The U.S. Supreme Court ruled that public sector employers (states, local governments) cannot require public sector employees to pay “agency fees” to public sector unions.  That means that public employees who do not wish to be represented by a ...

 

U.S. Supreme Court: No Forced Public Sector Union Fees and more...



U.S. Supreme Court: No Forced Public Sector Union Fees

The U.S. Supreme Court ruled that public sector employers (states, local governments) cannot require public sector employees to pay “agency fees” to public sector unions.  That means that public employees who do not wish to be represented by a union in collective bargaining will not have to pay for the union’s representation activities.  The Court’s 5-4 ruling in Janus v. AFSCME, Council 31, overrules the Court’s 1977 decision in Abood v. Detroit Bd. of Ed.  

The case arose in Illinois, which permits employees to unionize. Illinois law authorizes a union to be the exclusive representative of employees in a given bargaining unit, even if an employee covered by that bargaining unit does not want union representation. The employee must allow the union to negotiate on his or her behalf, and the individual has no power to negotiate with the employer. 

Because of Abood, those employees who do not want to join the union as a full member do not pay the full amount of union dues. Rather, these employees pay an “agency fee,” which ostensibly is the portion of the full dues devoted to representation activities.  In the Janus case, the agency portion of the dues were supposed to be about 78% of the full dues payment.  What happens to the other 22%?  The union uses those funds for non-representation activities, including political advocacy, lobbying for legislation, and other union activities unrelated to the negotiation / administration of a bargaining unit’s contract.  The union accounts for its bargaining and non-bargaining activities, and provides members notice of the calculation.  Employees may challenge the calculation of agency fees. 

Janus, one of 35,000 Illinois state workers represented by AFSCME public union, objected to having to pay any fees to support the union’s activity.  He argued that the state’s compelling his participation in the union, even as just an “agency” member, violates the First Amendment.  How so?

Because this is a public sector situation, the state employer is bound by the Constitution, including the First Amendment. The state as employer therefore has to comply with the First Amendment, although some rules are modified to accommodate the employment context.  Janus’s argument was that requiring him to pay agency fees is tantamount to coerced speech, in that Janus was required to adopt – and finance – the Union’s bargaining position with the State. The Supreme Court’s decision in Abood authorized the separation of representation activities from the non-representation activities as a work-around to First Amendment concerns. Since the Abood opinion, though, the Court had questioned it and declined to extend it.  Fast forward to now, Janus asked the high court to overrule Abood

And that’s what happened.  The Court decided that even requiring the “agency fee” was coerced speech; that is, the government requires someone to adopt and subsidize speech he / she doesn’t necessarily agree with.  Here is some analysis from the Court (most citations deleted):

freedom of speech “includes both the right to speak freely and the right to refrain from speaking at all.” 

*** The right to eschew association for expressive purposes is likewise protected. *** As Justice Jackson memorably put it:“If there is any fixed star in our constitutional constellation, it is that no official, high or petty, can prescribe what shall be orthodox in politics, nationalism, religion, or other matters of opinion or force citizens to confess by word or act their faith therein.” West Virginia Bd. of Ed. v. Barnette, 319 U. S. 624, 642 (1943) (emphasis added).

Compelling individuals to mouth support for views they find objectionable violates that cardinal constitutional command, and in most contexts, any such effort would be universally condemned. Suppose, for example, that theState of Illinois required all residents to sign a document expressing support for a particular set of positions on controversial public issues—say, the platform of one of the major political parties. No one, we trust, would seriously argue that the First Amendment permits this.

 * * * * 

When speech is compelled, however, additional damage is done. In that situation, individuals are coerced into betraying their convictions. Forcing free and independent individuals to endorse ideas they find objectionable is always demeaning, and for this reason, one of our landmark free speech cases said that a law commanding “involuntary affirmation” of objected-to beliefs would require “even more immediate and urgent grounds” than a law demanding silence.***

Compelling a person to subsidize the speech of other private speakers raises similar First Amendment concerns. *** 

As Jefferson famously put it, “to compel a man to furnish contributions of money for the propagation of opinions which he disbelieves and abhor[s] is sinful and tyrannical.” A Bill for Establishing Religious Freedom, in2 Papers of Thomas Jefferson 545 (J. Boyd ed. 1950) (emphasis deleted and footnote omitted) *** We have therefore recognized that a “‘significant impingement on First Amendment rights’” occurs when public employees are required to provide financial support for a union that “takes many positions during collective bargaining that have powerful political and civic consequences.” Knox, supra, at 310–311 (quoting Ellis v. Railway Clerks, 466 U. S. 435, 455 (1984)).

Under this constitutional framework, the Court rejected Abood’s distinction between representative and non-representative activities. The Court held that Illinois did not have the right under the First Amendment to compel employees’ subsidizing of the union through agency fees. 

The remainder of the opinion covers why the Illinois law fails the analysis that courts apply to limitations on speech.  The Court then went on to explain why overruling Abood was the proper course of action.  Four justices dissented.

So, to sum up: this case is about public sector unions and how they are financed by public sector employees.  It does not specifically cover private sector unions, where the employer is not a public entity and is not bound by the First Amendment. However, the case may  come up before a future Court, for analysis of whether the National Labor Relations Act, a federal statute, is valid under the First Amendment to the extent it requires employees who do not wish to join a union to pay agency fees.  Not yet, but we’ll see.  For now, to repeat, private sector employers are not affected by this ruling.

This case is Janus v. AFSCME, Council 31 and the opinion is here.  

 

 

 

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Upcoming CA Local Ordinance Changes – Info Courtesy of CA Chamber of Commerce

The California Chamber of Commerce provides this handy guide to upcoming local ordinance changes.  They include local minimum wage changes and more. Many changes go into effect 7/1/18. So, don’t get caught unaware.   The article is here. 

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Court of Appeal: OK to Mail Final Wage Statement and More

The Court of Appeal made three significant rulings (mainly) concerning California’s Labor Code section 226, a law that imposes specific requirements for “wage statements” that accompany each pay check.

First, the Court held that when an employer pays “retro overtime” to account for bonuses earned over prior pay periods, it is sufficient to list the amount of overtime paid, without attributing it to specific hours and rates.

Second, the Court held that an employer who pays a terminating employee on the date of termination may mail the wage statement, or otherwise may “furnish” it to the employee by the end of the semi-monthly pay period.

Third (and not really related to section 226 per se), the Court decided that bonuses based on production are not covered by the California Supreme Court’s recent Dart v. Alvarado Container Corp., which addresses how to calculate overtime for flat-sum bonuses that are not based on production. 

A little background. The plaintiffs were non-exempt Wells Fargo employees.  Their compensation included production bonuses for work performed over different periods of time (monthly, quarterly, etc.)  When Wells Fargo calculated the bonuses after they were earned, Wells dutifully paid these non-exempt workers the retro overtime that was due on the value of the bonus.  Then, Wells included the retro overtime paid on the wage statement for the pay period in which Wells paid the overtime.  When employees’ employment ended, Wells sometimes would pay employees in person with a cashier’s check, which is equivalent to cash. However, on those occasions, Wells did not have the wage statement to give the employee in person. So, they mailed it.

Separate from the wage statement issue, the Court first addressed how overtime works for non-discretionary production bonuses. Here’s an excerpt.

In order to calculate overtime pay for an employee paid at an hourly rate, an employer must allocate the bonus over the period in which it was earned. * * * To explain this using an example, take a hypothetical employee wage statement for the period of January 7 to January 20, 2018.9 This hypothetical wage statement would include an hourly regular rate, the number of regular hours worked during the pay period of January 7 to January 20, the hourly overtime rate, and the number of overtime hours worked during the pay period of January 7 to January 20. The hypothetical employee earned a $360 monthly bonus for work performed during the previous month of December, from December 1 to December 31, 2017. This bonus would be reflected on the January 7 to January 20, 2018 wage statement.10 To calculate the OverTimePay-Override line, the hours worked in December 2017 would be used because that is the time period in which the bonus was earned. In this hypothetical, the employee had worked 160 regular hours and 20 overtime hours in December 2017, for a total of 180 hours. First, divide $360 by 180, which results in $2. This number represents the increase to the regular hourly rate. Multiply $2 by 0.5 and the result, $1, represents the increase to the overtime hourly rate. Then, take $1 and multiply it by 20, the overtime hours worked during December 2017, and the result, $20, is the overtime pay adjustment, which would be identified as the OverTimePay-Override line on the wage statement. This allocation, at least for production or piecework bonuses, is calculated by using the method described above in footnote 4. 

And “footnote 4” says:

To calculate the amount to be entered on the OverTimePay-Override line: (1) take the bonus earned during the bonus period, whether it be by year, quarter, or month; (2) divide the bonus by the total number of hours worked during the bonus period; (3) multiply the resulting number by 0.5; (4) multiply the resulting number by the total number of overtime hours worked during the bonus period. 

Our Supreme Court in a recent decision concerning flat sum bonuses under California law decided that the proper method for calculating the rate of overtime pay when an employee receives both an hourly wage and a flat sum bonus is to divide the bonus by the number of nonovertime hours actually worked during the bonus period. (Alvarado v. Dart Container Corp. of California (2018) 4 Cal.5th 542, 562 (Alvarado).) The Supreme Court specifically excluded production or piecework bonuses or a commission from its holding. (Id. at p. 561, fn. 6.)  

So, the Court specifically interprets the Dart case as inapplicable to production bonuses. Check the way your organization calculates retro overtime on bonuses that are earned across multiple pay periods.  It should conform with the above.

Moving on to wage statements. Every pay period, the employer has to furnish a wage statement that contains 9 categories of information all spelled out in Labor Code section 226.  (In addition, the paid sick leave balance has to be included per the paid sick leave law.)

The plaintiffs argued that Wells’s inclusion of the retro overtime on the wage statement for a given pay period was illegal, because the company did not spell out the hours for which the retro overtime was paid. The Court rejected the argument because the wage statement’s requirements of separately listing rates and hours applies only to the wages and hours applicable to the particular pay period in question, not retro pay.  Or, as the Court put it:

Based on the above statutory construction and the method by which OverTimePay-Override was calculated, there were no “applicable hourly rates in effect during the pay period” that corresponded to OverTimePay-Override. Accordingly, there was also no “corresponding number of hours worked at each hourly rate by the employee” for the pay period that applied to OverTimePay-Override. As discussed above, OverTimePay-Override represented additional wages that were earned as overtime pay based on nondiscretionary bonuses being spread over the hours worked during the bonus period. Moreover, based on how OverTimePay-Override was calculated, the overtime hours were worked in previous pay periods for which employees had already received their standard overtime pay. The itemized wage statement issued by an employer need only provide the applicable hourly rates and the corresponding number of hours worked “in effect during the pay period.” In other words, the employer need only identify on the wage statement the hourly rate in effect during the pay period for which the employee was currently being paid, and the corresponding hours worked. 

The Court next turned to the timing of furnishing wage statements to terminated employees. The Court focused on what the statute specifically said about when the wage statement must be provided: 

Section 226 provides that an employer must furnish the wage statement as either “a detachable part of the check, draft, or voucher paying the employee’s wages,” or separately when the wages are paid by personal check or cash. Other than that one provision, section 226 describes no other specific means by which an employer is to furnish the itemized statement to an employee. Thus, mailing the wage statement is a viable means to “furnish.” Defendant could also furnish the wage statement separately because paying discharged employees by cashier’s check was the equivalent of paying them by cash.11 However, the Legislature also provided for when an employer was to furnish the wage statement to the employee: “semimonthly or at the time of each payment of wages.” 

The Court therefore reasoned that the law does not require employers to give employees a wage statement along with final pay. Rather, the law says that the wage statement has to be provided “semi-monthly OR at the time of payment.”  

by the plain meaning of the statute, defendant also had the option of furnishing the wage statement semimonthly. (§ 226, subd. (a).) Additionally, nothing in section 226 suggests that an employer cannot furnish the wage statement prior to the semimonthly date. For example, suppose an employer furnishes wage statements on the first and the fifteenth of each month. The employer discharges an employee on the second of the month. Per the statute’s plain language, if an employer pays the final wages by personal check or cash, it has the option of furnishing the discharged employee with the wage statement on the fifteenth. 

PROTIP: To avoid claims of failure to provide the wage statement timely, don’t mail it without a return receipt or other proof of delivery.

The case is Canales v. Wells Fargo Bank and the opinion is here. 

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Court of Appeal: Employee Can Sue for PAGA Penalties for Violations that Don’t Affect the Employee

Employers, lawyers, clients, friends, and random Googlers:  do you understand how dangerous PAGA claims can be? The California Court of Appeal just provided a clinic on the subject. So, let’s review the Court’s decision in Huff v. Securitas Security Servs. USA, Inc. (opinion here).

First, for those of you a little behind in your reading, here’s a summary from the Court of what the Private Attorney General Act of 2003 (“PAGA”) is:  

PAGA was enacted in 2003 to allow private parties to sue for the civil penalties previously only recoverable by a state agency. . . .  PAGA created a type of qui tam action, authorizing a private party to bring an action to recover a penalty on behalf of the government and receive part of the recovery as compensation. [ ] When an employee brings a representative action under PAGA, he or she does so “as the proxy or agent of the state’s labor law enforcement agencies, not other employees.” ****

“The purpose of the PAGA is not to recover damages or restitution, but to create a means of ‘deputizing’ citizens as private attorneys general to enforce the Labor Code. …. The relief provided by the statute is designed to benefit the general public, not the party bringing the action. (Ibid.) Since PAGA is fundamentally a law enforcement action, a plaintiff must first allow the appropriate state authorities to investigate the alleged Labor Code violations, by providing the Labor and Workforce Development Agency with written notice of the violations. … Only if the agency elects not to pursue the violations may an employee file a PAGA action. (§ 2699.3, subd. (a)(2).) The penalties that can be recovered in the action are those that can be recovered by state enforcement agencies under the Labor Code; they are separate from the statutory damages that can be recovered by an employee pursuing an individual claim for a Labor Code violation. … Penalties recovered by a plaintiff in a PAGA case are paid mostly to the state. (See § 2699, subd. (i) [75 percent distributed to the Labor and Workforce Development Agency, and the remaining 25 percent to aggrieved employees].)

PAGA penalties are either the penalties contained in the applicable Labor Code statute or, if there is no penalty prescribed, a catch-all penalty of $100 per pay period, per employee, for each violation.  For repeat violations, the penalty increases to $200 per pay period, per employee. For semi-monthly pay periods, that’s 24 X ($100 or $200) X the number of employees affected. But if the violation only stretches across one pay period, the penalty is only $100 per employee, right?  Sure, but that’s per violation, per employee.  10 Labor Code violations? Not out of the question, given how many “opportunities” for violations the Labor Code provides.  

Now that you know what PAGA is, you may want to know why I say it’s so dangerous. It’s not the fact that the penalties can add up, as discussed above. Let me explain.

Let’s say one employee was not paid for a late meal period. That’s a Labor Code violation, as we know. The employee is due one hour’s pay at the regular rate, as a “premium.” And the employee can collect a civil penalty for underpayment via PAGA. That penalty could be in the Wage Order, or in the Labor Code.

Our employee in the example above decides to sue. And she wants to bring the claim not only on her own behalf, but also on behalf of any other employee who didn’t get a meal period timely, and who didn’t receive a premium.

Sure, the employee can sue for the unpaid meal period premiums. But he or she cannot sue for those premiums without first satisfying class action requirements. To bring a class action successfully is not always easy to do. And the plaintiff in a class action is a fiduciary and has to provide notice to the class and meet other requirements. 

PAGA, on the other hand, does not require a plaintiff to bring a class action to pursue the PAGA penalties that the Labor Commissioner might have sought. PAGA claims are “representative” actions, not class actions. Our example employee can seek PAGA penalties attributable to violations against anyone else who worked for the same employer, missed a meal period and did not receive the premium.  The employee sues as if he or she were the Labor Commissioner and goes after the penalties that the Labor Commissioner is authorized to pursue. 

One catch is that the employee can use this “representative action” only to pursue the PAGA penalties, not unpaid wages. And another catch is that the employee gets to keep only 25% of the penalties. 75% must be paid to the state, which was the “real” plaintiff in the first place.

Are you with me so far?  Because I haven’t gotten to the scary part yet.

In my example above, I discussed an employee who could claim one meal period violation and, as a result, seek PAGA penalties for any employee who suffered a similar violation. You might ask: can that employee seek PAGA penalties for violations that were not perpetrated against him or her. That is, can the employee also claim PAGA penalties for, let’s say, miscalculation of overtime when the employee did not work overtime?  That is the precise issue the Court addressed in the Securitas case.

Here are some of the facts from the Court’s opinion:

 Huff worked as a security guard for defendant Securitas Security Services USA, Inc. ****

****

Huff was employed by Securitas for about a year, during which time he worked at three different client sites. After he was removed from an assignment at the request of the client, Huff resigned his employment. Two months later, he sued Securitas for Labor Code violations. The operative second amended complaint contains a representative cause of action under PAGA, seeking penalties for Labor Code violations committed against Huff and other employees. According to the complaint, the basis for the PAGA claim is that Securitas is subject to penalties for violations of “numerous Labor Code provisions.” The Labor Code provisions alleged to have been violated include sections 201 [requiring immediate payment of wages upon termination of employment]; 201.3, subdivision (b) [requiring temporary services employers to pay wages weekly]; 202 [requiring payment of wages within 72 hours of resignation]; and 204 [failure to pay all wages due for work performed in a pay period] (unspecified statutory references are to the Labor Code). 

****

After Huff presented his case, Securitas moved for judgment under Code of Civil Procedure section 631.8. The trial court granted the motion, finding that the evidence established Huff was not a temporary services employee as defined by section 201.3, subdivision (b)(1), and as a result could not show he was affected by a violation of that section. The court further decided that Huff had no standing to pursue penalties under PAGA on behalf of others who were affected by that violation. Judgment was entered in favor of Securitas. 

However, the trial court later reversed itself. The trial court decided that Huff indeed could pursue PAGA penalties based on Securitas’s failure to comply with Labor Code section 201.3, even though Huff himself did not qualify for the penalty.  Securitas appealed that ruling.

So, the question for the Court of Appeal was: could Huff seek PAGA penalties on behalf of other employees for violation of section 201.3, when Huff himself was not subjected to a violation of the Labor Code provision at issue?

Yes. Yes he could. The Court of Appeal decided that if Huff could prove a violation of just one section of the Labor Code as to him individually, he had standing to seek penalties for any Labor Code violations that allow penalties to be recovered, and on behalf of any other employees.

Here is some of the Court’s opinion on the subject:

Securitas does not dispute that PAGA authorizes a plaintiff to recover penalties for Labor Code violations suffered by other employees. But it argues the statute allows for that only when the violations against the other employees involve the same provision of the Labor Code as the violation suffered by the plaintiff. 

**** 

The proposition that PAGA allows an employee to pursue penalties only for the type of violation he or she has suffered is directly at odds with the provision that an action may be brought by an employee against whom “one or more” of the alleged violations was committed. 

****

Securitas asserts that applying the statutory definition of “aggrieved employee” as we do here leads to absurd consequences. It worries that the penalties collectable by PAGA plaintiffs will be “bounded solely by [their] pleading imagination.” But a PAGA plaintiff does not collect penalties merely by alleging a Labor Code violation in the complaint. The plaintiff still must prove at trial that a violation in fact occurred. Procedural mechanisms such as summary adjudication remain available to weed out meritless claims before trial. (Code of Civ. Proc. §437c, subd. (f)(1).) Perhaps Securitas’ concern is more about plaintiffs who bring PAGA claims solely as a fishing expedition to attempt to uncover other violations committed by the employer. Though that concern is better directed to the Legislature, we note that the trial courts are also equipped to manage cases in a way that avoids unreasonable consumption of time or resources. 

To sum up,

we conclude that PAGA allows an “aggrieved employee” ––a person affected by at least one Labor Code violation committed by an employer––to pursue penalties for all the Labor Code violations committed by that employer. 

Put another way, a plaintiff who suffers just one Labor Code violation covered by PAGA may seek all PAGA penalties, for any type of violation, committed by that employer against any other employee.  And to make matters worse, the employee can seek those PAGA penalties for violations that allegedly occurred to other employees, but about which the employee has no first-hand knowledge. That is, the employee can sue first, and obtain discovery of violations later. The California Supreme Court so decided a while back.

So, now you see what I mean. The single plaintiff can start out with a minor Labor Code violation and use broad, expensive discovery to root out any and all other PAGA violations, subject only to the trial court’s management of the case and the willingness of the plaintiff and his / her counsel to keep on fishing. Or, the plaintiff can extract a settlement based on employer fear of a burdensome fishing expedition via discovery, and the possibility of zillions in penalties.  But that never happens. 

Take comfort though. The Court pointed out that employers who do not like the statute can go to the Legislature for redress. Good luck with that. 

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Court of Appeal Reaffirms Low Bar for Employees’ Recovery of Labor Code’s “Waiting Time” Penalties

A restaurant company operating within the L.A. Airport Westin hotel did not comply with Los Angeles County’s special, amended “living wage” ordinance that applies to certain hotel employees. The original ordinance tied annual wage increases to a consumer price index. But an amendment changed the increase to another index, and changed the effective date of increases from January 1 to July 1. To figure out what the minimum “living wage” is under the amendment requires an employer to refer to a “bulletin” put out by another county agency.  Sure, the ordinance is not “user friendly” as the trial court remarked. But it’s not brain surgery to find out the information either. 

Turns out the restaurant company, Grill Concepts Services, Inc., suspected it was underpaying. And the company’s HR director made some attempts to find the amended ordinance, but the efforts were unsuccessful.  Here’s the Court’s summary of those efforts. 

As early as June 2010, Grill Concepts’ human resources director suspected that Grill Concepts might be underpaying its employees. That month, the director saw a newspaper article reporting that the living wage within the Zone was higher than what Grill Concepts was paying. The director contacted Grill Concepts’ outside counsel, who contacted the Los Angeles City Attorney’s Office. A city attorney relayed that an amendment to the ordinance was “in process.” Neither counsel nor the director followed up with the city attorney’s office. Nor did the director or outside counsel ask any of the other hotel operators or restaurateurs in the Zone what living wage they were paying. Instead, the director continued doing what he had always done—namely, typing “Airport Hospitality Enhancement Zone Ordinance” into the search query on the City of Los Angeles’s website to see if an amended ordinance came up. 

:::Wince::: If only there were professionals who figured out these confusing law thingies for employers and provided answers.  But hey, let’s make the bar exam easier, amiright?   

Anyway, after a lawyer for two employees contacted Grill Concepts, the company promptly paid all the back wages due. But a class action proceeded for pre-judgment interest on the underpaid wages, and “waiting time” penalties under Labor Code section 203 for the ex-employees.  

The trial court awarded over $250,000 in waiting time alone, which is a lot of tuna melts. The plaintiffs also wanted the penalty of treble wages under the county ordinance, available for “deliberate failure” to pay the living wage. But the trial court did not agree with the plaintiffs that Grill Concepts “deliberately” did not pay the higher living wage.  In fact, the trial court noted that it would have reduced the waiting time due if it had the discretion to do so.

Perhaps for that reason, Grill Concepts appealed, challenging the award of waiting time on several grounds. None of these challenges was successful.  The Court of Appeal’s opinion is a good reminder to employers about waiting time penalties, and the standards courts must follow when awarding them. 

First, though, what are waiting time penalties?  The Court summarized Cal. Labor Code section 203 like this:

Labor Code section 203 empowers a court to award “an employee who is discharged or who quits” a penalty equal to up to 30 days’ worth of the employee’s wages “[i]f an employer willfully fails to pay” the employee his full wages immediately (if discharged) or within 72 hours (if he or she quits). * * * * It is called a waiting time penalty because it is awarded for effectively making the employee wait for his or her final paycheck. A waiting time penalty may be awarded when the final paycheck is for less than the applicable wage—whether it be the minimum wage, a prevailing wage, or a living wage. 

The Court addressed and rejected a number of arguments by the employer here.  First, here is the Court’s analysis of what a “willful” failure to pay final wages is.  (This is not news and is based on several prior decisions cited in the analysis).  I bolded the text to make it easier to read without the citations. 

Under Labor Code section 203, a “willful failure to pay wages . . . occurs when an employer intentionally fails to pay wages to an employee when those wages are due.” (Cal. Code Regs., tit. 8, § 13520; see also Barnhill v. Robert Saunders & Co. (1981) 125 Cal.App.3d 1, 7 (Barnhill) [“‘willful’ . . . means that the employer intentionally failed or refused to perform an act which was required to be done”]; Kao v. Holiday (2017) 12 Cal.App.5th 947, 963.) The failure to pay is willful if the employer “knows what [it] is doing [and] intends to do what [it] is doing” (In re Trombley (1948) 31 Cal.2d 801, 807 (Trombley)), and does not also require proof that the employer acted with “a deliberate evil purpose to defraud work[ers] of wages which the employer knows to be due” (Barnhill, at p. 7; Davis v. Morris (1940) 37 Cal.App.2d 269, 274 [“‘“wil[l]ful” . . . does not necessarily imply anything blameable, or any malice or wrong toward the other party’”]).2 

Under this definition, an employer’s failure to pay is not willful if that failure is due to (1) uncertainty in the law (Barnhill, supra, 125 Cal.App.3d at p. 8; Amaral, supra, 163 Cal.App.4th at p. 1202), (2) representations by the taxing authority that no further payment was required (Amaral, at pp. 1202-1203), or (3) the employer’s “good faith mistaken belief that wages are not owed” grounded in a “‘good faith dispute,’” which exists when the “employer presents a defense, based in law or fact which, if successful, would preclude any recovery on the part of the employee” (Road Sprinkler Fitters, supra, 102 Cal.App.4th at p. 782; Cal. Code Regs., tit. 8, § 13520, subd. (a); Trombley, supra, 31 Cal.2d at p. 808). A good faith dispute can exist even if the employer’s proffered defense is “ultimately unsuccessful,” but not if the defense is also “unsupported by any evidence, [is] unreasonable, or [is] presented in bad faith.” (Cal. Code Regs., tit. 8, § 13520, subd. (a).) 

Applying this analysis, the Court of Appeal rejected Grill Concepts’s arguments that its failure to pay was not “willful.”  The Court was unimpressed with the company’s efforts to “find” the amended ordinance.

Ignorance of the law is no excuse. 

Said the Court.  The Court also rejected the argument that the ordinance, once found, was too confusing to understand properly. 

Grill Concepts also argued that its failure to comply with the ordinance amounted to a “good faith dispute” precluding waiting time penalties.  As discussed above, the “good faith dispute” is a defense to waiting time penalties liability. But it’s available only in certain circumstances. 

A “‘good faith dispute’” excludes defenses that “are unsupported by any evidence, are unreasonable, or are presented in bad faith.” (Cal. Code Regs., tit. 8, § 13520, subd. (a), italics added; accord, FEI Enterprises, Inc. v. Yoon (2011) 194 Cal.App.4th 790, 802 [good faith defense regulation “imposes an objective standard”].) Any of the three precludes a defense from being a good faith dispute. Thus, Grill Concepts’ good faith does not cure the objective unreasonableness of its challenge or the lack of evidence to support it. 

The Court in essence decided that even if Grill Concepts had a “good faith” belief in its arguments, the lack of supporting evidence for the bona fide nature of the dispute and the fact that the dispute was “unreasonable” precluded the defense to penalties.

Finally, the Court of Appeal decided that courts do not have the power to reduce waiting time penalties if they believe the reduction is warranted for “equitable” reasons. 

We conclude that Labor Code section 203 does not imbue trial courts with the discretion to waive or reduce waiting time penalties, and do so for two reasons.

So, if waiting time penalties are due, the court has no power to reduce them, even if the question of “willfulness” or “good faith dispute” is a close call, or the penalty seems gigantic compared with the wages due.  

In contrast, courts have the power to reduce penalties under the Private Attorney General Act, or PAGA. That is because the PAGA statute grants courts that discretion. And that’s a good thing, which you’ll appreciate when you read my next post. 

The case is Diaz v. Grill Concepts Services, Inc. and the opinion is here. 

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