The California Supreme Court has rejected an emergency constitutional challenge filed by drivers for Uber, Lyft and other app-based companies and various unions requesting that the Court declare the voter-approved Proposition 22 unconstitutional.  Proposition 22 (“Prop 22”) permits some app-based gig ride-hailing and delivery companies to continue to classify workers as independent contractors despite California’s adoption of the stringent ABC test for worker classification (discussed here).  The union-backed challenge to Prop 22 was not decided on the merits and continued legal activity challenging Prop 22 is expected.  The lawsuit is entitled Hector Castellanos, et al. v. State of California, et al., Case Number S266551.

In order to resolve a COVID-era class action lawsuit concerning its retail stores, Nike has agreed to provide all retail store employees with transparent, see-through face coverings to accommodate its customers who are deaf or hard of hearing and rely on lip reading. Nike’s new policy is part of a proposed settlement following a class action suit against the shoe company’s retail operations.

In a landmark decision issued on January 14, 2021, entitled Vazquez v. Jan-Pro Franchising Int’l Inc. (2021) (“Vazquez”), the California Supreme Court held that the State’s ABC test applies retroactively to cases that were pending at the time of its decision in Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903 (“Dynamex”).  Vazquez v. Jan-Pro Franchising Int’l Inc. (2021) 2021 Westlaw 127201.   The Vazquez Court was asked by the Ninth Circuit Court of Appeals to answer the question of whether Dynamex applies retroactively.  In concluding that it does, the Court noted that Dynamex does not impact any settled law, the general rule that judicial decisions are given retroactive effect, and that public policy and fairness concerns favor applying Dynamex retroactively.  Vazquez, however, comes as a significant blow to businesses by making them potentially liable for lawsuits pending long before the ABC test existed.

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Drafting arbitration provisions in the employment context is becoming a form of art. Recent decisions issued by the California Courts of Appeal highlight to employers that even valid arbitration agreements are subject to the court’s scrutiny when it comes to representative actions under the California’s Private Attorneys General Act (“PAGA”), and may not achieve the intended result depending upon the language used in the arbitration agreement.

On September 2, 2020, the Ninth Circuit Court of Appeals ruled in Frlekin v. Apple, Inc. (Case No. 15-17382) that Apple must compensate a certified class of California non-exempt employees for time spent waiting for, and submitting to, bag searches required by Apple’s policies. 

This decision underscores the need for employers to be vigilant in ensuring compliance with California’s complex framework of wage and hour laws, and, perhaps more importantly, the importance of minimizing class action exposure through carefully-drafted arbitration agreements.

Three months since our last update on the impact of COVID-19 on commercial lease payment obligations (here), COVID-19 continues its onslaught throughout the United States with now more than 717,000 confirmed cases in California alone. The State of Emergency in California continues, and the Executive Order that previously granted local jurisdictions the authority to impose moratoriums on residential and commercial evictions has likewise been extended. This alert will address the continuing moratoriums on commercial evictions throughout various jurisdictions at the local level, and their impact on commercial lease payment obligations.

In MSY Trading Inc., et al. v. Saleen Automotive, Inc., the California Court of Appeal recently ruled on a question of first impression: whether a postjudgment, independent action to establish alter ego liability for a judgment on a contract is subject to an award of attorney fees (pursuant to the contract) for a prevailing party, even if the prevailing party had not signed that contract.  The Court of Appeal affirmed that any prevailing party, having prevailed in an action based on the contract, could properly seek attorney fees as allowed by the contract.  The Court of Appeal also noted that had such alter ego allegations been made in the prior breach of contract action, the prevailing party would most certainly have been entitled to recover its attorney’s fees —  therefore, the postjudgment, independent action to establish alter ego liability on that judgment must be considered an action based on the contract.

Nearly seven months since the California Consumer Privacy Act (CCPA) went into effect, the Attorney General’s enforcement period is set to begin on July 1, 2020.  Is your business in compliance with the CCPA and prepared to respond to consumer requests under the new law and regulations?  

In Betancourt v. OS Restaurant Services, LLC (Cal. Ct. App., Apr. 30, 2020, No. B293625) 2020 WL 2570839, reh'g denied (May 18, 2020), the California Court of Appeal, Second Appellate District ruled an action for failure to provide meal or rest breaks under Labor Code § 226.7 is not an action for nonpayment of wages, as defined in Labor Code § 218.5, therefore attorney’s fees are not recoverable.

The Second Appellate District reversed an award of attorney’s fees related to an action for failure to provide meal and rest breaks, under Labor Code § 218.5. Raquel Betancourt sued her former employer claiming retaliation, wrongful termination, unpaid premium wages for rest break violations under Labor Code § 226.7, and derivative claims for inaccurate wages statements (Labor Code § 226) for failing to list and include the rest break premiums, as well as waiting time penalties (Labor Code §§ 201 through 203) for failing to pay all wages at the time of her termination, including the unpaid rest period premiums. Betancourt’s prayer for relief included requesting attorney’s fees under Labor Code §§ 218.5 and 226.

The parties settled the case before trial. The claims settled, as stated on the record in court, were for failure to provide meal and rest breaks, accurate itemized wage statements, and for waiting time penalties as well as all other wage and hour claims that were or could have been alleged. Plaintiff dismissed her retaliation and wrongful termination claims with prejudice and without payment. The parties disagreed as to attorney’s fees, so they agreed plaintiff could file a motion for attorney’s fees later. Plaintiff filed a motion for attorney’s fees requesting $580,794 in fees based on Labor Code §§ 218.5 and 226.

The Courts of Appeal’s analysis focused on the Labor Code’s “nonpayment of wages” language, and stated there was no basis for attorney’s fees in this case because the action was for meal and rest breaks, not nonpayment of wages. The Court based its decision on Kirby v. Immoos Fire Protection, Inc. (2012) 53 Cal.4th 1244, 1255 (claims for failing to provide meal or rest breaks are not actions for nonpayment of wages), and its progeny—specifically Ling v. P.F. Chang’s China Bistro, Inc. (2016) 245 Cal.App.4th 1242, 1261 (Ling), and Naranjo v. Spectrum Security Services, Inc. (2019) 40 Cal.App.5th 444, 474, review granted & depublication denied, Jan. 2, 2020, S258966 (Naranjo).

The remedy for failing to provide a meal or rest break is measured by an employee’s regular hourly wage; however, simply because the remedy is measured by the hourly wage does not convert the remedy into a wage, as defined in the Labor Code section authorizing the recovery of waiting time penalties. (Ling, supra, 245 Cal.App.4th at p. 1261.) Additionally, failing to provide meal or rest breaks does not give rise to derivative claims for waiting time and wage statement penalties, under Labor Code sections 203 and 226, respectively. (Naranjo, supra, 40 Cal.App.5th at p. 474.) Because a plaintiff is not entitled to wage statement penalties under Labor Code § 226, they are not entitled to recovery of attorney’s fees under Labor Code § 226(e).

What it means to California Employers

Meal and rest break claims are popular among plaintiffs in California. As the Betancourt case shows, the requested attorney’s fees of $580,794 eclipsed the settlement amount of $15,375 for plaintiff’s meal and rest break claims. This ruling is significant for California employers facing wage and hour actions based solely on meal and/or rest break claims because the court clarified that attorney’s fees are not recoverable, which may help reduce the overall exposure and  the number of attorney’s–fee–driven wage and hour lawsuits.

For further information, contact the authors or your usual employment counsel at AALRR.

This AALRR presentation is intended for informational purposes only and should not be relied upon in reaching a conclusion in a particular area of law. Applicability of the legal principles discussed may differ substantially in individual situations. Receipt of this or any other AALRR presentation/publication does not create an attorney-client relationship. The Firm is not responsible for inadvertent errors that may occur in the publishing process.

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