Calculating Overtime Value of Flat-Sum Bonus Must Be Based on Actual Non-Overtime Hours Worked, California High Court Holds

The California Supreme Court has held that, under state law, when an employee earns a flat sum bonus during a pay period, the overtime pay rate will be calculated using the actual number of non-overtime hours worked by the employee during the pay period. Alvarado v. Dart Container Corp., 2018 Cal. LEXIS 1123 (Cal. Mar. 5, 2018).

In so holding, the Court reversed a lower court of appeal decision that had rejected policy guidance issued by the California Department of Labor Standards Enforcement (DLSE). Please find the rest of this article in our Publications page here.

Plaintiffs Cannot Bring PAGA Claims If They Fail to Give Notice of a Representative Action

In Hamid H. Khan v. Dunn-Edwards Corporation (January 4, 2018), the California Court of Appeal for the Second Appellate District held that the plaintiff failed to comply with required administrative procedures prior to bringing a claim under the California Private Attorneys General Act (“PAGA”) because he failed to provide sufficient notice to the California Labor and Workforce Development Agency (“LWDA”) and the employer that he sought to bring the PAGA claim on behalf of, not only himself, but on behalf of a group of “aggrieved employees.”  Accordingly, based on the Khan decision, plaintiff employees are foreclosed from pursuing PAGA claims against employers if they fail to provide adequate notice of a representative action.

The PAGA provides aggrieved employees with the ability to file suits and recover civil penalties on behalf of themselves and other current or former employees in a representative action against their employers.  Before doing so, the aggrieved employees must comply with administrative procedures and provide written notice of the intent to pursue a PAGA case by providing notice of the claim to the LWDA and the employer.  The employee must state, “the specific provisions of [the Labor Code] alleged to have been violated, including the facts and theories to support the alleged violation.”  Labor Code § 2699.3(a)(1)(A). By providing the requisite notice, the employee thereby provides the LWDA with an opportunity to determine whether to investigate the claim further and likewise provides the employer with an opportunity to cure the alleged violations.

In Khan, Plaintiff’s PAGA notice stated: “This correspondence shall constitute written notice under Labor Code § 2699.3 of my claims against my former employer. . .” (emphasis added). Plaintiff made no reference to any other current or former employees, and thus failed to provide the LWDA and the employer with sufficient notice of the extent of his claim.

Finally, the court also barred the plaintiff from continuing with his PAGA claim on an individual basis, opining that: “Permitting pursuit of only individual penalties appears inconsistent with PAGA’s objectives.” Plaintiff filed an appeal with the California Supreme Court on February 13, 2018, Case No. S246979.  

California Transportation Industry Waives Goodbye to Enforcement of Federal Arbitration Act Provisions in Employment Contracts

In a loss for the California transportation industry, the Court of Appeal for California’s Fourth Judicial District recently found in Muro v. Cornerstone Staffing Solutions, Inc., that the Federal Arbitration Act (“FAA”) is unenforceable in employment contracts regarding employees who are engaged in transporting goods in interstate or foreign commerce, regardless of whether the employer itself is in the transportation industry.

Defendant Cornerstone Staffing Solutions, Inc. (“Cornerstone”), a staffing firm dedicated to the transportation and logistics industries, hired Plaintiff Tony Muro (“Muro”) as a truck driver for Team Campbell, a Cornerstone client in California. The employment contract between Cornerstone and Muro included a provision requiring that all disputes arising out of Muro’s employment with Cornerstone be resolved in arbitration.  The contract also incorporated a separate provision in which Muro waived his right to pursue class actions, either in court or arbitration.

In response to Muro’s action – styled as a proposed wage and hour class action – Cornerstone moved to compel arbitration and dismiss the class claims. In denying Cornerstone’s petition, the court found that Section 1 of the FAA exempts “contracts of employment of . . . any other class of workers engaged in foreign or interstate commerce” and that it was immaterial whether Cornerstone itself was engaged in the transportation industry for the exemption to trigger.  Identifying that Muro regularly engaged in interstate commerce by transporting goods throughout the western United States, the court noted that “[a] transportation worker does not forfeit the benefit of the exemption merely because the employer has other divisions or segments devoted to nontransportation activities.”

Finding the FAA provision void, the court applied California precedent to conclude that the class waiver constituted an unlawful exculpatory clause and that the trial court had properly denied Cornerstone’s petition to compel arbitration. While the Muro Court’s decision represents novel California State precedent, the United States Supreme Court may soon end the debate nationwide, having recently granted review of a decision from the United States Court of Appeals for the First Circuit (New Prime Inc. v. Oliveira), interpreting the scope of the FAA’s transportation workers’ exemption.

California Court of Appeals Holds Labor Code § 558 Claims Are Indivisible Claims and Not Arbitrable

In Lawson v. ZB, N.A. (2018) 18 Cal.App.5th 705, California’s Fourth District Court of Appeal recently ruled that the two elements comprising damages under Labor Code § 558 – (a) underpaid wages and (b) denominated assessments – are indivisible. Because a claim under Labor Code § 558 is indivisible and it is a civil penalty encompassed by the California Private Attorneys General Act (“PAGA”), the entire claim under Labor Code § 558 is not subject to any arbitration agreement between an employee and an employer, even if the employee waived his or her right to bring a class or representative claim against his or her employer.  The rationale behind this holding is that, in bringing a PAGA claim, “an employee is not acting on his or her own behalf, but on behalf of the state and the state is not bound by the employee’s prior agreement, including any waiver of his or [her] right to bring a representative action.”

In Lawson, the plaintiff employee filed a putative class action complaint alleging various wage and hour claims and seeking penalties and underpaid wages under Labor Code § 558. The defendant employer moved to compel arbitration on the plaintiff employee’s individual claims pursuant to an arbitration agreement whereby the plaintiff had waived her right to bring a class or representative action. The trial court granted the defendant’s motion to compel arbitration, but rather than compelling only the underpaid wages portion of the Labor Code § 558 claim to arbitration, the trial court ordered that the entire claim – including penalties – be compelled to arbitration. On appeal by the defendant employer, the court in Lawson dismissed the appeal, issued a peremptory writ of mandate commanding the trial court to vacate its order bifurcating the Labor Code § 558 claim and enter a new order denying the defendant employer’s motion to arbitrate. Of note, the Lawson court disagreed with Esparza v. KS Industries, L.P. (2017) 13 Cal.App.5th 1228 decided last year, which held that Labor Code § 558 claims are divisible.

Specifically, in Esparza, the Fifth District Court of Appeal held that the underpaid wages portion of a claim under Labor Code § 558 is subject to arbitration pursuant to the terms of the parties’ arbitration agreement and the Federal Arbitration Act. In short, the Esparza court held that a plaintiff can pursue relief under Labor Code § 558 in his or her own right.

In light of Lawson, there is now a split in authority between the district courts of appeal; and employers and employees alike will have conflicting authority in support of and against their respective positions.

Employers Required to Post Transgender Rights in the Workplace Posters

Effective January 1, 2018, the California Department of Fair Employment and Housing (DFEH) requires employers with 5 or more employees to post Transgender Rights in the Workplace Posters which may be accessed here. The posting obligation is not met by prior versions of the poster.

The Transgender Rights in the Workplace poster provides information regarding transgender rights, including: (1) definitions of terms such as “transgender”; (2) the right of employees to use restrooms, locker rooms and other similar facilities corresponding to their gender identity; and (3) the procedure for filing a complaint with the DFEH.

The poster must be conspicuously displayed where they can be easily seen and read by all employees and job applicants. The poster must also be legible enough, and it must be displayed in the following locations:

  • At each location where a company has employees (e.g., offices, stores, warehouses, branches)
  • At employment agencies, hiring offices and union halls
  • On computers as long as the posters are posted electronically in a conspicuous place where employees will tend to see it.

If 10 percent or more of a company’s workforce speaks a language other than English, the poster must also be displayed in that language. The DFEH provides translated posters in several languages which may be accessed here.

This poster is one of four mandatory posters that all California employers are required to display.

Pending California Legislation Alert! Recently Introduced Bill Seeks to Protect Medicinal Marijuana Users from Employment Discrimination in California

Although both medicinal and now recreational consumption of marijuana have been legalized in California, this legalization did not impact an employer’s right to discipline or even terminate employees for marijuana use. That could change for medical marijuana users if a bill pending before the California legislature becomes law.  To read the rest of this article, please visit our Disability, Leave & Health Management blog here.

Surge of ICE Raids Expected in California Following State Adoption of Immigration Laws

California seems to be at odds with the Trump Administration over many subjects, including the legalization of marijuana, the expansion of off-shore drilling, the elimination of state and local tax deductions, and immigration.

The most recent clash over immigration began with the passage in October of “The California Values Act” (CVA) (SB54) and the Immigrant Worker Protection Act (IWPA) (AB450).  Please visit our “Immigration Blog” to continue reading this article found here.



Exemption, Not Pre-Emption: California Federal Court Clarifies Meal and Rest Break Rules May Be Exempt From Labor Code Enforcement For Employers With Valid Collective Bargaining Agreements

In a recent decision, Judge Philip S. Gutierrez of the United States District Court for the Central District of California clarified an available avenue for employers with collective bargaining agreements (“CBAs”) to combat the growing trend of wage and hour lawsuits in California. In granting defendant Kiewit Infrastructure West Co.’s (“Kiewit”) motion for summary judgment (by way of a motion for reconsideration), Judge Gutierrez dismissed various Labor Code claims, including claims for meal and rest break violations, because the claims were exempted by (rather than pre-empted by) Kiewit’s existing CBA. See Peter Zayerz v. Kiewit Infrastructure West Co., 16-CV-6405-PSC (PJW)(January 18, 2018).

The California Labor Code and Industrial Welfare Commission Wage Orders provide for mandatory uninterrupted meal and rest breaks for hourly, non-exempt employees. See Cal. Lab. Code §512(a). Generally, California employers must provide their hourly employees uninterrupted meal periods of not less than thirty minutes for every five hours worked and uninterrupted rest periods of not less than ten minutes for every four hours worked (or major portion thereof). Id. If an employer fails to provide such meal periods and rest breaks, employers may be vulnerable to lawsuits or enforcement actions to seek unpaid wages and costly penalties.

However, pursuant to Labor Code §§ 512(e) and (f), certain unionized employees working in construction, commercial driving, security services, electrical, gas or local publically owned electric utility jobs may be exempt from the Labor Code’s meal and rest break requirements where a valid CBA is in place.

Labor Code §§ 512(e)(1)-(2) provides that, if an employee in the aforementioned industries is covered by a CBA that “expressly provides for the wages, hours of work, and working conditions of employees, and expressly provides for meal periods for those employees, final and binding arbitration of disputes concerning application of its meal period provisions, premium wage rates for all overtime hours worked, and a regular hourly rate of pay of not less than 30 percent more than the state minimum wage rate,” then § 512(e) does not apply to the employer. Cal. Lab. Code §§ 512(e), (f). Instead, the CBA governs and any disputes arising between an employer and employee must be resolved according to the terms of the CBA.

When reconsidering Kiewit’s motion, the Court evaluated the exemptions under Labor Code § 512, and determined that the parties were obligated to resolve their disputes according to the arbitration terms of the CBA. Therefore, the plaintiff’s claims for meal and rest break violations, as well as claims for derivative penalties under the Private Attorneys General Act (“PAGA”) were dismissed.

In industries outside those listed in Labor Code § 512(f), unionized employers may still be able to avoid state law claims for meal and rest break violations, by arguing that the claims are pre-empted by the Labor Management Relations Act (“LMRA”). Such an argument is available where the terms of the CBA relating to the meal and rest breaks are disputed and require interpretation by the court. However, in Kiewit’s case, the Court determined the meal and rest break claims were not pre-empted by the LMRA because there was no dispute as to the interpretation of the CBA. Instead, the claims were statutorily exempted by the Labor Code, thus requiring the parties to resolve their disputes as per their CBA.

California wage and hour lawsuits continue to dominate the legal landscape for California companies. Jackson Lewis is equipped to handle all aspects of labor and employment disputes, including defense against wage and hour class and representative actions and preventative advice and counsel. Please contact our California attorneys if you have further questions.

California Labor Department Releases Form for Employers Responding to Immigration Agency Inspection

California’s public and private employers are prohibited from voluntarily consenting to a federal immigration enforcement agent’s request to enter nonpublic areas in the workplace or to voluntarily allow the agent access to employee records unless the agent provides a judicial warrant. Labor Code 90.2(a)(1).

Employers also must provide notice to employees, called a Pre-Inspection Notice. Within 72 hours of receiving a federal immigration agency’s notice of inspection (“NOI”) of employment records, including I-9 Employment Eligibility Verification forms, an employer must provide notice to each of its current employees.

The posted notice must include: (1) the name of the immigration agency conducting the inspection; (2) the date the employer received notice of the inspection; (3) the nature of the inspection to the extent known; and (4) a copy of the NOI.

California has now released a template Notice of Inspection Form, which meets the requirements under Labor Code 90.2(a)(1).

For a full discussion of the new law, please see our prior blog, “California Shields Workers from Immigration Enforcement While On The Job

Trial Court Properly Denied Attorneys’ Fees To Plaintiff Who Proved His Termination Was Substantially Motivated By His Disabilities, But Was Not The Prevailing Party At Trial

In Bustos v. Global P.E.T., Inc., (E065869, Cal. Ct. App. January 16, 2018), Plaintiff William Bustos and a number of his co-workers were terminated by Global in an economic layoff.  Bustos sued Global alleging his disabilities were a substantial motivating reason for his termination.

At trial, the jury awarded Bustos nothing, although the jury answered “Yes” to the special verdict form question: “Was [Bustos’ disabilities] a substantial motivating reasons for [Global’s] decision to discharge [Bustos]?”  The jury also answered “No” to the question of whether Global’s “conduct” was a “substantial factor in causing harm to [Bustos]”.

Based on the jury’s finding that Bustos’ disabilities were a substantial motivating reason for his termination, Bustos’ attorneys requested an award of about $454,000 in fees under the Fair Employment Housing Act, Government Code Section 12965. They cited Harris v. City of Santa Monica (2013) 56 Cal.4th 203, 235, for the proposition that “a plaintiff subject to an adverse employment decision in which discrimination was a substantial motivating factor may be eligible for reasonable attorney’s fees and costs expended for the purpose of redressing, preventing, or deterring that discrimination,” even if that plaintiff did not sustain a compensable injury.

The trial court denied that request, finding that Bustos was not a “prevailing party” under Section 12965 because he failed to recover any economic or equitable relief. (Bustos, supra, *4.)  After reviewing the record and Harris, the Court of Appeal affirmed:  “It is not beyond reason to conclude that a plaintiff who obtains no relief at trial – either monetary or equitable – has not ‘realized [his] litigation objectives,’ regardless of whether one or more preliminary questions on a special verdict form were answered in his favor.”  (Id. at *7, citing Castro v. Superior Court (2004) 116 Cal.App.4th 1010, 1023.)

The Bustos decision should discourage claims for attorney’s fees based only on favorable special verdict form questions where a plaintiff has no practical prevailing party status.  This decision, however, may also encourage the pursuit of more equitable claims – injunctive and declaratory relief – in which a plaintiff has another means of realizing prevailing party status.