In McGill v. Citibank, N.A., 2 Cal.5th 945 (2017), the California Supreme Court held that under California law, a provision in any contract purporting to waive a party’s right to seek public injunctive relief in any forum is contrary to public policy and unenforceable. Id. at 952. The legal requirement that contracts must allow public injunctive relief is known as the McGill rule. DiCarlo v. MoneyLion, Inc., 9th Cir. Feb. 19, 2021 (“DiCarlo”). Slip op. at 6 (available here). The McGill rule has provided consumer plaintiffs with a stalwart defense against being compelled to arbitration. In DiCarlo, the Ninth Circuit held that an arbitration agreement that allows a litigant “all remedies” available in an individual lawsuit does not violate the rule.

In DiCarlo, the defendant operated a smartphone app that provided financial services to its customers. The services included a product called the MoneyLion Plus program, which offered a credit-builder loan. The plaintiff joined the program and signed a membership agreement, but fell behind on her fees and loan payments. Unable to cancel her membership without paying off the loan, the plaintiff filed a putative class action under California’s Unfair Competition Law (“UCL”), False Advertising Law (“FAL”), and Consumers Legal Remedies Act (“CLRA”). Slip op. at 3-4.

The defendant moved to compel the plaintiff’s claims to arbitration under an arbitration provision contained in the membership agreement. DiCarlo opposed the motion based on the McGill rule, arguing that the provision violated California law by prohibiting public injunctive relief. Slip op. at 5. The defendant argued that its arbitration provision, in fact, allowed public injunctive relief. Id. The Ninth Circuit agreed.

The defendant’s arbitration provision “‘authorize[s] the arbitrator to ‘award all [injunctive] remedies available in an individual lawsuit under [California] law.’” Slip. op. at 7. McGill has made clear that a litigant can seek public injunctive relief in an individual lawsuit under the UCL and FAL. Id. at 14 (citing McGill, 2 Cal.5th at 959). Public injunctive relief is typically available in consumer arbitrations, according to the Ninth Circuit. Id. (citing Blair v. Rent-A-Ctr., Inc., 928 F.3d 819, 829 (9th Cir. 2019)). Thus, the court of appeals concluded, the “all remedies” clause in the arbitration provision allowed the plaintiff to seek public injunctive relief in arbitration. Furthermore, the Ninth Circuit held that a plaintiff need not act as a private attorney general or represent others in order to obtain a public injunction.

Authored by:
Robert Friedl, Senior Counsel
CAPSTONE LAW APC

In Donohue v. AMN Services, LLC, Cal. Sup. Ct., No. S253677, Feb. 25, 2021 (“Donohue”) (slip op. available here), the California Supreme Court reached two significant holdings. The Court first held that employers may not engage in the practice of rounding time punches when recording time for meal periods. Second, the Court held that an employer’s time records that show noncompliant meal periods raise a rebuttable presumption of meal period violations. In reaching this conclusion, the Court adopted the reasoning in Justice Werdegar’s concurrence in Brinker Restaurant Corp. v. Superior Court, 53 Cal.4th 1004 (2012) (“Brinker”). These holdings are significant because they clarify how employers must record employees’ time, and the role of time records in establishing a prima facie showing of meal period violations. 

In Donohue, the plaintiff’s employer AMN Services, Inc. (“AMN”) used an electronic timekeeping system called “Team Time” to track its employees’ compensable time. Employees would use Team Time to punch in and out of work at the beginning of the day, at the beginning of lunch, at the end of lunch, and at the end of the day. Team Time rounded time punches to the nearest 10-minute increment. Slip op. at 2-3. AMN relied on the Team Time punches to manage potentially non-compliant meal periods—i.e., whether a meal period was missed, shorter than 30 minutes, or taken after five hours of work. However, because the time punches were rounded, some non-compliant meal periods would have appeared as compliant meal periods on Team Time and would not have resulted in payment of premium wages. Id. at 3-4. The plaintiff alleged in her class action that AMN denied its employees compliant meal periods, improperly rounded time records for meal periods on Team Time, and failed to pay premium wages for those violations. Id. at 5.   

The Donohue Court first examined whether rounded time punches properly calculated the time for the 30-minute meal periods required by California Labor Code section 512(a). The Court made clear that the purpose of the inquiry was to determine whether AMN’s rounding policy resulted in the proper payment of premiums for meal period violations, not whether rounding practices result in employees not receiving pay for all time worked. Slip op. at 8.

Employers have long been permitted to use rounded time punches to calculate regular and overtime wages, as long as the rounding policy is neutral on its face and as applied. Slip op. at 16 (citing See’s Candy Shops, Inc. v. Superior Court, 210 Cal.App.4th 889, 907 (2012) (“Candy I”)). The reasoning in Candy I is that the rounding policy averages out for purposes of calculating wages (“counting slightly fewer wages one day can be made up by counting a few more minutes another day”). Id. at 15-16. However, that reasoning does not apply to shorter or delayed meal periods because “rounding policies are at odds with the requirement that employers pay the full premium wage for meal period violations.” Id. at 16. For example, in Donohue, AMN’s rounding policy, automatically applied by “Team Time,” would not always trigger premium pay for noncompliant meal periods. Id. at 20. This is inconsistent with Labor Code section 226.7, under which “even a minor infringement of the meal period triggers the premium pay obligation.” Id. at 12.

The Court then discussed the significance of AMN’s time records. According to the plaintiff’s expert, those time records showed over 40,000 shortened meal periods and over 6,000 delayed meal periods for which premium wages were not paid because of rounding. The Court held that the introduction of these time records would trigger a “rebuttable presumption” of meal period violations. 

This “rebuttable presumption” was first discussed in Justice Werdegar’s concurrence in Brinker. Slip op. at 21-22. Noting that “[e]mployers covered by Industrial Welfare Commission (IWC) wage order No. 5-2001 (Cal.Code Regs., tit. 8, § 11050) have an obligation both to relieve their employees for at least one meal period for shifts over five hours (id., subd. 11(A)) and to record having done so . . .,” Justice Werdegar concluded “[i]f an employer’s records show no meal period for a given shift over five hours, a rebuttable presumption arises that the employee was not relieved of duty and no meal period was provided.” Brinker, 53 Cal.4th at 1053 (conc. opn. of Werdegar, J., emphasis in original). The Donohue Court adopted this rebuttable presumption. It also clarified that “the presumption applies to records showing short and delayed meal periods as well. Providing employees with short or delayed meal periods is just as much a violation of the meal period provisions as failing to provide employees with a meal period at all.” Slip op. at 24.

Donohue is also noteworthy because it discusses the impact of technology on timekeeping issues. As for rounding, the Court recognized that the practice was developed as a means to efficiently calculate hours worked, “[b]ut technological advances may help employers to track time more precisely.” Slip op. at 21. In fact, Team Time recorded the employees’ time in unrounded punches, and then had to take an extra step to round them. The Court concluded that “[a]s technology continues to evolve, the practical advantages of rounding may diminish further.” Id.

Although Donohue was confined to rounding time for meal period violations, the question remains whether, considering today’s technology, there is any reasonable basis to round time punches in any context. The Court stated, “[t]his court has never decided the validity of the rounding standard articulated in See’s Candy I, and we are not asked to do so here.” Slip op. at 19. Does this foreshadow the eventual overruling of Candy I? Only time will tell.

Authored by:
Robert Friedl, Senior Counsel
CAPSTONE LAW APC

In Crestwood Behavioral Health, Inc. v. The Superior Court of Alameda County, Maricris Fragoza, Real Party in Interest, Cal. Ct. App. 1st Dist., No. A160523, Feb. 17, 2021 (“Fragoza”) (slip op. available here), the California Court of Appeal decided “a significant and recurring issue of first impression.” What is the proper venue for an action under the Labor Code Private Attorneys General Act (“PAGA”) (Cal. Lab. Code § 2698, et seq.), where the representative plaintiff suffered Labor Code violations in one county, but filed her PAGA action in another county where other “aggrieved employees” were employed?

In Fragoza, the employer (“Crestwood”) filed a petition for writ of mandate seeking a ruling from the Court of Appeal that venue is properly located in the county where the representative plaintiff worked, but not other counties where other aggrieved employees worked. The Court of Appeal came to the opposite conclusion, stating, “We hold that venue is proper in any county in which an aggrieved employee worked and Labor Code violations allegedly occurred.” Slip. op. at 5 (emphasis added).

The plaintiff worked for Crestwood in its Solano County facility, and suffered Labor Code violations in Solano County. However, the plaintiff filed her PAGA action in Alameda County, where other “aggrieved employees” suffered violations, because Crestwood also had a facility in Alameda County. Crestwood argued that, although the plaintiff could seek PAGA penalties for Labor Code violations against other aggrieved employees, the only proper venue to file her PAGA action is Solano County, where the violations against Fragoza herself occurred. The argument was based on Cal. Code Civ. Proc. § 393, which provides that for recovery of a penalty, venue is proper in “the county in which the cause, or some part of the cause, arose.”

The court stated that the problem with the defendant’s argument is that it “misapprehends the purpose of Fragoza’s personal allegations.” Slip. op at 6. The plaintiff’s allegations that she suffered Labor Code violations are necessary to establish her standing as a PAGA representative, not to establish venue. Id. “Once she established standing, Fragoza is suing as a proxy for the state, not as an individual. [Citation omitted] She has no individual claim.” Id. at 6-7. It follows that, under section 393, Crestwood’s liability or “some part of the cause [] arose” in Alameda County because Labor Code violations occurred there, at Crestwood’s facility. Id. at 7. Hence, the Court of Appeal’s holding that in PAGA actions, venue is proper in any county in which aggrieved employees allegedly suffered Labor Code violations.  

Employers’ advocates have bemoaned this decision as a pro-employee PAGA ruling that promotes “forum shopping” by employees. It is not, because Fragoza simply applies long-standing venue rules to the realities of the PAGA. The Supreme Court of California holds that PAGA actions have no individual component; PAGA plaintiffs may pursue civil penalties “only as the state’s designated proxy, suing on behalf of all affected employees.” Kim v. Reins International California, Inc., 9 Cal.5th 73, 87 (2020). Under section 323, the proper venue for a PAGA action is any county in which their Labor Code violations against these affected employees allegedly occurred. 

Authored by:
Robert Friedl, Senior Counsel
CAPSTONE LAW APC

In Rojas-Cifuentes v. The Superior Court of San Joaquin County, Cal. Ct. App. 3d Dist., No. C085643, Dec. 21, 2020 (“Rojas-Cifuentes”) (slip op. available here), the Court of Appeal issued a writ of mandate directing the Superior Court of San Joaquin County to set aside its order granting summary adjudication of an employee’s claim under the Private Attorneys General Act of 2004 (“PAGA”) in favor of the defendant, American Modular Systems, Inc. (“AMS”), and enter a new order denying the MSA. AMS’s motion was brought on the grounds that Plaintiff Rojas-Cifuentes’ PAGA notice letter to AMS and the Labor and Workforce Development Agency failed to include sufficient “facts and theories” (Cal. Lab. Code § 2699.3) to support his claimed Labor Code violations.

The “facts and theories” requirement for a PAGA notice letter, however, is not high and provides little fodder for employers seeking a procedural loophole to PAGA claims. The purpose of the PAGA notice requirement is to afford the Labor and Workforce Development Agency “the opportunity to decide whether to allocate scarce resources to an investigation.” Slip. op. at 6 (citing Williams v. Superior Court, 3 Cal.5th 531, 545-546 (2017)). Thus, to require a PAGA notice letter to “satisfy a particular threshold of weightiness . . . would undercut the clear legislative purposes the act was designed to serve.” Id. Following cases such as Williams and Brown v. Ralphs Grocery Co., 28 Cal.App.5th 824 (2018), Rojas-Cifuentes found “few ‘facts and theories’ are needed to satisfy PAGA’s notice requirement.” Id. at 7. Rojas-Cifuentes also confirmed that a PAGA notice letter need only allege broadly a class of “aggrieved employees” such as “current and former California non-exempt employees of AMS.” Id. at 10.

Considering the legislative purposes of PAGA, as cases such as Rojas-Cifuentes, Williams, and Brown all confirm, challenges to the sufficiency of PAGA notices have no legitimate purpose. They harm the interests of the State of California, in collecting civil penalties; of employees, as victims of Labor Code violations; and our overburdened judiciary, forcing the courts to address repeated, groundless challenges to the PAGA statute.

Authored by:
Robert Friedl, Senior Counsel
CAPSTONE LAW APC