Wage and Hour Case Notes

• Publication year: 2022
• Author: Lauren Teukolsky

WAGE AND HOUR CASE NOTES

AUTHOR^*

Lauren Teukolsky

TRIAL COURTS MAY NOT DISMISS PAGA CLAIMS ON MANAGEABILITY GROUNDS; DONOHUE PRESUMPTION APPLIES AT TRIAL OF MEAL PERIOD CLAIMS

Estrada v. Royalty Carpet Mills, Inc., 76 Cal. App. 5th 685 (2022)

Plaintiffs were employees at three separate carpet manufacturing facilities operated by Royalty. They alleged class claims for meal and rest period violations, as well as a representative claim under the Private Attorneys General Act (PAGA). Their primary claim was that Royalty required employees to remain on premises during their 30-minute meal periods, and were therefore entitled to premium pay even though Royalty paid them during the time they were on break. The trial court originally certified a class, but decertified it after the presentation of evidence at trial. The trial court dismissed the PAGA claims as unmanageable.

The Court of Appeal published its decision primarily to highlight its ruling that trial courts may not dismiss PAGA claims on manageability grounds. The court disagreed with the ruling in Wesson v. Staples the Off. Superstore, LLC, 68 Cal. App. 5th 746 (2021), reh'g denied (Sept. 27, 2021), review denied (Dec. 22, 2021), which held that trial courts may dismiss PAGA claims based on unmanageability. In rejecting Wesson, the court noted that PAGA claims are law enforcement actions on behalf of the state, whose purpose is to incentivize private parties to recover civil penalties that otherwise may not have been collected by overburdened state agencies. State labor law enforcement agencies are not required to show manageability when seeking civil penalties, and the Court of Appeal reasoned that private attorneys standing in the shoes of the state similarly should not be required to show manageability. Citing Arias v. Superior Ct., 46 Cal. 4th 969 (2009), the court held that importing the class action manageability requirement into PAGA would hamper the law enforcement purposes of PAGA.

While the manageability holding is likely to receive the most attention, the Court issued a number of other significant rulings. On the procedural front, the court applied the "relation back" doctrine to hold that the claims asserted in the third amended complaint (TAC), filed in 2016, related back to the claims asserted in the second amended complaint (SAC), filed in 2014, allowing plaintiffs to gain an extra two years in the statute of limitations. The SAC was filed by two plaintiffs who worked at Royalty's facilities in Dyer and Derian, but the TAC added a new plaintiff who worked at Royalty's facility in Porterville. The court held that relation back applied because the SAC put Royalty on notice that plaintiffs intended to pursue meal period claims for employees who worked in the Porterville facility, even though neither of the original plaintiffs had standing to bring those claims.

On the substantive law front, the Court held that the trial court's decertification of the meal period claim was improper in light of Donohue v. AMN Servs., LLC, 11 Cal. 5th 58 (2021), which held that if the employer's time records show noncompliant meal periods and no premium pay, then a rebuttable presumption arises that the employee was not provided a complaint meal period. The Court ruled that this presumption applies at all stages of a proceeding, including trial, and is not limited to class certification and summary judgment. Here, plaintiffs met their burden at trial to raise the presumption because they submitted time records showing late and missed breaks. The trial court should have presumed liability, and shifted the burden to Royalty to show that plaintiffs were provided with compliant meal periods but chose to work instead. The court observed that Royalty could rebut the presumption only by putting on evidence that a "significant number" of employees voluntarily chose to skip meals, creating individualized issues of liability.

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Relying on Brinker Rest. Corp. v. Superior Ct., 53 Cal. 4th 1004, 1036 (2012), the Court also ruled that Royalty's policy requiring employees to remain on premises during meal periods was unlawful, even though employees were relieved of all duty and Royalty paid them during the time they were on break. Employees must be given "freedom of movement" for meal breaks to be lawful. The court left the door open, however, noting that future employers in other industries may be able to restrict their employees' freedom of movement during meal breaks if they could show why an exception to the general rule would be warranted.

Royalty did notch three notable victories. First, Royalty had secured releases from 232 of 388 class members. Plaintiffs argued that the releases were invalid under Cal. Lab. Code § 206.5, which allows employers to secure releases only if the employer has fully paid all wages "concededly due." Employers may pay less than full wages only where there is a "bona fide dispute" whether the wages are due. The Court held that Royalty had a good faith belief that its on-premises meal period policy was lawful because Royalty relied on a FAQ that appears on the DLSE website suggesting that employers may require employees to remain on premises during meal periods so long as they are relieved of all duty and paid for the time. Accordingly, there was a "bona fide dispute" and the releases were valid.

Second, the Court affirmed the trial court's use of a seven percent prejudgment interest rate for the meal period premiums awarded to the plaintiffs at trial. The Court rejected plaintiffs' contention that the trial court should have used the 10 percent rate applicable to wages, relying on Kirby v. Immoos Fire Prot., Inc., 53 Cal. 4th 1244, 1257 (2012), which held that "a section 226.7 claim is not an action brought for nonpayment of wages; it is an action brought for non-provision of meal or rest breaks."

Third, the Court held that the plaintiffs were not entitled to waiting time penalties under Cal. Lab. Code § 203 because Royalty had a good faith belief that its on-premises meal period policy was lawful. Accordingly, Royalty's failure to provide premium pay was not "willful" within the...