Friday, November 19, 2010

California Supreme Court Holds 3 Year Statute Governs All Section 203 Penalty Actions, But Finds Penalties Non-Restitutionary Under the UCL: Pineda v. Bank of America

On November 18, 2010, the California issued its opinion in Pineda v. Bank of Am., N.A., __ Cal. 4th __ (2010), on the issues of whether (1) a Labor Code 203 penalty action brought without alleging an underlying wage claim is governed by the one year statute of limitations of CCP 340(a), rather than the limitations period under Labor Code 203(b), which references “an action for the wages from which the penalties arise”, and (2) whether Section 203 penalties, which the statute itself identifies as a continuation of “wages”, may be recovered as restitution under the UCL. The Court resolved both issues in the negative.

With regard to the first issue, the Court reasoned that an interpretation of section 203(b) which would condition the application of the 3 year statute for wages on the concurrent filing of an underlying wage claim was not reasonable construction of the language of Section 203(b), and would “lead to unwieldy and inconsistent results”, inlcuding (1) rendering it impossible to know what statute of limitation governed at the time a Section 203 claim accrued, and (2) permiting the anomalous situation of an employer escaping Section 203 liability altogether by waiting a year to pay unpaid wages. Slip Opinion, at 5-10.

Moreover, the Court deemed such a construction contrary to the important public policy objective underpinning Section 203 penalties, which is to prevent injury to the “public at large” in addition to the individuals affected:
Finally, as we have acknowledged on multiple occasions, "[t]he public policy in favor of full and prompt payment of an employee's earned wages is fundamental and well established" and the failure to timely pay wages injures not only the employee, but the public at large as well. (Smith, supra, 39 Cal.4th at p. 82.) We have also recognized that sections 201, 202, and 203 play an important role in vindicating this public policy. (Smith v. Rae-Venter Law Group (2002) 29 Cal.4th 345, 360.) To that end, the Legislature adopted the penalty provision as a disincentive for employers to pay final wages late. (See BLS, 20th Biennial Rep.: 1921-1922, supra, p. 36.) It goes without saying that a longer statute of limitations for section 203 penalties provides additional incentive to encourage employers to pay final wages in a prompt manner, thus furthering the public policy.
Slip Opinion, at 12-13.

Based on these considerations, the Court concluded “there is but one reasonable construction: section 203(b) contains a single, three-year limitations period governing all actions for section 203 penalties irrespective of whether an employee's claim for penalties is accompanied by a claim for unpaid final wages.” See id., at 10, 13.

With regard to the Second issue, the Court concluded Section 203 penalties are not restitutionary in nature for purposes of the UCL because they are not “earned” wages within the meaning Labor Code 200, but rather wages which an employee is entitled to recover to punish an employer’s inaction when failing to pay “earned” wages when the become due:
[P]ermitting recovery of section 203 penalties via the UCL would not "restore the status quo by returning to the plaintiff funds in which he or she has an ownership interest." (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1149.) Section 203 is not designed to compensate employees for work performed. Instead, it is intended to encourage employers to pay final wages on time, and to punish employers who fail to do so. In other words, it is the employers' action (or inaction) that gives rise to section 203 penalties. The vested interest in unpaid wages, on the other hand, arises out of the employees' action, i.e., their labor. Until awarded by a relevant body, employees have no comparable vested interest in section 203 penalties. We thus hold section 203 penalties cannot be recovered as restitution under the UCL.
Slip Opinion, at 13-15.

Wednesday, November 17, 2010

California Supreme Court Grants Review in Kirby v. Immoos Fire Protection

On November 17, 2010, the California Supreme Court granted review of the Third District’s decision in Kirby v. Immoos Fire Protection, 186 Cal. App. 4th 1361 (2010).  The Kirby decision upheld a fee award in favor of an employer who successfully defended a rest period claim, concluding that meal and rest period claims were governed by Labor Code 218.5’s two-way fee shifting provisions, rather than the one way fee shifting of Section 1194. This holding poses a significant issue, as two way fee shifting would severely chill private enforcement of an employee's statutory right to recover meal and rest period premium wages. 

The thrust of the argument in opposition is that Section 226.7 premium wages should be governed by Section 1194, not only because Section 226.7 proscribes a statutorily mandated wage, but also because the California Supreme Court concluded in Murphy v. Kenneth Cole Productions, Inc., 40 Cal. 4th 1094 (2007) that meal and rest break premium pay is itself a form of  overtime compensation.

As set forth on the California Supreme Court’s website, the issue on review is as follows:
Does Labor Code section 218.5 govern attorney's fees awarded on a cause of action alleging violation of the statutorily mandated wage payment for missed meal and rest periods (Lab. Code, 226.7), or is an attorney's fee award governed by Labor Code section 1194?
The plaintiff’s Petition was supported numerous Amici, including one drafted by myself on behalf of the CAOC. Congratulations to everyone involved on a great effort securing review of such an important issue.

Friday, November 12, 2010

Second District Holds That Employer Subject to PAGA Penalties For Failure to Provide “Suitable Seating”: Bright v. 99¢ Only Stores

On November 12, 2010, the Second District (Division 5), in Bright v. 99¢ Only Stores, __ Cal.App. 4th __ (2010), overturned a trial court order dismissing a PAGA claim predicated upon Wage Order 7’s “suitable seating” requirement. The requirement, which is codified under various wage orders within subpart 14, states as follows:
(A) All working employees shall be provided with suitable seats when the nature of the work reasonably permits the use of seats.
(B) When employees are not engaged in the active duties of their employment and the nature of the work requires standing, an adequate number of suitable seats shall be placed in reasonable proximity to the work area and employees shall be permitted to use such seats when it does not interfere with the performance of their duties.
See 8 CCR 11070(14).

The trial court concluded that the plaintiff’s PAGA claim was non-viable, asserting that “suitable seating” was not required under the language of the Wage Order, and that PAGA penalties were not recoverable insofar as subpart 20 of the Wage Order provided penalties, which were restricted to instances where the employee was underpaid. Slip Opinion, at 4. The Court of Appeal reversed.

First, the Court rejected the argument that the “suitable seating” provision, which the employer claimed was phrased in permissive terms, was not a requirement under the Wage Order. As reasoned by the Court, everything detailed in the Wage Order, as part of an “order” enacted by the IWC pursuant to Labor Code 1198, is mandatory:
Under 99¢ Only Stores’ theory, because the mandatory provisions are not expressed in prohibitory language, they are merely suggestions, a conclusion we reject as not in keeping with the remedial purpose of the statute. “[The suitable seating provision] is not permissive. It is a part of an order which states what employers ‘shall’ do. It is implied that failing to do what the provision orders is prohibited. To interpret the Wage Orders as not prohibiting, and therefore allowing, any work condition unless the provision is phrased in the negative, i.e., using the word ‘not,’ would be contrary to common sense.” (Kilby v. CVS Pharmacy, Inc. (S.D.Cal. 2010) __ F.Supp.3d __ [2010 U.S.Dist.Lexis 86515, *7].) Moreover, if the mandatory conditions are not required by law, they could not be enforced, yet violations are enforceable in both criminal actions and injunctive proceedings. (See §§ 1199, 1194.5.) Further, compliance with the mandatory conditions of labor is required by section 1185, which provides that orders fixing standard conditions of labor are “valid and operative.”
Slip Opinion, at 6-7.

Second, the Court rejected the employer’s argument that the penalties provision of subpart 20 of the Wage Order governed. See id, at 8-10. The Court reasoned that subpart 20 – which was a generalized penalty provision – did not provide an “exclusive penalty” for violation of the suitable seating under subpart 14. Id., at 9-10. As a result, PAGA’s default penalty provision under Labor Code 2699(f) applied, permitting for the recovery of a penalty amount of $100 for initial violations, and subsequent penalties in the amount of $200 per pay period.

Wednesday, November 10, 2010

U.S. Supreme Court Hears Oral Argument in AT&T Mobility LLC v. Concepcion

On Tuesday, November 9, 2010, the U.S. Supreme Court heard oral argument AT&T Mobility LLC v. Concepcion, which considers whether the invalidation of class action waivers on state-law unconscionability grounds (i.e. the Discover Bank rule) is preempted under the Federal Arbitration Act.  The case involves the 9th Circuit’s decision in Laster v. AT&T Mobility LLC, 584 F.3d 849 (9th Cir. Cal. 2009), which upheld an order denying a motion to compel “individual” arbitration based on the Discover Bank rule.  This one is potentialy a game-changer.  A transcript of the oral argument may be obtained on the official Supreme Court website here.  Although one would think that the present composition of the Court would tend to favor AT&T, I have read through it, and admittedly, the Court seems to be leaning against preemption. 

Tuesday, November 2, 2010

Courts Of Appeal Uphold Denial of Certification in Two Cases: Sevidal v. Target Corp. and Hernandez v. Chipotle Mexican Grill

On October 29, 2010, the Fourth District (Division 1) upheld denial of certification of a “made in the USA” false advertising class in Sevidal v. Target Corp., __ Cal.App.4th __ (2010).  In upholding the trial court’s order, the Court concluded that the element of ascertainability was lacking based on evidence that Target “was unable to determine from its computer records the identity of the individuals who purchased an item when its country of origin was improperly designated.”  Slip Opinion, at 16-22.  Further, the Court concluded that the class was overlybroad, as the evidence demonstrated that only a minority of consumers clicked the “additional info” icon containing the alleged offending statements on Target’s website, causing a substantial portion of the class to lack any right to recover on the asserted legal claims.  See id., at 23-31.

On October 28, 2010, the Second District (Division 8) altered the status of its opinion in Hernandez v. Chipotle Mexican Grill, __ Cal.App.4th __ (2010) from unpublished to published. The opinion, which upheld a trial court’s denial of certification of meal and rest period claims, does not add much to the mix in terms of new law, and appears to simply mirror the issues presently before the California Supreme Court in Brinker.  In fact, the Court ruled on the Brinker issue itself.  This being the case, there was no basis for the status of this case being altered to published, and it is worth noting that Division 7, in an opinion going the opposite direction on the Brinker issue (previously discussed here), refused to publish its opinion despite publication requests.  That issue aside, it appears that plaintiff counsel may have invited the Brinkeresque result, as plaintiff attempted to establish certification of an alleged barrier to breaks based solely on class member testimony and time records, as opposed to focusing on evidence of the defendant’s standardized company policies.