Wage and Hour Case Notes

• Publication year: 2019
• Author: By Leonard H. Sansanowicz

Wage and Hour Case Notes

By Leonard H. Sansanowicz

Leonard H. Sansanowicz is the principal of Sansanowicz Law Group, P.C. and represents employees in all aspects of employment law. He is a member of the Executive Board of the California Lawyers Association, as well as the Executive Committee of the Labor and Employment Section of the Los Angeles County Bar Association. He can be contacted at: leonard@law-slg.com.

Only Fixed Amounts, Not Wage Component, Comprise 558 PAGA Penalty

ZB, N.A. v. Lawson, 8 Cal. 5th 175 (2019)

In a much-anticipated decision, the California Supreme Court definitively decided that the wage component of Labor Code § 558 ("an amount sufficient to recover underpaid wages")¹ is not part of the civil penalty that a private citizen can recover through a representative action under the Labor Code Private Attorneys General Act of 2004 (PAGA).² Rather, it is a compensatory remedy only available to the Labor Commissioner (DLSE), because § 558 does not create a private right of action. Thus, even though "[w]ages recovered pursuant to [§ 558] shall be paid to the affected employee,"³ the wages may only be collected through a DLSE claim. The decision overturns the court of appeal's decision in Thurman v. Bayshore Transit Mgmt., Inc. (2012) 203 Cal. App. 4th 1112 and its recent progeny⁴ holding that the wage component is part of the PAGA civil penalty, as opposed to a separate claim for damages. In so ruling, the court also laid waste to the argument that such damages are the type of "victim-specific relief" that could be compelled to arbitration;⁵ after all, if employees cannot claim wage damages under § 558, they cannot be compelled to arbitrate on that basis, either.

The court began its analysis by drawing a distinction between the restitution of unpaid wages—which "were recoverable directly by employees well before the PAGA,"⁶ and primarily seek to compensate employees for actual losses incurred—and civil penalties, which are "fundamentally a law enforcement action designed to protect the public and not to benefit private parties,"⁷ and which are "additional to actual losses incurred."⁸ The court then reviewed the legislative history of § 558, which reflected that the statute authorized the Labor Commissioner "to issue citations, including an assessment of civil penalties, for overtime and other workday violations." It further analyzed the sentence construction of the clause in question: a fixed dollar amount "for each underpaid employee for each pay period for which the employee was underpaid in addition to an amount sufficient to recover underpaid wages." The court found that the better reading of the phrase "in addition to" was not that the penalty included the underpaid wages, but rather that the compensation for the underpaid wages (actual losses incurred) was in addition to the civil penalty to be imposed. As the court reasoned, payment of wages addresses the injury the employee has suffered, whereas penalties address the employer's bad conduct.

The court also looked to Labor Code § 1197.1 for guidance on harmonizing the fixed penalty portions of § 558(a) ($50/$100) and the wage component. The court found that § 1197.1 was analogous to § 558, and "remarkably similar" in structure, language, and purpose. The court, reading both sections in tandem, concluded that the citations the Labor Commissioner may issue for wage loss pursuant to § 558 were compensatory in nature and not penalties.⁹ This finding resolved the inconsistency created by Zakaryan v. The Men's Wearhouse, Inc.¹⁰, which held that 75% of the wage portion had to go the State of California despite the statute's clear language directing such payments to go directly to the affected employee.¹¹

The court also noted that the "vast majority" of civil penalties in the Labor Code are "fixed, arbitrary amount[s],"¹² suggesting that civil penalties "consist primarily of dollar-denominated fines," as opposed to the statute's unpredictable wage component.

California Supreme Court Readdresses Unconscionability Analysis for Wage Disputes

OTO, L.L.C. v. Kho, 8 Cal. 5th 111 (2019)

[Page 19]

In OTO, L.L.C., the California Supreme Court once again addressed the unconscionability of arbitration agreements that waive statutory rights to "Berman hearings" and expedited DLSE wage dispute hearings, which often benefit workers by, for example, dispensing with the formal rules of discovery or evidence.¹³ In Sonic-Calabasas A, Inc. v. Moreno (2011) 51 Cal. 4th 659 (Sonic I), the California Supreme Court held that such agreements were categorically unconscionable because requiring employees to waive their Berman rights as a condition of employment violated public policy and was substantively unconscionable (i.e., decidedly unfair). However, the court did not completely invalidate these agreements, instead holding that a party that was not satisfied with the outcome of the Berman hearing could then compel arbitration. The United States Supreme Court invalidated Sonic I and remanded in the wake of its decision in AT&T Mobility LLC v. Concepcion.¹⁴ Thus, in Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal. 4th 1109 (Sonic II), the California Supreme Court held that Sonic I's categorical rule was preempted by the Federal Arbitration Act (FAA), and that arbitration agreements of wage disputes were enforceable if they made arbitration affordable. Further, that waiver of Berman hearings, though not dispositive, remains a significant factor in the unconscionability analysis. The court initially granted review in OTO, L.L.C., to decide whether an arbitration agreement with terms akin to civil litigation was properly...