Case Law

EXPENSE REIMBURSEMENT: YOUR EMPLOYEE RIGHTS

In our last post, the blog posed the question whether an employee must reimburse an employer for damage or loss during the course of employment (no).  This blog now examines the flip side of that question: must an employer reimburse you for expenses you incur as an incident to your employment?  That is, if you use your cell phone for company calls, dress in a required uniform, or use your car to travel or make deliveries are you entitled to be paid back for those expenses?  Here we have an unequivocal YES.

Labor Code section 2802 mandates that any employee expense incurred carrying out the employer’s duties shall be reimbursed to the employee.  In other words, any expense incurred by the employee that is necessary for the employee to carry out his or their duties for the employer. Labor Code § 2802 states that an employer must indemnify its employees “for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties … ” Lab.Code § 2802(a).The elements of a § 2802(a) cause of action are:

(1) the employee made expenditures or incurred losses;

(2) the expenditures or losses were incurred in direct consequence of the employee’s discharge of his or her duties, or obedience to the directions of the employer; and

(3) the expenditures or losses were necessary.” Cassady v. Morgan, Lewis & Bockius LLP (2006) 145 CA4th 220, 230.

An employer may satisfy this reimbursement requirement by paying an increased salary or commission but only if it is clearly defined what monies are being paid for labor performed and what amount is being paid as reimbursement for business expenses. Gattuso v. Harte–Hanks Shoppers, Inc. (2007) 42 C4th 554, 559.  Importantly, an employer may be required to pay for an employee’s defense as well as any settlement or judgment if the employee is sued for conduct arising within the course and scope of employment.  For example, an employee sued for discrimination may be entitled to a defense paid for by the employee.  On the other hand, an employee who punches somebody while “on the job” may not receive a defense.  See, Grissom v. Vons Cos., Inc. (1991) 1 CA4th 52, 55.; Freund v. Nycomed Amersham (9th Cir. 2003) 347 F3d 752, 765–760.  (Section 2802 allows indemnification for employees’ defense costs when sued for actions arising out of their employment). At least one case clearly states: “The statute requires the employer not only to pay any judgment entered against the employee for conduct arising out of his employment but also to defend an employee who is sued for such conduct.” Jacobus v. Krambo Corp. (2000) 78 CA4th 1096, 1100, 93 CR2d 425, 428.  Other cases have held that the employer need only reimburse the employee for legal expenses after a determination that the employee was in the course and scope of employment at the time of the incident being sued on. As a practical matter, an employer will invariable provide a defense for claims made against an employee.  If they do not, there are several options available to the employee.

Labor Code Section 2802 may also require an employer to indemnify employees for attorneys’ fees and costs incurred in successfully defending against criminal charges arising out of acts performed in the course and scope of employment. See Los Angeles Police Protective League v. City of Los Angeles (1994) 27 CA4th 168, 177, 32.  (Note:This is not well established by case law and remains something of an open question.)

WAGE DEDUCTION FOR BREAKAGE OR LOSS

It happens to everybody, you’re working away and you break something, or you come up short on your register, or, most commonly, you lose a tool or something of value that belongs to your employer.  The boss then tells you that he’s sorry but the cost of that damage or loss is going to come out of your paycheck. Can he do that?

In most cases the answer is “NO”.  Case law and orders of the Industrial Welfare Commission (IWC) make it clear that : Absent a showing of dishonesty, willful acts or gross negligence, an employer may not deduct for ordinary losses caused by an employee (e.g., for cash shortages, breakage or loss of equipment Kerr’s Catering Service v. Department of Industrial Relations (1962) 57 C2d 319. 326–330, Truck driver’s sales commissions not subject to reduction for cash shortages; see also Prachasaisoradej v. Ralphs Grocery Co., Inc.,(2007) 42 Cal. 4th 217. 229 “The law precludes the employer from using wages to shift business losses to employees, or to make employees the insurers of such losses … ” Prachasaisoradej . supra, 42 C4th at 238,  So if you lose that nice new power saw, crash the company truck, or drop a rack of dishes its on the employer’s dime, not yours.

The rationale for this principle is that losses due to an employee’s simple negligence, such as cash shortages and breakage or loss of equipment, “are inevitable in almost any business operation” and must be borne “as expenses of management.” The employer is better able to absorb the loss and can recoup the loss by passing the cost on to the customer or by lowering the wages of all employees. Kerr’s Catering Service, supra,, 57 C2d at 329.  Moreover, employees rely on the wage rate paid by the employer and “To subject that compensation to unanticipated or undetermined deductions is to impose a special hardship on the employee.” Id.

The term “deduction” means any action that deprives you of the full compensation promised: “The employer takes a ‘deduction’ … when it subtracts, withholds, sets off, or requires the employee to return, a portion of the compensation offered, promised, or paid … so that the employee, having performed the labor, actually receives or retains less than the paid, offered, or promised compensation, and effectively makes a forced ‘contribution’ of the difference.” [Prachasaisoradej, supra, at 227]

 If the employer does engage in self help and deduct wages for the loss, you are entitled to reimbursement and waiting time penalties as well as other damages depending on the circumstance.

These protections apply to rank and file workers.  Technically, they do not apply to management level employees.  At the management level, an employee may indirectly be responsible for loss.  For example, a manager who is paid partly on a commission based on store profits may have his commission effectively lowered when loss and breakage are offset against profits.  In such a circumstance the courts have found the wage reduction to be lawful. Ralphs Grocery Co. v. Sup.Ct. (Swanson) (2003) 112 CA4th 1090, 1106, 

CALIFORNIA SUPREME COURT RULES BRINKER V. SUPERIOR COURT

CALIFORNIA SUPREME COURT rules against employees and holds that employers have no duty to ensure that employees take meal or rest breaks. This is a huge case and a significant defeat for employees. In its ruling the court held that if a company provides a meal or rest break that meets the statutory requirement of Labor Code section 512 and the interpretive regulations. In its 54-page opinion, the Court concluded that an employer’s obligation is to relieve its employees of all duty during meal periods, leaving the employees at liberty to use the period for whatever purpose they desire, but that an employer need not ensure no work is done.
“The difficulty with the view that an employer must ensure no work is done — i.e., prohibit work — is that it lacks any textual basis in the wage order or statute,” said Justice Kathryn M. Werdegar

“While at one time the (Industrial Welfare Commission)’s wage orders contained language clearly imposing on employers a duty to prevent their employees from working during meal periods, we have found no order in the last half-century continuing that obligation.”

Werdegar continued, “Indeed, the obligation to ensure employees do no work may in some instances be inconsistent with the fundamental employer obligations associated with a meal break: to relieve the employee of all duty and relinquish any employer control over the employee and how he or she spends the time.”

Of course, this leads the door wide open to abuse. An employer now has only to publish a policy stating that meal breaks are available and then simply not give that break. For example, If you are working on a machine that runs continuously and you cannot leave without a replacement, you have no choice but to keep working. So too, if you are obligated to meet milestones or lose your job, do you work during lunch? You bet you do. Businesses now are free to assume that people will “choose” to work through lunch to meet their target, quota, or milestone. In other words, the entire workforce will become “volunteers” during their lunch period so long as the employer posts a bogus notice “entitling” employees to a lunch break. For employees, this decision imposes a de facto 9 hour work day.

As to when meal periods must be provided, the Court ruled a first meal break generally must fall no later than five hours into an employee’s shift. However, an employer does not need to schedule meal breaks at five-hour intervals throughout the shift.

With respect to breaks, the Court found that employees are entitled to 10 minutes of rest for shifts from three and one-half to six hours in length, and to another 10 minutes rest for shifts from six to 10 hours in length. Rest periods need not be timed in relation to meal periods.

This is very bad news for California workers and a victory for business. This properly, in our opinion, should become a political issue. The Supreme Court has handed a major victory to the capitalist classes and the worker and has essentially created a 9 hour work day. In other words the Court has taken us back 80 years

Duran v. U.S. Bank National Association case

The Duran decision, preceding the Brinker case by 2 months is yet another milestone in the judicial effort to curtail or eliminate the right to recovery of unpaid overtime wages.  Duran was a class action case; the class plaintiffs followed the mechanism by which most class actions have been tried in this State for the past 50 years.  In brief, the Duran Plaintiffs were 260 employees of the Defendant bank who claimed that they were misclassified as exempt from the right to overtime.  At the trial court level, the judge selected 21 Plaintiffs as representative of the class of 260 plaintiffs and certified the class.  (By certifying the class the court in essence said that common issues of fact outweigh individual issues and that the most expeditious way to proceed was to “certify” a class of people who would be represented by the 21 chosen plaintiffs.  Liability would then be determined by the 21 witnesses as representative of the whole class.  In that fashion, the parties would avoid 260 separate trials).  USB challenged the Court’s certification on two grounds. First, USB argued that taking a statistical sampling to represent all of the people in the class was unfair because USB believed that at least a third of the people in the class were not misclassified; and, even if this were legitimate, the statistical methodology was unsound.  Second, USB argued that on the issue of liability, it had the right to present a defense to each and every claimant on hours worked and whether they were exempt.  In short, USB argued that determining liability in a class action could not be determined by use of a sample group.

The appellate court bought USB’s arguments with every bell and whistle attached.  While it did not have the nerve to say that there could be no wage and hour class action claims, it did hold that a defendant has the right to defend against every single claim in a class action.  In a decision stretching to 38 pages and 80 footnotes (a sure sign that a court thinks it is making new law) the court attacked the concept of trial by representative parties; i.e. the class action as it has been known for half a century.  To illustrate its point, the court noted that even if the trial were to take 520 days, as plaintiffs claimed, that was acceptable to protect the defendant.  Further, according to the court a class of 260 is really too small to worry about things like efficiency (“We also note that the class here is comprised of 260 members…it would not have been implausible …to conduct some type of individualized inquiries as to each plaintiff’s entitlement to damages.”).  This is a flat out re-writing of the law.  The whole point of class actions is judicial economy and protection of the class.  To eliminate the class action process with as many as 260 plaintiffs is unprecedented.

Plaintiffs in this case correctly stated that USB’s position, if upheld, would effectively kill off class actions, in wage and hour cases at least, in California.  That is most certainly true and the court does not really try to deny it.  The most it can say is that the “situation is not quite that dire.”  Ah, but it is that dire.  This decision must either be overturned or legislatively annulled; if not, there is a very small chance of any class action case surviving.  At a minimum, every plaintiff may look forward to an appeal.  It worked for UBS, precedent is now out there, and any like minded conservative judge can simply follow the lead.

This case is a true milestone; a de jure throw over of the legislature’s injunction in Code of Civil Procedure section 382 that cases with common issues may be tried as one if common issues prevail.  This decision is nothing more than an attempt to kill off what the big business lobby considers nuisance number 1.  While we are all in favor of job creation and a friendly business environment, we do not believe that extends to a carte blanche to deprive workers of their statutory rights.  Simply put, an individual case for overtime is, to the employer, not something to lose sleep over.  A class action is altogether different and encourages employers to respect the law because the damages can be very high indeed.  When, as here, the judiciary becomes a cheerleader for big business (banks, no less) the incentive to follow the law drops dramatically.  As a weatherman might say: “we are looking at unpaid overtime increasing in the near future.”

Choppy Seas: California Supremes sink Bell II while NLRB tacks left

To call wage and hour law in California unsettled is like saying Mike Tyson was a pretty good boxer.  Two recent decisions, one by the National Labor Relations Board (NLRB) and one by the California Supreme Court  illustrate the lack of any consistency in decisions and the political tensions between left and right.  Perhaps more than any other field of employment law, wage and hour litigation is overtly political.  Conservatives and evangelicals view meal and break time claims as “Extortion cases” while other more moderate views consider the right to overtime as a fundamental legislative barrier to barrier to worker exploitation.  The two views took new twist and turns in the NLRB decision D.R. Horton, Inc. Case No. 12-CA-25764( January 3, 2012) and the California Supreme Court Decision in Harris v. Liberty Mutual, SI56555 (December 29, 2011).  In Horton, the NLRB ruled that workers could not be forced to waive their right to bring class actions by means of compulsory arbitration agreements which explicitly require arbitration and forbid class actions either before a court or in arbitration.  Conversely, the California Supreme Court essentially reversed its landmark ruling in Bell v. Farmers Ins. Exchange (2001) 87 Cal. App. 4th 805 in finding that insurance adjusters working for Liberty Mutual were exempt employees.  In so doing, our local Supremes effectively subordinated California law to Federal regulation; an act of judicial capitulation that will likely have profound consequences.  An analysis of the se two decisions and links to them follow.

In Horton, the NLRB considered whether the defendant employer violated the National Labor Relations Act (NLRA)by requiring all workers, as a condition of employment,  to waive the right to file class actions for wages and other benefits whether at arbitration or in court. The Board found that such coerced agreements violate section 7 of the NLRA, which gives employees the right to act together for mutual aid or protection.  The Court rejected the claim by the Defendant that the agreement –in the context of employees subject to the NLRA – did not violate the Federal Arbitration Act (FAA) which tends to make all employment-related arbitration provisions, no matter how onerous or one-sided–  enforceable.  The Board clearly found that the employees had the right to bring “employment-related claims on a classwide or collective basis in court or before an arbitrator.” Slip. op at 3.

In Horton, Plaintiffs sought relief under the Fair Labor Standards Act (FLSA) for unpaid overtime.  The key to the decision is that the prohibition against class actions violated the right to “collective action” under the NLRA.  Plaintiffs’ counsel wisely chose to challenge the anti class action clause under the NLRB rather than argue a right under the FLSA to collective action or to try to persuade a court that the agreement was unconscionable.  The reason for this round about route is the United States Supreme Court (SCOTUS).  This court, in its majority conservative makeup embraces vigorously any limitation on collective action and virtually rubber stamps restrictive arbitration agreements.  In particular, SCOTUS is a huge fan of the Federal Arbitration Act (FAA) and routinely strikes down States’s efforts (usually by California) to moderate the use and misuse of arbitration agreements.  Recently, in a much criticized case, AT&T Mobility v. Concepcion, 131 S.Ct. 1740 (2011), the Court struck down a decision of the California Supremos in Discover Bank v. Superior Court (2005) 30 Cal.Rptr.3d 76 which has applied California’s judge made unconscionability test to arbitration clauses.  According to SCOTUS, the FAA is the supreme law of the land and no consumer contract (including employment) is ever likely to be unconscionable by barring class actions and by mandating arbitration.  Plaintiffs in Horton recognized the roadblock and made a very neat end-run around it through the NLRA.  However, the battle is not over: next stop is either the 11th Circuit or the D.C. Circuit and then most likely the supremes once again.  If Scalia and Thomas still hold the whip hand then all the work may have been in vain.

But while the Feds moved to the center, a chastened California Supreme Court headed right. Harris v. Liberty Mutual (supra) is a major disappointment to the Plaintiff’s bar.  In 2001 the Bell decision allowed white collar functionaries –people with no real power and very limited independence – to receive overtime benefits.  The industry in question –insurance – re-tooled and went back for a do-over.  This time they won.  This case is troubling for two reasons.  First, it follows the lead of Federal courts which have limited the principles of the “Administrative Exemption” to the traditional factory setting and have rejected overtime claims unless the employee(s) have been engaged in some form of manual labor (c.f. United Parcel Service v. Superior Court (2011) Cal. App.4th 57. ).  Second, it follows Federal regulation where that regulation is more restrictive than state regulation or case law.  It has long been the most basic principle of construction that Federal regulation, in the overtime context, is followed or is persuasive, only where it is more beneficial to the employee than the State variant.  While California looks to federal regulation for guidance, it does so only where the regulation is consistent with, or is more protective of, the worker than California law.  The courts are bound to follow whichever law or regulation  provides the greatest protection.  Aguilar v. Association for Retarded Citizens (1991) 234 Cal. App. 3d 21, 34-5.  Where a federal regulation limits or reduces the protections offered under California’s statutes and wage orders, the federal rule or regulation is disregarded.  E.g.  Department of Labor Standards Enforcement (DLSE) rule 51.1.5.1 (“DLSE will disregard the language of 29 CFR §541.107 and rely upon the language of 29 CFR §541.207 to define the term ‘discretion and independent judgment’ in each of the exempt classifications.”)  In short, while federal regulations can provide guidance to California courts, that guidance is no longer persuasive (or even relevant) where California statutes, regulations, or public policy differ from the federal by providing greater protections: “Federal regulations are of little if any assistance in construing state regulations which provide greater protections to workers.” Morillion v. Royal Packing Co. (2002) 22 Cal. 4th 575, 593-94.

Unfortunately, Harris seems to ignore this well settled precedent and rely exclusively on restrictive Federal interpretations.  The clear implication of this case is that the California Supreme Court will be looking east for direction rather than leading the way as it has done in years past.  Harris has to be chalked up as a major victory for those who feel that the right to overtime is “extortion”. Choppy seas indeed.

Board finds that certain mandatory arbitration agreements violate federal labor law

See the case document: Frances Harris v. The Superior Court of Los Angeles County

Free and powerful public access to caselaw

This is big news. Lawyers around the country are rejoicing now. And you should be too.

Until now, the biggest providers of caselaw – Lexis-Nexis and Westlaw – have acted as a duopoly, charging lawyers a significant amount to access their caselaw databases via slow, proprietary search engines and arcane, hard-to-memorize search commands. Other vendors like FastCase, Versuslaw, Casemaker, charge less but have serious drawbacks compared to the Big Two, such as incomplete caselaw databases.

At long last, Google has entered the space and is now threatening to change the rules of the game for good.

One would think caselaw should be available free to the public. After all, cases are written by judges whose salaries are paid by the taxpayers. Why then should the public have to pay to view cases, the work product of these judges? More importantly, the US legal system is a common law system – meaning judges make the law bit by bit with each case they decide. This means the cases ARE the law. How then can a democracy rule itself without easy and convenient public access to caselaw?

These are the troubling questions numerous organizations have asked themselves and tried to answer by independently attempting to make caselaw available to the public for free. Google gives an honorable mention to these pioneers in its launch announcement: Tom Bruce (Cornell LII), Jerry Dupont (LLMC), Graham Greenleaf and Andrew Mowbray (AustLII), Carl Malamud (Public.Resource.Org), Daniel Poulin (LexUM), Tim Stanley (Justia), Joe Ury (BAILII), Tim Wu (AltLaw)”.

Now Google has thrown its hat into the ring. And what an entrance it is. Here is an excerpt from Google’s launch announcement:

“Starting today, we’re enabling people everywhere to find and read full text legal opinions from U.S. federal and state district, appellate and supreme courts using Google Scholar. You can find these opinions by searching for cases (like Planned Parenthood v. Casey), or by topics (like desegregation) or other queries that you are interested in. For example, go to Google Scholar, click on the “Legal opinions and journals” radio button, and try the query separate but equal. Your search results will include links to cases familiar to many of us in the U.S. such as Plessy v. Ferguson and Brown v. Board of Education, which explore the acceptablity of “separate but equal” facilities for citizens at two different points in the history of the U.S. But your results will also include opinions from cases that you might be less familiar with, but which have played an important role.”

I did a test run to compare Google Scholar with the conventional search services. I decided to research sexual harassment caselaw in California. On Lexis-Nexis orWestlaw, the search took a prohibitive amount of time and required many steps. First, I had to log on with my username and password. Second, I had to find and select the right database. Third, I had to formulate the correct string of search commands. Fourth, I had to wait a noticeable length of time for the search results. Fifth, I had to wade through a long list of confusing results by clicking on each one, one at a time. Sixth, I had to reformulate my search commands to create a more targeted result. And so on. What an excruciating and time-consuming process. How frustrating waiting for the screen to refresh each time I do something.

On Google Scholar, I merely typed “sexual harassment” into the search window, selected “California cases” in the pulldown menu, and was immediately rewarded with a wealth of highly relevant cases and articles that appeared in the blink of an eye. The results read like the syllabus for a law school class on sexual harassment. Just incredible. Clicking on “related articles” next to a search result or clicking on a result and then selecting the tab “How Cited” takes you to a list of other cases and articles that discuss the case you are looking at. This is useful for quickly familiarizing yourself on the significance of the case, how it has been interpreted, what it means, etc. This is also a great way to quickly learn the key aspects of sexual harassment law in the State of California. Amazing.

To be sure, Google Scholar is not a replacement for Lexis-Nexis or Westlaw. Not yet. The latter offer features which are not included in Google Scholar: 1) expert commentary, case summaries and case indices that remain indispensable to lawyers, 2) case histories which let lawyers know if the case is still valid, has been overturned, criticized, distinguished, etc., 3) a valuable cut and paste function that automatically generates the proper legal citation for the passage you’re cutting and pasting, 4) access to statutes, laws and regulations, 5) properly formatted hardcopy printouts of cases, etc.

However, the possibilities for Google Scholar are endless. One colleague, Carolyn Elefant at MyShingle.com, has already suggested a wiki add-on that would permitGoogle Scholar users to append their commentary and analysis to individual cases.

I’m truly excited to see what the future holds now that Google is in the cards. In any case, today is a great day. Free and powerful public access to caselaw has at long last truly arrived.

EXPENSE REIMBURSEMENT: YOUR EMPLOYEE RIGHTS

In our last post, the blog posed the question whether an employee must reimburse an employer for damage or loss during the course of employment (no).  This blog now examines the flip side of that question: must an employer reimburse you for expenses you incur as an incident to your employment?  That is, if you use your cell phone for company calls, dress in a required uniform, or use your car to travel or make deliveries are you entitled to be paid back for those expenses?  Here we have an unequivocal YES.

Labor Code section 2802 mandates that any employee expense incurred carrying out the employer’s duties shall be reimbursed to the employee.  In other words, any expense incurred by the employee that is necessary for the employee to carry out his or their duties for the employer.   Labor Code § 2802 states that an employer must indemnify its employees “for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties … ” Lab.Code § 2802(a).The elements of a § 2802(a) cause of action are:

(1) the employee made expenditures or incurred losses;

(2) the expenditures or losses were incurred in direct consequence of the employee’s discharge of his or her duties, or obedience to the directions of the employer; and

(3) the expenditures or losses were necessary.” Cassady v. Morgan, Lewis & Bockius LLP (2006) 145 CA4th 220, 230.

An employer may satisfy this reimbursement requirement by paying an increased salary or commission but only if it is clearly defined what monies are being paid for labor performed and what amount is being paid as reimbursement for business expenses. Gattuso v. Harte–Hanks Shoppers, Inc. (2007) 42 C4th 554, 559.  Importantly, an employer may be required to pay for an employee’s defense as well as any settlement or judgment if the employee is sued for conduct arising within the course and scope of employment.  For example, an employee sued for discrimination may be entitled to a defense paid for by the employee.  On the other hand, an employee who punches somebody while “on the job” may not receive a defense.  See, Grissom v. Vons Cos., Inc. (1991) 1 CA4th 52, 55.; Freund v. Nycomed Amersham (9th Cir. 2003) 347 F3d 752, 765–760.  (Section 2802 allows indemnification for employees’ defense costs when sued for actions arising out of their employment). At least one case clearly states: “The statute requires the employer not only to pay any judgment entered against the employee for conduct arising out of his employment but also to defend an employee who is sued for such conduct.” Jacobus v. Krambo Corp. (2000) 78 CA4th 1096, 1100, 93 CR2d 425, 428.  Other cases have held that the employer need only reimburse the employee for legal expenses after a determination that the employee was in the course and scope of employment at the time of the incident being sued on. As a practical matter, an employer will invariable provide a defense for claims made against an employee.  If they do not, there are several options available to the employee.

Labor Code Section 2802 may also require an employer to indemnify employees for attorneys’ fees and costs incurred in successfully defending against criminal charges arising out of acts performed in the course and scope of employment. See Los Angeles Police Protective League v. City of Los Angeles (1994) 27 CA4th 168, 177, 32.  (Note:This is not well established by case law and remains something of an open question.)