Posts belonging to Category PAGA

Complaining that California “leads the field” in circumventing United States Supreme Court’s pro-arbitration precedent Concepcion, Prudential Overall Supply petitioned for certiorari on August 15, 2017, seeking review of California’s Fourth Appellate District’s ruling that claims under California’s Private Attorneys General Act (“PAGA”) cannot be arbitrated. Betancourt v. Prudential Overall Supply, No. E064326 (4th District Div. 2, March 7, 2017) (slip op. available here) (petition for writ of certiorari available here). In April 2015, Betancourt filed a representative action suit solely based on PAGA against his employer, Prudential Overall Supply. Within the single PAGA claim, the plaintiff alleged violations of overtime and minimum wage law, meal and rest period requirements, timely pay and final pay requirements, and recordkeeping and wage statement requirements, among other claims. In a March 7, 2017 decision, the Court of Appeal affirmed the trial court’s denial of Prudential’s motion to compel arbitration of the plaintiff’s claim for penalties under PAGA. Slip op. at 2.

First, Prudential argued that Betancourt had already agreed to arbitrate the PAGA claim and that an arbitrator would decide the scope and application of the agreement. Id. at 10-11. Additionally, Prudential claimed since the “representative claims” portion of the agreement could be severed, Betancourt could be compelled to arbitrate his claims. Id. at 11. Prudential further asserted that if Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 5th 348 (2014), is interpreted as prohibiting arbitration of all PAGA claims, then the state law prohibiting arbitration is preempted by the Federal Arbitration Act (FAA). Id. at 12. Finally, Prudential, citing Sakkab v. Luxottica Retail North America, Inc. (2015 9th Cir.) 803 F.3d 425, contended that California law permits arbitration of PAGA claims. Id. at 12-13. Repeatedly citing Iskanian, the appellate court rejected each of these arguments, holding that Prudential could not “rely on a predispute waiver by a private employee to compel arbitration in a PAGA case, which is brought on behalf of the state . . .” because “[t]he state is not bound by Betancourt’s predispute agreement to arbitrate.” Id. at 8; see also id. at 9-13 (applying Iskanian in greater detail) (internal citations omitted). Further, the Court of Appeal noted that a state rule prohibiting arbitration of PAGA claims is not preempted by the FAA because it falls outside of the scope of the FAA, as PAGA “is not a dispute between an employer and an employee arising out of their contractual relationship. It is a dispute between an employer and the state . . . .” Slip op. at 10 (citing Iskanian, at 386-87, emphasis in original).

The Court of Appeal also rejected the defendant’s other argument, which was based on an alleged defect in the pleadings. The defendant argued that because Betancourt had sought non-PAGA remedies in the prayer for relief, e.g., for unpaid wages, business expenses, interest, and attorney’s fees, in addition to civil penalties, the action was not actually a PAGA action and that the plaintiff was trying to disguise a standard wage-and-hour action in order to evade arbitration. Slip op. at 4, 8-9. Yet, the trial court had found and the appellate court agreed, such a challenge is a challenge against the pleadings, and should have been brought as a motion to strike—not as a motion to compel arbitration. Id. at 9. As the Court of Appeal aptly noted, “Prudential accuses Betancourt of attempting to make an ‘end run around arbitration’ by incorrectly labeling his claims as a PAGA matter. It appears to this court that Prudential may be attempting to make an ‘end run” around a demurrer or motion to strike . . . .” Id. at 9.

Overall, the Court of Appeal’s Betancourt opinion makes a strong case for PAGA claims being inarbitrable, based on the fact that the state—the real party in interest in every PAGA action—is not a party to an employee’s bilateral agreement to arbitrate his or her employment claims, and thus cannot be bound by that agreement. Whether the United States Supreme Court will break its streak of rejecting cert petitions based on PAGA issues in Betancourt remains to be seen.

Authored By:
Jennifer Bagosy, Senior Counsel
CAPSTONE LAW APC

On July 13, 2017, in a unanimous opinion, the California Supreme Court affirmed PAGA plaintiffs’ broad rights to discovery under the Civil Discovery Act. Williams v. Marshalls of CA, LLC, No. S227228 __ Cal.5th __ (July 13, 2017) (slip op. available here) (Mr. Williams is represented by Capstone Law APC). In so doing, California’s highest court reversed the trial court’s imposition of additional restrictions on PAGA discovery. The Williams opinion not only reaffirmed that the right to discovery for all plaintiffs in civil litigation is broad, but also that there is no requirement that plaintiffs make a preliminary showing of “good cause” before being able to obtain contact information of fellow employees.

Williams’ lawsuit alleges that he worked for Marshalls at their store in Costa Mesa, California, as a non-exempt, hourly employee, and asserts only a PAGA claim based on various underlying wage-and-hour violations. Slip op. at 2. Early in the action, Williams had propounded discovery requests seeking, among other pieces of information, the names and contact information for all of Marshalls’ California employees. The trial court mostly denied the request, though it ordered Marshalls to produce the names and contact information for the single store where Williams worked. The trial court further conditioned any renewed discovery motion on Williams sitting for a deposition and making a showing of proof as to the merits of the allegations in his complaint.

Williams filed a petition for a writ, on which the Court of Appeal took full briefing and oral argument.  However, the Court of Appeal ultimately denied Williams’ writ petition, and effectively affirmed the trial court order. The Court of Appeal held that the trial court was within its discretion to deny the discovery Williams sought because Williams had failed to establish “good cause” for the non-party aggrieved employees’ contact information. Slip op. at 4. The Court of Appeal alternatively held that the employees’ privacy interests under the California Constitution were implicated and that, therefore, Williams was required to show a “compelling need” for the discovery. Williams then filed a petition for review, which the Supreme Court granted to decide two issues: (1) whether the plaintiff in a PAGA action is entitled to discovery of the names and contact information of other “aggrieved employees” at the start of the proceeding or whether the plaintiff is initially required to show good cause in order to gain access to that information; and (2) in ruling on such a request for employee contact information, should the trial court first determine whether the employees have a protectable privacy interest and, if so, balance that privacy interest against other interests, or is a protectable privacy interest assumed?

In a unanimous decision, the California Supreme Court reversed the lower court entirely, and issued a broad decision affirming the applicability of the Civil Discovery Act to PAGA cases, further cementing PAGA as a robust vehicle for enforcing the Labor Code. In its decision, the state Supreme Court first clarified the moving party’s burden when moving to compel interrogatory responses. Citing the Civil Discovery Act, the court explained that “a litigant[] is entitled to demand answers to its interrogatories[] as a matter of right, and without a prior showing, unless the party on whom those interrogatories are served objects and shows cause why the questions are not within the purview of the code section.” Slip op. at 6-7 (internal citations omitted).  Thus, it is the burden of the party resisting discovery to justify any objection. Id. at 7.

The court then addressed Marshalls’ objections to the discovery in turn, first looking to the relevance of the information sought by the plaintiff: the identities and contact information of other employees. Relying on opinions issued in putative wage-and-hour class actions, the court explained that “Courts of Appeal have . . . uniformly treated such a request as clearly within the scope of discovery permitted under Code of Civil Procedure section 2017.010.[,]” “an essential first step to prosecution of any representative action.” Slip op. at 9, 11. Marshalls had argued that these principles are not applicable to PAGA actions, relying both on the text of the PAGA statute and on differences between class actions and PAGA actions.  But the state Supreme Court held that there is nothing in the PAGA statute that supports a “heightened preliminary proof requirement,” a requirement which would undermine PAGA’s legislative purpose of advancing the state’s public policy of protecting employees against Labor Code violations in their workplaces. Id. at 13. The court also rejected the argument that the nature of a PAGA action, as opposed to a class action, supports conditioning discovery on a showing of proof. While there are procedural differences between class actions and PAGA actions, the two types of suits also bear some similarities, including overlapping policy considerations such as the robust protection of workers’ rights, which support an equally broad right to discovery. Slip op. at 15.

The California Supreme Court also rejected Marshalls’ objection of “undue burden.” The Code of Civil Procedure does not authorize the trial court to require a showing of proof before ordering discovery “in the absence of any evidence of the burden responding would entail.” Slip op. at 19. Marshalls made no showing of the burden of responding beyond stating the number of employees whose names and contact information were sought. And while the Court of Appeal had “justified the trial court’s good cause requirement” by referring to the rules governing inspection demands, the discovery at issue below were interrogatories, which do not include such a requirement under the Discovery Act. Id. at 19-20. Finally, examining the non-party employees’ constitutional privacy interests, the court explained that the relevant test for evaluating Marshalls’ privacy objection was the Hill test initially applied to the wage-and-hour class action context in Belaire-West Landscape, Inc. v. Superior Court, 149 Cal.App.4th 554. This three-part test requires: (1) a legally recognized privacy interest, (2) a reasonable expectation of privacy in the circumstances, and (3) a serious invasion of privacy. Hill v. National Collegiate Athletic Assn., 7 Cal.4th 1 (1994). If all requirements are met, the court moves on to a balancing test. Here, the court concluded that the second and third requirements were not met. Slip op. at 25-26.

Additionally, the court disapproved of the Court of Appeal’s reliance on other appellate cases that “stand for the proposition that whenever discovery of facially private information is sought, the party seeking discovery must demonstrate a ‘compelling state interest.’” Slip op. at 27. The court explained that a compelling interest is only required to justify “an obvious invasion of an interest fundamental to personal autonomy,” not to lesser interests. Id. at 28. The California Supreme Court disapproved of a long line of cases “to the extent they assume, without conducting the inquiry Hill requires, that a compelling interest or compelling need automatically is required.” Id. at 29, n.8.

The California Supreme Court also disagreed with certain considerations it deemed relevant to the balancing test it performed. The Court of Appeal had bizarrely found the potential for an employer illegally to retaliate against an employee for participating in the lawsuit as weighing against discovery, but the California Supreme Court instead found this to weigh in favor of discovery and in favor of “facilitating collective action so that individuals need not run the risk of individual suits.” Slip op. at 30-31. Further, the Supreme Court disagreed with the Court of Appeal’s indication that discovery should be contingent on a showing of a uniform, companywide policy, explaining that a uniform policy is not a condition for discovery—nor even for eventual success—in a PAGA action, although the court did note that Williams had, in fact, submitted documents purporting to describe the company’s uniform, unlawful statewide meal and rest period policies. Id. at 32, n.9.

With the Williams ruling, PAGA plaintiffs’ broad rights to discovery have been affirmed. The California Supreme Court also emphasized that the “facts and theories” that must be included in PAGA notice letters to the LWDA need only satisfy a low bar of “nonfrivolousness,” a minimal threshold that exists merely to afford the LWDA an opportunity to decide whether to allocate its resources to investigating the claims and the employer a chance to submit a response to the agency.

Authored by:
Katherine Kehr, Senior Counsel
CAPSTONE LAW APC

McDonald’s Restaurants of California (McDonald’s) operates over 100 corporate-owned fast food restaurants in California. Recently, McDonald’s has been embroiled in wage-and-hour litigation in California over its timekeeping and pay practices. See Sanchez, et al. v. McDonald Restaurants of California, et al., No. BC499888 (April 20, 2017, Los Angeles County Superior Court) (slip op. available here). The Sanchez litigation was brought because McDonald’s had configured its electronic timekeeping system to attribute all hours worked by a class member on a specific shift to the date on which the shift began rather than the date on which the work was actually performed. Slip op. at 2. For example, if an employee worked an overnight shift that began at 10:00 p.m. on December 28, 2013, and ended at 6:00 a.m. on December 29, 2013, and then worked another shift on December 29, 2013, that began at 2:00 p.m. and ended at 10:15 p.m., McDonald’s timekeeping software would attribute all eight hours of compensable time to the payroll date December 28, 2013, and the remaining 8.25 hours for December 29, 2013, resulting in just .25 hours of overtime work on December 29, 2013.

California Labor Code sections 510 and 500(a) require employers to pay an overtime premium of one and one-half times the employee’s regular rate of pay for “any work in excess of eight hours in one workday [defined as ‘any consecutive 24 hour period commencing at the same time each calendar day’]” and twice the employee’s regular rate of pay for “any work in excess of 12 hours in any one day [also defined as ‘any consecutive 24 hour period commencing at the same time each calendar day’.” (Emphasis added.) The Sanchez plaintiffs contended that McDonald’s timekeeping practice resulted in the failure to pay overtime to class members who worked an overnight shift followed by another shift the next day and who work more than eight hours in a 24-hour period. To illustrate, in the example above, if the hours worked were attributed to the day on which they were actually worked rather than the day on which the employee’s shift began, the employee would have worked 14.25 hours on December 29, 2013, which would have resulted in 4 hours of overtime and 2.25 hours of double-time for the hours worked in excess of 12 hours/day. This wage difference can be very meaningful to a typical McDonald’s employee who works at or near minimum wage.

In August 2016, the Sanchez court certified an “overtime subclass” defined as:

All class members who worked a shift that began on one calendar day and ended the next 10 calendar day parentheses an overnight shift) followed by a shift that began on the same calendar day as the overnight shift ended who were not paid all overtime for all time worked in excess of eight hours in a 24 hour period.

Slip op. at 1. The plaintiffs then moved for summary adjudication as to the issue of McDonald’s liability on the overtime cause of action. In opposing the motion, McDonald’s admitted that all the overtime subclass members experienced at least one week during which they recorded a shift that began on one calendar day and ended on the next calendar day, followed by a shift that began on the same calendar day the overnight shift ended, and were paid regular wages for hours that McDonald’s would have paid their overtime or double-time hours if McDonald’s had calculated their hours by reference to a calendar date.

On April 20, 2017, Judge Ann Jones of the Los Angeles County Superior Court granted summary adjudication against McDonald’s. In the ruling, the court cited Jakosalem v. Air Serv Corporation (N.D. Cal. Dec. 15, 2014, No. 13-CV-05944-SI), which held that “overtime calculations should be based on the amount of work completed by an employee during any single twenty-four hour workday period regardless of whether the employee works continuously through the day to divide.” Sanchez, at 4.

In crafting her ruling, Judge Jones also addressed McDonald’s claim that a workday need not be a calendar day and, in fact, McDonald’s set its workdays to start at 4:00 a.m. and end at 3:59 a.m. The problem, however, was that McDonald’s did not calculate overtime based on that workday. The court commented at the hearing that whether McDonald’s started its workday at 4 a.m. or midnight or another time was an “argument for another day,” because it would affect only damages in the case, not the fact that McDonald’s was liable for unpaid overtime. Law360.com, “McDonald’s Loses Calif. OT Fight, Queuing Up Damages Trial,” https://www.law360.com/articles/915697/(last accessed May 19, 2017). The court also overruled McDonald’s argument that it had substantially complied with California Labor Code section 510. The court found that the authority cited by McDonald’s only mentioned the “substantial compliance” doctrine in connection with Labor Code section 226(a), and that there is no authority for the “substantial compliance” doctrine applying to section 510.

The class action jury trial began last Tuesday, May 23, 2017, to determine what damages McDonald’s must pay to a class of nearly 14,000 employees and the related question of whether the company willfully skirted overtime law so as to entitle the employees to “waiting time” penalties under Labor Code section 203. This class trial should be manageable given that the underpayment of overtime wages and interest can be easily recalculated by an expert from the time punch records. Additional remedies would include interest, attorneys’ fees, and civil penalties under California’s Private Attorneys General Act. The trial is scheduled to conclude this Friday.

Authored By:
Robert Drexler, Senior Counsel
CAPSTONE LAW APC

The 2nd District Court of Appeal recently affirmed a ruling by Los Angeles Superior Court Judge Jane Johnson in Perez v. U-Haul Co. of California, denying the defendant company’s move to compel its workers to arbitrate their representative Private Attorney General Act claims for wage-and-hour violations. Perez, No. B262029 (2nd Dist. Div. 7 Sept. 16, 2016) (slip op. available here). Following the California Supreme Court’s decision in Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348 (2014), the three-judge appellate panel rejected U-Haul’s argument that it could force employees first to arbitrate whether they have individual standing to bring a PAGA claim.

While the California Supreme Court in the prominent Iskanian decision upheld the enforceability of class action waivers, it held that waiver of PAGA claims through a similar “representative action” waiver is unenforceable. In Perez, U-Haul attempted to circumvent this distinction by arguing that the issue of whether the plaintiffs were “aggrieved employees” as defined by the PAGA statute was a severable “threshold question” that should proceed to arbitration first, to determine standing. The appellate court disagreed, stating that “[g]iven that the parties did not agree to arbitrate representative claims, and that a PAGA action is by definition a form of representative claim, we conclude that PAGA claims are categorically excluded from the arbitration agreement.” Slip op. at 11. U-Haul’s lawyers tried to convince the court that the defendant was not seeking to prevent the plaintiffs from pursuing their PAGA claims entirely, but rather that it simply wanted to enforce its arbitration agreements to determine the plaintiffs’ “underlying employment claims” which could ultimately render the PAGA claims moot. However, the Court of Appeal held that the arbitration agreement did not contain any language suggesting that the parties had agreed to arbitrate whether the plaintiff had standing to bring a representative claim in court. Id. The court also added that, even if the agreement did contain such a provision, it would be unenforceable under California law since there is no authority supporting that a PAGA action can be split into individual “underlying claims” brought in arbitration and separate “representative” claims brought in court. Id. at 11-14.

PAGA is a vital enforcement mechanism for employees in California who work for companies that have implemented arbitration agreements banning class actions. Perez is another in the growing line of cases that shut down employers’ attempts at implementing arbitration agreements that seek to impede employees’ ability to bring PAGA claims.

Authored By:
Rebecca Labat, Partner
CAPSTONE LAW APC