Employment cases affecting businesses

2020 — looking back and moving forward, Part 6

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Throughout the COVID-19 crisis, California courts have continued to issue important decisions affecting the rights and duties of all businesses in California. Below are summaries of some of the most important cases that are likely to affect how businesses should operate throughout the state.

Sanchez v. Martinez

No. C083268 (2020) 54 Cal.App.5th 535

This case held that piece-rate employees who are provided with unpaid rest breaks are entitled to damages in the amount of the minimum wage for actual unpaid time or an additional hour of pay under California Labor Code section 226.7, but are not entitled to both.

The Plaintiffs in this case were five farm laborers who pruned grape vines at a piece rate. Plaintiffs filed a suit against their former employer, including in their case a rest-period claim. The trial court originally found for the Defendant, but the Court of Appeal reversed the decision with respect to the rest-break claims and a derivate action under the California Private Attorney General Act (PAGA). On remand, the trial court entered judgment in favor of Plaintiffs on their rest-break and PAGA claims. It awarded Plaintiffs $416 in unpaid minimum wages for actual time worked during rest breaks and $17,775 in civil penalties. Plaintiffs again appealed, claiming they were entitled to not just the minimum wage for the actual time that they took rest breaks without pay but also an “additional hour of pay” under California Labor Code section 226.7.

The California Court of Appeal affirmed the trial court’s decision and award. The court found that both of Plaintiffs’ theories of recovery were legitimate. However, the court then explained that since Plaintiffs had already recovered the minimum wage for the actual time they took rest breaks without pay, both the rule against double recovery and the California Supreme Court’s decision in Murphy v. Kenneth Cole Productions, Inc., 40 Cal. 4th 1094 (2007), dictated that they were not also entitled to a statutory pay premium equal to one hour of pay under section 226.7.

Employers of piece-rate employees in California face a complicated, and evolving, set of rules regarding their obligation to provide paid rest breaks. This case is an important reminder that employers of piece-rate employees should carefully review their rest-break policies to ensure compliance with California law.

Oliver v. Konica Minolta Business Solutions U.S.A., Inc.

(2020) 51 Cal.App.5th 1

This case held that employees may be entitled to wages and mileage reimbursement for their commutes to and from work if the commutes are controlled by the employer control such that employees cannot use the commute time effectively for their own purposes. This case could affect dealerships that ask employees to deliver vehicles or make other kinds of deliveries.

Plaintiffs were service technicians who did not report to an office for work. Instead, they were required to drive their personal vehicles, carrying tools and parts, directly from their homes to customer sites to make repairs to copiers and other machines. Plaintiffs then drove from their last customer site directly home. Defendant did not pay Plaintiffs for the time spent commuting either to the first service location of the day or from the last location to their homes, nor reimburse them for mileage attributable to those commutes. Plaintiffs brought a class action seeking wages for these commute times as well as reimbursement for mileage. Defendant moved for summary judgment, and the trial court granted the motion. It found that the commute times at issue did not constitute “hours worked” under Industrial Welfare Commission Wage Order No. 4-2001 under either the “control” test or the “suffer or permit to work” test. Having concluded that the commute time was not hours worked, the court determined that Plaintiffs were not entitled to reimbursement for mileage under California Labor Code section 2802. Plaintiffs appealed.

The California Court of Appeal reversed. There was a material factual dispute as to whether the service technicians were precluded from using their commute time effectively for their own purposes, which would constitute control by their employer. There also existed factual disputes as to whether the employees were required to carry Defendant’s tools and parts during the commute; if carrying the tools and parts was optional, then the service technicians would not be subject to the control of Defendant. These factual issues precluded summary judgment in favor of Defendant under the control test. Having found triable issues with respect to the control test, the court did not address the suffer or permit to work test. Similarly, because the court found triable issues regarding Plaintiffs’ entitlement to wages, it likewise found triable issues as to their entitlement to mileage reimbursement under Labor Code section 2802.

The compensability of commute time remains a frequent source of litigation. Employers whose employees do anything arguably work-related during their commute should carefully review the nature of their employees’ activities and their pay policies to ensure compliance with the ever-growing body of caselaw in this area.

Betancourt v. OS Rest. Servs., LLC

No. (2020) 49 Cal.App.5th 240

The Court of Appeal found that a plaintiff is not entitled to recover penalties for waiting time and wage statement violations based on claims of non-provision of rest or meal periods, and likewise cannot obtain attorney’s fees based on those claims.

Plaintiff, a former waitress at Defendants’ restaurant, sued Defendants alleging that they regularly failed to provide her lawful rest breaks and meal periods and that she was wrongfully terminated for complaining about this problem and food safety issues. Based on these allegations, Plaintiff asserted claims of whistleblower retaliation and wrongful termination. Plaintiff’s complaint prayed for, among other forms of relief, unpaid premium wages for the meal and rest break violations, penalties, costs, attorney’s fees, and waiting time penalties. A year after the complaint was filed, the parties reached a settlement. Plaintiff accepted monetary relief for the failure to provide meal and rest periods, failure to provide accurate itemized wage statements, and waiting time penalties in exchange for Plaintiff dismissing her retaliation and wrongful termination claims with prejudice. The parties, however, also agreed to litigate the sole issue of whether Plaintiff was entitled to recover reasonable attorney’s fees based only on her wage and hour claims. Plaintiff filed a motion for attorney’s fees seeking more than $500,000 in fees, but failed to support her motion with her attorney’s time records. Nevertheless, the trial court awarded approximately $280,000 in fees, reasoning that all of the wage and hour claims were “premised” on timekeeping and payroll schemes. Defendants appealed.

The California Court of Appeal reversed. The court first noted that under the California Supreme Court’s decision in Kirby v. Immoos Fire Protection, Inc., 53 Cal. 4th 1244 (2012), Plaintiff could not obtain attorney’s fees based directly on her claims for non-provision of meal or rest breaks because such an action is not for “nonpayment of wages” within the meaning of California Labor Code section 218.5. The Court then held that, by extension, Plaintiff similarly could not recover penalties or attorney’s fees for derivative waiting time and wage statement violations based on the same claims of non-provision of meal or rest periods.

Though this case is a win for employers, a case presenting the same issue – whether violation of California’s meal and rest break laws gives rise to derivative claims for waiting time and wage statement penalties – is currently before the California Supreme Court. See Naranjo v. Spectrum Security Services, Inc., No. S258966. The California Supreme Court’s decision, which likely will not come out until next year, will be the final word on this issue.

Jarboe v. Hanlees Auto Group

(2020) 53 Cal.App.5th 539

This case asked whether an arbitration provision applies to affiliated entities. It held that without substantial evidence that the provision was made expressly for the benefit of the affiliate or that there is a close and integral relationship between the affiliated companies and the employee, affiliated entities cannot enforce an arbitration provision as third-party beneficiaries or on grounds of equitable estoppel.

Plaintiff was hired by an auto dealership that was part of a larger group of affiliated dealerships. He worked for a short time before being transferred to a different location that was part of this larger group. Following his termination, Plaintiff sued for wage and hour violations naming the first dealership, the auto group, and each of the affiliated dealerships (12 in total) as defendants. Defendants moved to compel arbitration based on the employment agreement between Plaintiff and the first dealership. The trial court granted the motion as to all of Plaintiff’s individual causes of action against the first dealership, but denied it as to the other defendants, and denied it as to Plaintiff’s claim under the Private Attorneys General Act (“PAGA”). The trial court reasoned that the operative arbitration provision applied only to the “Company” — defined in the agreement as only one dealership — and not any other related entities. The court also determined that Plaintiff’s PAGA cause of action could proceed in court while his individual claims were being arbitrated, reasoning that an employee bringing a PAGA action is not acting on his or her own behalf, but on behalf of the state, which is not bound by the employee’s prior agreement or any waiver of his right to bring a representative action. On that basis, the trial court allowed all of the claims against the auto group and the affiliated dealerships to proceed, along with the PAGA claim against all defendants, notwithstanding Plaintiff’s pending arbitration against the first dealership. Defendants appealed.

The California Court of Appeal affirmed, rejecting Defendants’ arguments that they were entitled to enforce the agreement between Plaintiff and the first dealership as third-party beneficiaries, or under the doctrine of equitable estoppel. On the former argument, the court of appeal determined that Defendants did not show the arbitration agreement between Plaintiff and the first dealership was made “expressly” for the benefit of any other entity. The court highlighted that the agreement specifically defined “Company” as the single dealership, and neither identified nor included any other party. The court also allowed the PAGA claim to proceed, on the grounds that PAGA claims are brought on behalf of the public.

This case should cause all dealership groups to review their practices with respect to transferred employees. Arbitration agreements should state that they are for the benefit of all affiliated dealerships, or employees should sign new arbitration agreements with each transfer.

Kim v. Reins International California, Inc.

(2020) 9 Cal.5th 73

This case held that Plaintiffs who settle individual claims for Labor Code violations continue to be “aggrieved employees” and retain standing to pursue a claim under the Private Attorneys General Act of 2004. Plaintiff worked as a training manager for a restaurant operated by Reins International California, Inc. (Reins). Plaintiff, and other training managers, were classified as exempt from overtime laws. Plaintiff later sued as an individual and a class representative under the Private Attorneys General Act (PAGA), claiming he and other training managers had been misclassified.

Reins moved to compel arbitration of the “individual claims” pursuant to an enforceable arbitration agreement. The trial court granted the motion. Reins and Plaintiff then settled Plaintiff’s individual claims for $20,000. Reins then moved for summary adjudication of the PAGA claim on the ground that the Plaintiff lacked standing, reasoning that Plaintiff’s rights had been “completely redressed” by the settlement. The trial court concluded Plaintiff was no longer an aggrieved employee and, therefore, lacked PAGA standing. Judgment was entered for Reins, and the California Court of Appeal affirmed. The California Supreme Court granted review.

The California Supreme Court reversed. The court explained that the plain language of Labor Code section 2699(c) has only two requirements for standing as an “aggrieved employee” under PAGA: (1) the plaintiff must be someone “who was employed by the alleged violator,” and (2) the plaintiff must be one “against whom one or more of the alleged violations was committed.” The court reasoned that Plaintiff became an “aggrieved employee” when one or more Labor Code violations were committed against him, and the payment of remedies did not nullify these violations. PAGA standing is not premised on or linked to the continued existence of an employee’s injury.

Employers should understand that settling individual employment claims with employees does not preclude potential PAGA claims from those employees. Employers should expect an increase in the costs of litigating and settling wage and hours cases that include PAGA claims and can no longer rely on individual settlements with employees to inoculate them against future PAGA actions brought for violations against those employees.

Frlekin v. Apple, Inc.

(2020) 8 Cal.5th 1038

This case held that the time employees spent on Apple’s premises waiting for and undergoing a mandatory exit search of personal belongings was compensable as “hours worked” under Wage Order 7. While the specific facts may not apply to dealerships, it is an important reminder that California courts continue to find that time spent on activities performed prior to and after regular work duties is compensable.

Apple required its retail store employees to undergo exit searches of their bags, packages, purses, backpacks, and briefcases for loss prevention purposes after clocking out. Employees were also required to allow their personal Apple products, such as their iPhones, to be examined before leaving work. These exit searches were performed by an Apple manager or security employee and took up to 45 minutes to complete. Employees brought a class action alleging that Apple failed to pay them minimum and overtime wages for time spent waiting for and undergoing exit searches. The district court granted Apple’s motion for summary judgment, holding that time spent by class members waiting for and undergoing exit searches was not compensable as “hours worked” under Industrial Welfare Commission (“IWC”) Wage Order No. 7 (the “Wage Order”). Plaintiffs appealed to the Court of Appeals for the Ninth Circuit, which certified a question to the California Supreme Court.

The Supreme Court held that Apple must compensate its employees for the time spent undergoing exit searches. The court first noted that under the Wage Order, employers must compensate employees for “hours worked” when: (1) the employee is subject to the control of the employer, or (2) when the employee is suffered or permitted to work. Focusing exclusively on the “control” prong, the court noted that Apple controls its employees in several ways: by requiring the bag searches under the threat of discipline, by confining employees to the company’s premises while they wait for and undergo exit searches, and forcing employees to track down a manager or security employee to perform the exit search. The court also found that the exit searches were performed for Apple’s benefit, further establishing control by Apple. The court rejected Apple’s argument that it need not pay for time spent during exit searches because the employees can avoid the searches by not bringing bags or their Apple products into the store. It held that, as a practical matter, Apple’s exit searches cannot be avoided; employees have little choice whether to bring a bag with personal belongings because Apple requires them to wear Apple-approved attire at work, but to remove or cover the attire outside of work. The court also reasoned that employees have little true choice in deciding whether to bring their cellphones to work. Because Apple exercised significant control over the employees during the exit searches, such time was compensable under the Wage Order’s “control” clause.

Frlekin did not hold that all security checks must be compensated. In future cases concerning exit searches, employers may be able to distinguish Frlekin based on its facts. The simplest effective solution would be to compensate employees for the time spent undergoing an exit search by requiring employees to clock out only after completing their exit search.