U.S. District Court Case Says Labor Code 226.7 Pay Is a Wage, Not a Penalty

U.S. District Court Judge James V. Selna has issued a decision, recently published at 359 F.Supp.2d 891 (Tomlinson v. Indymac Bank, F.S.B., 2005 WL 469291), which provides the first real guidance as to whether Labor Code § 226.7 pay is a wage or a penalty. Judge Selna found such pay to be a wage. Under Section 226.7, the employee is paid an amount (equal to one hour of regular pay) for labor performed during his meal break or rest period. For these reasons, the court found that an employee earns the additional hour of pay when he or she is not given a meal break or rest period. This "is consistent with the Labor Code's definition of 'wages,' which is 'all amounts for labor performed by employees ....' [citing Cal. Lab. Code § 200(a)]"

The court disagreed with the recent reasoning of the DLSE in its efforts to roll back meal and rest period rights, and disregarded the agency's reasoning in accordance with Bonnell v. Medical Board of California (2003) 31 Cal.4th 1255, 1264 (in California, "agency interpretations are not binding or ... authoritative" and "[c]ourts must, in short, independently judge the text of a statute.")

The implications of the ruling were many. Among other things, as a wage, an award under Section 226.7 is restitutionary and thus may be recovered under the California unfair competition law (UCL). Perhaps most importantly, because an award under Section 226.7 is not a penalty, the four-year statute of limitations governing UCL claims, rather than the one-year statute in California Code of Civil Procedure § 340(a), applied.

Judge Selna's decision will not be the last word on the subject. Absent contrary precedent under state law, California courts often find federal decisions, even District Court opinions persuasive, but they are not binding upon a Superior Court or a California Appellate Court. There are at least two such cases we are following in the appeals courts, and a decision is expected in one of those cases next month.

Comments

[Michael Singer]

I'm assuming that most people know by now that the first California appellate decision on the statute of limitations for rest and meal period claims is about to be published, and it's bad news. Orco Block v. Superior Court is set for oral argument on June 7 at 1:30 in the Fourth District Court of Appeal, Division Two (Riverside). The court issued a pre-argument "tentative decision" finding the remedy under LC226.7 to be a penalty subject to a one year statute of limitations under CCP340(a) and not susceptible to a claim for restitution under BPC17200.

We are calculating the Supreme Court would rule on a Petition for Review some time in October, provided the Real Party in Interest files a Petition.

[michael walsh]

Mike, you pre-empted my Monday post....

[Michael Singer]

Update on Rest and Meal Period cases and issues:

The same court of appeals in Riverside (Fourth District, Division Two) that was poised to give us the one-year statute of limitations in Orco Block v. Superior Court has another case teed up on the same issues. Agricultural workers in Banda v. Bagdasarian, represented by the California Rural Legal Assistance Foundation, were required to taste unwashed grapes for sweetness in the field and denied meal periods. The trial court entered summary judgment against the employees on all causes of action, including rulings that the hour of pay under Labor Code section 226.7 is a penalty and that the employees have no private right of action to pursue claims for denied meal period pay.

Banda has been fully briefed by the parties, but the matter is not yet on the Court's oral argument calendar. On June 30, the Court denied Richard Simmons' request to file an amicus brief on behalf of the California Hospital Association. Since we have been burning the midnight oil trying to pump out an amicus brief for California Employment Lawyers Association to be filed July 1, this was not good news. However, we noted in our application that our brief was not a re-hash of the parties' arguments and contained discussion of several new and unbriefed issues. These include the DLSE precedent decision, which we argue carries no more weight than an opinion letter because it is not subject to the rulemaking requirements under the APA, the California Supreme Court's recent decision in Coachella Valley Mosquito & Vector Control Dist. v. California School Employees Association (June 9, 2005) ___ Cal.4th___, 2005 Cal. LEXIS 5953, which discusses how the Supreme Court construes and harmonizes the entire statutory scheme to determine the applicable statute of limitations for employee claims (noting appellate authority that there generally is a three-year statute for violations of the labor code), and the fact that Supreme Court authority states that all existing labor laws are incorporated into labor agreements, resulting in a four-year statute of limitations for written and two years for oral breach of contract claims for rest and meal period compensation. Our fingers are crossed that the Court will accept this brief.

Meanwhile, the court in Sacramento in Corrales et al. v. Donna Dell, Labor Commissioner for the State
of California, Sacramento Superior Court Case No. 05CS0042 has agreed to hear the challenge of the California Labor Federation to the DLSE precedent decision. The matter is set for hearing in late July, and also includes challenges to the DLSE policy of holding ODAs in abeyance and issuing one-year awards for rest and meal period claims.

Finally, the Respondent's brief was filed last week in Murphy v. Kenneth Cole in the First District Court of Appeal in San Francisco. This is the case where a group of U.C. Hastings (our alma matter) law students defeated lawyers from Seyfarth Shaw in a misclassification case in which the trial judge also found that the statute of limitations for rest and meal period claims was three years for wage violations. The Appellant's will file their reply in July (or August if they get an extension), and amicus briefs and repsonses will be submitted through sometime in September, approximately.

GREAT JOB on the Red Lobster and Olive Garden settlement. We are headed next week for a second mediation on our 15,000-employee class action for rest and meal period, minimum reporting pay, uniform, and cash shortages against Brinker International, owners of the Chili's, Maggiano's, Macaroni Grill, Cozymels, and On the Border restaurants. Cohelan & Khoury is on this case along with Lorens & Associates, and the Law Office of William Turley. The Paul Hastings firm represents Brinker.

Michael Singer

[Michael Singer]

I forgot to add that in our case against Brinker, the parties decided after the first mediation to return to mediation after getting rulings from the trial court judge on key issues greatly impacting the violations alleged. On July 1, 2005, Judge Pat Cowett of the San Diego Superior Court issued "advisory opinions" for the purposes of our mediation that it is a violation for the employer to lunch employees within the first hour such that the employee must work periods in excess of five hours following a meal, and that the statute of limitations is four years for claims under Labor Code section 226.7.