ZB, N.A., et al. v. Superior Court (Lawson) holds that "wages" are not recoverable as a PAGA penalty through Labor Code section 558

So, it turns out that the answer to my question is GOAT, not goat (he says with tongue planted firmly in cheek). ZB, N.A., et al. v. Superior Court (Lawson) (September 12, 2019) was issued this morning, and, unsurprisingly I think, the Supreme Court dropped an off speed pitch over the plate and froze everybody. You could see the windup with the italics added by the Court to this passage:

Before the enactment of the PAGA, section 558 gave the Labor Commissioner authority to issue overtime violation citations for “a civil penalty as follows: [¶] (1) For any initial violation, fifty dollars ($50) for each underpaid employee for each pay period for which the employee was underpaid in addition to an amount sufficient to recover underpaid wages. [¶] (2) For each subsequent violation, one hundred dollars ($100) for each underpaid employee for each pay period for which the employee was underpaid in addition to an amount sufficient to recover underpaid wages.” (Id., subd. (a), italics added.)

Slip op, at 1-2. See that? It’s the tell for what’s coming:

What we conclude is that the civil penalties a plaintiff may seek under section 558 through the PAGA do not include the “amount sufficient to recover underpaid wages.” Although section 558 authorizes the Labor Commissioner to recover such an amount, this amount –– understood in context –– is not a civil penalty that a private citizen has authority to collect through the PAGA. ZB’s motion concerned solely that impermissible request for relief. Because the amount for unpaid wages is not recoverable under the PAGA, and section 558 does not otherwise permit a private right of action, the trial court should have denied the motion. We affirm the Court of Appeal’s decision on that ground. On remand, the trial court may consider striking the unpaid wages allegations from Lawson’s complaint, permitting her to amend the complaint, and other measures.

Slip op., at 2-3. So that’s it then.

There is, of course, a bit more, given that the Opinion is 30 pages long, but after the procedural history, the balance of the discussion is a detailed example of statutory construction. For instance, the Court finds that the wages referred to in Section 558 must be treated as a compensatory wage, else the provision would be internally inconsistent with Section 1197.1. Read it, if for no other reason than to see the thoroughness with which a sentence can be parsed, and persuasively I might add.

The Court was unanimous in its decision.

It isn’t entirely clear who you would call the “winner” here, given the disconnect between affirming the Court of Appeal and the practical result, but James L. Morris, Brian C. Sinclair and Gerard M. Mooney, of Rutan & Tucker, represented the Petitioners, who no longer have to deal with the potential for an award of unpaid wages as part of Section 558 penalties under PAGA.

Schachter v. Citigroup, Inc. holds that forfeiture of restricted stock shares during restriction period does not run afoul of Labor Code section 201, 201 and 219

Nothing all that exciting here, but in Schacter v. Citigroup, Inc. (November 2, 2009), the California Supreme Court examined a voluntary employee incentive compensation plan that provided employees with shares of restricted company stock at a reduced price in lieu of a portion of the employee's annual cash compensation.  Under the program, if an employee resigns or is terminated for cause before their restricted shares of stock vest, the employee would forfeit the stock and the portion of cash compensation they directed be paid in the form of the restricted stock.  The Supreme Court considered whether the "incentive plan's forfeiture provision violates Labor Code sections 201, 202, and 219, which provide that employees be paid all earned, unpaid wages upon termination or resignation and prohibit agreements that purport to circumvent that requirement."  Slip op., at 1.

The plan worked as follows:

Under the Plan, eligible employees could elect to receive awards of restricted company stock “in lieu of cash payment of a percentage of the employee‟s annual compensation.” Participating employees could elect to receive 5, 10, 15, 20, or 25 percent of their “total compensation in the form of restricted stock.” To participate in the Plan for the following calendar year, an employee had to execute a “Capital Accumulation Plan Election to Receive Restricted Stock” form at the end of the current calendar year indicating the amount of “total compensation in the form of restricted stock” he or she wished to receive. The percentage of “total compensation” received as restricted stock could be different for the first and second six-month periods of the year. 

Restricted stock could not be sold, transferred, pledged, or assigned for a two-year period commencing on the date of the award; however, the Plan provided that participating employees “shall have the right to direct the vote” and “receive any regular dividends on restricted stock shares” during the restricted period.

For purposes of determining the number of shares to be acquired under the Plan, the purchase price of the stock was discounted at a rate of 25 percent of its then-current market price, averaged over the five days preceding the date of the acquisition, to “reflect the impact of the restrictions on the value of the restricted stock, as well as the possibility of forfeiture of restricted stock.” On the date of the purchase, the company either issued stock certificates to a participating employee, to be held by the company until the restricted period lapsed, or made a “book entry” in the company's records evidencing the award. Although a participating employee could elect to pay taxes on the restricted stock when the stock was purchased (see 26 U.S.C. § 83), “the participating employees' restricted shares [were] not included in the participating employees' gross income for federal tax purposes until the two-year vesting period had expired.”

If an employee remained in the company's employ for the two years following the purchase of restricted stock, title to the shares vested fully with the employee, free of any restrictions. However, if an employee voluntarily terminated employment or was terminated for cause before the end of the two-year period, the employee forfeited his or her restricted stock as well as the percentage of annual income designated by the employee to be paid as shares of restricted stock. In contrast, if an employee was involuntarily terminated without cause, the employee forfeited his or her restricted stock, but received in return, without interest, “a cash payment equal to the portion of his or her annual compensation that had been paid in the form of such forfeited [r]estricted [s]tock.”

Slip op., at 2-3.  The facts surrounding this particular plan's terms made the Court's decision a relatively easy one (or at least a unanimous one):

Schachter voluntarily terminated his employment before his restricted stock fully vested. By the terms of the Plan, and Schachter's own concession, he is not entitled to those unvested shares of restricted stock. Having elected to receive some of his compensation in the form of restricted stock, a transaction he was aware carried risk as well as the potential for reward, Schachter cannot now assert that he should have been paid in cash that portion of his compensation he elected to receive as restricted stock. As the company persuasively argues, Schachter's “bargained-for 'wages' have been paid in full. He received all of his promised cash compensation, received immediately exercisable voting and dividend rights in the restricted stock, and was awarded contingent rights of full ownership in that stock. The only thing that has not been 'paid' is something Schachter never 'earned' — fully vested [company] stock. Schachter therefore has no claim under [section] 201 or [section] 202.”

Slip op., at 13.

I hope we don't see a rash of employers trying to concoct illusory bonus plans or divert vested wages from employees as a result of this plan.  But given some of the crazy attempts that I have seen some employers do to accomplish such purposes, I don't hold out much hope that Schachter won't be misused somewhere by some employer or other.