Are punitive damages available in class actions asserting statutory wage & hour violations? Savaglio v. Wal-Mart may have the answer.

California Punitive Damages has an intriguing post about a pending appeal that could affect punitive damage claims in wage & hour class actions.  (Cutting, Pending Appeal Will Affect Punitive Damages Claims In Wage & Hour Class Actions (May 16, 2008) calpunitives.blogspot.com.)  In an appeal to the First Appellate District, Division Four, Wal-Mart is contesting, among other things, a $115 million punitive damages award by asserting the "new right-exclusive remedy" rule:

“Among the issues that Wal-Mart has raised on appeal is whether California's "new right-exclusive remedy" rule bars the punitive damages award in this wage and hour case. Under this rule, "where a statute creates a right that did not exist at common law and provides a comprehensive and detailed remedial scheme for its enforcement, the statutory remedy is exclusive." (Rojo v. Kliger (1990) 52 Cal.3d 65, 79.) According to Wal-Mart's opening appellate brief, no California appellate cases have upheld an award of punitive damages for any statutory wage and hour claims, and at least three federal district courts have applied the "new right-exclusive remedy" rule to dismiss claims seeking punitive damages predicated on alleged wage and hour violations.

(Ibid.)  So what is the "new right-exclusive remedy" rule you ask?  Tell me about Rojo you say?  You had but to ask.

Claims for unpaid wages provide a good framework for discussion Rojo v. Kliger.  In Rojo v. Kliger (1990) 52 Cal.3d 65 [276 Cal.Rptr. 130] (herinafter Rojo), the plaintiffs sued their former employer for sexual harassment bringing claims under the Fair Employment and Housing Act, Government Code section 12900, et seq. (hereinafter “FEHA”) and for intentional infliction of emotional distress. (Rojo, supra, 52 Cal.3d at p. 71.) The defendant moved for summary judgment based on the claim that FEHA constituted the plaintiffs exclusive remedy and that plaintiffs had failed to exhaust their administrative remedies. (Ibid.) After a lengthy analysis, the California Supreme Court found that FEHA did not provide plaintiffs’ sole remedial option for their claims. (Id. at pp. 73-82.)

In doing so, the court addressed and rejected the defendant’s attempted reliance on the “new right-exclusive remedy” rule of statutory construction, in favor of the “preexisting right-cumulative remedies” rule, the rule also relied upon by Plaintiffs in this matter. (Rojo, supra, 52 Cal.3d at pp. 79-80.) As the Rojo court recognized, the “new right-exclusive remedy” rule dictates that “where a statute creates a right that did not exist at common law and provides a comprehensive and detailed remedial scheme for its enforcement, the statutory remedy is exclusive.” (Ibid.)

On the other hand, the “preexisting right-cumulative remedies” rule states that “where a statutory remedy is provided for a preexisting common law right, the newer remedy is generally to be cumulative, and the older remedy may be pursued at the plaintiff’s election.” In applying these competing concepts, the court determined that FEHA did not provide the plaintiffs’ sole remedy for at least two reasons. (See Rojo, supra, 52 Cal.3d at pp. 79-80.) First, the court relied on the plain and unmistakable language of FEHA which expressly disclaimed any intent to repeal other state laws (including the common law) relating to discrimination. (Id. at pp. 79-80 [referring back to its earlier discussion wherein the court determined that state law included the common law].) Second, the court determined that the “preexisting right-cumulative remedies” rule applied because it has been long recognized that “the common law provides for a variety of means independent of FEHA or its predecessor, the FEPA, to redress injuries arising from discrimination in employment.” (Ibid.)

This same logic applies to, for example, at least some claims arising under the Labor Code, particularly for recovery of wages and other benefits previously available by contact between the employer and employee. It is well established that “[u]nder the Labor Code ‘if an employer fails to pay wages in the amount, time or manner required by contract or by statute . . . The employee may seek judicial relief by filing an ordinary civil action against the employer for breach of contract and/or for the wages prescribed by statute.’” (Sampson v. Parking Service 2000 Com, Inc. (2004) 117 Cal.App.4th 212, 218, 220 [11 Cal.Rptr.3d 595] (hereinafter “Sampson”).) Courts have recognized this rule even more recently in holding that an aggrieved employee can, in fact, bring an action for unpaid wages under a breach of contract theory. (On-Line Power, Inc. v. Mazur (2007) 149 Cal.App.4th 1079 (herinafter “Mazur”).) Relying on the California Supreme Court’s statement in Smith v. Rae-Venter Law Group (2002) 29 Cal.4th 345, 350 [127 Cal.Rptr.2d 516] (herinafter “Rae-Venter Law Group”), Mazur upheld the employee’s right to sue for unpaid wages under both a breach of contract and statutory theory. Thus, both the California Court of Appeals and the California Supreme Court have acknowledged, in decisions penned subsequent to Rojo, that an employee’s right to sue for unpaid wages is not limited to an action under the Labor Code. (See Rae-Venter Law Group, (2002) 29 Cal.4th at p. 350; Sampson, (2004) 117 Cal.App.4th at p. 218, 220.)

In Rojo the court determined that the common law provided for claims arising from discrimination, thereby precluding use of the “new right-exclusive remedy” rule. FEHA did not create a new right, but rather codified to some extent and expanded upon to some extent the rights available under the common law. (Rojo, 52 Cal.3d at pp. 79-82.) Thus, the court’s decision rested upon the premise that where a “statutory remedy is provided for a preexisting common law right, the newer remedy is generally to be cumulative.” (See ibid.)

Because claims for wages are based on common law rights in existence prior to California’s Labor Code (indeed they predate the State of California), they were not created by the Labor Code and therefore cannot be precluded by the rule stated (but not applied) in Rojo that where a “statute creates a right that did not exist at common law and provides a comprehensive and detailed remedial scheme for its enforcement, the statutory remedy is exclusive.” (See Rojo, 52 Cal.3d at pp. 79-82.) The Labor Code did not create the right to seek unpaid wages, no matter at what rate those wages are agreed to be paid. This right, the right to enforce contracts for payment in exchange for labor, existed at common law. California courts have repeatedly and consistently recognized this fact as is exemplified in Sampson, Rae-Venter Law Group, and Mazur. As the Rojo court found regarding FEHA, a scheme which merely codified some aspects of common law anti-discrimination provisions, unless the Legislature intends to preempt existing state law (including common law), it does not do so. (Rojo, 52 Cal.3d at p. 82.) The Labor Code demonstrates no Legislative intent to preempt common law contract rights just as FEHA failed to state any intent to preempt common law anti-discrimination rights.

By contrast, Lubner v. Los Angeles (1996) 45 Cal.App.4th 525 [53 Cal.Rptr.2d 24] demonstrates application of the “new right-exclusive remedy” rule. In Lubner, the court addressed the question of whether a plaintiff could pursue a negligence action for damage to reputation, a claim that did not exist at common law but rather one created by the Civil Code. (Lubner, at p. 530.) Under that fact pattern, the "new right" was the only remedy. People v. Carycroft (1852) 2 Cal. 243, as crusty as it may now be, aptly summarizes the distinction, holding that “where a right is given, and a remedy provided by statute, the remedy so provided must be pursued,” but where the “right existed at common law, the plaintiff might pursue either remedy, the statutory one being regarded merely as cumulative. (Carycroft, supra, 2 Cal. at 244.)

So, the $64,000 question (or $115 million question in Wal-Mart's case) is whether punitive damage claims are construed by the Court of Appeal as a distinct, pre-existing right that simply attaches to a variety of claims except where expressly prohibited.  In the alternative, the Court of Appeal could find that puntive damages have no independent existence and simply graft onto, in the Wal-Mart case, statutory remedies that are construed as "new rights" that did not exist in the common law.

Whatever the case, the result will likely be overstated.  The Wal-Mart case involves missed or late meal period premiums.  The analysis of whether punitive damages are available in a meal period case is significantly different from other wage & hour claims, such as the wage claim example discussed above.  In addition, the analysis will need to incorporate any provisions in the Labor Code that describe remedies as cumulative.

California Punitve Damges routinely offers serious food for thought, and this is no exception.  I will be watching this case develop with some interest.

Didn't I say something about putting up shorter posts this week?  Just checking.