Wage Law

Schwarzenegger Administration "Proud" To Have Violated Law Against Government Propaganda

Government Code § 15254 prohibits the use of state communication facilities from being "used for political, sectarian or propaganda purposes." Despite this, a California state agency has spent public money to produce a video promoting the withdrawal of lunch and rest period rights for California workers. California Assemblyman Paul Koretz has asked Attorney General Bill Lockyer to investigate the matter.

Twelve television stations have broadcast the video made by the California Labor and Workforce Development Agency. The video was distributed with suggested news copy for reporters to read on the air, including the claim that regulations "interpreting" Labor Code § 226.7 would resolve uncertainty in the business community and create better workplaces.

The claim is completely false. The battle over the governor's new regulations may shape up to be the single most significant development in California wage and hour law this year, but its outcome will not resolve any uncertainty. Instead, the proposed regulations would turn almost every pending lawsuit involving meal and rest periods into a potential Supreme Court case, since there are substantial questions over the regulations' constitutionality.

The video does not discuss that issue, nor does it show the overwhelming worker opposition to the proposed rules. It presents only the new administration's favored position. The agency's undersecretary, Rick Rice, boasted of the video's effectiveness, calling it "a very successful video news release ... We hit 1.6 million people" at a cost of just $1,260. "I'm proud of that too," he added.

Asked whether the video indicates that the agency has already made up its mind about the proposed regulations, currently undergoing public comment and review, Rice issued the following non-denial denial: "Every word of testimony is reviewed to see if we should have potential changes on the regulations. In fact, they are thinking of tweaking some of the wording." Rice also says there are technical defenses to charges that the agency violated the law. Among other things, he says, it was not propaganda. Besides, he added, the law "only applies to broadcasting to the public, which we didn't do."

The fight has turned nasty in part because the proposed regulations are among the worst anti-employee proposals made recent years, and they are intended to aid the most pervasive violators -- companies like Wal-Mart, which has been known to sometimes clock its employees out, lock the doors, and have them finish work without pay. If enacted and upheld, the new rules would, among other things, give employers a means to avoid giving meal periods to their employees by merely informing employees of their right to a meal period.

While decent employers do not prevent employees from taking meal periods, the worst of the lot -- car dealerships, restaurant chains, Wal-Mart and similar employers -- have pervasive policies under which employees are afraid that they will lose their jobs if they insist on taking their breaks. We recently had a manager testify in a meal period case that she never even thought about letting the employees take breaks, because it was "so widely accepted" that no one at her company got breaks.

Under the new proposed rules, there would be nothing wrong with that.

Schemes to Avoid Paying Prevailing Wage Payments

Contractors who bid on public works jobs in California must be willing to pay prevailing wages to all employees who work on those projects. Prevailing wages are considerably higher than the minimum wage. Workers on a prevailing wage job typically earn more than $30 per hour.

Many contractors gain an advantage in the bidding process by cutting their labor costs through illegal schemes to deny paying prevailing wages. Often, this involves hiring undocumented workers or inexperienced, but documented, workers who don't know that their $10 per hour pay is unlawfully low. Public works contractors are required by law to regularly submit certified payroll reports, verified under penalty of perjury, to show their compliance with prevailing wage laws.

One of several schemes we've seen to get around prevailing wage laws is the "in-house check cashing" scheme. In this scheme, workers might be shown paychecks, with proper pay rates and deductions, and told to endorse them back to the employer, or, often, to the project manager. The employer or the manager then cashes the checks and returns to the work site with cash. The employees are then paid, in cash, the lower amount that they were promised -- often as little as $10-12 per hour. In other instances, the employees know their true rate of pay, but are told that money has been deducted for taxes, insurance, retirement, tools or other expenses. The money deducted from the check is then pocketed by the contractor.

These prevailing wage violations often go on for years without detection, because the companies who engage in these practices frequently hire only the least sophisticated, Spanish-speaking, undocumented workers they can find. But, from time to time, a worker speaks out or a union-related investigator happens upon a violation.

This week in Temecula, California, a construction company foreman was charged with 102 counts of accepting kickbacks and embezzling hundreds of thousands of dollars from undocumented immigrant employees in an alleged "in-house check cashing" scheme. Juan Gonzalez Valdovinos, a 53-year-old foreman for Four Point Builders, is accused of cashing his workers' paychecks and giving the employees only a small percentage of the money. Riverside County prosecutors claim that he would tell them he was "taking it for tools" or "putting it in a savings account" for the workers.

Valdovinos was busted because of an investigation by Peter Rodriguez, a representative of the Carpenters/Contractors Cooperation Committee, which sends him to visit work sites to educate workers about their rights and, of course, make sure that contractors are not competing unfairly by winning bids that they can only perform by cheating their employees. If convicted of all charges, Valdovinos could be sentenced to 70 years in prison.

We have represented, and will continue to represent, workers who are victimized by such schemes. They often have claims not only against the crooked contractor, but also its payment bond, contractor's license bond and sometimes even the construction funds held by the school district or other public agency contracting for the work. If you know workers who have been victimized by such a scheme, let us know.

Settlement in J. Jill Case

Walsh & Walsh, P.C. announces that a settlement was reached yesterday in the Balogh v. The Birch Pond Group, Inc. class action. The case, currently pending in Riverside County Superior Court, involves the wardrobing and employee break policies of Birch Pond Group's J. Jill The Store retail clothing stores in California from July 1999 to July 2003. The terms of the settlement will not be released until after a formal agreement has been signed by all parties.

AAA Does Not Follow The Lead of JAMS re Anti-Employee Arbitration Clauses

Last year, the landmark Green Tree Financial Corp. case held that, if an arbitration agreement is silent regarding the availability of class-wide relief, the arbitrator, rather than a judge, decides whether class certification and class-wide relief is permitted. In response Green Tree Financial Corp., the American Arbitration Association issued supplementary rules for class arbitrations last year, governing proceedings framed as class arbitrations. AAA will administer demands for class arbitration pursuant its Supplementary Rules for Class Arbitrations if (1) the underlying agreement specifies that disputes arising out of the parties' agreement shall be resolved by arbitration in accordance with any of the Association's rules, and (2) the agreement is silent with respect to class claims, consolidation or joinder of claims. AAA is not currently accepting demands for class arbitration where the underlying agreement prohibits class claims, consolidation or joinder, unless a court order directs the parties to submit their dispute to an arbitrator or to AAA.

The policy was recently reviewed and AAA had this to say:

It has been the practice of the American Arbitration Association since its Supplementary Rules for Class Arbitrations were first enacted to require a party seeking to bring a class arbitration under an agreement that on its face prohibits class actions to first seek court guidance as to whether a class arbitration may be brought under such an agreement. The Association’s practice has been neither to commence administration of a case nor to refer such a matter to an arbitrator until a court decides that it is appropriate to do so. The Association’s determination not to administer class arbitrations where the underlying arbitration agreement explicitly precludes class procedures was made because the law on the enforceability of class action waivers was unsettled; the Association takes no position as to whether such clauses are or should be enforceable.

In a recent review of this practice by the Association’s Executive Committee it was agreed that this practice should be maintained in light of the continued unsettled state of the law. Courts in different states and different federal circuits have reached differing conclusions concerning the preclusion of class actions by agreement and “gateway” issues generally. However, the courts that have confronted the question have generally concluded that the decision as to whether an agreement that prohibits class actions is enforceable is one for the courts to make, not the arbitrator. In fidelity to its Due Process Protocols, the Association will continue to require all proceedings brought to it for administration to meet the standards of fairness and due process set forth in those protocols, but the Association will not seek to make decisions concerning class action agreements that the courts appear to have reserved for themselves.

The Executive Committee also determined at the same meeting to proceed forthwith in the creation of a special committee to explore the possibility of identifying counsel who could assist parties who cannot afford to pay for an attorney in arbitral proceedings. This effort would supplement the Association’s current ability to provide arbitrators who will serve pro bono, or for a reduced fee, in appropriate cases.

The Association will continue to monitor developments in this rapidly evolving intersection of arbitration and the courts.

The policy certainly is not illegal, but it reinforces the widespread belief that an AAA hearing room is not a friendly environment for consumers, employees and other individuals.

Prop 64 Retroactivity Still in the News

We thought the decision in Branick v. Downey Savings & Loan Association (eight days after oral argument) was fast. We hadn't seen nuthin' yet.

Division One of the Fourth District Court of Appeal recently weighed in with its opinions on Proposition 64 retroactivity in two cases that were argued on February 17, 2005.** Just one day after hearing arguments, the court issued its opinion in Bivens v. Corel Corp. The court agreed with the Branick and Benson decisions, and followed Branick's rule permitting substitution of suitable plaintiffs under certain circumstances, if the plaintiff of record fails to meet the standing requirement. The opinion in Lytwyn v. Fry's Electronics, Inc. didn't make it out for another court day, which, because of the weekend and holiday, was today. Not surprisingly, it, too, held that Prop. 64 applies to pending cases. You can read or download Bivens in word format or in pdf. Lytwyn is also available in word format or in pdf.

Meanwhile, in the only published case going the other way, Californians For Disability Rights v. Mervyn's California, Inc., Division 4, Case Number A106199, the defendant has filed a petition for rehearing, undoubtedly to discuss the four new cases calling for retroactive application of the new standing requirements.

The appellate districts' published opinions currently state as follows:
1st District - Not Retroactive.
2nd District - Retroactive.
3rd District - No word yet.
4th District - Retroactive (Per Divisions 1, 3)
5th District - No word yet.
6th District - No word yet.

** I tried to make it down to watch the arguments in those cases, but couldn't. As it turns out, I didn't need to wait long to find out where that court stood.

Class Action Deform Complete

As expected, President Bush signed the Class Action "Fairness" Act of 2005 this morning. The law is intended to curb frivolous class actions by taking the very good cases, worth $5 million or more, and making them harder to pursue. The frivolous cases, worth less than $5 million, will still remain in state court, where they will continue to occasionally frustrate defendants and judges, enriching a very small number of plaintiff's lawyers and a somewhat larger count of defense lawyers, and benefitting few, if any, consumers. If the bill has an unintended result of letting big corporate donors off the hook for mass-inflicted harms on low wage workers, consumers and other individuals, that is probably a pure coincidence.

Next up for the Bush administration: fighting frivolous medical malpractice cases by capping the amount of damages that plaintiffs can recover in good cases. The logic, though flawed, is at least consistent.

Class Action Bill To Be Signed By Bush Friday

The House of Representatives approved today the class action federalization bill that the Senate passed on February 10. President Bush is expected to sign the measure into law tommorrow. The House vote was 279-149, largely along party lines.

House leaders hailed the bill as a tool to prevent greedy lawyers from profiting by filing "frivolous lawsuits" in state court. Absurdly, they chose to battle these "frivolous lawsuits" solely by attacking claims worth more than $5 million, which, by most definitions, is more than a frivolous lawsuit is worth.

"Frivolous lawsuits are clogging America's judicial system, endangering America's small businesses, jeopardizing jobs and driving up prices for consumers," said House Majority Whip Roy Blunt. Moving those cases to federal court will ensure that state judges will no longer "routinely approve settlements in which the lawyers receive large fees and the class members receive virtually nothing," he added.

However, class actions in which the class members "receive virtually nothing" will be unaffected by the bill, since claims valued at $5 million and below are exempt from the new procedures.

"These out-of-control class action lawsuits are killing jobs, they're hurting small business people who can't afford to defend themselves and they're hurting consumers who have to pay more for products," said Rep. Ric Keller. Curiously, however, the bill will exclude most, if not all, lawsuits against "small business people", who rarely if ever find themselve defending against lawsuits, class action or otherwise, with claims in excess of $5 million.

Representative Jay Inslee was more honest. "This bill is the Vioxx protection bill, it is the Wal-Mart protection bill, it is the Tyco protection bill and it is the Enron protection bill," he said. "It's the final payback to the tobacco industry, to the asbestos industry, to the oil industry, to the chemical industry at the expense of ordinary families who need to be able go to court to protect their loved ones when their health has been compromised," said Rep. Ed Markey. "And these people are saying that your state isn't smart enough, your jurors aren't smart enough" to hear those cases.

The bill will only affect cases that are filed after president Bush signs it into law. We made a point of making sure our large class action cases were all filed before the courts close today.

Employers May Backcharge Payroll For Prior Commissions Paid If Conditions Are Never Met

It has long been the law in California that an employer may not set off debts an employee owes the employer against wages due to that employee. See Barnhill v. Robert Saunders & Co. (1981) 125 Cal.App.3d 1, 6 (employer may not deduct from employee's final paycheck payments on debt employee owed to employer); Phillips v. Gemini Moving Specialists (1998) 63 Cal.App.4th 563, 572.

There are, of course, exceptions. These include: state and federal income taxes, social security taxes, and state disability insurance taxes; wage garnishments; deductions that may authorize in advance in writing, including insurance premiums, pension or retirement plans funding; voluntary deductions on wage assignments (Labor Code § 300); and certain costs of board, lodging or other "facilities" furnished to employees in addition to their wages.

These protections inure to the benefit of almost all employees. But what about telemarketers? Does anyone really care if the paychecks of a telemarketers are protected? In a recent published opinion issued by the Second District Court of Appeal, the answer was "no."

In Steinhebel v. Los Angeles Times Communications, LLC ( --- Cal.App.4th ---, Feb. 7, 2005) the court of appeal held an employer may legally "advance" commissions before the completion of all conditions for payment and, by agreement, may charge back those advances against future commissions if the conditions are never satisfied. Telephone solicitors for the L.A. Times worked under a policy that immediately paid them a commission upon the sale of a subscription, subject to a chargeback if the customer did not keep the subscription for at least 28 days. The employees sued, claiming that the policy ran afoul of sections 203 (waiting time penalties), 221 (collection or receipt of wages previously paid), 223 (secret payment of wage lower than designated scale), 225 (unlawful receipt or withholding of wages and secret payment of wage below scale) and 400 through 410 (restrictions on employee bonds, “the Employee’s Bond Law”) of the Labor Code, as well as the unfair, fraudulent or unlawful business practice prohibitions under Business and Professions Code § 17200.

The trial court disagreed, granting a summary judgment motion in favor of the employer. The court of appeal reviewed the ruling de novo and agreed with the trial court. The wages were never "earned" because the conditions were not met until a subscription continued for 28 days. And the deduction was not a violation of Labor Code § 221 because of a written agreement between the employees and the Times which provided:

“However, if the subscription is rejected by The Times [an “in-house kill”] or by the customer before 28 days, the amount advanced in respect to the rejected subscription will be deducted from your compensation payable subsequent to the date of such rejection based on your commission rate for [the] current week and you hereby authorize such deductions.”

The agreement made the defense. Citing Korry of California v. Lefkowitz (1955) 131 Cal.App.2d 389, 393 [allowing recovery of excess of advances over earned commissions where agreement specifically provided employee would have weekly advance that would be charged against his commissions]; and Agnew v. Cameron (1967) 247 Cal.App.2d 619, 622, 624 [“it is clearly the law in California that a salesman is required to repay the excess of advances made over commissions earned when there is an express agreement on the part of the salesman to repay such excess”; “when there is an express or implied promise by the salesman to repay excess advances to his principal, the salesman is obliged to repay the surplus ‘draws’”], the court of appeal found the arrangement fair and lawful. Consequently, the unfair competition claims under the Business & Professions Code failed as well.

"While an employer’s policy or practice that violates the Labor Code may also be held an “unlawful business practice” under Business and Professions Code section 17200 et seq. (see Hudgins, supra, 34 Cal.App.4th at p. 1126), where, as here, an employer’s policy is lawful and permissible, there is no basis for relief under the unfair competition law. (See Olszewski v. Scripps Health (2003) 30 Cal.4th 798, 827-830.)"

The full opinion can be viewed or saved here as a word document or in pdf format.

Class Action Fairness Decimation Act of 2005 Passes Swiftly

The Class Action Fairness Act of 2005 moved through the Senate in just two weeks. Introduced on January 25, 2005, it was on the full Senate floor by February 7. It passed without amendment on February 10. The Chamber of Commerce is giddy. Full text of the passed bill can be seen here.

Why is this bill so bad? Senator Reid said it best. In his remarks, set forth in full at this link, he noted several circumstances in which cases would actually be thrown out of federal court on the ground that they involve too many issues of state law. Then, when the plaintiffs try to pursue their claim in state court, they will be unable to do so because only the federal court has jurisdiction. In other words, the worse the violation of state law, the easier it becomes for the corporation to avoid liability entirely!

Is this bill really about protecting working Americans and small businesses? As the saying goes: "Follow the money." This bill is about protecting the largest companies from liability for the most egregious acts against the largest number of individuals -- consumers and employees -- who have no viable recourse other than class action litigation. Who supported the senators who supported this bill? Check it out:

Goldman Sachs: $568,910
$281,590 to Sen. Charles Schumer [D-NY]
$22,250 to Sen. John Sununu [R-NH]
$38,750 to Sen. Joseph Lieberman [D-CT]
$19,000 to Sen. Blanche Lincoln [D-AR]
$90,320 to Sen. John McCain [R-AZ]
$70,000 to Sen. Christopher Dodd [D-CT]
$23,000 to Sen. Lamar Alexander [R-TN]
$24,000 to Sen. John Cornyn [R-TX]

MBNA Corp: $526,497
$34,500 to Sen. George Allen [R-VA]
$29,000 to Sen. Jon Kyl [R-AZ]
$129,447 to Sen. Thomas Carper [D-DE]
$52,800 to Sen. Michael DeWine [R-OH]
$164,750 to Sen. Olympia Snowe [R-ME]
$86,750 to Sen. Susan Collins [R-ME]
$29,250 to Sen. George Voinovich [R-OH]

Citigroup Inc: $520,790
$16,750 to Sen. John Sununu [R-NH]
$79,000 to Sen. Joseph Lieberman [D-CT]
$17,250 to Sen. Trent Lott [R-MS]
$92,750 to Sen. Christopher Dodd [D-CT]
$12,750 to Sen. Mel Martinez [R-FL]
$19,740 to Sen. Richard Santorum [R-PA]
$241,100 to Sen. Charles Schumer [D-NY]
$41,450 to Sen. John McCain [R-AZ]

Bear Stearns: $322,550
$26,000 to Sen. Richard Santorum [R-PA]
$122,400 to Sen. Christopher Dodd [D-CT]
$16,000 to Sen. Charles Grassley [R-IA]
$140,400 to Sen. Charles Schumer [D-NY]
$17,750 to Sen. Orrin Hatch [R-UT]

Do those firms have the financial ability to fight back against the so-called frivolous lawsuits that this bill purports to oppose? Of course. Two million dollars will beat a lot of frivolous lawsuits, and the lawyers who bring them, into oblivion. As it turns out, two million dollars can also help minimize the risk that a meritorious lawsuit will let these financial firms' victims find justice.

“The Senate has taken a critical step toward granting families, consumers and employers relief from the heavy burden of lawsuit abuse,” said Thomas Donohue, Chamber President and CEO of the U.S. Chamber Institute for Legal Reform . “Now it’s time for the House to finish the job and take back our civil justice system from plaintiffs’ lawyers seeking jackpot justice.”

Is class action litigation really about “jackpot justice?” It is this time. And Bear Stearns, Goldman Sachs, MBNA, Citigroup and every tortfeasing consumer cheater and labor law breaking employer just hit the jackpot.

Fourth District Also Says Prop 64 Is Retroactive

A third appellate court has weighed in on the retroactivity of Prop 64. The First Appellate District held on February 1st, in Californians for Disability Rights v. Mervyn’s, LLC, that the new law does not apply to pending cases. Eight days later, the Second Appellate District disagreed in Branick v. Downey Savings & Loan Association.

It took the Fourth Appellate District, just one more day to join the debate. In Benson v. Kwikset Corp., ___ Cal.App.4th ___ (Feb. 10, 2005), Division Three of the Fourth District held that Prop 64 does apply to pending cases. Moreover, unlike the Branick decision, the Benson decision rejected the possibility of granting leave to amend so that a suitable plaintiff could be substituted in to pursue the unfair competition claim. In that respect, there are now three different published opinions for trial courts to follow:

1. Mervyn's: Prop 64 does not apply to pending cases;

2.  Branick: Prop 64 does apply, but a new plaintiff can substitute in to meet standing requirements; and

3. Benson: Prop 64 does apply, and no substitution of parties may cure the lacking of standing under the new rule.

The Supreme Court is likely to grant review of all three cases. There will certainly be more to follow. To read the full text of Benson, you can open or download a copy of the opinion in word format or in pdf.