Business Law Journal

Seventeen years ago, in 2004, the California Legislature enacted the Labor Code Private Attorneys General Act of 2004 (“PAGA”).  Appropriately dubbed a “bounty hunter” law, PAGA authorizes any current or former “aggrieved” employee of a California employer to file suit to seek statutory penalties for essentially any violation of the California Labor Code together with attorney’s fees, hence the incentive for plaintiff attorneys to bring such cases.  Specifically, under PAGA a current or former employee who is “aggrieved” by a violation of the California Labor Code can seek in addition to damages and liquidated damages, civil penalties on the employee’s behalf and on behalf of all other similarly “aggrieved” (i.e., affected) current and former employees.  The recoverable civil penalties are up to $100 per employee per pay period for an initial violation and $200 per employee per pay period for each subsequent violation, plus attorney’s fees and litigation costs.  When such penalties are awarded, the plaintiff current or former employee along with all other similar “aggrieved” employee will receive 25% of the penalties together with their attorney’s fees as a “bounty,” with the balance of the penalties payable to a State agency known as the California Labor and Workforce Development Agency. 

On January 6, 2021, the Department of Labor (“DOL”) announced the new final rule for worker classifications called the “economic reality” test. The new DOL final rule provided that two core factors were to be examined to determine whether a worker is properly classified as an independent contractor under federal law: (1) the nature and degree of control over the work; and (2) the worker’s opportunity for profit or loss based on initiative and/or investment. As previously discussed here, these requirements are much less stringent than the “ABC” test adopted by California, which requires that the worker perform work outside the usual course of the hiring entity’s business and that the worker is customarily engaged in an independently established business of the same nature.

According to a recent unanimous decision by the California Court of Appeal’s First District, an action alleging violations of California’s Private Attorneys General Act (“PAGA”) may be filed in any county where any allegedly aggrieved employee worked or alleges to have suffered violations of the Labor Code.  It does not matter where the employee suing the company worked or where the employer-company is located. 

The California Supreme Court has rejected an emergency constitutional challenge filed by drivers for Uber, Lyft and other app-based companies and various unions requesting that the Court declare the voter-approved Proposition 22 unconstitutional.  Proposition 22 (“Prop 22”) permits some app-based gig ride-hailing and delivery companies to continue to classify workers as independent contractors despite California’s adoption of the stringent ABC test for worker classification (discussed here).  The union-backed challenge to Prop 22 was not decided on the merits and continued legal activity challenging Prop 22 is expected.  The lawsuit is entitled Hector Castellanos, et al. v. State of California, et al., Case Number S266551.

In order to resolve a COVID-era class action lawsuit concerning its retail stores, Nike has agreed to provide all retail store employees with transparent, see-through face coverings to accommodate its customers who are deaf or hard of hearing and rely on lip reading. Nike’s new policy is part of a proposed settlement following a class action suit against the shoe company’s retail operations.

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.

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

In Golden v. California Emergency Physicians Medical Group, et al., a divided Ninth Circuit panel held that a settlement agreement between a doctor and his former employer violated Cal. Prof. & Bus. Code § 16600 because a “no re-hire” provision of the agreement placed a “restraint of a substantial character” on the doctor’s medical practice.

Eleven states have employment laws protecting medical cannabis patients against employment discrimination. California is not currently one of them.  In 2008, the California Supreme Court held that employers could terminate employees for off-work cannabis use even if such use is for medicinal purposes and lawful under California’s medical marijuana laws. A lot has changed since the California Supreme Court decided this issue a decade ago.  California voters have since passed law legalizing recreational use of cannabis, and many California employers are wondering what rights they have to not hire and/or to terminate employees who test positive for cannabis. The California Legislature may soon clarify employer and employee rights in California vis a vis off-work cannabis consumption through Assembly Bill (“AB”) 2069, which was introduced on February 7, 2018.