Key California Employment Law Cases: September 2019

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ZB, N.A. v. Super Ct. of San Diego Cty., 8 Cal. 5th 175, 252 Cal. Rptr. 3d 228 (2019)

Summary:  Employee may not recover unpaid wages under Labor Code section 558 through PAGA.

Facts:  Plaintiff Lawson worked for California Bank & Trust, a subdivision of ZB, N.A.  During her employment, plaintiff acknowledged receipt of an arbitration agreement that contained a class action waiver and that required arbitration of any legal controversy or claim arising out of her employment.  Plaintiff filed a civil complaint against defendants containing a single cause of action under the California Private Attorneys General Act (“PAGA”).  In this single cause of action, she alleged that defendants failed to provide overtime and minimum wages, meal and rest periods, timely wage payments, complete and accurate wage statements, complete and accurate payroll records, and reimbursements of business-related expenses.  Plaintiff sought to recover (through PAGA) civil penalties and unpaid and premium wages under California Labor Code section 558.  Section 558 provides for civil penalties of $50 and $100 for each underpaid employee for each pay period for which the employee was underpaid in addition to an amount sufficient to recover underpaid wages.  Defendants moved to stay the civil action and to compel arbitration of the relief sought under section 558.  The trial court granted the motion, bifurcating plaintiff’s action and moving the unpaid wages issue to arbitration.  The trial court also ordered to arbitration her representative claim for unpaid wages on behalf of all aggrieved employees.

The California Court of Appeal directed the trial court to vacate its order bifurcating plaintiff’s claims and ordering a portion of those claims be arbitrated, and instead to enter a new order denying defendants’ motion to arbitrate.  The appellate court found that plaintiff’s claim for unpaid wages under section 558 could not be compelled to arbitration because those alleged unpaid wages constituted civil penalties that are recoverable through a PAGA claim

Court's Decision:  The California Supreme Court rejected the appellate court’s reasoning, but affirmed the order.  In reviewing the legislative history of PAGA and section 558, and analyzing the statutory context of section 558, the court concluded that the amount for unpaid wages referenced in section 558 is not part of that section’s civil penalty and is therefore not recoverable through a PAGA action.  Because plaintiff’s claim for unpaid wages under section 558 was not cognizable under PAGA, and because that was the only basis for defendants’ motion to compel arbitration, there was no justification for the trial court’s order compelling arbitration.  Accordingly, the high court affirmed the appellate court’s writ of mandate directing the trial court to vacate its order compelling arbitration.

Practical Implications: This decision removes an incentive for employees to file PAGA-only actions to avoid class action waivers because the penalties for PAGA violations may be substantially less than claims for unpaid wages that can be arbitrated.

Williams v. Sacramento River Cats Baseball Club, LLC, 40 Cal. App. 5th 280, 253 Cal. Rptr. 3d 129 (2019)

Summary:  Plaintiff allegedly not hired for job because of race did not have tort claim for wrongful failure to hire.

Facts:  Plaintiff Williams, an African-American, catered meals to players at Raley Field, home of defendant Sacramento River Cats Baseball Club, LLC.  While plaintiff was assisting the visitor clubhouse manager, the job of assistant clubhouse manager became available.  With the recommendation of the visitor clubhouse manager and relevant previous experience, plaintiff applied for the job.  However, the club never interviewed him for the job and instead hired a Caucasian teenager who was still in high school, lacked relevant job experience, and did not meet other prerequisites for the job.  Plaintiff sued, arguing that the club’s failure to hire him because of race violated public policy and Tameny v. Atlantic Richfield Co., 27 Cal. 3d 167, 164 Cal. Rptr. 839 (1980), which held that when an employer's discharge of an employee violates fundamental principles of public policy, the discharged employee may maintain a tort action and recover damages traditionally available in such actions.  The trial court sustained the club’s demurrer, finding that California does not recognize a common law claim for failure to hire in violation of public policy, and that the Tameny holding did not apply to him.
 
Court's Decision:  The California Court of Appeal affirmed, reasoning that an employer’s decision to reject an applicant because of the applicant’s race does not create tort liability because, absent an employee-employer relationship, the defendant owed no duty of care to the applicant.  However, the court encouraged plaintiff to determine whether the Fair Employment and Housing Act applied to his allegations.

Practical Implications:  Since plaintiff proceeded on the wrong legal theory in court, this decision is not pass for employers to make hiring decisions based on race.

Southern Cal. Pizza Co., LLC v. Certain Underwriters at Lloyd’s London, 40 Cal. App. 5th 140, 252 Cal. Rptr. 3d 635 (2019)

Summary:  Wage and hour exclusion in employment practices liability insurance policy must be narrowly interpreted to extend coverage for claims brought under California Labor Code sections 2800 and 2802 for reimbursement of necessary expenses.

Facts:  Southern California Pizza Co. owns and operates over 250 Pizza Hut and WingStreet restaurants.  Employees brought a putative class action alleging violations of various California labor laws including failure to provide overtime wages, accurate wage statements, proper meal and rest periods; and failure to reimburse employees for business-related expenses.  SoCal Pizza tendered its defense to Lloyd’s, which denied coverage.  Lloyd’s argued that the entire action fell within its wage and hour exclusion, which excluded coverage for “any Loss resulting from any Claim based upon, arising out of, directly or indirectly connected or related to, or in any way alleging violation(s) of any . . . wage and hour or overtime law(s).”  SoCal Pizza sued for breach of contract, bad faith, and declaratory relief.  The trial court agreed with Lloyd’s and interpreted the wage and hour exclusion broadly to exclude coverage for the entire class action.

Court's Decision:  The California Court of Appeal reversed.  Applying well-settled principles governing the interpretation of insurance policies in California, the court determined that the meaning of the phrase “wage and hour . . . law(s)” in Lloyd’s exclusion should be narrowly interpreted to apply only to laws concerning duration worked or remuneration received in exchange for work.  The court determined that SoCal Pizza’s alleged failure to reimburse business expenses was not excluded from coverage because the reimbursement statutes (Labor Code sections 2800 and 2802) are not sufficiently related to California’s wage and hour statutes.  Furthermore, the reimbursement statutes do not mention wages or hours, nor do they appear in the Labor Code’s compensation or working hours sections.  Finally, since reimbursement payments are not payments made in exchange for labor or services, the reimbursement claims were not related to remuneration received in exchange for work, and therefore not within the wage and hour exclusion.

Practical Implications:  This case demonstrates that wage and hour exclusions in EPLI policies might not eliminate insurance coverage for every cause of action in what has traditionally been called a wage and hour case.  This is especially true when an allegation does not involve remuneration received in exchange for work.  Of course, coverage depends on the specific verbiage of the exclusion itself.  Employers should always tender claims to their EPLI insurers, and contact coverage counsel to review any denials which appear to be based on overly-broad applications of policy exclusions.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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