Friday, November 11, 2011

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).

Tuesday, November 8, 2011

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.