Employment Law

Court Rules: PAGA Claim Doesn’t Require Injury

Why it matters

A Private Attorneys General Act (PAGA) claim based on the failure to provide and maintain accurate wage statements as required by the California Labor Code does not require proof of injury, a California appellate panel has ruled. After Terri Raines was terminated by Coastal Pacific Food Distributors, she sued for age and disability discrimination, as well as violations of the Labor Code based on allegedly unlawful wage statements. A trial court granted summary judgment in favor of the employer, but the panel reversed. Raines’ representative PAGA claim for civil penalties based on a violation of Labor Code Section 226(a) did not require proof of injury or a knowing and intentional violation, the court said. “This is true even though these two elements are required to be proven when bringing an individual claim for damages or statutory penalties under section 226(e),” the panel wrote. “Because the trial court erroneously required proof of injury on the PAGA claim, the grant of summary judgment was improper.” Although employers should be concerned about potential PAGA liability where the plaintiff does not have to prove an injury, the panel also noted that trial courts retain discretion as to whether or not to award civil penalties under the statute.

Detailed discussion

Coastal Pacific Food Distributors hired Terri Raines as a billing clerk in 1998 and terminated her employment in 2014. Raines filed suit, alleging age discrimination, disability discrimination and, in an amended complaint, violations of the California Labor Code. Specifically, she claimed the employer failed to furnish employees with accurate itemized wage statements showing the applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate, as required by Section 226(a).

Section 226(e) authorizes an “employee suffering injury as a result of a knowing and intentional failure by an employer to comply with subdivision (a)” to recover damages or statutory penalties. Raines sought to recover both statutory penalties on an individual basis and civil penalties on a representative basis under the Private Attorneys General Act (PAGA).

The parties settled the discrimination claims and focused on the PAGA wage statement claim. They stipulated that over a 15-month period, Coastal Pacific did not include the overtime hourly rate of pay on wage statements. The statements did include both the number of overtime hours worked by the employee and the total overtime pay, however.

Coastal Pacific argued that in order to obtain civil penalties under PAGA, Raines was required to prove she suffered an injury, and could not do so. Even though the overtime hourly rate of pay was not listed on the wage statements, because the number of overtime hours worked and the total overtime pay both appeared, the overtime hourly rate was “readily ascertainable” under the “reasonable person” standard because it required only simple math to calculate, the employer told the court.

The plaintiff countered that she was not required to demonstrate an injury in order to recover under Section 226, and even if she was, the incorrect wage statements were sufficient to establish an injury.

Siding with the employer, the trial court ruled that Raines had not suffered an injury, as required for the individual claim under Section 226(e), because the hourly overtime rate could be determined from the wage statement by simple math. The court also held that an injury was necessary for the PAGA claim, granting summary judgment in favor of Coastal Pacific.

The appellate panel rendered a mixed decision. First, the court addressed Raines’ individual claim for statutory penalties under Section 226(e). A plaintiff is “injured” under this provision of the Labor Code “if the accuracy of any of the items enumerated in section 226(a) cannot be ascertained from the four corners of the wage statement,” including the hourly rate.

Raines told the court she could not normally do division in her head and the calculation of the hourly overtime rate presented a relatively complex mathematical problem that most people could not readily do in their heads, meaning she was injured by the missing overtime hourly rate of pay.

“We reject this argument,” the panel wrote. “Here, one can determine the hourly overtime rate ‘from the wage statement alone.’ It can be ‘promptly and easily’ determined by simple arithmetic. The mathematical operation required is division, which is taught in grade school. Although many people cannot perform the calculation in their heads, it can be easily performed by use of a pencil and paper or a calculator; no additional documents or information are necessary.”

Since the plaintiff could not show a triable issue of fact as to the requisite injury, the appellate court affirmed summary judgment in favor of Coastal Pacific on Raines’ individual claim for statutory penalties under Section 226(e).

However, the court reversed on the plaintiff’s PAGA claim. Courts are split on the question of whether a PAGA claim for a violation of Section 226(a) requires the same showing of injury as an individual claim for statutory penalties under Section 226(e). PAGA is concerned only with civil penalties, while Section 226(e) provides for damages or statutory penalties, the panel noted, and case law has historically distinguished between statutory penalties and civil penalties.

“In this context, PAGA is concerned with collecting civil penalties for the violation of section 226(a), not the damages or statutory penalties provided for in section 226(e),” the court wrote, rejecting the employer’s argument that “no injury” amounts to “no violation.”

“[D]amages and civil penalties have different purposes; these different purposes may well explain the Legislature’s reasoning. Damages are intended to be compensatory, to make one whole. Accordingly, there must be an injury to compensate. On the other hand, ‘Civil penalties, like punitive damages, are intended to punish the wrongdoer and to deter future misconduct.’ An act may be wrongful and subject to civil penalties even if it does not result in injury.”

Concerns about an employer being punished where no injury occurred are also mitigated by the fact that trial courts have discretion in awarding civil penalties and may reduce the award for technical violations that cause no injury, the panel noted.

“Because the trial court incorrectly found an employee must suffer an injury in order to bring a PAGA claim, it erred in granting summary adjudication on Raines’s PAGA claim,” the court concluded.

To read the opinion in Raines v. Coastal Pacific Food Distributors, Inc., click here.

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Waiting Time Penalties Affirmed Against Employer

Why it matters

Affirming a trial court’s order to pay waiting time penalties to a class of employees, a California appellate panel determined that the penalties were due because the employer suspected the required wage had gone up but continued paying the old wage after halfheartedly investigating its suspicions and later made an unreasonable argument that the wage law is unconstitutionally vague. Sandra Diaz and other employees sued Grill Concepts for underpayment of wages and then sought “waiting time” penalties. A trial court judge agreed and ordered $268,758.71 in penalties. The employer appealed. The appellate panel affirmed, holding that Grill Concepts’ underpayment of wages was “willful” because the employer suspected the required wage had gone up but kept paying the old wage, making minimal effort to look into whether a raise was required, and then attempted an unreasonable argument that the wage law was unconstitutionally vague. In addition, the court held that trial courts do not have discretion on equitable grounds to relieve an employer from having to pay waiting time penalties.

Detailed discussion

In April 2010, Grill Concepts opened a Daily Grill restaurant within the Westin Hotel near the Los Angeles International Airport. Over the next four years, the company employed approximately 200 people in various roles, 83 of whom quit or were fired by June 2014.

The restaurant was located within the Airport Hospitality Enhancement Zone designated by the city of Los Angeles, created in 2007. The ordinance creating the Zone required “Hotel Employers” to pay “Hotel Workers” a “living wage” that was higher than the minimum wage required by state law. The restaurant’s employees were included among those who received the higher wage. In 2010, the ordinance was amended to require that annual adjustments to the living wage be made on July 1 of each year, keyed to the annual increase in retirement benefits paid to members of the Los Angeles City Employees Retirement System that would be set forth in a bulletin promulgated each year by the city’s Bureau of Contract Administration.

Between 2010 and 2014, Grill Concepts paid its workers the living wage prescribed by the original ordinance, even after the amendment went into effect. The company’s human resources director raised concerns that the restaurant might be underpaying its employees in June 2010 and contacted outside counsel. The attorney learned the amendment was “in process,” but neither outside counsel nor the HR director ever followed up.

Three restaurant employees filed suit in June 2014 on behalf of a class of current and former restaurant employees for the restaurant’s failure to pay the living wage required by the 2010 amendment as well as “waiting time” penalties. Grill Concepts responded by cutting checks to all former and current employees for the full amount of underpayment within eight weeks.

The parties then filed cross motions for summary judgment on whether Grill Concepts was liable for waiting time penalties. The trial court determined that the ordinance was not unconstitutionally vague and that the employer owed the penalties because its failure to pay was “willful” within the meaning of Labor Code Section 203. After ruling that it did not have the discretion to waive the waiting time penalties for equitable reasons, the trial court ordered Grill Concepts to pay $268,758.71. The employer appealed.

Labor Code Section 203 empowers a court to award “an employee who is discharged or who quits” a penalty equal to up to 30 days’ worth of the employee’s wages “[i]f an employer willfully fails to pay” the employee his full wages immediately (if discharged) or within 72 hours (if he or she quits). Because employees are made to wait for their final paycheck, the penalty is known as the “waiting time” penalty.

Grill Concepts told the appellate panel that it did not act willfully in failing to pay those plaintiffs who quit or were fired before June 2014 the proper amount on their final paycheck because the underpayment was not deliberate and the ordinance is so confusing to apply that the mistake was innocent rather than willful.

The Labor Code defines a “willful failure to pay wages” as occurring “when an employer intentionally fails to pay wages to an employee when those wages are due.” Under this definition, an employer’s failure to pay is not willful if that failure is due to uncertainty in the law, the court noted, or even a good faith mistaken belief.

“Ignorance of the law is no excuse,” the panel wrote. “A closely related corollary is that citizens have a ‘duty of inquiry to determine’ ‘whether a contemplated course of conduct is within a statutory prohibition.’ Here, Grill Concepts’ ignorance of the amended ordinance was ‘coupled with [its] negligence in failing to look it up.’ The undisputed facts show that Grill Concepts suspected it was underpaying its employees and went so far as to confirm that the living wage law was in the midst of being amended but then did nothing else.”

The employer did not follow up with the city attorney’s office, perform any further legal research, or ask any other hotelier or restaurateur in the Zone what living wage they were paying, the court said.

“The trial court summed it up best when it noted that Grill Concepts ‘failed to follow through properly on its investigation of where to find the governing statute’ and that its efforts were ‘below the standard of care,’” the panel added. “Accordingly, Grill Concepts’ inability to locate the amended ordinance does not preclude the finding that its failure to pay was willful.”

Nor was the court persuaded by the employer’s contention that the ordinance was unconstitutionally vague. “The amended living wage ordinance is not vague because it is possible to give it a ‘reasonable and practical construction,’” the court said, and a person of ordinary intelligence would understand the need to increase the living wage by the amount set forth in the Bureau of Contract Administration’s annual bulletin.

The court reiterated that no evidence was presented that any of the other hotels or restaurants in the Zone “had difficulty locating the agency’s bulletin within [the time] window each year.”

Finally, the appellate panel rejected the employer’s argument that trial courts have the discretion to waive or reduce waiting time penalties. The plain text of the statute declares that “the wages of the employee shall continue as a penalty” for up to 30 days, and elsewhere the Labor Code provides that throughout the code, “[s]hall is mandatory.”

Finding it unambiguous, the court said the analysis began and ended with the text, refusing to disregard the legislature’s decision not to provide for judicial discretion. “Were we to recognize a trial court’s equitable discretion to except an employer from a waiting time penalty on equitable grounds unconnected to whether the failure to pay was willful, we would be impermissibly creating an exception to the penalty for willful violations,” the panel wrote. “This is not something we are allowed to do.”

Further, making the penalty optional “means it will not always be applied and, more to the point, means it will likely be litigated in every case; the very existence of such an escape valve reduces employers’ incentive to comply and thereby undercuts the very purpose of the penalty. We will not construe a statute in a way that undermines its purpose.”

To read the opinion in Diaz v. Grill Concepts Services, Inc., click here.

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Court Affirms Verdict in Disability Case With Unusual Outcome

Why it matters

The U.S. Court of Appeals, Ninth Circuit affirmed a jury verdict in favor of a former employee who alleged that her employer failed to engage in the interactive process—even though jurors found the employer provided a reasonable accommodation. In her disability discrimination suit against Time Warner Cable, Katrina Perona alleged the company failed to engage in the interactive process with regard to her fibromyalgia. After a seven-day jury trial, Perona was awarded $160,000 in damages plus almost $1 million in attorneys’ fees. Time Warner appealed, but in an unpublished opinion, the federal appellate panel affirmed the verdict and the award of fees despite the employer’s argument that the verdict was fatally inconsistent. California law is clear that “an employer’s failure to properly engage in the process is separate from the failure to reasonably accommodate an employee’s disability and gives rise to an independent cause of action,” the court said, and not just a means to an end.

Detailed discussion

Katrina Perona worked as a customer care representative for less than one year for Time Warner Cable beginning in October 2012. Under the heading “Qualifications,” the employer described the position to include the ability to work “day, evening, weekend and split shifts.” Although there were no issues with Perona’s job performance, she struggled with fibromyalgia, making it difficult for her to work.

Her primary care physician placed her on a leave of absence in April 2013, which Time Warner approved. Her leave was extended and approved a total of 11 times from April through September 2013. During this time period, another physician opined that Perona could return to work as long as she worked no more than four hours per day in the morning. A human resources representative responded that the company would not accommodate this request “as the business cannot support it.”

In September 2013, human resources suggested that Perona resign and then reapply once her health improved. She refused and requested to extend her leave again through November. Time Warner declined to grant the extension and terminated her employment in October because “business conditions [could] no longer support [the] request” and “it appeared unlikely” that she would return to work in November.

Perona sued under California law, alleging disability discrimination, failure to engage in the interactive process and failure to accommodate her disability, among other claims. In 2016, the case went before a jury, which after a seven-day trial awarded Perona $160,000 on her claim for failure to engage in the interactive process. Judgment was entered in favor of Time Warner on the remaining claims.

Time Warner appealed. The jury verdict was inconsistent and should be set aside, the employer told the U.S. Court of Appeals, Ninth Circuit, because the jury found both that Time Warner did not fail to provide reasonable accommodation and that it failed to engage in the interactive process.

“But there is no fatal inconsistency,” the panel decided. “California law is clear that ‘an employer’s failure to properly engage in the process is separate from the failure to reasonably accommodate an employee’s disability and gives rise to an independent cause of action.’”

The duty to accommodate is a continuing one and is not exhausted by one effort, the court noted. While Time Warner originally provided an accommodation by granting Perona leave—and extending that leave—“the jury could, and reasonably did, find it did not do so later,” the court said, by failing to engage in the interactive process with the plaintiff when it became clear that some different accommodation would be necessary.

Time Warner tried a secondary line of argument that the verdict was contrary to the evidence, because it presented evidence that no part-time morning shifts or open positions were available for Perona, that she was not eligible for a morning shift and that she was responsible for the breakdown in the interactive process.

However, jurors “also heard evidence that Ms. Perona was amenable to at least attempting to work an afternoon shift, her medical expert would have considered authorizing such work, and that [human resources] did no research to see if there were any available accommodations the company could provide,” the court wrote. “The verdict is not contrary to the evidence.”

In addition to affirming the jury verdict, the panel upheld the award of $964,938 in attorneys’ fees.

To read the memorandum in Perona v. Time Warner Cable, Inc., click here.

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California Appellate Panel Refuses Double Recovery for Workers

Why it matters

In what the court said was a matter of first impression, a California appellate panel refused to impose wage statement penalties under Labor Code Section 226 based on the employer’s improper use of an alternative workweek schedule (AWS), which would result in a double recovery for the plaintiffs. Workers at Epsilon Plastics sought additional payment based on the AWS, arguing that it was improperly adopted. A trial court agreed, finding that the employer failed to pay overtime for certain hours of work in reliance upon the AWS, and entered judgment for unpaid overtime, interest, waiting time penalties, inaccurate wage statement penalties and attorneys’ fees. Epsilon appealed the award on multiple grounds. While the appellate panel affirmed the finding that the AWS was not properly implemented, it reversed the award of wage statement penalties, holding that the employees did not suffer an injury as required by Labor Code Section 226(e). As the wage statement inaccuracy was not the cause of the plaintiffs’ injury, permitting them to recover penalties for inaccurate wage statements on top of the statutory remedies for the wage and hour violation would amount to an impermissible double recovery, the panel explained.

Detailed discussion

A manufacturer of plastic bags, Epsilon Plastics relies upon lines of machines that are designed to operate 24 hours per day. When the machines are shut down, it takes up to six hours to restart them, a process that wastes a lot of plastic and causes excess wear and tear on the machines.

To keep the machines running constantly, Epsilon utilized an alternative workweek schedule (AWS) on which employees worked 12 hours per day for four days during a given week, earning the regular rate of pay for 10 hours and two hours of overtime per shift.

A pair of employees brought a putative class action against Epsilon for violation of wage and hour laws, including the failure to follow statutorily mandated rules for adopting the AWS. After certifying the class and conducting a bench trial, the trial court ruled that the AWS had not been properly adopted and that the failure to pay overtime for the ninth and tenth hours of work in a given shift, in reliance upon the improperly adopted AWS, was not in good faith.

The trial court entered judgment in favor of the workers for unpaid overtime, interest, waiting time penalties, inaccurate wage statement penalties and attorneys’ fees. Epsilon appealed. In addition to challenging the sufficiency of the evidence, the employer argued that it should not be liable for wage statement penalties under Labor Code Section 226.

Affirming the conclusion that the AWS was improperly adopted, the appellate panel then considered whether the penalties were warranted.

The employees established that their wage statements were inaccurate because the statements did not properly indicate that the ninth and tenth hours were overtime. The trial court found that the plaintiffs were injured by this error because they were not paid all the overtime they were due.

But Epsilon countered that the injury identified by the trial court did not flow from the inaccurate wage statement. Instead, the error derived from the improperly adopted AWS—not the inaccurate wage statements—meaning the employees suffered no injury.

The appellate panel began with the text of the Labor Code itself. Section 226(a) itemizes nine categories of information which must be included in a wage statement. Wage statement penalties are awarded to employees who suffer injury “as a result of a knowing and intentional failure by an employer to comply with subdivision (a),” pursuant to Section 226(e).

Pointing to the missing information from category (a)(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 class argued that their rates were listed incorrectly because they should have received more overtime pay.

The court disagreed. “Wage statements should include the hours worked at each rate and the wages earned,” the panel wrote. “In a perfect world, the first numbers will calculate out to the second. But when there is a wage and hour violation, the hours worked will differ from what was truly earned. But only the absence of the hours worked will give rise to an inference of injury; the absence of accurate wages earned will be remedied by the violated wage and hour law itself, as is the case here.”

Otherwise, if the class’s argument were followed to its logical conclusion, Epsilon employees would have been issued wage statements that bore no similarity to the pay they were actually receiving. “As it is illogical to think this is what the Legislature intended, plaintiffs’ counter argument boils down to the proposition that any failure to pay overtime at the appropriate rate also generates a wage statement injury justifying the imposition of wage statement penalties—an apparent unintentional double recovery,” the court said.

Epsilon operated its plant under and paid its employees pursuant to the AWS, and its wage statements accurately reflected the pay under the AWS. “That the AWS ultimately turned out to be invalid mandates that the employees receive unpaid overtime, interest and attorneys’ fees,” the panel said. “It does not mandate that they also receive penalties for the wage statements which accurately reflected their compensation under the rates at which they had worked at the time.”

To read the opinion in Maldonado v. Epsilon Plastics, Inc., click here.

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