Labor Code section 1194

This Friday’s Five comes on Cinco de Mayo – how appropriate.  The U.S. House of Representatives passed the Working Family Flexibility Act, now it is being consideredfamily - school by the Senate.  President Trump has indicated that he would sign the bill if it makes it to his desk.  Five issues California employers need to understand surrounding comp time:

1. What does the Working Family Flexibility Act provide?

The law passed by the U.S. House of Representatives adds sections to the Fair Labor Standards Act (FLSA) by allowing employers to offer employees compensatory time instead of paying them for overtime worked.  The bill provides for the following:

  • Comp time is accrued at the rate of not less than one and one-half hours for each hour of overtime pay is required under the FLSA;
  • Private employers that are not unionized are required to enter into a written agreement with the employee about the comp time, and the agreement must be voluntarily entered into by the employee; and
  • The employee must have worked for the employer for at least 1,000 hours for the employer for a continuous period in the 12-month period before being eligible for comp time.

2. The Federal legislation will unlikely effect California employers

California law generally prohibits most employers from offering comp time in lieu of paid overtime.  California law requires employers to pay overtime on a more stringent basis than the FLSA (below is a description of California’s daily overtime requirements).  California’s Labor Code specifically prohibits any employee from waiving their rights to overtime under the Labor Code.  See Section 1194.  Therefore, because California law is more stringent and provides employees more protection than the FLSA (and the proposed Working Family Flexibility Act), California employers would still need to comply with California law even if the Working Family Flexibly Act is passed into federal law.

3. California’s unwaivable daily overtime requirements

Under California’s Labor Code, time and a half overtime is due for (1) time over eight hours in one day or (2) over 40 hours in one week or (3) the first eight hours worked on the seventh consecutive day worked in a single workweek; and double time is due for (1) time over 12 hours in one day and (2) hours worked beyond eight on the seventh consecutive day in a single workweek. The DLSE provides a good summary here.

4. California employers can offer makeup time to employees, but there are strict requirements that must be meet

California employers are not without any options however, as it is easy to forget the one form of flexibility provided to California employers: makeup time. This provision allows employers to avoid paying overtime when employees want to take off an equivalent amount of time during the same work week. There are, however, a few requirements that must be met to ensure that the employer is not required to pay overtime for the makeup time.  For instance:

  • An employee may work no more than 11 hours on another workday, and not more than 40 hours in the workweek to make up for the time off;
  • The time missed must be made up within the same workweek;
  • The employee needs to provide a signed written request to the employer for each occasion that they want to makeup time (and if employers permit makeup time, they should have a carefully drafted policy on makeup time and a system to document employee requests); and
  • Employers cannot solicit or encourage employees to request makeup time, but employers may inform employees of this option.

5. Will the federal legislation influence California to provide similar flexibility to workers?

If the Working Family Flexibility Act becomes federal law, it is unlikely to influence California’s legislators to draft a similar state law.  The Democrats in the U.S. House all voted against the bill, and the left is vehemently opposed to the bill, even though it provides for the payment of all comp time accrued but not used when the employee leaves employment.  Such opposition from the Democrats make it unlikely to be considered in the California legislature.

 

Often the threat of the plaintiff’s potential ability to recover attorney’s fees is greater than the actual damages that they can prove.  This can be frustrating for employers defending wage and hour claims, in both the individual and class action context.  Indeed, an employer must understand the potential damages and exposure of fees they may have to pay if a case proceeds to trial or arbitration, as well as the potential to recover fees against the plaintiff.  This Friday’s Five addresses common attorney’s fees issues facing employers in wage and hour litigation.

1. When are attorney’s fees recoverable in wage and hour cases?  And can a defendant recover fees if they prevail? 

 Attorney’s fees in wage-and-hour cases are covered by two sections of the Labor Code:  sections 218.5 and 1194.  Aleman v. AirTouch Cell., 209 Cal. App. 4th 556, 579 (2012).  “Sections 218.5 and 1194 cover similar, though functionally exclusive subjects.”  Id.  Section 218.5 covers, among other things, claims “for the nonpayment of wages,” except those claims subject to Section 1194.  Section 1194, in turn, covers claims for failure to pay minimum wage or overtime.  Fees are assessed on a claim-by-claim basis.  Id. at 584.

Section 218.5 allows for “two-way” fee shifting – i.e., to the prevailing party, whether employee or employer – while Section 1194 only permits a prevailing employee to recover fees.  Kirby v. Immoos Fire Protection, Inc., 53 Cal.4th 1244, 1248 (2012).  For an employer to recover fees under Section 218.5, the claim must have been made in “bad faith.”  Cal. Lab. Code § 218.5(a).

 2. Attorney’s fees are not available to plaintiff for prevailing on missed meal or rest break claims.

 In Kirby, the California Supreme Court considered the issue of whether a can a party recover fees and costs under Labor Code, section 218.5 or 1194 when it prevails only on a claim for meal or rest break premium pay.  The court determined that neither of these sections allow for fees, and neither party can recover fees based on a claim only for premium pay.  Id. at 1251-59.

First, the court held that by its plain terms, section 1194 applies only to claims within the usual meaning of minimum wage and overtime – i.e., failure to pay the minimum wage or overtime compensation set by statute.  Id. at 1251-55.

Second, the court found section 218.5 inapplicable because it only applies to claims for “nonpayment of wages.”  Id. at 1255-57.  The court noted that the basis of a section 226.7 claim is the failure to provide meal or rest breaks, rather than the non-payment of wages.  Id. at 1256-57 (“Nonpayment of wages is not the gravamen of a 226.7 violation.  Instead . . . section 226.7 defines a legal violation solely by reference to an employer’s obligation to provide meal and rest breaks.”)  Accordingly, while premium pay owed for missed meal or rest breaks is measured in terms of an hour’s pay, and deemed a “wage” for other purposes (such as the statute of limitations) this is only the statutory remedy.  Id.  The injury is not a failure to provide premium pay, but the failure to provide breaks, and therefore a prevailing plaintiff is not entitled to attorney’s fees under these provisions.

3. An employee cannot recover attorney’s fees for successfully winning waiting time penalties under Labor Code section 203. 

 In Ling v. P.F. Chang’s China Bistro, Inc., 245 Cal. App. 4th 1242, 1260-61 (2016), the court considered the issue where a plaintiff arbitrated her claims before JAMS and the arbitrator rejected plaintiffs’ primary theory of misclassification.  Id. at 1248-49.  Instead, the arbitrator awarded plaintiff $1,038 in break premium for her nine-week training period, which “received little attention at the hearing,” was raised by plaintiff only in post-hearing briefing, and where it was largely undisputed that the plaintiff was entitled to breaks.  Id. at 1248.  The arbitrator awarded $7,688 in waiting time penalties under section 203Id.

Among many other issues on appeal, the plaintiff claimed that the arbitrator erred in failing to award her attorneys fees on her successful claim under Labor Code section 203.  The Court of Appeal disagreed.  It noted that employee could not “transmute” a claim for missed breaks into one for unpaid wages by bringing a derivative claim for waiting time penalties.  Id. at 1261.  Just as under Kirby, while waiting time penalties are measured in wages, those penalties are—as Section 203 states expressly—“penalties” and not wages.  Accordingly, the court found that waiting time penalties should not have been awarded.  Id.  More importantly, however, the court further concluded that no fees could be awarded, because the waiting time claim was “purely derivative” of a claim for meal break premium pay.  Because the underlying claim did not involve a failure to pay earned wages, the court held that the waiting time claim did not either, so could not support a claim for fees on either side.  (Id. [“Because a section 203 claim is purely derivative of ‘an action for the wages from which the penalties arise,’ it cannot be the basis of a fee award when the underlying claim is not an action for wages.”])

4. Which party is entitled to fees is the verdict a split decision and the plaintiff does not win all of their claims? 

Where neither party secures a “complete, unqualified victory” on all claims, “it is within the discretion of the trial court to determine which party prevailed . . . or whether, on balance, neither party prevailed sufficiently to justify an award of attorney fees.”  (See Scott Co. of California v. Blount, Inc. (1999) 20 Cal.4th 1103, 1109.)  In exercising this discretion, the court is to “compare the relief awarded . . . with the parties’ demands on those same claims and their litigation objectives as disclosed by the pleadings, trial briefs, opening statements, and similar sources.”  (Hsu v. Abbara (1995) 9 Cal. 4th 863, 876.)  This rule applies where both parties effectively win on some claims but not others, including the Labor Code context.  (On-Line Power, Inc. v. Mazur (2007) 149 Cal.App.4th 1079, 1087 [noting that where plaintiff brought action for breach of contract and Labor Code violations, and settled for $25,000 pursuant to statutory offer, it was the type of case where the court had discretion to determine the prevailing party].)

5. Plaintiff’s attorney’s fees may be denied if plaintiff recovers less than $25,000 in damages.

When a plaintiff recovers less than the jurisdictional threshold for limited civil cases, which is set at $25,000 – the court has discretion to deny fees outright, or to award only limited fees.  (Cal. Civ. Proc. Code § 1033.)  This rule applies even where a statute expressly provides for fee shifting.  (See Chavez v. City of Los Angeles (2010) 47 Cal.4th 970, 986-87 [reversing and upholding trial court’s ruling denying plaintiff any fees where plaintiff recovered only $11,500 in unlimited civil case].)  Section 1033 applies where “the plaintiff did not bring the action as a limited civil case and thus did not take advantage of the cost- and time-saving advantages of limited civil case procedures.”  (Id. at p. 982).  If a plaintiff only proves limited damages at trial or in arbitration, this rule can shield defendants from being liable of potentially hundreds of thousands of dollars for fees incurred by plaintiff’s counsel.

You may recall from your college business law class of the “American rule” regarding attorney’s fees: generally in the United States each side is responsible to their own attorney’s fees, and unlike other countries, the loser does not have to pay the other party’s attorney’s fees. Employers can basically ignore this general rule in employment litigation under California law. I debated about writing this article because once a lawsuit is filed, employers don’t have any control over what claims and damages the plaintiff will assert, so why would employers need to understand when they have exposure to a current or former employee’s attorney’s fees in litigation? However, employers need to understand the underlying liability of potential claims, the motivations behind those claims, and the major part of many employment law claims can be attorney’s fees. And as shown below, the California legislature has used the award of attorney’s fees to shift the risk in many actions against employers, and it is a concept that employers need to understand to address liability and litigation strategies. Here are five California employment related statutes that can expose employers to a plaintiff’s attorney’s fees:

1. Minimum wage/unpaid overtime claims. Labor Code section 1194, provides attorneys fees for plaintiffs who recover damages for minimum wage or overtime violations:

Notwithstanding any agreement to work for a lesser wage, any employee receiving less than the legal minimum wage or the legal overtime compensation applicable to the employee is entitled to recover in a civil action … reasonable attorney’s fees, and costs of suit.

2. Unsuccessful appeal of Labor Commissioner Claim. In order to discourage appeals from Labor Commissioner rulings, California Labor Code section 98.2(c) requires the court “shall” awards costs and reasonably attorney’s fees to the other party. This section permits the employee to obtain fees on an unsuccessful appeal by the employer, or to the employer who prevails on an unsuccessful appeal by employee. The catch for employers however, is that Labor Code section 98.2(c) provides that the employee is “successful” and therefore entitled to attorney’s fees “if the court awards an amount greater than zero.” Yes, even if the employee receives $1, they are successful in the appeal, and are entitled to their attorney’s fees. Therefore, employers have a huge disincentive in appealing Labor Commissioner rulings.

3. Expense reimbursement claims Labor Code section 2802 provides that employers must pay for and reimburse employees for “all necessary expenditures or losses incurred by the employee in direct consequence” of the employee’s job. Therefore, items like mileage reimbursement, even personal cell phone expenses, or other out-of-pocket expenditures employees make while performing their job must be reimbursed by the employer. Labor Code section 2802(c) provides that the employee is entitled to “attorney’s fees incurred by the employee enforcing the rights granted by this section.”

4. Private Attorney General Act (PAGA) claims Plaintiff’s counsel bringing a PAGA claim can seeks attorney’s fees under this statute as well. See Labor Code section 2699(g). Plaintiffs’ attorneys also claims fees under California Code of Civil Procedure section 1021.5, which permits them to recover fees if the case “resulted in the enforcement of an important right affecting the public interest” if certain requirements are satisfied.

5. California’s Fair Employment and Housing Act (FEHA) The Fair Employment and Housing Act (FEHA) prohibits harassment and discrimination in employment based on protected categories and/or retaliation for protesting illegal discrimination related to one of these categories. “In civil actions brought under [FEHA], the court, in its discretion, may award to the prevailing party . . . reasonable attorney’s fees and costs, including expert witness fees.” (Gov. Code, § 12965, subd. (b).) Under FEHA, the fee shifting provision goes both ways, to the plaintiff but also potentially the employer. Courts have discretion to award the defendant employer attorney’s fees and costs as the prevailing party in cases where plaintiff’s claim is deemed unreasonable, frivolous, meritless or vexatious. As a California court recently explained:

Despite its discretionary language, however, the statute applies only if the plaintiff’s lawsuit is deemed unreasonable, frivolous, meritless, or vexatious. . . . ‘ “[M]eritless” is to be understood as meaning groundless or without foundation, rather than simply that the plaintiff has ultimately lost his case . . . .’

Robert v. Stanford University, 224 Cal.App4th 67 (2014).