See's Candy Shops, Inc. v. Superior Court provides modest confection for employers

If I tried really hard, I could probably come up with similarly dumb headlines for most posts on appellate decisions.  But it would hurt me as much as it would hurt you, so I don't.  But, getting back on track, in See's Candy Shops, Inc. v. Superior Court (October 29, 2012), the Court of Appeal (Fourth Appellate District, Division One) granted a petition for a writ filed by See's Candy after the trial court granted summary adjudication in favor of the plaintiff as to four affirmative defenses asserted in the case.  The defenses related to See's Candy's practice of rounding hourly employee punch in and punch out times to the nearest tenth of an hour.

In an amended answer, See's Candy denied plaintiff's allegations and "asserted 62 affirmative defenses, including defenses based on See's Candy's claim that: (1) any unpaid amounts are de minimis; (2) the nearest-tenth rounding policy is consistent with federal and state law; and (3) the grace period policy is lawful under federal and state law."  Slip op., at 5.  Two of the defenses concerned See's Candy's claim that any unpaid wages based on off-the-clock claims or its rounding policies were "de minimis."  The "de minimis" defense was not at issue in the writ proceedings, so don't get excited.  The other two challenged defenses encompassed See's Candy's claim that its rounding policy is consistent with state and federal laws "permitting employers to use rounding for purposes of computing and paying wages and overtime" and that the nearest-tenth rounding policy did not deny plaintiffs or the class members "full and accurate compensation." Plaintiff did not move for summary adjudication on See's Candy's affirmative defense that its grace period policy is "lawful under both federal and California law."

Plaintiff argued that there is no California statutory or case authority allowing See's Candy to use a rounding policy, and its policy violates section 204, which generally requires an employer to pay an employee "All wages" every two weeks, and section 510, which requires an employer to pay an employee premium wages for "Any work" after eight hours per day or 40 hours per work week.  See's Candy then argued that its timekeeping records were inaccurate because of its unusual grace period policy that allows employees to clock in up to 10 minutes before their scheduled shift time so long as they do not start working until the actual start time.

The Court of Appeal examined the competing approaches, holding that See's Candy had the better view:

Although California employers have long engaged in employee time-rounding, there is no California statute or case law specifically authorizing or prohibiting this practice. Absent specific binding authority under California law, See's Candy argues that it is appropriate for this court to adopt the federal regulatory standard, which is also used by the DLSE (the state agency charged with enforcing California's wage and hour laws), and allows rounding if the employees are fully compensated "over a period of time." (29 C.F.R. § 785.48(b).) Silva counters that this federal/DLSE rule violates California statutes and rounding should be permitted only if the employer "unrounds" every two weeks to ensure full compensation. For the reasons explained below, we conclude the federal/DLSE standard is the appropriate standard.

Slip op., at 17.  To support this conclusion, an extensive discussion of federal law, state law, and DLSE regulations follows.  Distilled to its essence, the key holding of the Court turns on its construction of Labor Code section 204:

Moreover, Silva's contention has a false premise — that using unrounded figures within a finite time period is the only way to measure "All" earned wages. (§ 204, subd. (a).) Fundamentally, the question whether all wages have been paid is different from the issue of how an employer calculates the number of hours worked and thus what wages are owed. Section 204 does not address the measurement issue. The Legislature has amended section 204 since the DLSE adopted the federal rounding regulation, and has never indicated that the state agency's adoption of the federal rounding rule is inconsistent with its statutory provision.

Slip op., at 24.  The Court then declared its finding as to California law, and addressed the analysis that it would apply in the context of the case before it:

Relying on the DOL rounding standard, we have concluded that the rule in California is that an employer is entitled to use the nearest-tenth rounding policy if the rounding policy is fair and neutral on its face and "it is used in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked." (29 C.F.R. § 785.48; see DLSE Manual, supra, §§ 47.1, 47.2.) Applying this legal standard, we turn to address whether the parties met their summary adjudication burdens with respect to the 39th and 40th affirmative defenses alleging that See's Candy's nearest-tenth rounding policy was consistent with California law.

Slip op., at 27.  Thus, as with federal law, the legality of rounding in California turns on the outcome, not its use.  Rounding is judged "as applied," not "as defined."  In this matter, the Court concluded that the plaintiff did not meet the burden of proof on a motion for summary judgment to dispose of See's Candy's affirmative defenses before trial.

Court of Appeal construes Labor Code section 2810, which authorizes suits against contractors by certain employees of subcontractors

Labor Code section 2810 states that "[a] person or entity may not enter into a contract or agreement for labor or services with a construction, farm labor, garment, janitorial, or security guard contractor, where the person or entity knows or should know that the contract or agreement does not include funds sufficient to allow the contractor to comply with all applicable local, state, and federal laws or regulations governing the labor or services to be provided."   Section 2810 is a fairly new statute, and one that had not been the subject of any Court of Appeal decision.  But in Castillo v. Toll Brothers, Inc. (July 28, 2011), that changed.  I could tell you that this very exciting opportunity to read an opinion in a truly novel area of law prompted my review of the case.  But, in truth, it was just the defendant's name that caught my eye.

In any event, the trial court, dealing with summary judgment motions and lots of supplemental briefing, evidently had its hands full with a large number of arguments intersecting Labor Code section 2810.  The Court of Appeal commended the trial court's diligent efforts:

The order is a masterful synthesis of a sprawling factual record, reflecting the court's careful work with the parties over the course of several months. We recount the decision in some detail because it forms the foundation for our own ruling.

Slip op., at 6.

A key legal issue addressed in the appeal was determination of whether minimum wage or local prevailing wage sets the standard for insufficiency.  The Court also clarified that actual labor cost, and not the base wage, sets the correct standard.

As to the standard for insufficiency, the Court held that the "minimum wage" sets the standard:

Plaintiffs' position is untenable because there is no general law requiring an employer to pay its workers the average local wage for a particular skill or trade, if that average wage is higher than the legal minimum. Merely to pay less than the prevailing wage therefore violates no law. In the absence of a local, state, or federal law requiring the payment of a wage higher than the legal minimum, a contract cannot be insufficient under section 2810 merely because it does not provide sufficient funds to pay that higher wage, since section 2810 imposes nothing more than compliance with legal requirements.

Slip op., at 14.  (Note: Earlier in the opinion the Court clarified that "minimum wage" would depend upon the industry and wage order at issue in a particular case.)  While this soundbite quote seems clear enough, the opinion goes on for pages, reviewing legislative history and addressing, in detail, the contentions of the plaintiffs regarding the correct measure of sufficiency of funding.

On the second issue, the Court observed that compliance with all laws sets the standard for compliance, which requires analysis of total labor cost, not just the wage that would be paid to employees:

Because an employer is required to pay all of these costs to comply with applicable laws when employing a laborer, it is appropriate to use the total labor cost, rather than the worker‘s wage, in determining sufficiency under section 2810.

Slip op., at 7.

The second half of the opinion addresses (1) the sufficiency of evidence for summary judgement purposes on the issue of whether specific contracts were sufficiently funded, and (2) some over-reaching pre-emption arguments by Toll Brothers.  If that stuff floats your boat, this is a page turner.

Courts draw lines on scope of statutory rights protected by Labor Code section 226

On one end of the Labor Code section 226 spectrum are the defendants who assert that the "injury" requirement of section 226 is met only when an employee suffers a broken leg as a result of the defective wage statement (this would occur when the statement is printed on stone and delivered by dropping it from a substantial height above the employee, whose legs are restrained in a horizontal position to ensure impact).  On the other end of the spectrum are the few optimistic plaintiff-side firms that argue that any violation of Labor Code section 226(a) requirements is an infringement of a legal right sufficient to entitle the employee to, at minimum, statutory penalty damages.

Jaimez v. DAIOHS USA, Inc., et al., 181 Cal. App. 4th 1286 (February 8, 2010), which is the current standard in California, splits the difference at the very minimal injury level.  Specifically, Jaimez holds: "While there must be some injury in order to recover damages, a very modest showing will suffice."  Jaimez went on to state that '''this lawsuit, and the difficulty and expense [Jaimez has] encountered in attempting to reconstruct time and pay records,' may well be 'further evidence of the injury' he has suffered."  In other words, it takes something, but not much.

Today, in Morgan v. United Retail (July 19, 2010), the Court of Appeal (Second Appellate District, Division Seven) added guidance as to what constitutes valid construction of section 226 requirements, or at least one small part of section 226.  Quickly summarizing the entire opinion, the Court said:

On behalf of a class of current and former non-exempt employees, Morgan alleged that United Retail's wage statements failed to comply with section 226, subdivision (a) because they listed the total number of regular hours and the total number of overtime hours worked by the employee, but did not list the sum of the regular and overtime hours worked in a separate line. The trial court granted summary adjudication in favor of United Retail on the section 226 claim. We conclude that the trial court properly granted summary adjudication because United Retail's wage statements complied with the statutory requirements of section 226 by “showing . . . total hours worked.” (§ 226, subd. (a)(2).) We accordingly affirm.

Slip op., at 2.  The Court of Appeal actually went out of its way to analyze the obligations imposed by section 226(a)(2):

Apart from the summary conclusion in Rubin, however, none of the published cases or DLSE opinion letters directly address whether the “total hours worked” component of section 226 may be satisfied by separately listing the total regular hours and the total overtime hours worked during the pay period. (§ 226, subd. (a)(2).) Section 226 itself does not define the terms “showing” or “total hours worked” anywhere in the statute. Yet in construing statutes, we must be mindful that “words are to be given their plain and commonsense meaning.” (Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, 1103.) In other words, we are not free to “give the words an effect different from the plain and direct import of the terms used.” (California Fed. Savings & Loan Assn. v. City of Los Angeles (1995) 11 Cal.4th 342, 349.)

Slip op., at 11.  After much analysis, the Court concluded that summary judgment was correctly granted:  "Consistent with the language of section 226 and the DLSE's May 17, 2002 opinion letter, United Retail's wage statements listed 'the precise, actual number of hours worked' by the employee at each hourly rate of pay in effect during the pay period."  Slip op., at 12.  You can't fault this panel for the work they did, construing statutory language, examining DLSE materials, looking at a wage statement exemplar on the DLSE's website, and analyzing the import of 1984 and 2000 legislation affecting section 226.

Other courts have been drawing their own lines around section 226 claims.  In an unpublished opinion, the Ninth Circuit, in Villacres v. ABM Industries Incorporated (June 17, 2010) (D.C. Case No. 2:07-cv-05327-VAP-OP), while not tackling the extent of injury required to satisfy section 226, was clear that the "intrusion upon the legally protected right" is not, in its view, sufficient to state a claim:

Villacres argued that violations of section 226(a) in and of themselves are injuries sufficient to make section 226(e) relief available to him and his proposed class. This is not how California courts typically have defined “injury.” See Steketee v. Lintz, Williams & Rothberg, 38 Cal. 3d 46, 54 (1985) (“‘Wrongful act’ and ‘injury’ are not synonymous.  The word ‘injury’ signifies both the negligent cause and the damaging effect of the alleged wrongful act and not the act itself.”)(citations omitted); Lueter v. California, 115 Cal. Rptr. 2d 68, 81 (Cal. Ct. App. 2002) (“Although the words ‘injury’ and ‘damage’ often are used interchangeably, a distinction may be made.  ‘Injury’ refers to the fact of harm suffered by the plaintiff due to the defendant’s conduct.  ‘Damages’ refers to the monetary sum that the plaintiff may be awarded as compensation for injury.”). We have no reason to believe that the California Supreme Court would interpret section 226(e) differently. The district court did not err when it held that section 226(e) relief was unavailable to Villacres and his proposed class.

Memorandum, at 3.  It is interesting to note, however, that this panel's construction of the term "injury" is at odds with another Ninth Circuit panel's view on injury, expressed days later.  In Edwards v. First American Title Insurance (9th Cir. June 21, 2010), the Ninth Circuit, in a published opinion, found that "injury" existed in a RESPA case, despite the absence of an overcharge:  "Because the statutory text does not limit liability to instances in which a plaintiff is overcharged, we hold that Plaintiff has established an injury sufficient to satisfy Article III.  Slip op., at 9095.  Applying that same analysis to a 226 claim, once could see that same Edwards panel concluding that the violation of a protected right under 226 causes the necessary "injury" and the alternative damage clause (greater of actual damage or statutory damages) is triggered when no "actual" damage exists.

So the Ninth Circuit has figured out what it thinks the California Supreme Court would do were it faced with the injury issue raised by section 226.

Until the California Supreme Court decides to tell us what it thinks about any of this, we'll have to settle for Jaimez, Morgan, and the Ninth Circuit's prognostications. 

Ninth Circuit finds that propriety of independent contractor status is not well suited to summary adjudication in Narayan v. EGL, Inc.

In Narayan v. EGL, Inc. (July 13, 2010), the Ninth Circuit reviewed a district court order granting summary judgment to defendant EGL, Inc. on the theory that the plaintiffs were independent contractors, not employees as contended in their lawsuit.  After examining choice of law issues, the Court turned to the showing required to obtain summary judgment on the employment-status issue.  In particular, the Court explained the special burdens in this type of action:

There are two special circumstances that are relevant to the application of this standard here. First, under California law, once a plaintiff comes forward with evidence that he provided services for an employer, the employee has establisheda prima facie case that the relationship was one of employer/employee. Robinson v. George, 105 P.2d 914, 917 (Cal. 1940). As the Supreme Court of California has held, “[t]he rule . . . is that the fact that one is performing work and labor for another is prima facie evidence of employment and such person is presumed to be a servant in the absence of evidence to the contrary.” Id. at 916; see also Cristler v. Express Messenger Sys., Inc., 171 Cal. App. 4th 72, 83 (Ct. App. 2009). Once the employee establishes a prima facie case, the burden shifts to the employer, which may prove, if it can, that the presumed employee was an independent contractor. Cristler, 171 Cal. App. 4th at 84 (approving a jury instruction that “[t]he Defendant has the obligation to prove that the Plaintiffs were independent contractors”)

Slip op., at 10078.  The Court then discussed the employment test in California, saying:  "The Supreme Court of California has enumerated a number of indicia of an employment relationship, the most important of which is the 'right to discharge at will, without cause.' Borello, 769 P.2d at 404 (quoting Tieberg v. Unemployment Ins. App. Bd., 471 P.2d 975, 979 (Cal. 1970)).  Slip op., at 10079.  Incidentally, the right to discharge at will is concomitant with, and, to a large extent creates, the right to control.  The Court then listed the many additional employment test factors approved by Borello.  Such multi-factor tests, the Court concluded, don't lend themselves to summary adjudication:

Judge Easterbrook has keenly observed in a case under the Fair Labor Standards Act that:

[i]f we are to have multiple factors, we should also have a trial. A fact-bound approach calling for the balancing of incommensurables, an approach in which no ascertainable legal rule determines a unique outcome, is one in which the trier of fact plays the principal part. That there is a legal overlay to the factual question does not affect the role of the trier of fact.

Sec’y of Labor v. Lauritzen, 835 F.2d 1529, 1542 (7th Cir. 1987) (Easterbook, J., concurring) (internal citations omitted).

Slip op., at 10080-81.  The Court then reviewed the record, criticizing the trial court for not crediting evidence of the right to terminate at will set forth in the contracts between defendant and plaintiffs and other evidence consistent with employment, including the lack of any need for specialized training and the fact that the Internal Revenue Service declared the plaintiffs employees under its multi-factor employment test.

Judge Easterbrook received a number of nods from the Court.  In describing the policy goals of wage & hour statutes, the Court said:

As Judge Easterbrook observed in a closely analogous context, statutes enacted to confer special benefits on workers are “designed to defeat rather than implement contractual arrangements.” Sec’y of Labor v. Lauritzen, 835 F.2d 1529, 1545 (7th Cir. 1987) (Easterbook, J., concurring).

Slip op., at 10073.  In other words, the protections granted by California's Labor Code are designed, in part, to defeat employer attempts to circumvent them with "independent contractor" agreements. 

Cohen panel tackles Tobacco II again in Princess Cruise Lines, Ltd. v. Superior Court

The Court of Appeal (Second Appellate District, Division Eight) generated a good bit of commentary with their construction of In re Tobacco II Cases, 46 Cal.4th 298 (2009).  Cohen v. DIRECTV, Inc. (October 28, 2009) was discussed in detail on this blog, and The UCL Practitioner had an extensive post as well.  In Princess Cruise Lines, Ltd. v. Superior Court (November 10, 2009), the Second Appellate District, Division Eight tackles reliance and Tobacco II for the second time.  But, in an interesting twist, Cohen receives no mention in this Opinion.

Princess Cruise Lines is, ostensibly, a summary judgment opinion.  Although it is not discussed in any detail, it appears that the summary judgment motion was brought pre-certification.  The Court described the causes of action asserted and the basics of the trial court's ruling:

The plaintiffs, real parties in interest in the proceedings before us, H. Roger Wang and Vivine Wang (from time to time collectively referred to as the Wangs), sued petitioner Princess Cruise Lines, Ltd., over charges added to the price of shore excursions taken during a cruise conducted by petitioner.  The Wangs asserted five causes of action.  The first three were based on Business and Professions Code sections 17200 (first cause of action) and 17500 (second) and on Civil Code section 1750 et seq. (third).  Respectively, these statutes are California’s Unfair Competition Law (UCL), False Advertising Law (FAL) and Consumers Legal Remedies Act (CLRA).  The fourth and fifth causes of action were based respectively on common law fraud and negligent misrepresentation.

Petitioner moved for summary judgment and summary adjudication.  The trial court granted summary adjudication on the fourth and fifth causes of action because the Wangs could not show they relied on petitioner’s alleged misrepresentations.  The trial court, however, denied the motion for summary judgment because it concluded that on the UCL, FAL and CLRA causes of action the Wangs did not have to show that they relied on petitioner’s alleged misrepresentations.

Slip op., at 2.  After summarizing the discovery in the action and the trial court's rulings, the Court of Appeal discussed the issue of reliance in UCL and CLRA actions:

The court in Tobacco II first concluded that only the class representatives must meet the standing requirement under California’s UCL.  The court then proceeded to the next topic, which was “the causation requirement for purposes of establishing standing under the UCL, and in particular what is the meaning of the phrase ‘as a result of’ in [Business and Professions Code] section 17204?  We conclude that a class representative proceeding on a claim of misrepresentation as the basis of his or her UCL action must demonstrate actual reliance on the allegedly deceptive or misleading statements, in accordance with well-settled principles regarding the element of reliance in ordinary fraud actions.”  (Tobacco II, supra, 46 Cal.4th 298, 306.)

There are two aspects to this holding.  First, it is very clear that reliance is required in a UCL action.  Second, it is also clear that this is true of UCL actions involving some form of fraud, but not all UCL actions.  As the court put it:  “We emphasize that our discussion of causation in this case is limited to such cases where, as here, a UCL action is based on a fraud theory involving false advertising and misrepresentations to consumers.  The UCL defines ‘unfair competition’ as ‘includ[ing] any unlawful, unfair or fraudulent business act or practice . . . .’  ([Bus. & Prof. Code,] § 17200.)  There are doubtless many types of unfair business practices in which the concept of reliance, as discussed here, has no application.”  (Tobacco II, supra, 46 Cal.4th 298, 325, fn. 17.)

Slip op., at 6-7.  Unlike Cohen, this Opinion presents as an effort to identify specific circumstances where it is valid to consider reliance in a UCL claim, using Tobacco II.  In fact, its almost as if the Court was sensitive to potential fallout from describing Tobacco II as irrelevant.  

In any event, the Court then, as one would expect in a summary judgment analysis, focused on the evidence presented by the plaintiffs:

The problem, from a pragmatic perspective, with the Wangs’ contentions about reliance is that it made no difference to them how much the excursions cost.  As Vivine Wang put it in her deposition, she told her travel agent that she wanted to go on the same excursions that her traveling group had booked and that “I want to go on the shore excursion . . . whatever it cost [sic].  It’s fine.”  At the threshold, therefore, it must be said that there was no reliance, i.e., the Wangs would have gone on the excursions whatever the price was and without reference to anything petitioner said or did in connection with the excursions.  It therefore follows that it is immaterial how the Wangs heard about the excursions and what, if anything, petitioner said or wrote about the excursions.

It must also be said that we are not inclined to ignore the Wangs’ repeated admissions that they had no contact with petitioner and received nothing from the petitioner.

Slip op., at 8.  The Court does its best to circumvent the reliance questions it raised in Cohen by citing Tobacco II for the contention that there is a limited area under the UCL where reliance can be an element of the claim, followed by a finding that the record contains admissions of absolutely no reliance.

Next, the Court issued an interesting holding that the Tobacco II discussion about reliance in certain limited situations in UCL cases applies to CLRA actions as well:

Civil Code section 1780, subdivision (a) provides:  “Any consumer who suffers any damage as a result of the use or employment by any person of a method, act, or practice declared to be unlawful by Section 1770 may bring an action against that person to recover or obtain any of the following:  [listing generic types of recoveries].”  (Italics added.)

It appears that the analysis of the phrase “as a result” found in Tobacco II, supra, 46 Cal.4th 298, 324-326, applies to this phrase in Civil Code section 1780, subdivision (a), which means that reliance is required for CLRA actions, with the limitations noted in Tobacco II.

Slip op., at 11-12.

So, if Cohen is enough of a lightning rod to elicit review, this one may escape that same fate.

Today's lessons from the Court of Appeal: things not to do

Complex litigation and civil procedure frequently intersect, probably because everyone is scrutinizing every crossed T and dotted I in high stakes litigation.  Today, the Court of Appeal (Second Appellate District, Division Six) offers not one, but two procedural lessons that are at least as likely to arise in complex litigation matters as they are in the simplest of civil actions.

Our first of two lessons comes from Alvis v. County of Ventura (October 20, 2009).  If you have an expert, and he writes a report, and you try to oppose summary judgement with an expert declaration that contradicts his own prior report on a material point, make sure he explains why he changed his tune:

Most significantly, Singh's declaration asserts that the slide started at the bottom of the cliff when the wall failed. This directly contradicts his prior statement in a report to an insurance company that "[f]ailure started as a landslide in the upper reaches and then flowed at a rapid rate down to the developed area below." This is not a minor point. Singh's statement that the slide started in the upper reaches of the cliff directly undercuts the premise on which his entire declaration is based. Yet, Singh offers no explanation.

Slip op., at 15.  If the expert had provided a credible explanation for why he altered his opinion, it might have made it past the summary judgment stage.

The next lesson is as much for arbitrators as it is for parties to litigation.  Burlage v. Superior Court (Spencer) (October 20, 2009) observes that "[i]t is not often that a trial court vacates an arbitration award and an appellate court affirms the order."  Slip op., at 1.  Since Moncharsh v. Heily & Blase, 3 Cal. 4th 1 (1992), lower courts have struggled to define the limited circumstances when a trial court can properly review an arbitration award.  Burlage concludes that one such circumstance arises when the arbitrator excludes material evidence, denying one contracting party the benefit of the arbitration bargain:  "The parties to an arbitration have bargained for a final and binding decision.  (Moncharsh v. Heily & Blase, supra, 3 Cal.4th at p. 10.) But without the opportunity to present material evidence, Spencer did not receive the benefit of that bargain."  Slip op., at 7.  Notably, there is a dissent, which argues, in substance, that the exclusion of evidence followed a ruling of law that the evidence was inadmissible, and the accuracy of that ruling cannot be reviewed by the trial court.

Credit goes to Presiding Justice Gilbert for both opinions.