (filed concurrently with a motion to compel arbitration) when the  at issue arbitration provision neither authorized nor prohibited class arbitration.  See Kinecta Alternative Financial Solutions, Inc. v. Superior Court, 2012 Cal. App. LEXIS 487 (2012).  In making this ruling, however, the Court left open the possibility that the Gentry framework continued to survive the U.S. Supreme Court’s ruling in Concepcion [as was concluded by its sister Division in Brown v. Ralphs Grocery Co., 197 Cal.App.4th 489, 498 (2011) previously discussed in posts here and here].  As was explained by the Court, satisfaction of the Gentry factors could potentially render an arbitration agreement unenforceable in the employment context, but such a determination could not be made here because the plaintiffs had not submitted any supporting evidence:

A question exists about whether Gentry survived the overruling of Discover Bank in Concepcion, but it is not one we need to decide. (Brown v. Ralphs Grocery Co. (2011) 197 Cal.App.4th 489, 498 [128 Cal. Rptr. 3d 854].) Gentry decided a different issue from Discover Bank. In contrast to the unconscionability analysis in Discover Bank, the rule in Gentry concerns “the effect of a class action waiver on unwaivable statutory rights regardless of unconscionability.” (Arguelles-Romero v. Superior Court (2010) 184 Cal.App.4th 825, 836 [109 Cal. Rptr. 3d 289] (Arguelles-Romero).) Specifically, Gentry addresses whether a class arbitration “is a significantly more effective practical means of vindicating unwaivable statutory rights[.]” (Arguelles-Romero, at p. 841.) Discover Bank and Gentry established two different tests of whether to enforce a class arbitration waiver, which should be considered separately. (Arguelles-Romero, at pp. 836–837.) Since it has not been expressly abrogated or overruled, Gentry appears to remain the binding law in California. (Brown v. Ralphs Grocery Co., at pp. 498, 505.) 

*******

Even if Gentry has not been overruled, in opposing Kinecta's motion to compel arbitration and to dismiss class claims, Malone had to provide evidence of the four Gentry factors. Plaintiff has the burden of establishing that the arbitration provision (here, limiting arbitration to bilateral arbitration) is invalid by making a factual showing of the four Gentry factors. (Brown v. Ralphs Grocery Co., supra, 197 Cal.App.4th at p. 497.) The record shows that Malone provided no evidence as to any of the four Gentry factors required to support a trial court's determination that the arbitration should proceed as a class action arbitration. Thus there is no evidence, and no substantial evidence, that plaintiff had established a factual basis that would require a declaration that the arbitration agreement was unenforceable. (Ibid.)

Because there are no grounds to declare the arbitration agreement unenforceable and because the arbitration provision contained no agreement to classwide arbitration, Kinecta  argues that Concepcion and Stolt-Nielsen require reversal of the order denying its request to dismiss class claims from Malone's complaint. We agree.

See Kinecta, 2012 Cal. App. LEXIS 487, at 17-20

Unpacking The Brinker Court’s Analysis Of Certification Issues Particular to Meal and Rest Period Claims: Brinker Restaurant Corp. v. Superior Court

As promised, this final post will examine the Brinker Court’s meal and rest break certification analysis (previous posts are located here and here).  As demonstrated below, the common thread running throughout the Court’s opinion centered largely on the Court of Appeal’s finding that individualized issues relating to waiver rendered certification of meal and rest period claims inappropriate.
With regard to rest periods, the Court’s analysis was fairly straight forward.  The Court held that because the plaintiffs’ theory of liability was predicated on breaks not being authorized or permitted in the first instance, reversal of the trial court’s certification order based on issues relating to class members having waived their breaks was an abuse of discretion:

In reversing class certification, the Court of Appeal concluded that because rest breaks can be waived—as all parties agree—“any showing on a class basis that plaintiffs or other members of the proposed class missed rest breaks or took shortened rest breaks would not necessarily establish, without further individualized proof, that Brinker violated” the Labor Code and Wage Order No. 5. This was error. An employer is required to authorize and permit the amount of rest break time called for under the wage order for its industry. If it does not—if, for example, it adopts a uniform policy authorizing and permitting only one rest break for employees working a seven-hour shift when two are required—it has violated the wage order and is liable. No issue of waiver ever arises for a rest break that was required by law but never authorized; if a break is not authorized, an employee has no opportunity to decline to take it. As Hohnbaum pleaded and presented substantial evidence of a uniform rest break policy authorizing breaks only for each full four hours worked, the trial court’s certification of a rest break subclass should not have been disturbed.

Slip Opinion, at 25-26 (emphasis added).

Thus, the Brinker opinion confirms that the issue of waiver is irrelevant to theories of liability alleging that employees were deprived access to a legally compliant break in the first instance (this would seem to be a matter of common sense, as you cannot waive what you never had).

With regard to meal periods, the Brinker Court went one step further.  Although the Court rendered no formal opinion as to whether the trial court erred in certifying a class [id., at 51 (“we need not decide whether or not the trial court erred…. we consider it the prudent course to remand the question of meal subclass certification to the trial court for reconsideration in light of the clarification of the law we have provided.”)], Justice Werdegar’s concurring opinion makes clear that the Court did not accept the premise that individualized issues relating to waiver render a claim uncertifiable, per se:

In returning the case for reconsideration, the opinion of the court does not endorse Brinker’s argument, accepted by the Court of Appeal, that the question why a meal period was missed renders meal period claims categorically uncertifiable. Nor could it, for such a per se bar would be inconsistent with the law governing reporting obligations and our historic endorsement of a variety of methods that render collective actions judicially manageable.

Concurring Opinion (Werdegar, J.), at 1 (emphasis in original).

Here, significant emphasis was placed on the employer’s obligation to record meal breaks relative to an employer asserting the defense of waiver.  Specifically, Justice Werdegar highlighted that when an employer fails to record a meal break, a “presumption arises that the employee was not relieved of duty and no meal period was provided” [id., at 1], and thereafter, “[a]n employer’s assertion that it did relieve the employee of duty, but the employee waived the opportunity to have a work-free break, … is an affirmative defense, and thus the burden is on the employer, as the party asserting waiver, to plead and prove it.”  See id., at 2.

This statement of presumption and burden is material to certification, as it precludes the automatic categorization of all missed meal periods as implicating an individualized issue of waiver.  To establish the presence of individualized issues, an employer seemingly must now affirmatively introduce evidence for each individual employee to place the presumption in dispute as to that employee.  In turn, this forecloses a court from making a generalized, freewheeling assumption from a handful of employee declarations that individualized issues relating to waiver will predominate as to the entire class.  Such an interpretation is consistent with Justice Werdegar’s discussion, which noted that the employer cannot be permitted to reap a reward for failing to record breaks.  See id., at 2 fn. 1 (“[t]o place the burden elsewhere would offer an employer an incentive to avoid its recording duty and a potential windfall from the failure to record meal periods.”).

In addition – as discussed in the final paragraph of my previous post – an employer’s invocation of a generalized waiver defense in the break context is properly construed as a damages issue.  See Concurring Opinion (Werdegar, J.), at 3 (“For purposes of class action manageability, a defense that hinges liability vel non on consideration of numerous intricately detailed factual questions, … is different from a defense that raises only one or a few questions and that operates not to extinguish the defendant’s liability but only to diminish the amount of a given plaintiff’s recovery.”) (emphasis added).

Finally, it is important to highlight that the elements of waiver – which requires an employer evidence that the right to breaks was both known and voluntarily released [Waller v. Truck Ins. Exchange, Inc., 11 Cal. 4th 1, 31 (1995) (“waiver is the intentional relinquishment of a known right after knowledge of the facts”)] – in many cases may lend themselves to issues that are common to the class.  By way of example, an employer that fails to communicate any break policies to its employees will necessarily be legally foreclosed from subsequently seeking to invoke a waiver defense.  See e.g. Concurring Opinion, at 2 fn. 1 (“the burden is on the employer to show that the agricultural employee had been advised of his or her legal right to take a meal period and has knowingly and voluntarily decided not to take the meal period.”); See also Bufil v. Dollar Financial Corp., 162 Cal. App. 4th 1193, 1199 (2008) (“Dollar does not notify its employees that they are authorized and permitted to take a 10-consecutive-minute off-duty rest break …. The onus is on the employer to clearly communicate the authorization and permission to its employees.”).