2022 brought several significant decisions from the California Supreme Court, from decisions about meal and rest period penalties to burden shifting for whistleblower retaliation claims.

Here are some of the cases currently pending before the state’s high court that employers should be watching and what they mean for employment law in the Golden State.

PAGA & Arbitration

Estrada v. Royalty Carpet Mills

In the underlying case, plaintiffs brought a Private Attorneys General Act (PAGA) claim and class claims primarily based on purported meal and rest period violations. The trial court dismissed the PAGA claim as “unmanageable” due to the number of individualized issues.

The Court of Appeal found courts do not have the discretion to strike a PAGA claim based on manageability. The Court of Appeal held doing so would also interfere with PAGA’s purpose as a law enforcement mechanism by placing an extra hurdle on PAGA plaintiffs that are not placed on the state.

Estrada was decided after another district in the California Court of Appeal held that trial courts do have inherent authority to narrow or strike PAGA claims based on manageability. The California Supreme Court’s decision will remedy the split between districts. If the Court overturns Estrada, it will provide employer-defendants with a powerful tool in PAGA actions.

Quach v. California Commerce Club, Inc.

At the trial level, the defendant, California Commerce Club, Inc., filed a petition to compel arbitration after 13 months of discovery.

Quach argued that Commerce Club had waived its right to arbitrate by waiting 13 months to move to compel arbitration, and by engaging in extensive discovery during that period. Quach claimed the delay prejudiced him by forcing him to expend time and money preparing for litigation.

The trial court agreed, finding Commerce Club had waived the right to arbitrate by propounding a “large amount of written discovery,” taking Quach’s deposition, and expending “significant time meeting and conferring.”

The Court of Appeal disagreed with the trial court, stating that the California Supreme Court has made clear that participation in litigation alone cannot support a finding of waiver, and fees and costs incurred in litigation alone will not establish prejudice on the part of the party resisting arbitration.

The California Supreme Court granted review on the question and is expected to resolve California’s test for waiver of the right to compel arbitration in light of the United States Supreme Court’s decision in Morgan v. Sundance, Inc., which held a party is not required to show prejudice to establish an opposing party’s waiver of its right to arbitrate.

The decision in Quach will provide clarity on the waiver issue and on the application of Morgan in the state courts.

Ramirez v. Charter Communications, Inc.

In this matter, Ramirez and Charter Communications, Inc. (Charter) were parties to an arbitration agreement. After Charter terminated Ramirez’s employment, Ramirez filed suit alleging claims under the Fair Employment and Housing Act. Charter moved to compel arbitration. Finding the arbitration agreement unconscionable, the trial court denied Charter’s motion and Charter appealed.

On appeal, Charter contended the trial court erred in concluding the arbitration agreement was unconscionable and in refusing to sever any provisions the court considered unconscionable.

The Court of Appeal affirmed the trial court’s order denying the motion to compel arbitration due to unconscionability, taking particular issue with the agreement’s provision for an award of attorney’s fees to the prevailing party on a motion to compel arbitration.

The California Supreme Court granted review on the question: did the Court of Appeal err in holding that a provision of an arbitration agreement allowing for recovery of interim attorney’s fees after a successful motion to compel arbitration was so substantively unconscionable that it rendered the arbitration agreement unenforceable?

The decision by the California Supreme Court will affect future enforcement of employment arbitration agreements, especially where the agreement’s terms include fee-shifting provisions. Regardless of the decision’s outcome, employers will need to review their agreements to ensure the terms cannot be interpreted as unfairly one-sided. Arbitration agreements should also contain severability clauses compliant with existing law.

Turrieta v. Lyft

In 2018, Plaintiffs Olson, Seifu, and Turrieta each filed a representative action against Lyft under PAGA. They alleged that Lyft misclassified its California drivers as independent contractors rather than employees in violation of multiple provisions of the Labor Code. Following mediation in 2019, Turrieta and Lyft reached a settlement.

After Turrieta moved for court approval of the settlement, Olson and Seifu sought to intervene in the matter and object to the settlement. They argued that Lyft had engaged in a “reverse auction” by settling with Turrieta for an unreasonably low amount and that the settlement contained other provisions that were unlawful and inconsistent with PAGA’s purpose. By settling Turrieta’s PAGA claims, encompassing all employees similarly aggrieved by Lyft’s alleged misclassification, Lyft foreclosed Olson and Seifu from pursuing their own PAGA suits on the same grounds.

The trial court rejected the appellants’ requests to intervene, finding that the appellants lacked standing.

The Court of Appeal agreed with the trial court that Olson and Seifu’s status as PAGA plaintiffs in separate actions does not confer standing to move to vacate the judgment or challenge the judgment on appeal.

The Supreme Court limited review to the following issue: do plaintiffs who brought representative actions under PAGA have the right to intervene, object, or move to vacate a judgment in a separate PAGA case that would effectively terminate their own actions?

The decision will greatly affect the future handling of competing or overlapping PAGA actions and the strategies defendants may employ to efficiently resolve them.

Discrimination, Harassment & Retaliation

People ex rel. Garcia-Brower v. Kolla’s Inc.

In this case, a complainant filed a timely retaliation complaint with the Division of Labor Standards Enforcement (“DLSE”) alleging that when she complained to her employer about non-payment of wages, her employer threatened to call immigration authorities and fired her. The DLSE determined that respondents had violated several Labor Code sections, including section 1102.5, which prohibits retaliation for “disclosure” of a violation of law to a governmental agency, to “a person with authority over the employee,” or to “another employee who has the authority to investigate …” the alleged violation of law.  The DLSE ordered the respondents to pay lost wages and civil penalties for violation of sections 1102.5 and 98.6. The respondents did not comply.

On October 17, 2017, the Labor Commissioner filed an enforcement action against the respondents under Labor Code section 98.7(c)(1). Respondents did not file an answer, and the Labor Commissioner sought to take a default judgment.

The trial court ruled that the Labor Commissioner had not stated a claim under section 1102.5 because the complainant had not approached a governmental agency until after her termination.

The Court of Appeal disagreed with the trial court’s reasoning, but nevertheless affirmed the denial of the section 1102.5 claim on the basis that the DLSE did not properly allege “disclosure” to her supervisor. The court reasoned that it was obvious from the context that the employer already knew about the violation, and thus no “disclosure” was made.

The question before the California Supreme Court is limited to whether section 1102.5(b) protects employees from retaliation for disclosing unlawful activity when the information is already known to that person or agency.

Depending on the direction the California Supreme Court takes, its holding will affect the type of complaints that can serve as grounds for a whistleblower action and the defenses available to employers.

Bailey v. San Francisco District Attorney’s Office, et al.

In the underlying case, an employee with the San Francisco District Attorney’s Office alleged discrimination, harassment, and derivative claims based upon a single incident in which a co-worker allegedly used a highly offensive racial slur. At the trial level, the District Attorney’s office was awarded summary judgment. The court ruled this single incident by a non-supervisor was not severe or pervasive enough to permit the plaintiff’s claims to proceed to a trial. The California Court of Appeal affirmed the decision.

In a rare less-than-unanimous vote, the California Supreme Court granted review on whether the Court of Appeal properly affirmed summary judgment in the defendant’s favor on the plaintiff’s claims.

Employers should watch this case for how the decision will affect the standards for hostile work environment claims and the level of severity required to establish a hostile work environment.  

Wage and Hour

Iloff v. LaPaille

In this case, the plaintiffs filed wage claims with the Division of Labor Standards Enforcement (DLSE) against defendants Cynthia LaPaille and Bridgeville Properties, Inc. (BPI) for unpaid wages in violation of the Labor Code. The plaintiffs received a favorable order from the Labor Commissioner, and BPI appealed to the superior court. In the subsequent superior court action, the plaintiffs were represented by the Labor Commissioner’s office.

Following a de novo trial on the wage claims, the court found plaintiffs were entitled to unpaid wages and certain penalties but rejected the plaintiffs’ unfair competition law claims under Business and Professions Code § 17200 (the UCL). The court declined to award the plaintiffs liquidated damages, penalties for violations of sick leave notice requirements, and did not impose personal liability on BPI’s CEO, Cynthia LaPaille.

On review, the Court of Appeal reversed the trial court, holding that LaPaille may be held personally liable due to her managerial role with BPI under Labor Code § 558.1(a), which expressly permits personal liability for individuals “acting on behalf of an employer.” 

The Court of Appeal affirmed, however, the denial of liquidated damages for failure to pay minimum wages under Labor Code § 1194.2(a). This statute allows the court to reduce or eliminate such damages where the employer can show it acted in “good faith” with “reasonable grounds” for believing it did not violate the law. Here, because the plaintiffs initiated the idea of working in exchange for rent, rather than wages, as an independent contractor, and the unsettled status of the law on this subject at the time, the trial court acted within its discretion in finding the defendants acted in good faith.

The Court similarly affirmed the denial of awards under the UCL. Because the UCL provides only for equitable relief, the trial court had discretion as to whether such an award would be in the interest of justice, even where Labor Code violations exist. Because the parties appeared to lack understanding as to the plaintiff’s entitlement to wages for the services they performed for BPI, the Court of Appeal found the trial court properly exercised its discretion.

The Court of Appeal also held Plaintiffs do not have a private right of action for sick leave penalties, which require independent action by the Labor Commissioner or Attorney General’s office. Even though the plaintiffs were represented by the Labor Commissioner in their superior court action, this did not suffice to permit their pursuit of sick leave penalties.

 The California Supreme Court granted review limited to the following issues:

(1) Must an employer demonstrate that it affirmatively took steps to ascertain whether its pay practices comply with the Labor Code and Industrial Welfare Commission Wage Orders to establish its “good faith” defense to liquidated damages?

(2) May a wage claimant prosecute a paid sick leave claim in a de novo wage claim trial conducted pursuant to Labor Code section 98.2?

Employers should watch this matter for not only how it may affect potential damages in wage and hour litigation for seemingly innocent violations, but also the effect it could have on appeals from Labor Commissioner decisions.

Workplace Safety

Kuciemba v. Victory Woodworks

In the matter of Corby and Robert Kuciemba vs. Victory Woodworks, Inc., Mr. and Mrs. Kuciemba both tested positive and were hospitalized with COVID-19. Though Mr. Kuciemba was no longer an employee of Victory Woodworks at the time he tested positive, he claimed that he contracted the virus from his former worksite and filed a claim for workers’ compensation. Mrs. Kuciemba also filed a lawsuit against Victory Woodworks on various negligence theories.

The district court rejected Mrs. Kuciemba’s argument, finding that she failed to plead a plausible claim. Specifically, the Court found the employer’s duty was only to provide a safe workplace to its employees.  The Court found this duty did not extend to nonemployees who are later found to have contracted a viral infection away from the workplace.

The Kuciembas appealed to the 9th Circuit of the U.S. Court of Appeals. The 9th Circuit asked the California Supreme Court to weigh in on two questions:

1. If an employee contracts COVID-19 at his workplace and brings the virus home to his spouse, does California’s derivative injury doctrine bar the spouse’s claim against the employer?

2. Under California law, does an employer owe a duty to the households of its employees to exercise ordinary care to prevent the spread of COVID-19?”

Employers should watch this case, as the California Court of Appeal recently decided in a separate but similar case that an employer may be sued for an employee’s exposure to COVID-19. The decision by the California Supreme Court will clarify employers’ potential liability to not only employees but their households for exposure to COVID-19 in the workplace.

Jackson Lewis continues to track California case law affecting employers. If you have questions about any of the cases pending before the California Supreme Court or related issues, contact a Jackson Lewis attorney to discuss.