Drafting arbitration provisions in the employment context is becoming a form of art. Recent decisions issued by the California Courts of Appeal highlight to employers that even valid arbitration agreements are subject to the court’s scrutiny when it comes to representative actions under the California’s Private Attorneys General Act (“PAGA”), and may not achieve the intended result depending upon the language used in the arbitration agreement.
On September 2, 2020, the Ninth Circuit Court of Appeals ruled in Frlekin v. Apple, Inc. (Case No. 15-17382) that Apple must compensate a certified class of California non-exempt employees for time spent waiting for, and submitting to, bag searches required by Apple’s policies.
This decision underscores the need for employers to be vigilant in ensuring compliance with California’s complex framework of wage and hour laws, and, perhaps more importantly, the importance of minimizing class action exposure through carefully-drafted arbitration agreements.
Three months since our last update on the impact of COVID-19 on commercial lease payment obligations (here), COVID-19 continues its onslaught throughout the United States with now more than 717,000 confirmed cases in California alone. The State of Emergency in California continues, and the Executive Order that previously granted local jurisdictions the authority to impose moratoriums on residential and commercial evictions has likewise been extended. This alert will address the continuing moratoriums on commercial evictions throughout various jurisdictions at the local level, and their impact on commercial lease payment obligations.
In MSY Trading Inc., et al. v. Saleen Automotive, Inc., the California Court of Appeal recently ruled on a question of first impression: whether a postjudgment, independent action to establish alter ego liability for a judgment on a contract is subject to an award of attorney fees (pursuant to the contract) for a prevailing party, even if the prevailing party had not signed that contract. The Court of Appeal affirmed that any prevailing party, having prevailed in an action based on the contract, could properly seek attorney fees as allowed by the contract. The Court of Appeal also noted that had such alter ego allegations been made in the prior breach of contract action, the prevailing party would most certainly have been entitled to recover its attorney’s fees — therefore, the postjudgment, independent action to establish alter ego liability on that judgment must be considered an action based on the contract.
In Betancourt v. OS Restaurant Services, LLC (Cal. Ct. App., Apr. 30, 2020, No. B293625) 2020 WL 2570839, reh'g denied (May 18, 2020), the California Court of Appeal, Second Appellate District ruled an action for failure to provide meal or rest breaks under Labor Code § 226.7 is not an action for nonpayment of wages, as defined in Labor Code § 218.5, therefore attorney’s fees are not recoverable.
The Second Appellate District reversed an award of attorney’s fees related to an action for failure to provide meal and rest breaks, under Labor Code § 218.5. Raquel Betancourt sued her former employer claiming retaliation, wrongful termination, unpaid premium wages for rest break violations under Labor Code § 226.7, and derivative claims for inaccurate wages statements (Labor Code § 226) for failing to list and include the rest break premiums, as well as waiting time penalties (Labor Code §§ 201 through 203) for failing to pay all wages at the time of her termination, including the unpaid rest period premiums. Betancourt’s prayer for relief included requesting attorney’s fees under Labor Code §§ 218.5 and 226.
The parties settled the case before trial. The claims settled, as stated on the record in court, were for failure to provide meal and rest breaks, accurate itemized wage statements, and for waiting time penalties as well as all other wage and hour claims that were or could have been alleged. Plaintiff dismissed her retaliation and wrongful termination claims with prejudice and without payment. The parties disagreed as to attorney’s fees, so they agreed plaintiff could file a motion for attorney’s fees later. Plaintiff filed a motion for attorney’s fees requesting $580,794 in fees based on Labor Code §§ 218.5 and 226.
The Courts of Appeal’s analysis focused on the Labor Code’s “nonpayment of wages” language, and stated there was no basis for attorney’s fees in this case because the action was for meal and rest breaks, not nonpayment of wages. The Court based its decision on Kirby v. Immoos Fire Protection, Inc. (2012) 53 Cal.4th 1244, 1255 (claims for failing to provide meal or rest breaks are not actions for nonpayment of wages), and its progeny—specifically Ling v. P.F. Chang’s China Bistro, Inc. (2016) 245 Cal.App.4th 1242, 1261 (Ling), and Naranjo v. Spectrum Security Services, Inc. (2019) 40 Cal.App.5th 444, 474, review granted & depublication denied, Jan. 2, 2020, S258966 (Naranjo).
The remedy for failing to provide a meal or rest break is measured by an employee’s regular hourly wage; however, simply because the remedy is measured by the hourly wage does not convert the remedy into a wage, as defined in the Labor Code section authorizing the recovery of waiting time penalties. (Ling, supra, 245 Cal.App.4th at p. 1261.) Additionally, failing to provide meal or rest breaks does not give rise to derivative claims for waiting time and wage statement penalties, under Labor Code sections 203 and 226, respectively. (Naranjo, supra, 40 Cal.App.5th at p. 474.) Because a plaintiff is not entitled to wage statement penalties under Labor Code § 226, they are not entitled to recovery of attorney’s fees under Labor Code § 226(e).
What it means to California Employers
Meal and rest break claims are popular among plaintiffs in California. As the Betancourt case shows, the requested attorney’s fees of $580,794 eclipsed the settlement amount of $15,375 for plaintiff’s meal and rest break claims. This ruling is significant for California employers facing wage and hour actions based solely on meal and/or rest break claims because the court clarified that attorney’s fees are not recoverable, which may help reduce the overall exposure and the number of attorney’s–fee–driven wage and hour lawsuits.
For further information, contact the authors or your usual employment counsel at AALRR.
This AALRR presentation is intended for informational purposes only and should not be relied upon in reaching a conclusion in a particular area of law. Applicability of the legal principles discussed may differ substantially in individual situations. Receipt of this or any other AALRR presentation/publication does not create an attorney-client relationship. The Firm is not responsible for inadvertent errors that may occur in the publishing process.
© 2020 Atkinson, Andelson, Loya, Ruud & Romo
On Friday, May 29, 2020, the California Department of Public Health approved Los Angeles County’s variance request to move further into Stage Two of the California Resiliency Roadmap, allowing Los Angeles County restaurants to provide in-person dining service and hair salons and barbershops to reopen.
On May 14, 2020, the Supreme Court unanimously ruled in favor of denim company Lucky Brand Dungarees, Inc. (“Lucky Brand”) in its decades-long trademark dispute with Marcel Fashions Group, Inc. (“Marcel”), holding that Lucky Brand was not precluded from asserting an unlitigated defense from a prior lawsuit with Marcel. In Lucky Brand Dungarees, Inc., et al. v. Marcel Fashions Group, Inc., 590 U.S. ___ (2020), the Supreme Court rejected the Second Circuit’s application of the so-called “defense preclusion” doctrine and confirmed that any preclusion of a litigant’s defenses must comply with traditional res judicata principles.
On May 5, 2020, the California Attorney General, along with the City Attorneys of Los Angeles, San Diego and San Francisco filed a lawsuit on behalf of the State and respective cities, in San Francisco County Superior Court, against the leading ride-share service providers, Uber and Lyft (“Defendants”), for their continued classification of drivers as independent contractors. The case is entitled People v. Uber Technologies, Inc., et al.
Other AALRR Blogs
- Privacy Law Update: New California Privacy Rights Act Further Expands California’s Privacy Law Amid the Evolving Privacy Landscape
- Employment Arbitration Agreements & PAGA — Choose Your Words Carefully
- Ninth Circuit’s Ruling In Frlekin v. Apple, Inc. Is A Cautionary Tale For Employers
- Further Developments Under COVID-19 and Its Continued Impact On Commercial Lease Payment Obligations
- A Postjudgment, Independent Action To Enforce Alter Ego Liability On A Contract Is Considered An Action On The Contract
- Part 5: Data Privacy in California: Responding to Consumer Requests and Enforcement by the Attorney General Begins
- The Appellate Court Takes a Bite Out of Meal and Rest Break Claims
- Los Angeles County Obtains Approval to Move Further into Stage 2; Restaurants May Resume In-Person Dining and Hair Salons and Barbershops May Reopen
- Better Luck Next Time—Supreme Court Unanimously Rejects Defense Preclusion in Lucky Brand Trademark Row
- Leading Ride Share Servicers Sued by the State of California for Continued Misclassification of Drivers as Independent Contractors
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