PAGA and Manageability: Some Lessons Learned from Wesson v. Staples

On September 9, 2021, in Wesson v. Staples the Office Superstore, LLC (Cal. Ct. App., Sept. 9, 2021, No. B302988) 2021 WL 4099059, Division 4 of the Second District Court of Appeal addressed an important question of first impression: whether trial courts have the authority to ensure that claims brought under California’s Private Attorneys General Act (“PAGA”) will be manageable at trial. The plaintiff in Wesson claimed that the Los Angeles Superior Court had no such authority, and that all that he was required to produce was his pan to prove his prima facie case. (A prima facie case means sufficient evidence that, if proven, would support a verdict in the plaintiff’s favor.)

In response, Staples, the defendant, argued that the trial court had to consider its affirmative defenses to the plaintiff’s claims, And, if those affirmative defenses involved individualized proof as to each class member, then the case was “unmanageable” and should be dismissed.

The trial court agreed with Staples, and ruled that it did have the authority to consider manageability. Furthermore, it found that the plaintiff had not shown that the PAGA claim was manageable and dismissed the case. The court of appeal affirmed. Absent review by the California Supreme Court, Wesson is likely to have a significant impact on PAGA cases going forward. This post explores what happened in that case and how it is likely to play out.

First, some background. In Wesson, the plaintiff had worked for Staples the Office Superstore, LLC (Staples) as a store general manager (GM). He claimed that Staples had illegally misclassified him as an exempt employee. Mr. Wesson sued Staples, asserting, among other things, a representative claim under the Private Attorneys General Act of 2004 (PAGA) (Lab. Code, § 2698 et seq.). He sought to bring claims on behalf of himself as well as 345 other current and former Staples GMs in California.

After several years of litigation, Mr. Wesson filed a motion to certify a class based on the misclassification claims. The trial court denied that motion, finding that important questions regarding how the GMs had spent their time at work could not be resolved on a classwide basis.

Staples then filed a motion to strike the plaintiff’s PAGA claim. Staples argued that that claim was “unmanageable” because of the nature of its affirmative defense-that it would have to elicit individualized proof as to each of the 346 GMs.

In response, Mr. Wesson contended that the trial court did not have the authority to determine whether PAGA claims were manageable. Although the trial court invited him to submit a trial plan showing that the PAGA claim was manageable, Mr. Wesson declined to do so. Instead, he argued that all that he had to do was to prove his prima facie case using common proof. The trial court then struck (meaning dismissed) the PAGA claim.

The court of appeal agreed, holding that courts have the inherent authority to ensure that a PAGA claims will be manageable at trial. That includes the authority to strike the PAGA claim, if necessary. The court further noted that PAGA claims may present more significant manageability issues than class actions for the following reasons:

PAGA claims do not require a showing that common questions predominate over individual ones.

PAGA claims do not require a showing of a uniform policy.

PAGA claims can cover a wide variety of employees and involve different kinds of violations.

Turning to the facts of the case, the court of appeal found that there was a large amount of variation from store to store in terms of how GMs performed their job duties. Surprisingly Mr. Wesson agreed that resolution of his claims on a classwide basis would require an analysis of how each GM spent his time. He also apparently agreed with Staples’ estimate that it would take eight years to try the case. Based on these facts, the court of appeal had no difficulty in finding that the trial court had not abused its discretion in striking the PAGA claims as unmanageable.

Defendants in PAGA claims will no doubt point to Wesson and argue that their cases too are unmanageable. But courts should not read Wesson too broadly. Among other things, in that case:

  1. Misclassification claims that turn on the workers’ job duties can be inherently fact specific, requiring individualized inquiries as to each person; and

  2. The plaintiff in Wesson refused to provide a trial plan showing how his PAGA claim could be efficiently managed; and

  3. The plaintiff apparently conceded that the trial would last eight years.

For these reasons, Wesson will have little or no impact on most PAGA cases. However, Wesson underscores the importance of ensuring that plaintiffs (1) have a trial plan that addresses all of the issues in the case, including any affirmative defenses, and (2) structure the case in a manner that demonstrates to the trial court that it can be resolved in a reasonable length of time.

The workers rights attorneys at Hunter Pyle Law have handles PAGA and class cases throughout California. If you have questions about your rights in the workplace, please feel free to contact us in order to utilize our free and confidential intake process. We can be reached at inquire@hunterpylelaw.com or at (510) 444-4400.

Minimum Wage, Public Employees, and the University of California

The University of California (referred to in this post as “the Regents”) employs more than two hundred thousand people. Determining which laws apply to the Regents can be challenging. Gomez v. Regents (2021) 63 Cal.App.5th 386 provides some guidance with respect to California’s wage and hour laws.

In Gomez, the plaintiff challenged the Regents’ policy and practice of rounding time punches (usually down) and automatically deducting 30 minutes for meal periods regardless of whether the employees actually took them. The issue before the court was whether the Regents were subject to California’s minimum wage laws. The superior court held that they were not, and dismissed the case. The court of appeal affirmed.

The court of appeal began its analysis by noting that California’s minimum wage requirements apply to employees of the State and its political subdivisions, including cities, counties, and special districts. However, the court concluded that the Regents is not a political subdivision. Rather, it is a public trust. See People v. Lofchie (2014) 229 Cal.App.4th 240, 254.

The Gomez court then distinguished the Regents from other types of political subdivisions in California. For example, in Marquez v. City of Long Beach (2019) 32 Cal.App.5th 552, the Second District Court of Appeal had concluded that minimum wage laws applied to California Charter cities, because:

[L]legislation setting a statewide minimum wage, generally applicable to both private and public employees, addresses the state’s interest in protecting the health and welfare of workers by ensuring they can afford the necessities of life for themselves and their families.

However, the Gomez court noted that the Regents are not a charter city, and that there were no allegations that the Regents had set hourly wages below the state minimum wage. Accordingly, it concluded that Marquez did not apply.

The Gomez court also addressed Sheppard v. North Orange County Regional Occupational Program (2010) 191 Cal.App.4th 289. In that case, the court of appeal concluded that minimum wage laws applied to a regional occupational program established by a public school district. Unlike the Regents, such entities are political subdivisions because they were established under Education Code section 52301.

Finally, the Gomez court concluded that the Private Attorneys General Act (“PAGA”) did not apply, because the Regents could not be considered to be violators under that statute. See Labor Code § 2699(c).

Accordingly, California’s minimum wage laws do not apply to employees of the Regents. However, all is not lost. The Fair Labor Standards Act, or FLSA, applies to public employees.  FLSA is a federal law dating back over half a century which establishes certain minimum requirements for employees’ hours of work, wages, premium overtime and payroll records. To be clear, the federal minimum wage is much lower than California’s. Furthermore, unlike California law, the FLSA does not require employers to provide meal or rest breaks.  Nor does it require that employers pay overtime if employees work more than eight hours in a day.  (California law does.  See Labor Code § 510.)

The attorneys at Hunter Pyle Law represent both public and private employees in individual and class actions throughout California.  If you have a question about your situation at work, please feel free to contact us for a confidential initial intake.  We can be reached at (510) 444-4400 or inquire@hunterpylelaw.com.

My Company Went Out of Business and Owes Me Wages: Successor Liability in California (2021)

Workers who are the victim of wage theft can bring claims either in court or at the Labor Commissioner to recover their unpaid wages, damages, and penalties. Those claims, if successful, result in a judgment against the workers’ employer. But what if the employer goes out of business to avoid liability, and reforms a short time later under a new name? This type of shenanigans can make it very difficult for the workers to recover the money that they are owed, even if they have a final judgment against their employer that cannot be appealed.

In an effort to remedy this situation, California has enacted an important new law that allows workers to recover unpaid wages from successor companies under certain circumstances. Labor Code section 200.3, effective January 1, 2021, applies to judgments for wages, damages, and penalties. It allows workers to sue successors where any of the following criteria are met:

(1) The successor uses substantially the same facilities or substantially the same workforce to offer substantially the same services as the judgment debtor.

(2) The successor has substantially the same owners or managers that control the labor relations as the judgment debtor.

(3) The successor employs as a managing agent any person who directly controlled the wages, hours, or working conditions of the affected workforce of the judgment debtor.

-or-

(4) The successor operates a business in the same industry and the business has an owner, partner, officer, or director who is an immediate family member of any owner, partner, officer, or director of the judgment debtor.

Importantly, workers need only show that one of those criteria is present in order to proceed under Section 200.3. Those criteria are very broad, and they are worth taking a closer look at.

For example, the first clause allows the transfer of liability to companies that use the same (or similar) buildings to provide the same services to their clients. It also applies to companies that use the same (or similar) workers.

The second clause allows the transfer of liability to companies that employ the individuals who controlled the labor relations at the previous company. The third clause would apply if one company had a manager who had also managed the workers at the company that owed the unpaid wages. And the fourth clause would apply to a business in the same industry that had an immediate family member as an owner, partner, etc.

Again, if workers can show that a company meets any of these criteria, they can hold that company liable for their unpaid wages even if their former employer no longer exists. That is a huge benefit to the workers who are trying to recover those wages.

At the time that Section 200.3 was passed, the Legislature also amended other existing laws to require that corporations, limited liability companies, and other businesses, inform the State as to whether any officer or any director, or, in the case of a limited liability company, any member or any manager, has an outstanding final judgment issued by the Division of Labor Standards Enforcement or a court of law, for the violation of any wage order or provision of the Labor Code. That data must be included in the statement of information that certain businesses must file with the California Secretary of State within 90 days of forming, and then once every year or two, depending on the type of the business.

Statements of information must be certified as true and correct, and are normally available on line. (See https://businesssearch.sos.ca.gov.) This new legislation therefore should make it much easier to determine whether the people behind California businesses have judgments for unpaid wages against them. If so, Section 200.3 makes it a lot easier for workers to pursue them for those unpaid wages.

If you have questions about your unpaid wages, feel free to contact the experienced wage and hour attorneys at Hunter Pyle Law for and make use of our free and confidential intake process. We can be reached at (510) 444-4400 or at inquire@hunterpylelaw.com.

 

 

Joint Employer Liability in California Wage and Hour Cases

Workers who sue for unpaid wages in California often find that their immediate employer has no money to pay them. Fortunately, California has a broad joint employer doctrine that allows workers to sue entities other than their immediate employers-including both businesses and individuals-for such wages. (more…)

Individual Liability for Wage and Hour Violations under California Law

This blog post explores several California statutes that allow workers to sue individuals for unpaid wages and related claims. That scenario normally arises when workers are employed by a business entity such as a corporation, and that entity is unable or unwilling to pay the wages that it owes. As demonstrated by the Atempa case analyzed below, the issue of whether individuals can be held liable can become critical when a corporate employer files for bankruptcy in an effort to avoid its obligations to its workers.

The relevant statutes discussed are Labor Code sections 558, 558.1, 1197.1, and 351. (more…)

Alter Ego/Piercing the Corporate Veil in California Wage and Hour Cases

In any given week, approximately 25 percent of workers do not receive all of the wages that are owed to them.[1] As much as $50 billion per year in wages go unpaid nationally, with an estimated $26 million per week unpaid in Los Angeles County alone.[2]

Those workers who are brave enough to pursue their rights in court often find themselves with a defendant that is unable to pay what it owes. Sometimes that is because the employer is a corporation that has gone out of business and has no funds. In such cases, it is important to consider whether the workers can pierce the corporate veil and sue the individuals who created the corporation.

Specifically, under what is called the alter ego doctrine, when the corporate form is used to avoid paying wages, courts may ignore the corporate entity and deem the corporation’s acts to be those of the persons or organizations who actually control the corporation. In most cases, that means the owners.

The seminal case on alter ego under California law is Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523. There, the court explained the basic concepts underlying the doctrine as follows:

►Ordinarily, a corporation is regarded as a legal entity, separate and distinct from its stockholders, officers and directors, with separate and distinct liabilities and obligations.

►A corporate identity may be disregarded—the “corporate veil” pierced—where an abuse of the corporate privilege justifies holding the equitable ownership of a corporation liable for the actions of the corporation.

►Under the alter ego doctrine when the corporate form is used for some wrongful purpose, courts may ignore the corporate entity and deem the corporation’s acts to be those of the persons or organizations actually controlling the corporation, in most instances the equitable owners.

Sonora indicates that plaintiffs must meet two requirements in order to invoke the alter ego doctrine and pierce the corporate veil:

(1) There must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist; and

(2) There must be an inequitable result if the acts in question are treated as those of the corporation alone.

In wage theft cases, is it normally not difficult to prove an unfair result where the corporate form is used to insulate individuals from liability. Therefore, in such cases it is usually the first requirement of the alter ego doctrine that is challenging to meet.

Applying that requirement depends upon the specific facts of each case. However, Sonora explains that there are certain factors that courts should considered in applying the alter ego doctrine. These include (1) the commingling of funds and other assets, (2) the holding out by one entity that it is liable for the debts of the other, (3) identical equitable ownership in the two entities, (4) use of the same offices and employees, (5) use of one entity as a mere shell or conduit for the affairs of the other, (6) inadequate capitalization, (7) disregard of corporate formalities, (8) lack of segregation of corporate records, and (9) identical directors and officers. 83 Cal.App.4th at 538-539. “No one characteristic governs, but the courts must look at all the circumstances to determine whether the doctrine should be applied.” Id., at 539.

Critically, the alter ego doctrine does not include a requirement that the business at issue was set up for the purpose of committing fraud or other misdeeds. See Turman v. Superior Court of Orange County (2017) 17 Cal.App.5th 969, 980–981. In that case, the trial court had noted that business at issue was “a real business with real purpose and assets and not a sham corporate entity formed for the purpose of committing a fraud or other misdeeds.” The court of appeal concluded that that statements suggested “a misunderstanding of the applicable law.”

Accordingly, under California law the only requirements for the alter ego doctrine to apply are those set forth in Sonora. Victims of wage theft who cannot recover their unpaid wages from a corporate entity should be sure to consider whether that doctrine applies to their situation, thus allowing them to sue the people or companies that are behind the corporate entity.

 If you have questions about your wages and who you can sue under California law, please feel free to contact the attorneys at Hunter Pyle Law for a free and confidential intake process. We can be reached at hunterpylelaw.com, inquire@hunterpylelaw.com, or (510) 444-4400.

[1] Bernhardt, et al., Broken Laws, Unprotected Workers: Violations of Employment and Labor Laws in America’s Cities (Broken Laws) (2009) p.2 <http://www.nelp.org/content/uploads/.

[2] Broken Laws, supra, fn. 2.

Employee or Independent Contractor? The State of California Law in 2021

Determining whether a worker is an employee (EE) or an independent contractor (IC) under California law has become more complicated in recent years. However, in 2020 the California Legislature clarified that the ABC test (which is described more fully below) should be applied to all claims brought under either the California Labor Code or California’s wage orders.[1] The common law test, also referred to as the Borello test, is likely to govern all other claims.

The Borello Test

For many years, California courts seeking to determine whether a worker was an EE or an IC relied upon the common law test set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 (Borello ). Under that test, “[t]he principal test of an employment relationship is whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.” Borello, 48 Cal.3d at 350.

Courts have noted that the strongest evidence of the right to control is whether the hirer can discharge the worker without cause, because “[t]he power of the principal to terminate the services of the agent gives him the means of controlling the agent’s activities.” Malloy v. Fong (1951) 37 Cal.2d 356, 370.

Note that it is the right to control, and not the actual exercise of control that governs. Where there is a written contract, hat question can often be determined on a group-wide basis suitable for class certification. See Ayala v. Antelope Valley Newspapers, Inc. (2014) 59 Cal.4th 522, 535.

In addition to the right to control, which is referred to as the principal test, there are a number of other secondary factors that courts may consider. These include: (a) whether the one performing services is engaged in a distinct occupation or business; (b) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision; (c) the skill required in the particular occupation; (d) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work; (e) the length of time for which the services are to be performed; (f) the method of payment, whether by the time or by the job; (g) whether or not the work is a part of the regular business of the principal; and (h) whether or not the parties believe they are creating the relationship of employer-employee.

Courts applying the Borello test are supposed to weigh these factors in order to determine whether the hiring entity has met its burden of proving that the worker is an IC.[2] However, Borello can be difficult to apply in some cases. That is because in general, “the individual factors cannot be applied mechanically as separate tests; they are intertwined and their weight depends often on particular combinations.” Borello, 48 Cal.3d at 350.

Dynamex and the ABC Test

California’s wage orders contain a definition of employment that is different than the Borello test. In 2010, the California Supreme Court recognized that definition in the case of Martinez v. Combs (2010) 49 Cal.4th 35, 65. There, the Court noted that to employ, under the wage orders had three alternative definitions:

(a) to exercise control over the wages, hours or working conditions, or

(b) to suffer or permit to work, or

(c) to engage, thereby creating a common law employment relationship.

After Martinez, it was not entirely clear under what circumstances the wage order definition applied. Fortunately, in 2018, the Calfornia Supreme Court issued Dynamex Operations W., Inc. v. Superior Court (2018) 4 Cal.5th 903. There, the Court held that when determining employer status under the wage orders, the wage order definition applied.

Furthermore, the Court held that when interpreting the suffer or permit prong of the test, courts should apply the “ABC test.” That test asks the following questions:

(a) Is the worker free from the control and direction of the hiring entity in the performance of the work, both under the contract and in fact?

(b) Does the worker perform work that is outside the usual course of the hiring entity’s business?

(c) Is the worker customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity?

If the answer to any of these questions is no, then the worker is an EE. If the hiring entity can prove that the answer to each of these questions is yes, then the worker is an IC.

Dynamex left open the question of whether the ABC test should apply to Labor Code claims that did not involved the wage orders. However, in 2019, the Legislature resolved that question with AB 5, later codified at Labor Code section 2750.3. That statute adopted the ABC test, but also enacted approximately 50 exemptions from the test.

In 2020, the Legislature repealed section 2750.3, and enacted Labor Code section 2775, et seq. Section 2775 is clear that the ABC test should be used to determine whether a worker is an EE or an IC for all claims brought under either the wage orders or the California Labor Code. It is also clear that ABC is the entire test, meaning that courts should not seek to apply either the “exercises control over the wages, hours or working conditions,” or the “engage, thereby creating a common law employment relationship” prongs of the wage order test.

The Legislature also enacted a series of exemptions from the ABC test, including the following:

If you have questions about whether you should be classified as an employee or an independent contractor, please feel free to contact the attorneys at Hunter Pyle Law (hunterpylelaw.com) for a free and confidential intake process. You can also call us at (510) 444-4400.

Footnotes

[1] California has 17 different wage orders that apply to different industries and occupations. The wage orders were initially developed by the Industrial Welfare Commission (IWC), but, since the IWC was defunded, are currently regulated by the Division of Labor Standards Enforcement (DLSE). The wage orders set forth many workplace rules and regulations, including minimum wage, overtime, meal and rest periods, and reporting-time pay. For information regarding which wage order applies to a particular employee, see http://www.dir.ca.gov/dlse/WhichIWCOrderClassifications.pdf.

[2] The party seeking to avoid liability as an employer has the burden of proving that workers whose services it has retained are ICs rather than Ees. See Cal. Labor Code §§ 3357, 5705(a).

Opposing Voter Suppression — The Battle for Georgia

I am writing this from the airport in Atlanta, where I have spent the past five days doing my best to help make sure that the Georgia Senate runoff elections were fair and that all votes were counted. The experience was both inspiring and chilling, so I am going to jot down some thoughts before the press of business and family in the “real world” re-consumes me.

First off, a disclosure: I believe very strongly that the voting process should be as easy as possible. In college (before the internet ruled our lives), I volunteered for a small organization that was trying to get the local city council to adopt a measure that would study, and, hopefully, implement a process by which voters could cast their ballots by telephone. That’s right: pick up the phone, enter your id, cast your vote, and, presto! You are done. No line, no worrying about signatures, no hassle. Despite our best efforts, and many long hours spent gathering signatures in the frigid Colorado winter, the effort failed. (Its leader, a fellow nicknamed “Evan from Heaven,” then went back to busking on the local pedestrian mall.) (more…)

Do California’s Wage and Hour Laws apply to Workers who live in other States or who travel outside of the State for work?

man sitting on gang chair with feet on luggage looking at airplane

California’s laws are among the best, if not the best, for workers in the United States. But do those laws apply to workers who live in other states? And how about workers who live and work in California, but also work in other states?

Oman v. Delta Air Lines and Ward v. United Airlines, two 2020 decisions from the California Supreme Court provide some guidance with respect to those questions. Because they build on an earlier case, Sullivan v. Oracle (2011) 51 Cal.4th 1191, 1201, we will start our analysis there. (more…)

Proving Unpaid Wages without Records: A Roadmap for Claims under California and Federal Law

Wage theft, or situations in which an employer fails to pay its employees for some or all of the wages of that they earned, has gotten more attention in recent years. (See, for example, https://www.kqed.org/news/11780059/were-being-robbed-california-employers-who-cheat-workers-often-not-held-accountable-by-state.) This post explores how workers battling wage theft can prevail even when there are no exact records showing how much they are owed.

In Minnesota, Wage Theft Will be a Felony | Workday Minnesota

(more…)