In a repudiation of the Fifth Appellate District Court of Appeal’s decision in Esparza v. KS Indus., L.P., 13 Cal. App. 5th 1228 (2017) (previously reviewed in this column), the Fourth District held that claims for unpaid wages under Labor Code § 558 constitute a cognizable claim under the Labor Code Private Attorneys General Act of 2004 (PAGA).¹ And, the trial court erroneously compelled plaintiff’s wage claim under § 558(a)(3) to arbitration on a representative basis, in contravention of the California Supreme Court’s ruling in Iskanian v. CLS Transp. Los Angeles, LLC., 59 Cal. 4th 348 (2014) (Iskanian rule),² which prohibits compelled arbitration of a plaintiff-representative’s PAGA claims.³The Fourth District split with the Fifth in its interpretation of Thurman v. Bayshore Transit Mgmt., Inc., 203 Cal. App. 4th 1112 (2012). In Thurman, the Fourth District previously held that “the language of section 558, subdivision (a) is more reasonably construed as providing a civil penalty that consists of both the $50 or $100 penalty amount and any underpaid wages” and that the underpaid wages were a part of the $50 and $100 penalties provided for by the statute.⁴ The Lawson court upheld and reinforced this decision, finding that “nothing in Arias suggests that the Legislature did not intend that the LWDA be able to recover ‘underpaid wages’ on behalf of employees under section 558 as part of a civil penalty for Labor Code and [Industrial Welfare Commission] order violations that result in underpayment of wages.”⁵ By contrast, the Esparza court rejected Thurman and applied its own statutory interpretation, holding that the language of Labor Code § 558(a)(3) (“Wages recovered pursuant to this section shall be paid to the affected employee”) should be treated separately from the penalty amounts ($50/$100) of § 558(a)(1) and (a)(2). Therefore, the wage claim was a private dispute between an employee and her or his employer (as opposed to a representative claim of the state), the Iskanian rule should not apply, and such claims could be compelled to arbitration. The Esparza court’s reasoning for rejecting Thurman included the fact that Thurman was decided two years before Iskanian and did not involve an arbitration provision subject to the Federal Arbitration Act (FAA). The court also recognized that certain claims involved an “overlap” of private and state disputes, and that “[w]hen there is overlap, the claims retain their private nature and continue to be covered by the [FAA].” Moreover, Esparza held that wage disputes necessarily were private disputes because they “could be pursued by [the employee] in his own right.”⁶

In response, the Lawson court reviewed the holdings in both Iskanian and the United States Supreme Court’s decision in AT&T Mobility, LLC v. Concepcion, 563 U.S. 333 (2011) and noted that the California Supreme Court was well aware of Concepcion when it held in Iskanian that a PAGA claim did not interfere with arbitration’s purposes and therefore was not preempted by the FAA. In light of those decisions, the Fourth District challenged the Fifth District’s conclusion that a plaintiff could pursue relief for underpaid wages under § 558 as a private, rather than representative, matter, arguing that the Fifth District had offered no supporting authority for its conclusion. Instead, the Lawson court held, “In general, where, as under section 558, there is no express right of private enforcement and instead a regulatory agency has expressly been given the right to enforce the statute, no private right of action will be implied.”⁷ As set forth in Iskanian, the test for whether relief under a statute should be characterized as a civil penalty recoverable by a state enforcement agency or as victim- specific statutory damages is whether, prior to PAGA’s enactment, the relief could be recovered only by enforcing a regulatory scheme or through a private right of action. Since § 558 articulated no private right of action, it therefore could only be enforceable by the state’s Labor and Workforce Development Agency. Therefore, as a PAGA claim and not a separate claim for victim- specific relief, § 558 wage claims may not be compelled to arbitration, because they are part of PAGA’s civil penalty scheme.

Settlement and Dismissal of Individual Labor Code Claims Forecloses Standing for PAGA

Kim v. Reins Int’l Calif., Inc., 18 Cal. App. 5th 1052 (2017)

Plaintiff, a “training manager” at defendant’s restaurant, brought a wage and hour class action contending that he and other managers were misclassified as exempt, and alleging failure to pay wages and overtime, failure to provide meal and rest periods, failure to provide adequate wage statements, waiting time penalties, unfair competition, and PAGA penalties. Defendant compelled arbitration of plaintiff’s claims, and the trial court reserved the issue of class arbitrability for the arbitrator and stayed the PAGA and injunctive relief claims in court. While arbitration was pending, defendant served plaintiff with an offer to compromise pursuant to Civil Procedure Code § 998, and plaintiff accepted and dismissed his individual claims with prejudice and the class claims without prejudice. After lifting the stay on the PAGA claims, the trial court granted defendant’s motion for summary adjudication and motion to dismiss.

The court of appeal held that because plaintiff had settled and dismissed his individual claims with prejudice, he was no longer an “aggrieved employee” as defined by PAGA.⁸ The court examined the legislative history of the statute and found that initially, the Legislature intended not to allow private citizens to bring a PAGA lawsuit if they had “suffered no harm from the alleged wrongful act.”⁹ The Kim court held that because plaintiff had accepted a settlement and had dismissed his individual claims with prejudice, “he no longer maintained any viable Labor Code-based claims against Reins,” and therefore could no longer represent the other aggrieved employees who had not yet settled their PAGA claims. Those claims, the court held, could proceed with a different representative plaintiff.

Employers Are Required to Provide California WARN Act Notice Even for Temporary Layoffs

International Bhd. of Boilermakers v Nassco Holdings, Inc., 17 Cal. App. 5th 1105 (2017)

Under the California Worker Adjustment and Retraining Notification (WARN) Act,¹⁰ employers must provide 60 days’ notice to affected employees before ordering a “mass layoff,” defined as “[a separation from a position for lack of funds or lack of work] during any 30-day period of 50 or more employees at [any industrial or commercial facility or part thereof that employs, or has employed within the preceding 12 months, 75 or more persons].”¹¹ Defendant ordered a temporary furlough for 90 employees based on lack of work and instructed them not to return for four to five weeks but gave no advance warning, only notifying the affected employees the day they reported to work. The operative collective bargaining agreement referred to such a short- term work stoppage as a “layoff,” and the written notices the company provided its workers the days it ordered the work stoppages also characterized the furlough as a layoff.

Defendant argued that, under the federal WARN Act, employers do not have to provide statutory notice when layoffs are for less than six months, and therefore it was not obligated to provide advance notice. The court of appeal disagreed, holding that defendant had to provide statutory notice even if the layoffs were not permanent and were for a short length of time. The appellate court specifically focused on the statutory definition of a layoff (“a separation from a position for lack of funds or lack of work”) (italics added) and concluded that nothing about the term “separation” denoted a temporal component, and in fact could be interpreted as being either a permanent or a temporary separation from a work position. Relying on precedent,¹² the court reasoned, “The concept of being separated from a position does not suggest a requirement that the employment relationship be severed.”¹³ The court found that such an interpretation also was consistent with the legislative history of the California WARN Act, which was intended to be more protective than its federal counterpart, particularly with respect to the changed definition of the term “mass layoff,” which under federal law requires an employment termination or a layoff period of more than six months or a reduction of work hours by more than fifty percent in any given six-month period.¹⁴

Workweek, Not Individual Hour, Is the Unit of Measure for FLSA Minimum Wage

Douglas v. Xerox Bus. Servs., LLC, 875 F.3d 884 (9th Cir. 2017)

In a case of first impression in the Ninth Circuit, the court of appeals held that the relevant unit for determining compliance with the minimum wage requirement of the Fair Labor Standards Act of 1938 (FLSA) is the workweek as a whole, rather than each individual hour within the workweek. The appellate court began with a textual analysis of the statute, noting that while the Act provides a minimum hourly rate ($7.25 an hour), the unit of time refers to work performed “in any workweek.”¹⁵ Similarly, the FLSA’s overtime provision provides no direct guidance, as the language refers to a multiple of an “employee’s average hourly earnings for the workweek,”¹⁶ which could be open to either (hourly or weekly) interpretation.

The court of appeals also considered the public policy underlying the statute and reasoned that measuring both by hour or by workweek accomplished the stated goal of establishing minimum workplace conditions and protection of the most vulnerable because of their “unequal bargaining power.”¹⁷ This approach, too, was not illuminating. The appellate court reviewed the Department of Labor’s historical statutory interpretation of the FLSA, noting that in the early years of the Act the DOL used the workweek as the unit of measure,¹⁸ and that the current online calculator on the DOL website factors the workweek as the basis for wage payment calculations.

Ultimately, however, the court relied on precedent in reaching its decision, joining the Second, Fourth, Eighth, and D.C. Circuits for consistency’s sake so that businesses like the defendant in this case, that operate in multiple jurisdictions, could have a uniform, reliable standard upon which to base their pay schemes.

Arbitration Agreement Signed After Class Action Filed but Before PAGA Claims Asserted Was an Unenforceable Predispute Agreement

Julian v. Glenair, Inc., 17 Cal. App.5th 853 (2017)

During plaintiffs’ employment, another employee brought a wage and hour class action against the company. Five months after the lead plaintiff in that action filed her first amended complaint, which included PAGA claims, defendant served its hourly employees an arbitration agreement (dispute resolution program) requiring employees to take an affirmative step of opting out of the program within 30 days of receipt of the agreement if they did not consent to mandatory arbitration of wage and hour claims, but noting that participation in the program was not a condition of employment. Six months later, plaintiffs’ employment was terminated. Nine months after they were terminated, plaintiffs initiated their own PAGA action. Defendant moved to compel arbitration, arguing that plaintiffs had signed an enforceable voluntary post dispute arbitration agreement (allowable under Iskanian). Plaintiffs argued that the arbitration agreement was not enforceable as to their PAGA claims, because the company failed to make them sufficiently aware of their rights under PAGA when it presented them with the agreement. The trial court denied defendant’s motion to compel, finding the agreement was unenforceable. The court reasoned that if the agreement was unenforceable because plaintiffs were not represented by counsel (who could have properly advised them of their rights) when the program was implemented.

The court of appeal concluded that the program was a predispute agreement and therefore unenforceable under Iskanian. Per Iskanian, the boundary between what constitutes a predispute rather than a post dispute agreement rests on two factors: (1) whether the employees’ capacity to make a knowing and voluntary choice of forum for dispute resolution was based on an adequate awareness of the Labor Code violations underlying a potential PAGA claim; and (2) whether public policy was considered when the judicial forum was waived. In considering those two factors, the Julian court found the threshold to be crossed when an employee became authorized to initiate a PAGA action by becoming an agent of the state. In this case, the appellate court held it was irrelevant that there was an existing prior PAGA dispute when plaintiffs consented to (or did not opt out of) the arbitration agreement, as they did so in their individual capacities, not as representatives of the state, and therefore were not authorized to assert any PAGA claim. PAGA allows the state to designate more than one employee as its agent in similar but separate actions against an employer, and the court found the two PAGA actions were similar but not identical. Thus, the arbitration agreement at issue was a predispute agreement as to these plaintiffs when the program was implemented and therefore unenforceable.