Wage Law

Certification Granted in Verizon Commission Chargeback Case

We just learned that the class action for Verizon advertising sales reps has been certified by the Orange County Superior Court.  In Gabriel v. Verizon Communications Inc. (OCSC Case No. 04 CC 00591), three former Verizon telephone directory advertising sales representatives allege that the company unlawfully deducted business losses from their wages by taking "charge backs" against incentive compensation revenues lost when a customer does not pay for its ads or when the company gives discounts or credits to its advertisers for business reasons, whether or not the discount was due to the sales rep's own mistake.

Wage Settlements Are Taxable As Ordinary Wages

Suppose you sue, not for unpaid wages, but for discrimination. Part of your claim of damages is that you lost earnings from the time you were fired, or forced to quit, or got demoted. You also might seek some front pay -- the lost earnings which will follow. Finally, you want some general damages, such as emotional distress damages. After a long battle in court, you settle. The employer is going to pay you $40,000, including back and front pay, but not including any punitives damages. The settlement agreement says you will get "forty thousand ($40,000) less all lawfully required withholdings." How much might you expect?

In Jack Rivera's case, $25,140 was about right, after the entire payment was processed as payroll, with deductions for state and federal income tax withholdings, plus FICA. Rivera cried foul, and refused to dismiss his case, even after cashing the check. Rivera argued that the payment including compensation for physical injuries, and should have been excluded from his taxable income under 26 U.S.C. Sec. 104(a)(2), but that even if it was all taxable, it was not subject to withholding. The employer responded with a motion to dismiss, which the trial court granted. The pay was clearly not intended to compensate him for physical injuries. It was in the nature of back pay, said the U.S. District Court.

The 9th Circuit agreed, finding that there was no basis for excluding the pay from Rivera's income, and that the trial court had reasonably construed the pay as compensation for back pay. Rivera v. Baker West, Inc. (9th Cir. 2005) 430 F.3d 1253. The moral of this story: if some of the money is intended to cover attorney's fees, general damages or other non-wage compensation, expressly include it in the agreement (but don't bother trying to characterize it as physical injury; it won't fly).

Top Wage and Hour Verdict of 2005: Wal-Mart

Among the ten largest verdicts in the nation in 2005, only one was a wage and hour case. That one was the Wal-Mart break case, Savaglia v. Wal-Mart Stores, Inc. Not surprisingly, we learned of this from the Wurth firm, which represented the Wal-Mart employees in that case.

Finding a Class Representative

Last week, in Best Buy Stores, L.P. v. Superior Court, the 4th District Court of Appeal upheld an Orange County Superior Court order authorizing discovery in a class action case to locate a suitable class representative in cases where the existing class representative has been found to be unsuitable or, in this case, while the court is in the process of determining the suitability of the putative class representative.

In Best Buy, the trial court (Judge Jonathan Cannon) issued an order to show cause why the case should not be dismissed due to the putative class representative's joint status as class counsel. After last year's published opinion in Apple Computer, Inc. v. Superior Court (2005) 126 Cal.App.4th 1253, it is well established that a conflict of interest prohibits a lawyer from serving both as class representative and as counsel for the class." Class counsel responded with a "motion compelling precertification discovery to seek class representatives," which proposed to send a notice to the class informing them of the existence of the lawsuit, and inviting them to participate as class representatives. Judge Cannon granted the request and the defendant appealed by filing a petition for a writ of mandate.

Best Buy argued four points: (1) that the contemplated contact between class counsel and the potential substitute plaintiffs would constitute prohibited solicitation; (2) even if another plaintiff was found, class counsel would continue to control the litigation; (3) Judge Cannon violated the canons of judicial ethics by "conspiring with [counsel] to facilitate an illegal solicitation"; and (4) the letter to be sent to Best Buy’s customers violated their privacy rights.

Each ground was rejected. The Rules of Professional Conduct do not prohibit written communications soliciting clients for representation in legal matters. Only phone and in-person contact is barred. Class counsel would be no more likely to control the litigation on behalf of a new plaintiff than any counsel representing any plaintiff. With respect to the privacy issue, the court ordered the letter revised for the further protection of the recipients’ privacy, so that only those who responded with interest in joining the suit would have their names disclosed to class counse. As to the accusation against Judge Cannon, the appellate court wrote "We not only reject the proposition that the trial court violated the canons of judicial ethics, but caution counsel against making such a serious, unsupported allegation."

The case did not involve employment issues, but should be of interest to wage and hour class action attorneys because the issue of representative suitability is often used by defense counsel to try to turn class actions into individual lawsuits. However, it is well-established (even if trial courts sometimes disregard the obligation) that “should the trial court conclude that plaintiff cannot suitably represent the class, it should afford [him] ‘the opportunity to amend [his] complaint, to redefine the class, or to add new individual plaintiffs, or both, in order to establish a suitable representative.’  [Citation.]”  (Kagan v. Gibraltar Sav. & Loan Assn. (1984) 35 Cal.3d 582, 596.)

The full text of Best Buy can be read here in pdf or Word format.

$2 Million Northrop Class Action Settlement Approved

First shift production workers at Northrop Grumman's El Segundo manufacturing facility will share in a $2 million settlement involving meal period violations dating from January 2001 to April 2004, pursuant to a settlement approved by a court-appointed referree this afternoon. The settlement resolves two cases pending in the Los Angeles County Superior Court. Our law firm is one of two firms involved in the action. The primary claims alleged in both cases arose from non-compliant meal period scheduling at the facility. Approximately 900 current and former production workers will be eligible to share in the proceeds.

The settlement will require the company to mail claim forms to all eligible employees. Workers must submit these forms in order to be eligible to receive their payments under the settlement. More information about the lawsuit can be obtained at a website we set up for the employees. We will post copies of the claims forms and notices as soon as they are printed, which will be sometime in April.

Source/Contact: Walsh & Walsh, P.C. Michael J. Walsh, Esq. 420 Exchange, Suite 270 Irvine, CA 92602 Tel: (714) 544-6609 Fax: (714) 544-6621 E-mail: walshandwalsh@aol.com. The employees were represented by Walsh & Walsh, P.C. (Michael J. Walsh and Mark A. Walsh) of Irvine, California, Langford & Langford, APLC (Michael S. Langford and Karin A. Langford) of Santa Ana, California.

Trial Judge Says Court of Appeal Got It Wrong

California Labor Code § 226 governs what employers must include on their wage statements that accompany payroll checks. Section 226(a) sets forth the list of necessary information:

an accurate itemized statement in writing showing (1) gross wages earned, (2) total hours worked by the employee, except for any employee whose compensation is solely based on a salary and who is exempt from payment of overtime under subdivision (a) of Section 515 or any applicable order of the Industrial Welfare Commission, (3) the number of piece-rate units earned and any applicable piece rate if the employee is paid on a piece-rate basis, (4) all deductions, provided that all deductions made on written orders of the employee may be aggregated and shown as one item, (5) net wages earned, (6) the inclusive dates of the period for which the employee is paid, (7) the name of the employee and his or her social security number, except that by January 1, 2008, only the last four digits of his or her social security number or an employee identification number other than a social security number may be shown on the itemized statement, (8) the name and address of the legal entity that is the employer, and (9) all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee. The deductions made from payments of wages shall be recorded in ink or other indelible form, properly dated, showing the month, day, and year, and a copy of the statement or a record of the deductions shall be kept on file by the employer for at least three years at the place of employment or at a central location within the State of California.

If the employer does not comply, penalties may be imposed under Labor Code § 226(e), which states:

An employee suffering injury as a result of a knowing and intentional failure by an employer to comply with subdivision (a) is entitled to recover the greater of all actual damages or fifty dollars ($50) for the initial pay period in which a violation occurs and one hundred dollars ($100) per employee for each violation in a subsequent pay period, not exceeding an aggregate penalty of four thousand dollars ($4,000), and is entitled to an award of costs and reasonable attorney's fees.

So what does it mean to be knowing and intentional? According to Los Angeles County Superior Court Judge Tricia Ann Bigelow, you have to show not only that the defendant knew and intended to put incorrect information on the pay stub, but also that the defendant knew about Section 226, and intended, by its actions, to willfully violate its terms.

In a ruling on a motion for summary adjudication in a case entitled Mutec v. Huntington Memorial Hospital , Judge Bigelow granted summary adjudication of the claim for damages (penalties) against the employer because the plaintiffs did not have evidence that the employer knew about Section 226, and how its actions violated section 226.

Judge Bigelow accepted as true the defendant's self-serving claims that, although their violations of Section 226 were "knowing," and there was no evidence that the mistakes were inadvertent, they did not mean to violate the statute, specifically, and therefore, the violations were not "knowing and intentional." In other words, knowingly provided false information on a paystub is not necessarily an intentional violation of the law. The court agreed with their analysis, and focused on the lack of evidence that the violation of 226 was motivated by a desire or a "deliberate decision to violate Labor Code § 226."

The ruling was a bit surprising because normally, where the issue is the moving party's intent, or where the defendant is the sole witness to the facts stated in its declaration, the court has discretion to deny summary judgment so that the moving party's credibility can be determined at trial (Code of Civil Procedure§ 437c(e)) and most judges, in fact, do let such disputes get resolved by trial.

More remarkably, however, the statement of decision began with this remarkable preface that would have made us certain that the employees were going to prevail:

"Huntington concedes that in Phillips v. Huntington Memorial Hospital (2005) 2005 Ca;.App. LEXIS 7880 the court of appeal determined that Huntington's pay stubs violated Labor Code § 226."

In the Phillips case, the trial court had determined that Huntington Memorial Hospital's pay stub policies did not violate Section 226. However, on appeal, the Court of Appeal reversed, holding "we necessarily reject the hospital's contention that section 226 permits it to knowingly provide incorrect figures for "gross wages and "total hours worked," thereby putting the burden on employees to determine the correct amounts."

Judge Bigelow, however, said that the conclusions of the appellate court should be disregarded.

The DCA [Court of Appeal] found that the defendant has "knowingly provide incorrect figures for "gross wages and "total hours worked," thereby putting the burden on employees to determine the correct amounts, [but] the evidence does not support the statement."

We had never seen a trial court purport to correct the Court of Appeal, but it seems that this is precisely what the judge did here. If this ruling stands, there is no such thing as a provable violation of Labor Code 226. If an existing court of appeal opinion finding that a defendant knowingly put false information on their paystubs is not enough, nothing will ever be enough. We wish the plaintiffs and their counsel the best of luck on appeal.

On a side note, the plaintiffs bolstered their claim with an expert declaration, to which no objection was made or sustained, by Donna Dell. Ms. Dell, the former Labor Commissioner (appointed by Arnold Schwarzenegger) does not have a reputation as a great friend of labor, so her declaration in support of the plaintiffs makes for fascinating reading.

The Most Inclusive List of Blawgs Ever

At 3L Epiphany, a law student is assembling a list of every legal blog in the U.S. We are pleased to have been found easily. The list is assembled alphabetically, so we are at the beginning of the W section, where we have been since we were in preschool.

Armenta v. Osmose: Review Denied

This afternoon, the Supreme Court denied review of Armenta v. Osmose, Inc., the 2005 case holding that minimum wage appies on an hour-by-hour basis in California. California workers are entitled to minimum wage for every hour they work. Congratulations to James Cordes and Carol Janssen, who represented they employees in that case.

No Individual Liability For Wage Claims, Even in Actions Brought by the Labor Commissioner

Though we saw only limited wiggle room after Reynolds v. Bement (2005) 36 Cal.4th 1075, there was a school of thought that said individual officers and directors could be held responsible for failure by a corporation to pay wage, if the claim was made directly by the Labor Commissioner. In Jones v. Gregory (March 14, 2006, G030347) the Fourth District Court of Appeal affirmed that there is no liability as an "employer" for officers and directors whose companies fail to pay wages, unless there is an allegation that the person was the entity, or that the entity was an alter ego of the person. The holding states:

William Gregory appeals from a judgment holding him individually liable for his corporation’s “delinquencies in paying outstanding wages, expenses, interest and penalties, not because he ‘did business as’ or through any ‘veil-piercing’ analysis, but simply because he was a ‘corporate officer who ha[d] operational control of the corporation’s covered enterprise,’” quoting Lopez v. Silverman (S.D.N.Y 1998) 14 F.Supp.2d 405, 412-413. The Labor Commissioner, by the Division of Labor Standards Enforcement (DLSE), brought this suit against Gregory on behalf of the corporation’s unpaid California employees. Relying on assertedly analogous federal authorities, DLSE argued Gregory fell within the meaning of “employer” in various Labor Code wage provisions and Industrial Welfare Commission (IWC) wage orders. Attacking the judgment, Gregory contends California law does not support imposing personal liability on corporate officers or agents as “employers.” Guided by our Supreme Court’s recent decision in Reynolds v. Bement (2005) 36 Cal.4th 1075 (Reynolds), we agree.

The DLSE argued that Reynolds was limited to civil actions brought by private litigants. In Reynolds, the Supreme Court made the curious statement that they "have no occasion in resolving this private dispute to address questions concerning DLSE’s use, in administrative proceedings, of the IWC employer definition...." However, the 4th District found that the distinction "evaporates" when the DLSE files its action in court rather than before an administrator. The court even added that this distinction "may be an empty one, since Berman hearings are reviewed de novo in superior court at request of either party."

This case doesn't much affect employees' lawyers, since most of us are not the Labor Commissioner, but there is some interesting language for any person who also found Reynolds interesting. You can download the full text of the opinion here in pdf or Word format.

A Few Quiet Voices for Restaurant Workers

We wish they had an organization like Young Worker's United back when we were bussing tables to pay our way through college. For that matter, we wish there had been websites like the Stained Apron. We wish there had been class action lawsuits enforcing overtime, break and uniform laws.

Instead, when we were required to do things like show up ten minutes before work to attend unpaid meetings about daily specials and side work, or pay $20 for cheap T-shirts with the restaurant's logo and the monthly theme Valentine's Day in February, St. Patrick's Day in March, etc., all we could do was gripe and complain. They literally laughed at us and said "So, sue us." They tend not to say that to workers today, though.