Arechiga v. Dolores Press, Inc. provides controversial construction of Labor Code section 515

Labor Code section 515, subdivision (d) provides: "For the purpose of computing the overtime rate of compensation required to be paid to a nonexempt full-time salaried employee, the employee's regular hourly rate shall be 1/40th of the employee's weekly salary."  In Arechiga v. Dolores Press, Inc. (February 7, 2011), the Court of Appeal (Second Appellate District, Division Eight) considered whether section 515(d) effectively eliminated "explicit mutual wage agreements" for non-exempt employees.  The Court concluded that section 515(d) did not void such agreements, rejected the DLSE's conclusion on that issue, and affirmed a questionable interpretation of section 515 that will allow employers to circumvent California overtime laws and use a system more like that available under federal law.

Plaintiff and employer entered into a written agreement that plaintiff would receive a salary of $880.00 a week as a janitor.  Plaintiff worked 66 hours per week (11 hours per day, six days per week).  Upon termination, plaintiff sought unpaid overtime.  The trial court found that plaintiff's regular hourly wage was $11.14 and his overtime wage was $16.71.  The trial court credited some testimony that this hourly wage was communicated to plaintiff and found that plaintiff was adequately paid.  The trial court also found that all elements of an explicit mutual wage agreement were satisfied.  Note: acording to authority from before the enactment of section 515, an explicit mutual wage agreement “requires an agreement which specifies the basic hourly rate of compensation upon which the guaranteed salary is based before the work is performed, and the employee must be paid at least one and one-half times the agreedupon rate for hours in excess of forty.”  Ghory v. Al-Lahham, 209 Cal. App. 3d 1487, 1491 (1989).

The Court of Appeal agreed with the trial court's application of the explicit mutual wage agreement doctrine, saying "Arechiga cites no case law supporting his assertion that Labor Code section 515, subdivision (d) abolished explicit mutual wage agreements."  Slip op., at 7.  Immediately thereafter, in a footnote, the Court said, "Appellant's reliance on the Enforcement Policies and Interpretations Manual of the Division of Labor Standards Enforcement is unavailing because regulators did not properly adopt it, making it non-binding on courts."  Slip op., at 7, n. 5.  The Manual states:

In the past, California law has been construed to allow the employer and the employee to enter into an explicit mutual wage agreement which, if it met certain conditions, would permit an employer to pay a salary to a non-exempt employee that provided compensation for hours in excess of 40 in a workweek. (See, Ghory v. Al-Lahham[, supra,] 209 Cal.App.3d 1487[]). Such an agreement (backing in the regular rate) is no longer allowed as a result of the specific language adopted by the Legislature at Labor Code § 515(d). To determine the regular hour rate of pay for a non-exempt salaried employee, one must divide the weekly salary paid by no more than forty hours.

Slip op., at 7, n. 5, quoting Manual.  The Court relied, instead, on jury instruction citing to a pre-section 515 opinion and federal court opinions about California law (which, incidentally, are entitled to as little deference as the DLSE, and probably less, given that the DLSE's expertise in the area is entitled to some consideration).  In other words, the Court criticized plaintiff's lack of "authority" to support the proposition that explicit mutual wage agreements for non-exempt employees are now invalid, but the Court identified no controllling authority to controvert the plain language of section 515(d).

Most of the remainder of the opinion deals with various evidentiary rulings at trial.  Those don't concern me for purposes of this post.  What does trouble me is the potential for decisions like this to offer judicial roadmaps for how to "back in a regular rate" and avoid what, in my view, is a clear and unambiguous statutory provision.  Under this construction, employers could, after the fact, claim that an employee was "shown" a basic hourly wage.  So long as that alleged hourly wage was above the minimum wage, the employer could justfy, ex post facto, any salary that equaled the reverse engineered wage and overtime calculation.  Section 515 is inconsistent with cases decided prior to its enactment.

Courts shouldn't be legislating, whether they agree with the policy goals of the legislation or not.  It's not like the Court was asked to consider a constitutional challenge to a law or something.  All it had to do was decide whether a trial court correctly applied a simple statute to some facts.  The Court blew it.

Your first taste of Brinker in 2011, compliments of Hernandez v. Chipotle

On January 26, 2011, the Supreme Court held a weekly conference.  Of particular note was the "GRANTED and Held" Order in the matter of Hernandez v. Chipotle Mexican Grill, Inc.  Hernandez was striking for how vehemently it ignored Jaimez when it chose to follow the most anti-employee decisions of various federal courts and then enunciate a meal period standard that is the functional equivalent of the standard applicable to rest breaks.  See prior blog post here.  Maybe it means nothing at all other than the Supreme Court doesn't want published meal period cases floating around while Brinker is pending.  Or maybe the Supreme Court is close to the finish line on Brinker and views Hernandez as inconsistent with its intended holdings.

Update on 2011-02-03 07:07 by The Complex Litigator

I wasn't prepared at the time, but now I am ready with my Brinker-Watch 2011 tile.  Look for this tile to alert you to breaking Brinker news.  After all, it's just about time for the Supreme Court to announce its March calendar...

Order from In re Wal-Mart Stores, Inc. Wage and Hour Litigation highlights need to support incentive award requests with detailed facts when the requested award is substantial

Untited States District Court Judge Saundra B. Armstrong (Northern District of California) granted in part and denied in part the unopposed motion of plaintiffs for an award of incentive payments and attorney's fees.  In re Wal-Mart Stores, Inc. Wage and Hour Litigation, 2011 WL 31266 (N.D.Cal. Jan. 05, 2011).  Counsel requested 33.3% of the maximum settlement amount of $86 million.  The Court agreed that a departure from the 25% benchmark in the Ninth Circuit was appropriate but not to that degree.  The Court awarded a fee equal to 27% of the maximum settlement amount.

On the requested enhancement awards, the Court said:

Upon review of the record in this case, the Court finds that Plaintiffs are entitled to a reasonable incentive payment. However, the Court finds the requested award of $25,000 per named Plaintiff to be excessive, in view of the nature of their assistance in this case.  First, the Court notes that the named Plaintiffs have not indicated in their declarations the total number of hours they spent on this litigation. Rather, they generally explain that they were deposed, responded to written discovery, and assisted and met with counsel. Second, in arguing that $25,000 is an appropriate award, Plaintiffs cite to cases that are clearly distinguishable. For instance, in Brotherton v. Cleveland, 141 F.Supp.2d 907 (S.D.Ohio 2001), the court awarded $50,000 to a single named plaintiff, finding that “she has spent approximately 800 hours working on this litigation.” Id. at 914. By contrast, here, there is no evidence that the named Plaintiffs' involvement reached anywhere near this level.

Slip op., at 4.  The Court awarded $5,000 to each plaintiff.

District Court (N.D. Cal.) denies motion for class certification in wage & hour suit against Crab Addison, Inc.

United States District Court Judge Phyllis J. Hamilton (Northern District of California) denied plaintiff's motion to certify a class action against the famous defendant, Crab Addison, Inc. (which was responsible for the state appellate decision regarding class member contact information).  Washington v. Joe's Crab Shack, 2010 WL 5396041 (N.D. Cal. Dec. 23, 2010).  The order suggests that the defendant opposed every aspect of certification, even challenging the adequacy of class counsel, which isn't a major issue in most certification motions:

Crab Addison also asserts that plaintiff's counsel are not adequate, claiming that they “neglected” the case and repeatedly missed critical deadlines. The court finds, however, that plaintiff's counsel are experienced in class actions, including employment-related class actions. The record submitted by Crab Addison does not support a finding that plaintiff's counsel do not satisfy the requirements of Rule 23(a)(4).

Slip op, at 8.  Instead, the Court focused on the predominance requisite, finding that individualized issues predominated.

Legislature was constitutionally authorized to vest in IWC the power to impose minimum wage law requirements on public school districts

Plaintiff James Sheppard was a part-time instructor employed by defendant North Orange County Regional Occupational Program ("NOCROP").   NOCROP was created by four public school districts NOCROP is a regional occupational program established by one or more public school districts under Education Code section 52301.   During his employment, Sheppard was required to spend 20 minutes of unpaid time preparing for every hour he spent teaching. Sheppard sued NOCROP and sought compensation for his unpaid preparation time by asserting claims for violation of the minimum wage law, pursuant to the Industrial Welfare Commission's (IWC) wage order No. 4-2001 (Wage Order No. 4-2001) and Labor Code section 218, breach of contract, and quantum meruit.  To summarize a somewhat more complicated procedural history, the trial court effectively granted a motion for judgment on the pleadings, finding that neither "the wage order relied upon by the Plaintiff nor the implementing Labor Code sections expressly, or by necessary implication, obligate Defendant to pay Plaintiff hourly wages for  'preparation time' beyond the hourly wages mandated by Education Code section 45025."

In Sheppard v. North Orange County Regional Occupational Program (December 23, 2010), the Court of Appeal (Fourth Appellate District, Division Three) held that "(1) by its terms, the minimum wage provision contained in Wage Order No. 4-2001 applies to Sheppard‟s employment with NOCROP; (2) the Legislature authorized the IWC to so extend the application of the minimum wage law to apply to certain public employees; and (3) the Legislature has plenary authority over public school districts in California and was not otherwise barred by the state Constitution from requiring school districts to comply with the minimum wage provision of Wage Order No. 4-2001."  Slip op., at 9.

The Court began its analysis by interpreting Wage Order 4-2001 and Labor Code section 1173.  The Court examined the sovereign powers immunity and the broad reach of employment statutes and regulations.  The Court then read Wage Order 4-2001 to impose, in clear terms, the minimum wage requirements to employees of the State or any political subdivision of the State.  Next, the Court rejected NOCROP's argument that the IWC exceeded its authority when it issues a Wage Order purporting to regulate public employees.  The Court concluded that the IWC was authorized to do so by the Legislature, which itself assumed that it had conferred such power on the IWC when it enacted Labor Code section 512.5 in 2003.

Looks like part time instructors stand to recover a good deal of unpaid wages for their uncompensated preparation time.

Second Court of Appeal holds that PAGA penalties are available for certain wage order violations

In Bright v. 99¢ Only Stores, 189 Cal. App. 4th 1472 (2010), on an issue of first impression, the Court of Appeal (Second Appellate District, Division Five) held that (1) violations of Wage Order No. 7, subdivision 14 are violations of section 1198; and (2) civil penalties under section 2699, subdivision (f) are available despite the fact that Commission wage order No. 7-2001 has its own general penalty provision.  (Discussed on this blog, in a very serious post, here.)  In other words, PAGA penalties are available for wage order violations, at least as far as the adequate seating requirement is concerned.  But when a Court of Appeal tackles a question of first impression, you always have to wonder whether that holdling to stand up over time.  Today, in Home Depot U.S.A., Inc. v. Superior Court (December 22, 2010), the Court of Appeal (Second Appellate District, Division Four) agreed with their fellow justices from Division Five and held that (1) violations of a Wage Order are violations of section 1198; and (2) civil penalties under section 2699, subdivision (f) are available unless some other penalty is specifically provided for in the Wage Order.

At this point, the best business opportunity in California would be small footprint stools that can fit behind registers at retail stores.

Court certifies wage statement, late pay claims for 20,000 seasonal tax preparers working for H & R Block in California

United States District Court Judge Susan Illston (Northern District of California) certified a class action alleging violation of Labor Code §§ 203, 226 and 2699.   Lemus v. H&R Block Enterprises, LLC (N.D. Cal. December 7, 2010).  It appears from the decision that the case was trimmed down from a broader set of claims; a Fourth Amended Complaint was filed by stipulation of the parties after the motion for certification was filed.  The Court's fairly simple discussion suggests that the Court viewed these statutory violations as well-suited to class treatment.  It is interesting to see that, thus far, most plaintiffs are apparently avoiding the uncertainty of pursuing a representative action under PAGA by simply certifying that claim along with other claims.

Mileage reimbursement class certified in part; class definition corrected by Court

United States District Court Judge Susan Illston (Northern District of California) certified in part a class action alleging the failure to reimburse work-related mileage expenses.  Wilson v. Kiewit Pacific Co. (N.D. Cal. December 6, 2010).  As an initial matter, the Court refused to certify a class of "all" employees, noting that it was overbroad:

As an initial matter, plaintiff cannot seek to certify a class of “all current and former” California employees of defendant from July 6, 2006 to present. Motion at 3; Reply at 3-4. On its face, that definition is impermissibly overbroad as it includes employees who never incurred unreimbursed business mileage expenses under California law.

Slip op., at 3.  Next, the Court observed that the plaintiff did not submit evidence demonstrating that the Northern California district was operated under the same policies as the Southern California District.  The Court found the plaintiff inadequate to represent the Northern California District employees on the basis of thin evidence of any uniform policy that was actionable.

With respect to the Southern California District, the Court agreed with the defendant that the plaintiff's proposed class definition was problematic, but not for the reason argued:

The Court agrees that there is a problem with the way plaintiff has proposed to define this particular subclass, but not the ascertainability problem defendant asserts. Instead, plaintiff's proposed definition-all Southern California district employees who drove their non-company owned vehicles “over” 25/35 miles-would seem to include only those who received some reimbursement under defendant's policy and not those employees who drove under 25/35 miles but were nonetheless owed reimbursement for non-commute time under plaintiff's theories. The Court doubts plaintiff intended to exclude those employees from the proposed class.

Slip op., at 7.  The Court then revised the class definition, declaring it ascertainable and better defined:

All of defendant's past and present non-union employees working in the Southern California district at any time from July 6, 2005 to present who were not reimbursed for non-commute mileage expenses incurred in using personal vehicles to travel to off-site meetings or trainings.

Slip op., at 7.  This, in particular is very helpful to litigants.  It demonstrates an engaged Court that has provided a concrete example of how to refine and improve a class definition.

The Court found unpersuasive the defendant's argument that some class members had individual deals in place to get company cars.  The Court finished by offering some comments about the obligation to supplement witness lists provided with initial disclosures, finding that those concerns were not at issue due to the rapidly shifting nature of the plaintiff's claims.

Certiorari granted by United States Supreme Court in Wal-Mart v. Dukes

On December 6, 2010, the United States Supreme Court granted certiorari in what will eventually be known as Wal-Mart v. Dukes.  The Supreme Court limited review to two issues, Question I from the Petition, and a second issue included by the Court.  The Court said:

The petition for a writ of certiorari is granted limited to Question I presented by the petition. In addition to Question I, the parties are directed to brief and argue the following question: "Whether the class certification ordered under Rule 23(b)(2) was consistent with Rule 23(a)."

Question I from the Petition is as follows:

Whether claims for monetary relief can be certified under Federal Rule of Civil Procedure 23(b)(2)—which by its terms is limited to injunctive or corresponding declaratory relief—and, if so, under what circumstances.

Petition, at i.  The Court declined to hear Question II, which asked, "Whether the certification order conforms to the requirements of Title VII, the Due Process Clause, the Seventh Amendment, the Rules Enabling Act, and Federal Rule of Civil Procedure 23."

This decision could run the gamut from a highly fact-specific outcome, to a treatise on discrimination class actions, to a wholesale commentary on the Rule 23(a) requisites.  Considering the scope of issues covered in the Dukes v. Wal-Mart en banc decision, it's very difficult to handicap this race.

California Supreme Court activity for the week of November 29, 2010

The California Supreme Court held its (usually) weekly conference on December 1, 2010.   Notable results include:

• On a Petition for Review, review was denied in Fisher v. DCH Temecula Imports (August 13, 201), mentioned briefly on this blog here.  [Class action ban in arbitration provision unconscionable.]   Interestingly, the California Supreme Court recently denied review in Walnut Producers v. Diamond Foods (August 16, 2010), which upheld an order striking class allegations pursuant to a class action ban in an arbitration provision.
• On a Petition for Review, review was denied in Fireside Bank Cases (pub. August 25, 2010).  [Res judicata issues in UCL action regarding alleged Rees-Levering violations.]