Initial Appellate Review of Labor Code §2810

California Labor Code §2810 prohibits a person from entering into a contract for certain types of services if the person knows or should know the contract price is insufficient to permit the other party to comply with applicable laws in the performance of the contract. Persons entering into such contracts are liable to employees who are "aggrieved" by this insufficiency.

In Castillo v. Toll Brothers, Inc. and Hernandez v. Toll Brother, Inc. employees of a construction subcontractor filed a class action lawsuit alleging multiple wage and hours violations, including minimum wage, meal and rest break, record keeping, and pay statement violations.  In addition, the plaintiffs alleged a claim under Labor Code §2810 seeking to a hold a general contractor, Toll Brothers, liable for a subcontractor’s Labor Code violations.  On July 27, 2011, the California First District Court of Appeals, rendered the first appellate review of this relatively new statute. See Castillo v. Toll Brothers, Inc. No. A128605
 The primary issue before the Court was whether the standard to determine the sufficiency of a contract under section 2810 was (a) minimum wage or (b) the actual market price of labor.  The Court determined that minimum wage was the proper standard.  In its analysis the Court noted that not only was section 2810 unambiguous, but also that the legislative history clearly supported a finding of minimum wage as the proper standard.  On a practical level the Court further added:  

There are strong practical reasons for using the minimum wage costs to determine contract sufficiency. The minimum wage provides a bright line test for sufficiency, readily ascertained by a contracting party. As the evidence in this case demonstrates, the use of any other wage standard opens the contracting parties to significant uncertainty.

Despite this holding on the proper legal standard for section 2810 claims, the Court concluded the trial court erred in granting summary judgment to Toll Brothers because the plaintiffs had provided triable issues of fact on the sufficiency of two contracts.

The 9th Circuit Holds Unlicenced Accountants Not Exempt Employees

On June 15, 2011 the 9^th Circuit Count of Appeals in Campbell v. Price Waterhouse Coopers ruled that unlicensed accountants in California are not ineligible, as a matter of law, from being exempt from overtime pay. Under California law employers must generally pay overtime to employees who work more to eight hours a day or 40 hours a week. However, there are certain exemptions to the mandatory overtime laws. In this case the 9^th Circuit Court of Appeals was asked to determine whether the unlicensed accountants fell under either the professional exemption or the administrative exemption.

At the trial court level the District Court ruled on summary judgment that unlicensed accountants are categorically ineligible for the professional exemption. On appeal, the 9^th Circuit concluded that the District Court’s finding that plaintiffs could not fall under the professional exemption because they were unlicensed was "contrary to the exemption’s text and structure and would produce highly problematic precedent affecting several non-accounting professions." The Court closely analyzed the first two subsections of the 2001 IWC wage order regarding the professional exemption which reads, in part:
A person employed in a professional capacity means any employee who made all of the following requirements: (a) Who is licensed or certified by the state in California is primarily engaged in the practice of one of the following recognized professions: . . . accounting . . . or (b) who is primarily engaged in occupation, you recognize as a word or artistic profession. The court had to determine if unlicensed accountants could be exempt under subsection (b), even though subsection (a) enumerates accounting as a profession and expressly requires licensure in California. The District Court had held that unlicensed accountants could not fall under subsection (a) because they were not licensed and they could not fall under subsection (b) because subsection (a) is the sole provision covering accountants. The Court of Appeals disagreed, holding that the professional exemptions language allows accountants to fall under both subsection (a) and (b), because the statutes introductory clause refers to "any employee." As such, any employee may fall into either subsection and subsections (a) and (b) are not mutually exclusive. The entire accounting profession is not excluded from subsection (b) and could fall within subsection (b) also long as the subsections criteria is meet.

The Court also disagreed with the District Court and held that the Defendant Employer provided sufficient evidence to survive summary judgment and could take its administrative exemption defense to trial.

U.S. Supreme Court Rules Oral Workplace Complaints Are Protected

The Fair Labor and Standard Act of 1938 ("FSLA") sets forth Federal minimum wage, maximum hour, and over time pay rules.  An employer is prohibited from retaliating against an employee who has "filed any complaint" alleging a FSLA violation. A Wisconsin employee, Kevin Kasten, orally complained to his employer about the location of time clocks which he believed prevented workers from receiving credit for time donning and doffing work related gear. The employer discharged Kasten. In a subsequent lawsuit, the U.S. District Court ruled that the FSLA’s retaliation provision only covers written, not oral complaints. The Seventh Circuit Court of Appeal affirmed.

Last week the United States Supreme Court in Kasten v. Saint Globain Performance Plastics Corp.  (PDF)held that the scope of the statutory term "filed any complaint" includes oral, as well as written complaints. Justice Steven Breyer writing for the majority stated that the text of the statute alone cannot determine if the phase "filed any complaint" includes oral complaints. In rendering its decision the majority looked at the purpose of the FSLA and the intent of Congress, along with practices of federal administrative agencies. Justice Scalia in a dissent, joined by Justice Thomas, argued that the retaliation statute applies only when an employee makes an official grievance with a court or an agency, not when the employee merely makes a complaint to an employer.

California Supreme Court: Arbitration Provision Waiving Labor Commissioner Hearing Not Enforceable

California Labor Code section 98 et seq., grants an employee with a claim for unpaid wages to seek a hearing before the California Labor Commissioner. Traditionally this has been called a "Berman" hearing. If the employee obtains an award at the Berman hearing, the employer may request de novo review of the award in the superior court.

In Sonic-Calabasas A, Inc. v. Moreno the California Supreme Court was asked to determine if an arbitration provision requiring an employee to waive the option of a Berman hearing is contrary to public policy and is unconscionable. On February 24, 2011 the Supreme Court ruled that any provision requiring an employee to waive the option of a Berman hearing is not enforceable. Such a waiver is both a violation of public policy and unconscionable.

The Court indicated that the Berman administrative hearing process affords California employees many advantages, which are not available in arbitration, such as: speedy and inexpensive resolution to wage disputes; assistance by the Labor Commissioner in obtaining the award; safe guards against frivolous defenses by employers, the enforceability of any award, assistance by the Labor Commissioner in enforcing an award; and one-way fee shifting for attorneys fees to be posed on employers who unsuccessfully appeals.

The Court further based its decision on the fact that the lawful payment of wages to California employees is not simply an individual right but an important public policy goal.

In determining that Berman waivers are unconscionable the Court concluded:

In sum, rather than being justified by "legitimate commercial needs" (see Armendariz, supra, 24 Cal.4th at p. 117), the main purpose of the Berman waiver appears to be for employers to gain an advantage in the dispute resolution process by eliminating the statutory advantages accorded to employees designed to make that process fairer and more efficient. We conclude the waiver is markedly one-sided and therefore substantively unconscionable.

However, the Court held that an appeal from a Berman hearing award, can be held before an arbitrator, rather than the Superior Court.

The Court also rejected the employer's argument that the Federal Arbitration Act preempts California law and requires enforcement of the arbitration agreement.

Double Premium Pay for Missed Meal & Rest Breaks

Labor Code section 226.7 requires an employer who fails to provide an employee with a meal or rest period to pay that employee one additional hour of pay (or premium payment) "for each work day that the meal or rest period is not provided."  Attorneys have long questioned whether this statute authorizes one premium payment per work day or two premium payments per work day – one for failure to provide a meal period and another for failure to provide a rest period.

Last week the California Second District Court of Appeals answered this question in a decision that will potentially double employer exposure in meal and rest break litigation.  In United Parcel Service, Inc. v. Superior Court the Court held section 226.7 permits up to two premium payments per work day.

The Count based its decision on federal case law, IWC Wage Orders, the specific language of section 226.7, and legislative history:

In short, we conclude, based upon the wording of section 226.7, subdivision (b), the legislative and administrative history of the statute and IWC wage orders, the public policy behind the statute and wage orders, and also the principle that we are to construe section 266.7 broadly in favor of protecting employees, that the employees in this case may recover up to two additional hours of pay on a single work day for meal period and rest period violations – one for failure to provide a meal period and another for failure to provide a rest period.

This case should serve as a cautionary tale for all California employers.  Employers must make sure they are in strict complaince with the meal and rest break requirements.