PAGA Waiver is Unenforceable as Against Public Policy and Unseverable From Arbitration Agreement in Employee Handbook

Juarez v. Wash Depot Holdings, Inc., 24 Cal. App. 5th 1197 (2018)

The Second District Court of Appeal found this discrepancy to be material, such that it rendered the entire arbitration agreement unenforceable. The appellate court further held the trial court did not abuse its discretion when it found that the there was a “profound” difference between the two versions regarding “a very significant subject” and applied Civil Code § 1654 to construe the arbitration agreement against the company as drafter of the agreement. The court of appeal rejected the defendant’s argument that courts must always interpret arbitration agreements to preserve the right of arbitration. Instead, the court reasoned, the trial court properly found the PAGA waiver to be contrary to public policy, and also properly found that such unconscionability permeated the entire agreement, because the difference between the two versions of the handbook was “At best . . . negligent; at worse . . . deceptive,” particularly when the handbook was a contract of adhesion.

Award of Attorneys’ Fees Is Not Subject to Reduction for Time Spent on Unsuccessful Claims; Late Payment Qualifies as “Willful” for Waiting Time Penalties

Nishiki v. Danko Meredith, APC, 25 Cal. App. 5th 883 (2018)

Plaintiff, an office manager and paralegal at a law firm, brought a Labor Commissioner claim for unpaid vacation wages, rest period premium wages, and Labor Code § 203 waiting time penalties. The DLSE awarded her $4,250 only for the penalty claim – and $86,160 in attorneys’ fees. The law firm protested that the penalties were unwarranted and the fee award excessive. On appeal, the First District Court of Appeal reduced the penalty award but allowed the attorneys’ fees as granted. The court found that the hearing officer had overestimated the number of days late the wages remained unpaid through a rather unique set of circumstances: the law firm had initially provided a timely final check, but the written description of the dollar amount was inadvertently $80 less than the numerical dollar figure actually on the check. Such a clerical error did not render the check untimely; where the law firm delayed was in correcting the clerical error once the employee had notified the firm that she was unable to cash the check (the law firm waited nine days after the employee sent her initial complaining email and then issued a check that was backdated by seventeen days, rather than reissuing a check immediately). Accordingly, the employee was entitled to nine days’ worth of waiting time penalties.

With respect to the attorneys’ fees, because Labor Code § 98.2 (the law permitting appeals of Labor Commissioner awards) is a one-way fee shifting statute, and because its legislative purpose is to disincentivize appeals of DLSE awards,¹ the trial court properly awarded the full measure of attorneys’ fees, because the Commissioner had awarded “an amount greater than zero.” ² Moreover, the court of appeal found persuasive that it was the law firm, not the employee, who appealed the DLSE award; any increase to the employee’s attorneys’ fees, reasoned the court, was of the law firm’s own doing and therefore it should not have been the party to benefit from a discount.

Plaintiff Who Settled Her Individual Claims Could Still Pursue Her Class and PAGA Claims by Retaining a Personal Stake in the Representative Actions

Amey v. Cinemark USA, Inc., No. 13-cv-05669-WHO, 2018 U.S. Dist. LEXIS 140156 (Aug. 17, 2018)

Ordinarily, this column reviews only appellate decisions, but this district court order granting class certification is significant in light of the California Supreme Court’s grant of review of Kim v. Reins Int’l Calif., Inc.³ In Reins, the court of appeal held that if a representative plaintiff settled individual wage and hour claims with his former employer, he no longer was an “aggrieved employee” as defined under PAGA, and therefore no longer had standing to assert a claim under PAGA or represent an action brought under that statute. A Northern District judge found the opposite.

This ruling, the trial court held that two cases (Ameyand Brown) previously consolidated should remain consolidated, even after the representative plaintiffs had settled their individual claims. The court further held that plaintiff Brown⁴ could proceed on her theory of direct violations of Labor Code § 226 for improper wage statements (such as failure to list the employer’s name and address), as opposed to derivative violations (such as a failure to list all gross and net wages earned because the employer did not pay premium wages for failing to provide meal and rest periods), despite not having articulated a difference between direct and derivative claims in her complaint.⁵

The district judge then certified the wage statement class, finding plaintiff Brown was a typical class and PAGA representative, because even though she had settled her individual claims the parties agreed she also specifically had carved out a personal stake in the class litigation. This created an economic interest for Brown in the class and PAGA action, and she retained personal jurisdiction to appeal denial of certification of class claims.⁶ The court further found Brown was an adequate class representative because she (1) had no conflicts of interest with the other class members, and (2) had vigorously prosecuted the action for years and intended to continue, thereby dispelling the defendant’s argument that Brown no longer had an incentive to pursue the class claims post-settlement because her interests purportedly did not align with those of the class.

Collective Bargaining Agreement Properly Waived First Meal Period

Ehret v. WinCo Foods, LLC, 26 Cal. App. 5th 1 (2018)

Plaintiffs worked as cashiers for the defendant supermarket. A collective bargaining agreement (CBA) applied to their employment, which provided that employees who worked shifts of up to six hours were not entitled to take a meal break.⁷ Plaintiffs filed a meal period claim for that period between five and six hours worked, alleging that the CBA did not act as a waiver of their first meal period. The trial court ruled for the defendant and plaintiffs appealed, arguing that the waiver was invalid because it did not meet the “clear and unmistakable” standard,⁸ inasmuch as it failed to reference the specific statute it was waiving. The Fourth Appellate District disagreed and affirmed the trial court’s decision.

The court of appeal began its analysis by noting that most cases, both state and federal, applying the “clear and unmistakable” standard have done so in the arbitration context. In those types of cases, there is no waiver unless the agreement specifies the statute being waived.⁹ The court distinguished arbitration cases by reasoning that such a standard is necessary in those cases, because an agreement to arbitrate claims arising under a CBA by definition interferes with an employee’s “statutory rights to a judicial forum” for employment claims,¹⁰ so the specific statute setting forth the right to a jury trial is required in that context.

Plaintiffs argued that Choate v. Celite Corp.¹¹ was controlling and directly on point. In Choate, the Second Appellate District found that a waiver of vested vacation time under Labor Code § 227.3 had to be set forth clearly and unmistakably in the CBA to be operative. There, the company neither mentioned the statutory protection being waived (rights to vested vacation time pay) nor cited to the specific statute. In this case, the Fourth District found that the CBA had explicitly referenced meal periods in a provision that was “flatly irreconcilable” with the requirements of Labor Code § 512(a): “When a work period of not more than 6 hours will complete the day[’s] work, a meal period is not required.” Thus, the court concluded, “ it constitutes a clear and unmistakable waiver of that provision, even without citing it.” Plaintiffs argued further that the waiver in the operative agreement was not clear and unmistakable because it did not use the words “waive” or “waiver,” and that the purported waiver was ambiguous because the agreement also provided, “It is WinCo Food’s policy not to mutually agree with employees to waive their lunch.” The court disagreed with both points, citing to precedent¹² where waiver was possible without using such magic words, and construing the supposedly ambiguous provision as referring only to waivers between individual employees and the company, not the collective waiver found in the CBA.

FLSA Claims Not Exempted From Res Judicata Effect of Settlement of State Claims

Rangel v. PLS Check Cashers of Calif., Inc., 899 F.3d 1106 (9th Cir. 2018)

In 2014, three former workers (none of them plaintiff) sued the defendant (multiple class actions were consolidated) in state court for violations of various California wage and hour laws, including unpaid wages and overtime. The parties reached a class action settlement in April 2015 (the Dieguez settlement) on behalf of workers in all of the defendant’s California stores, resolving “disputed claims” and made “for the sole purpose of settling” the consolidated class action. The trial court granted preliminary and final approval of the settlement.

In August 2016, plaintiff Rangel, who was covered by the Dieguez settlement, brought a collective action under the Fair Labor Standards Act of 1938 (FLSA) in federal court for violations of the federal minimum wage and overtime requirements. The defendant moved to dismiss on res judicata grounds, arguing that the California trial court had issued a final judgment pursuant to the Dieguez settlement and that the settlement itself functioned as a waiver, because it expressly released all claims that could have served as the factual predicates for the plaintiff’s claims. Rangel countered that the two actions were different in nature, because the Dieguez settlement was the product of an opt-out class that asserted state claims only, whereas the Rangel action was strictly an opt-in collective action, which by its nature prevented the Dieguez class from releasing their FLSA claims. Therefore, the state court judgment could not have preclusive effect with regard to the opt-in claims.

The district court agreed with the employer defendant, holding that it had satisfied res judicata requirements and that courts routinely approve settlements of class actions releasing claims that are not pled in the operative complaint in the interests of finality.

The Ninth Circuit affirmed the district court’s decision. As to res judicata, following California precedent,¹³ the three-judge panel found that the decision in the prior proceeding was final; that under California’s “primary rights” approach, the FLSA action was of the same types of causes of action¹⁴as the state court class had alleged; and that the parties to the FLSA action were parties who had been in privity in the state court class action (Rangel had not opted out of the Dieguez settlement and therefore was bound by it).

Rangel argued that her FLSA claims had to be distinguished from the state Labor Code claims released in the Dieguez settlement because the FLSA claims could not have been litigated through an opt-out class. The court of appeals noted that Rangel was not wrong in her premise; the collective action and opt-out class mechanisms do differ. But she was wrong about the import of that distinction for res judicata purposes. The mechanism of litigation has no impact on the California primary rights analysis. The same injuries to the same rights are at issue in both cases. Instead, the Ninth Circuit asserted, Rangel should have objected to the Dieguez settlement: “Here we are asked only whether a settlement to which Rangel did not object, and to which we are obligated to give effect,¹⁵ extends to her current claims. It plainly does.”¹⁶

ENDNOTES

Arias v. Kardoulias, 207 Cal. App. 4th 1429, 1438.
Lab C § 98.2(c).
Kim v. Reins Int’l Calif., Inc., 18 Cal. App. 5th 1052 (2017), review granted, 230 Cal. Rptr. 3d 681 (2018); S246911/B278642.
The court dismissed plaintiff Amey, and the employment of a third plaintiff, De La Rosa, fell outside the relevant time period for wage statement claims.
The district judge previously had granted summary judgment on the wage statement issue, but revisited the issue after the Ninth Circuit reversed him and remanded for further analysis under Rule 23.
See Narouz v. Charter Comm’ns, 591 F.3d 1261, 1264 (9th Cir. 2010) (“a settlement agreement that specifically provides that the class representative is solely releasing individual claims may permit the class representative to retain a ‘personal stake’ in the class claim.”). The court distinguished Narouz from Watkins v. Wachovia Corp., 172 Cal. App. 4th 1576, 1592 (2009) (“Having voluntarily settled, she is, by her own choice, no longer a member of the class and cannot share in any such recovery”), which it found to be unavailing because the Watkins court specifically noted that a Rule 23 plaintiff could settle her individual claims and still appeal denial of class certification “without further expending [the parties’] resources,” as such a plaintiff would not be made whole by merely an individual settlement.
The agreement provided for meal periods for shifts longer than six hours.
See Wright v. Universal Maritime Serv. Corp., 525 U.S. 70, 80 (1998).
See, e.g., Vasquez v. Superior Ct., 80 Cal. App. 4th 430, 434-36 (2000).
Vasquez, 80 Cal. App. 4th at 434.
215 Cal. App. 4th 1460 (2013).
International Bhd. of Elec. Workers, Local 803 v. N.L.R.B., 826 F.2d 1283 (3d Cir. 1987).
Federation of Hillside & Canyon Ass’ns v. City of Los Angeles, 126 Cal. App. 4th 1180, 1202 (2004).
The Ninth Circuit quoted Boeken v. Phillip Morris USA, Inc., 48 Cal. 4th 788, 798 (2010) for the definition of “cause of action:” “the right to obtain redress for a harm suffered, regardless of the specific remedy sought or the legal theory (common law or statutory) advanced.” The Ninth Circuit further reasoned, again based on California precedent: “Hence a judgment . . . is a bar to a subsequent action . . . based on the same injury to the same right, even though [the plaintiff] presents a different legal ground for relief.” Slater v. Blackwood, 15 Cal. 3d 791, 795 (1975).
Citing 28 U.S.C. § 1738.
Rangel, 2018 U.S. App. LEXIS 22782 at *10-11.

Leonard H. Sansanowicz is the principal of Sansanowicz Law Group, P.C. and represents employees in all aspects of employment law. He has been a Super Lawyers Southern California Rising Star each year from 2013 to 2018, and for the past four years has been named to their Up- and-Coming 100 list. He also is a member of the Executive Board of the California Employment Lawyers Association.