Wage Law

Study Shows Courts Far More Reluctant to Vacate Employment Arbitrations if Employer Wins

According to a new study published by a professor at the University of Illinois Law Center, and discussed in the National Law Journal today, courts are more commonly vacating or partially vacating arbitration awards for employees, and rarely disturbing awards that favor employers.

"When courts vacate many awards that rule for employees, the individual must either return to a lengthy and costly 'do over' arbitration -- or worse, be stuck with a useless award, and no other recourse ... [Court review is becoming] "an insurance program that protects employers from costly awards."

Arbitration reform could be a significant issue in 2009 if the Democrats win the White House in November.

More on That Starbucks Verdict

Starbucks is not planning to pay its California baristas back for tips they shared with shift supervisors, nor to obey a San Diego Superior Court order to stop the practice. In a voicemail message to employees last week, Chief Executive Howard Schultz said the ruling "would take away the right of shift supervisors to receive the tips they earn for providing superior customer service" and the company executives "strongly believe that this ruling is extremely unfair and beyond reason."

We already discussed our take on the ruling last month. For the perspective of an employer-side blog, check out Entertaining Employment Law.

Meanwhile, some workers and lawyers in Massachusetts heard about the lawsuit, presumably, and decided to pursue similar claims there:

A former Boston-area Starbucks worker claims he was shortchanged by the coffee company's tips policy and he is now taking the coffee giant to court, claiming his managers swiped his tips. The lawsuit filed in Suffolk Superior Court comes days after the Seattle-based coffee company was ordered to pay millions in a similar case.

There will probably be more still.

Is Your E-Mail To Your Client Not Privileged?

Apparently, there are more than a few employers who are mining their email archives to search for email communications between employees and former employees and the attorneys representing them in claims against the employer. One judge in New York issued a ruling last year that such communications are not protected by attorney-client privilege. The case is Scott v. Beth Israel Medical Center, Inc. You can read the order here. We haven't researched whether any California cases are on point. We're just passing it along.

Breaking News: Starbucks Found Liable for Over $100 Million to Baristas

San Diego County Superior Court Judge Patricia Cowett has ruled in favor of more than 100,000 Starbucks baristas and ordered the company to pay the employees more than $100 million in tip pool money that was diverted to management employees. The court had ruled last month that Starbucks's practice of paying shift supervisors from the tip pool violated California law. We previously discussed the case in a post found here. The ruling affects only California employees, and only the period October 8, 2000 to the date of trial.

Other Legal Blogs Weigh in on Gentry

Here are a few of the legal blogs we read, and their remarks about Gentry v. Superior Court.

• The UCL Practitioner
• Storm's California Employment Law
• Arbitration Law Memo
• Workplace Prof Blog
• What's New in Employment Law?
• Class Action Defense Blog

We expect many of the large firms to be writing and publishing articles and alerts about Gentry, too, but we rarely spend the time to dig any deeper than the fifth page of our Google search results.

Slave Sweatshop Operators To Be Sentenced

Sweatshop operator Jimmy Quan was convicted in May by a federal jury on eleven felony counts, including conspiracy to conceal assets, the concealment of assets, bankruptcy fraud, the making of false statements, and money laundering regarding three separate bankruptcies. His wife, Anna Wong was also convicted of three felony counts, including conspiracy to conceal assets, the concealment of assets, and the making of false declarations in a bankruptcy proceeding. The jury acquitted Quan on four counts of making false entries and one count of concealing assets, and acquitted Wong on one count of concealing assets. The guilty verdicts followed a four month jury trial before U.S. District Court Judge William B. Shubb.

Evidence at trial showed that Mr. Quan, 47, and Ms. Wong, 45, of San Francisco, owned numerous companies, including several clothing manufacturing businesses in San Francisco in the 1990s through 2001. Mr. Quan also controlled a property management business in San Francisco. Over a period of time, from 1997 through 2003, Mr. Quan and Ms. Wong placed three of their businesses into Chapter 11 reorganization bankruptcy and then proceeded to defraud creditors of those companies by concealing and diverting assets and making false statements to the Bankruptcy Court under penalty of perjury. The total loss to the creditors was over $5 million.

The fraud started in 1997, when Mr. Quan, having failed to pay millions of dollars in taxes, filed for Chapter 11 protection for his clothing company Win Fashion Inc. Over the course of the next four years, while the company received bankruptcy protection from its creditors, Mr. Quan proceeded to divert millions of dollars of Win Fashion revenue to other companies that he and his wife controlled. The Bankruptcy Court eventually converted Win Fashion to a Chapter 7 bankruptcy in July 2001, forcing the liquidation of the company.

One month later, in August 2001, Mr. Quan and Ms. Wong continued the fraud by placing their second clothing manufacturing company, Wins of California Inc., into Chapter 11 reorganization bankruptcy. In connection with that bankruptcy, Ms. Wong made false statements under penalty of perjury on documents filed with the Bankruptcy Court regarding the true assets of the company. Ms. Wong also diverted Wins of California revenue to another company controlled by a family member, and then concealed that revenue from the Bankruptcy Court and Wins of California creditors. Creditors of Wins of California included hundreds of low-wage employees, who, by the time Wins of California filed bankruptcy, were owed at least one-half million dollars for work they had performed, but for which they had never been paid.

Mr. Quan was also convicted of bankruptcy fraud, concealing assets, making false statements, and money laundering in a third bankruptcy. This third bankruptcy involved a property management company, controlled by Mr. Quan, called Tomi LLC. Tomi LLC filed for Chapter 11 bankruptcy protection in July 2003. Mr. Quan again diverted and concealed over one-half million dollars of Tomi LLC assets from the Bankruptcy Court and Tomi LLC creditors. The evidence further showed that Mr. Quan concealed $270,000 of these assets by depositing them into his minor children’s personal bank accounts. These transfers formed the basis of the money laundering convictions.

The sentencing of Mr. Quan and Ms. Wong is scheduled for September 12, 2007 before Judge Shubb in San Francisco. The maximum statutory penalty for each count of conspiracy, 18 U.S.C. § 371; bankruptcy fraud, 18 U.S.C. § 157; concealment of assets, 18 U.S.C. § 152(7); and making false declarations, 18 U.S.C. § 152(3) is five years. The maximum statutory penalty for each count of money laundering, 18 U.S.C. § 1956(a)(1)(B)(i), is twenty years. The maximum fine for each of the counts charged is $250,000, plus restitution where appropriate. However, any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.

Defense Firms Weigh In on Murphy

The Supreme Court has denied a petition to modify the opinion in Murphy v. Kenneth Cole Productions, Inc., filed by Steven Drapkin, who argued the defense side for amicus curiae. The petition sought to add a blurb stating that the Supreme Court was not expressing any view about about the applicability of the many consequences, adverse to employers, that could will flow from the Supreme Court's designation of the hour of pay as a wage, and which formed the basis of many of the defense arguments as to why the hour of pay shouldn't have been declared a wage. The opinion will continue to be discussed at great length over the next few months in courtrooms, at seminars and in places like this blog, but with the denial of this petition, the underlying material for the discussion has finally been completed.

With notable exceptions, such as Sheppard Mullin, with its Labor & Employment Law Blog, larger firms tend not to discuss important cases on their firm websites for a few days or weeks. By now, however, most of the large firms who have anything interesting to say about Murphy v. Kenneth Cole Productions, Inc. have said it. Here is a collection of what they had to say:

Littler Mendelson has published this: Missed Meal & Rest Periods Will Cost Employers More Following California Supreme Court Decision. Their first article, on the first appellate decision in Murphy ("an early Christmas present") can be read here. Their new one begins with "Everything you need to know about how the Kenneth Cole decision will cost you." That'll get an employer's attention.

Nixon Peabody wrote: California Supreme Court increases stakes for violations of meal and rest period rules. After calling the decision infuriating, they list several different ways an employer could be found liable for break violations, and end by listing ways to modify employer behavior to prevent liability. Curiously, they note that Murphy "leaves open the possibility" that a court would permit a fourth year of recovery. We don't see that as an issue that remains unanswered, and consider it well-established that a wage can be recovered under the UCL for four years.

Sedgwick Detert wrote: California Supreme Court Triples Employers' Exposure. In it, they claim to have found a "silver lining" in that the Murphy decision is that the court disagreed with the plaintiff's argument that the premium pay exposure was two hours per day if both the meal and rest periods were missed. However, that issue was never part of the appeal, and the Supreme Court did not discuss, much less hold, that a plaintiff can only recover meal period pay or rest period pay, but not both, in a single work day. Perhaps that will be the next big issue in meal and rest period litigation.

Jackson Lewis wrote: California High Court Triples Exposure for Missed Meal and Rest Periods, which includes a good laundry list of practices that employer's should avoid and practices employers should implement, such as, if a meal or rest period is interrupted, it must start over from the beginning, so that the break is a "net" 30 or "net" 10 minutes.

Fenwick West wrote California Supreme Court Rules that Payment for Missed Meal and Rest Periods is a "Wage" Subject to Three-Year Statute of Limitations, saying that the decision "not only significantly increases employers' potential exposure for meal and rest period violations, but it is also a sobering reminder to employers to ensure that their exempt employees are properly classified."

Bingham McCutchen wrote the similarly entitled: California Supreme Court Rules Payments for Missed Meal and Rest Periods Are Wages Subject to Three-Year Statute of Limitations, with a list of four lessons learned by employers.

Ford & Harrison wrote: California Supreme Court Classifies Pay for Missed Meal/Rest Breaks as Wages, which preaches this truth: "California wage and hour law is very different from the federal FLSA, so simply complying with the FLSA is not enough to protect employers from significant exposure in California." If more employers understood that, our caseload would be cut in half.

Pillsbury Winthrop wrote: Meal and Rest Period Claims: California Supreme Court Hands Employers a Setback, observing that the decision "will clearly result in the filing of even more meal and rest period cases against employers. Jury awards and settlement amounts will very likely increase." We think that is is technically correct that there will be even more of these cases filed, but there would be more cases filed either way. The real impact is that the amounts of the awards and settlements will increase.

Proskauer Rose wrote: California Supreme Court Gives Employers No Break. The gist of the article is that the court took it upon themselves to quadruple employers' liability for meal period and rest period violations. Of course, we've never seen it that way. Our view is that the Supreme Court has undone the appellate court's mistaken slashing of employee claims for meal and rest period pay.

Sidley & Austin wrote: California Supreme Court Refuses to Give Employers a “Break”, which included a list of six issues that they believe to be unresolved after Murphy: • Are the meal and rest period provisions adopted by the Industrial Welfare Commission legally void? • Is Section 226.7 limited to a total of one hour of pay per day for meal and rest period violations, regardless of the number of violations? • Does the duty to “provide” a meal period mean only that employees must be afforded the opportunity to take a meal? Or, must the employer force the employee to eat? • Are statutory attorneys’ fees and interest recoverable for Section 226.7 actions? • Are late wage payment penalties triggered by a failure to make Section 226.7 payments? • Are Unfair Competition Law claims permitted for purposes of collecting Section 226.7 payments? We think have of those issues are already decided.

Fisher & Phillips wrote: California Supreme Court Ruling Could Quadruple Potential Damages For Meal and Rest Period Violations, which was the first defense firm article that reinforced our belief that we might be correct in our decision to start adding paystub violation claims (Labor Code section 226) to our meal and rest period cases.

And Hogan & Hartson wrote: California Supreme Court Rules in Favor of Employees in Long-Awaited Meal and Rest Break Case, which echoed our opinions. "Employees who have quit or been terminated without receiving all Section 226.7 pay can now assert claims under Labor Code section 203 ... employees also may seek penalties for the failure to provide properly itemized wage statements if Section 226.7 pay is not included on pay stubs or other wage statements ... [and add] claims for unfair competition and conversion, previously not available for the recovery of penalties ... and employers will face increased claims for punitive damages and significant penalties under the Labor Code Private Attorneys General Act because the argument that such damages constitute a double penalty is no longer viable now that Section 226.7 pay has been declared not to be a penalty. Finally, employees now have a greater chance of collecting attorneys fees and statutory interest in actions based solely on meal and rest period violations." The authors of that update also recently published an article about Murphy in the Daily Journal. The link is subscription-only.

If your firm isn't mentioned, it isn't because we meant to skip you. The problem is that you haven't figured out how to make Google love you. We noticed, interestingly enough, that a Google search for "murphy kenneth cole" puts a pair of Wage Law posts at the top, but not the post we'd have chosen, nor the one we think most relevant. We haven't figured Google out completely ourselves, but we think one reason we're near the top is that we apparently have 45 different pages that discuss the Murphy case.

UC Not Immune From Waiting Time Penalty Suits

Review has been denied in Sarka v. The Regents of the University of California, upholding a determination that a UCLA doctor was terminated for insubordination, rather than for advocacy on behalf of his patients. The case has been discussed at length at other employment law blogs. You can read it here in pdf or Word format. What few commentators knew about Dr. Sarka was that, in addition to his wrongful termination claim, he also brought a wage claim.

Earlier this month, the Supreme Court denied publication of a different opinion -- the Superior Court Appellate Division decision in the other Sarka v. The Regents of the University of California (Case No.  04T01682) -- in which Dr. Sarka prevailed in his effort to assert waiting time penalty claims against the Regents. The issue was whether the California Constitution, Article IX, Section 9, provided the Regents with immunity from such claims. The trial court ruled that the Regents were immune, and sustained a demurrer without leave to amend. The Appellate Division held that the Regents were not immune. You can download a pdf of the Appellate Division's opinion here. While the opinion may not be published, because the issue is truly unique to claims against the University of California, it may be of great value to litigants with similar wage claims.

The Pharm-Bots Fight Back

The National Law Journal has published an article entitled "Drug Salespeople Sue for Unpaid Overtime," which discusses one of the latest trends in wage and hour litigation -- pharmaceutical representatives suing for overtime, challenging the commissioned sales exemption and seeking 10-20 hours per week of unpaid overtime. The article includes a quote from Eric Kingsley, who was our co-counsel in wage and hour class actions against Guitar Center and Darden Restaurants (Oliver Garden and Red Lobster):

"These reps aren't making sales. They're marketing products to doctors ... They are not sales reps, but pharm-bots who do and say as they are told."

Among the companies being sued under for such claims: AstraZeneca, Pfizer Inc., Johnson & Johnson, Amgen Inc., Eli Lilly & Co., GlaxoSmithKline PLC, Bayer Corp. and Hoffman-LaRoche Inc.

Murphy v. Kenneth Cole Comments

We've received a large volume of emails, including detailed notes from a few people who attended the oral arguments in Murphy v. Kenneth Cole Productions, Inc. We're sifting through it all and will have a more substantive post later today, after we've taken care of a couple of deadlines.