2006-1

Employers Are Liable for Minimum Wage Violations When Employees Are Not Paid For Compensable Travel Time, But Waiting Time Penalties Must Be Calculated Using the Minimum Wage.

The California Court of Appeal upheld a bench verdict in favor of employees who alleged that their employer violated California's minimum wage statute by failing to pay them for time spent traveling and performing certain preliminary tasks, but found that the amount of the waiting time penalties awarded should have been calculated using the minimum wage. Armenta v. Osmose, Inc., 2006 DJDAR 10 (December 29, 2005) (1).

The plaintiffs were employees (consisting of crewmen and foremen) of Osmose, Inc., a company that maintains wood utility poles for major utility companies. Because these poles are often located in rural or remote locations, employees were required to meet each morning at a designated location in order to travel to the job site in company-owned vehicles. While traveling, employees would sometimes hold safety meetings, plan the day's work, and review maps. Employees also testified that they were required to load the trucks with supplies before and after each job. The employees claimed that they were strongly discouraged from reporting the time they spent traveling and preparing to work by supervisors who, along with the employees, would receive bonuses if employees spent 90% of their time in "productive" work. The employees alleged that when they did report this time on their time sheets, it was not paid. Additionally, the foremen alleged that they were not paid for time spent doing daily and weekly paperwork, servicing and maintaining company trucks, and repairing tools needed for field work

In November 2000, the employees filed a class action suit in state court seeking unpaid minimum wages under Labor Code section 1194, liquidated damages under section 1194.2, waiting time penalties under section 203, and damages for an unfair business practice under Business and Professions Code section 17200. Originally, the minimum wage claim contained allegations that Osmose had failed or refused to pay overtime. However, when the employer removed the action to federal court on the grounds that the employees' terms and conditions of employment were governed by a collective bargaining agreement (CBA), the employees stipulated to amend their complaint to strike all references to unpaid overtime and to instead seek only unpaid minimum wages under Labor Code section 1194. The case was then remanded back to state court.

At trial, the employees claimed that Osmose had necessarily failed to pay them at the minimum wage because they were not paid for time spent traveling, loading and unloading equipment, doing paperwork, and maintaining company vehicles. In its defense, Osmose asserted that employees were paid for this time. However, at trial, Osmose's officers gave conflicting testimony as to what time was paid, and some acknowledged that employees were not paid for travel time. In the alternative, Osmose argued that it did not violate Labor Code section 1194 because employees were paid between $9 and $20 per hour pursuant to the company's CBA, and therefore the employees' average hourly rates in any given pay period were higher than California's minimum wage. The employer argued that this "averaging" method was consistent with the approach used by federal courts.

In a bench decision, the trial court found that the employees had not proved nonpayment for time spent unloading equipment or maintaining company vehicles. However, the court held that Osmose violated California's minimum wage law by not paying employees for time spent traveling and doing paper work. In so finding, the court relied in part on an opinion letter by the Division of Labor Standards Enforcement (DLSE), which stated that the "averaging" method used by federal courts was inappropriate in California because of Labor Code sections 221, 222, and 223, which prohibit employers from paying employees less than their agreed wages. The court also determined that Osmose's failure to pay employees for all hours worked was willful, and therefore awarded liquidated damages, in addition to waiting time penalties and attorneys' fees and costs. Waiting time penalties were calculated using each employee's regular rate of pay.

On appeal, the Court of Appeal upheld the trial court's ruling that the "averaging" method used by federal courts in assessing minimum wage claims is inappropriate under California law. The appellate court pointed out that, while the federal Fair Labor Standards Act (FLSA) requires payment of the minimum wage to employees for each "work week," the California wage orders require that employees be paid the minimum wage "for all hours worked." Additionally, the court found that Labor Code sections 221, 222, and 223 preclude the use of the averaging method in California. The court agreed with the trial court and the DLSE that, because these statutes forbid employers from paying employees at less than the agreed upon rate, they also prohibit employers from using that agreed upon rate "as a credit for satisfying minimum wage obligations for those activities that are compensated at less than the minimum wage." Although the court found that the DLSE's opinion letter was not entitled to deference, it stated that the trial court was entitled to rely upon the reasoning of that letter, which the trial and appellate courts both found to be persuasive. Additionally, the Court of Appeal asserted that use of the "averaging" method would permit employers to avoid paying employees for all hours worked, in violation of state policy. As such, the Court of Appeal determined that use of this method is improper under California law, and that Osmose therefore "violated section 1194 by failing or refusing to pay for driving time and time spent by foremen processing paperwork."

The appellate court went on to find that the trial court properly awarded waiting time penalties to the plaintiffs. Osmose had argued that these penalties should not have been imposed because employees had not reported this time on their time sheets, and because the only published authorities at the time utilized the averaging method in assessing minimum wage claims. The Court of Appeal acknowledged that a good faith belief in a legal defense precludes a finding of willfulness. Still, the court held that the employer's violation was willful because there was evidence presented at trial that Osmose was aware that employees were not being paid for time spent driving to job sites and filling out paperwork, and had actively discouraged employees from reporting this time on their time sheets. The court found this evidence sufficient to show that Osmose's failure to pay employees at the minimum wage was willful.

However, the appellate court disagreed with the method that the trial court used to calculate the waiting time penalties owed by Osmose. The trial court calculated these penalties using the employees' hourly rates under the collective bargaining agreement. However, because the employees were claiming that Osmose violated California's minimum wage statute, rather than the CBA, these penalties should have been calculated using the applicable minimum wage rate. As such, the Court of Appeal remanded the case to the trial court for a recalculation of the waiting time penalties due to the employees. In all other respects, the trial court's judgment was affirmed.

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The "Materiality" Test For Adverse Employment Actions Applies to Retaliation Lawsuits Brought By "Whistleblowers" Under Labor Code ? 1102.5(b).

The California Court of Appeal held that a junior high school principal's transfer to a smaller school could constitute an adverse employment action under the "materiality" test, and therefore found there to be a triable issue of fact as to whether she was retaliated against in violation of Labor Code section 1102.5(b). Patten v. Grant Joint Union High School District, 2005 DJDAR 14587 (December 19, 2005). (2)

On June 21, 2002, Colleen Patten was notified that she was being transferred from her position as principal at Foothill Farms Junior High School to a position as principal of Campus Verdes Alternative Magnet School ("Campus Verdes"), a small school comprised of high-achieving students. However, Patten never worked in the new position. Just prior to the start of the 2002-2003 school year, she contracted mononucleosis and was unable to work. In late October 2002, before working a day at Campus Verdes, she quit.

In February 2003, Patten sued the Grant Joint Union High School District ("Grant") for whistleblower retaliation under Labor Code section 1102.5(b). Pursuant to that statute, an employer may not retaliate against an employee for disclosing information to a government or law enforcement agency where the employee reasonably believes that the information discloses a violation of law. Patten contended that she was retaliated against for making four separate disclosures. First, in 2000-2001, Foothill Farms was receiving funds from the Immediate Intervention/Underperforming Schools Program ("II/USP.") At the end of that year, it was discovered that Foothill Farms had a $127,000 surplus in its II/USP budget. Grant wanted to reassign these funds to separate educational programs so that it would not have to return this money. Patten was asked to sign blank "transfer of funds" forms in order to effectuate this reassignment. Patten refused, stating that she "was fearful of the legality of this action." One month later, she met with a state assembly member and the representative of a state senator regarding the matter.

Patten's second alleged disclosure involved complaints she had received from female students that a male physical education teacher was peering into the girl's locker room. Patten reported these complaints to her superiors for personnel action. The third alleged disclosure involved a complaint by a female student that a male science teacher had made an off-color remark. Patten also passed this complaint along to her superiors. Finally, in April 2001, after a student was assaulted on campus, Patten requested that Grant provide the school with additional staff in order to prevent similar incidents in the future.

The trial court granted Grant's motion for summary judgment. The court found that only Patten's disclosures regarding the II/USP funds constituted protected whistleblowing. Further, the court found that Grant could not be found to have retaliated against Patten because it had taken no adverse employment action against her. In so finding, the court pointed out that the wages, benefits and duties were the same for the principal positions at Foothill Farms and Campus Verdes, both of which are junior high schools.

The Court of Appeal reversed the trial court's ruling. The court agreed that only the disclosure relating to the transfer of the II/USP funds constituted protected activity under section 1102.5(b). It found that the disclosures involving the two teachers were not disclosures of legal violations, but were merely internal personnel matters. In each instance, Patten simply forwarded complaints to her superiors. The appellate court stated that to consider these reports to be disclosures within the meaning of section 1102.5(b) would "create all sorts of mischief," "thrust the judiciary into micromanaging employment practices," and "create a legion of undeserving protected ?whistleblowers' arising from the routine workings and communications of the job site." Similarly, Patten's request for additional staff was not a disclosure under section 1102.5(b) because Patten did not assert that Grant's actions had been illegal. Thus, only Patten's claims regarding the II/USP funds entitled her to whistleblower status.

Yet, the court determined that Patten was still able to make out a claim under section 1102.5(b) because she had shown there to be a triable issue as to whether her transfer to Campus Verdes constituted an "adverse employment action." The court noted that the trial court's decision was handed down before Yanowitz v. L'Oreal USA, Inc., 36 Cal. 4th 1028 (2005), in which the California Supreme Court adopted the "materiality" test for determining whether an alleged retaliatory employment action constitutes an "adverse employment action" under California's Fair Employment and Housing Act (FEHA). Pursuant to Yanowitz, an employer is liable for retaliation where, in response to protected activity, it takes an action that is "reasonably likely to adversely and materially affect an employee's job performance or opportunity for advancement in his or her career."

Patten had argued that the broader "deterrence" test should be applied because section 1102.5(b) protects the fundamental right to free speech. The court disagreed, stating that the materiality test properly protects the competing interests of avoiding judicial micromanagement of businesses while discouraging employers from retaliating against employees who engage in protected conduct. Additionally, this test is "not a crabbed, narrow one," but encompasses a broad spectrum of employment actions. Further, the court noted that the policies protected by FEHA are also fundamental, and that disclosures of discriminatory practices also involve free speech. As such, the court concluded that the "materiality test," as set forth in Yanowitz, also applies to retaliation claims under section 1102.5(b).

Applying this test, the court found there to be a triable issue of material fact as to whether Patten's transfer constituted an adverse employment action. The court acknowledged that both schools are middle schools, and that Patten's wages, benefits, and duties at Campus Verdes were to remain the same. Additionally, the court noted that the transfer allowed Patten to "shine in her strength ? curriculum development," and that in all likelihood the transfer made it easier for Patten to return to work after she contracted mononucleosis. However, the court found that the transfer might still be adverse, primarily because Campus Verdes was a smaller school with higher performing students and heavy parental involvement. As such, Patten's position at Campus Verdes did not "present the kinds of administrative challenges an up-and-coming principal wanting to make her mark would relish." Because of this, the transfer was reasonably likely to adversely affect Patten's opportunity for advancement, and therefore satisfied the materiality test.

The court then noted that other aspects of the transfer appeared likely to materially affect Patten's job performance. First of all, Campus Verdes uses a year-round schedule, which conflicted with Patten's family schedule and educational plans. Additionally, there was some evidence that Grant planned to close Campus Verdes in the near future. The court also noted that other actions, including Grant's allegedly inadequate response to Patten's complaints about the physical education coach and the science teacher, as well as her request for additional staff, may have materially affected her job performance at Foothill Farms. While these actions alone would not constitute adverse employment actions under the materiality test, under Yanowitz they may be considered collectively, alongside the transfer to Campus Verdes. In any case, because the transfer could be found to constitute an adverse employment action under the materiality test, the Court of Appeal reversed the grant summary judgment to the school district, and remanded the case to the trial court.

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Employer Violated The Americans With Disabilities Act By Refusing To Reinstate An Employee Who Was Previously Sentenced To A Mental Institution After Being Acquitted Of Attempted Murder By Reason Of Insanity.

The Ninth Circuit U.S. Court of Appeals has affirmed a jury verdict which found that an employer violated the federal Americans with Disabilities Act (ADA) by refusing to reinstate a previously-terminated employee because he lied on his job application and said he had never been convicted of a crime, but in fact had been convicted of misdemeanor battery and acquitted of attempted murder by reason of insanity. Josephs v. Pacific Bell, 2005 DJDAR 14847 (December 27, 2005). (3)

When Joshua Josephs applied for a position with Pacific Bell in late 1997, he checked "NO" in response to the question "Have you ever been convicted of, or are you awaiting trial for a felony or misdemeanor?" Subsequent to his hiring, Pacific Bell discovered that Josephs had been arrested for attempted murder in 1982, but was found not guilty by reason of insanity. Thereafter, Josephs spent two and a half years in a mental institution. Upon his release, Josephs was convicted for misdemeanor battery on a police officer, which he also committed in 1982, and was placed on parole until July 1986.

Upon receiving this information, Pacific Bell terminated Josephs, citing "fraudulent entries" on his job application. Josephs grieved the termination, pursuant to the company's CBA. At Step Two of the grievance process, General Manager Jeff Smith stated that he did not want Josephs to continue working in his current position as a service technician, in which he had unsupervised access to customer homes. Smith said he was concerned that Josephs might "go off" on a customer, and that he did not want to reassign Josephs because "people can still walk by." Prior to Step Three of the grievance procedure, Josephs had his misdemeanor conviction expunged. Josephs claimed that he should be treated like another employee, who was reinstated after he had a conviction that he failed to report expunged. Pacific Bell vice-president Augie Cruciotti declined to reinstate Josephs, stating that this situation was different because Josephs had spent time in a "mental ward."

In November 1998, Josephs filed a charge of discrimination with the U.S. Equal Employment Opportunity Commission (EEOC). The charge described Josephs' termination, but not the grievance process. Josephs gave his paperwork to an EEOC employee, who then retired without processing Josephs' charge. This fact was not discovered until five months later, when Josephs hired an attorney who contacted the EEOC. Subsequently, Josephs also filed a charge with the California Department of Fair Employment and Housing (DFEH), and both the EEOC and DFEH issued Josephs right-to-sue notices.

At trial, Josephs introduced evidence relating to the statements made by Smith and Cruciotti during the grievance process. Additionally, Josephs introduced evidence relating to three other Pacific Bell employees who had failed to disclose their criminal convictions but had later been offered conditional reinstatement. Those individuals were convicted of marijuana possession with intent to sell, pretty theft, and felony domestic violence, respectively. The district court's jury instructions asked the jury whether Pacific Bell had refused to reinstate Josephs because of his disability, and stated that Pacific Bell should be held liable if Josephs' disability was a motivating factor in the decision not to reinstate him. By special verdict, the jury found that Josephs' termination was nondiscriminatory, but that Pacific Bell refused to reinstate him because of his disability in violation of the ADA.

On appeal, Pacific Bell argued that a claim for discriminatory refusal to reinstate is not separately actionable, that Josephs had not exhausted his administrative remedies, and that the evidence was insufficient to support the jury's findings that Josephs had a disability within the meaning of the ADA and was qualified for the position of service technician. Pacific Bell also objected to the district court's evidentiary rulings and jury instructions.

The Ninth Circuit first determined that a claim for failure to reinstate is separately actionable under the ADA, so long as there is a "new element of unfairness" in the employer's refusal to reinstate the employee. The court found this new element to be present, as Pacific Bell was in possession of more information regarding Josephs' mental illness during the grievance process than if it was at the time he was terminated. The court also found that Josephs had exhausted his administrative remedies. Although Josephs' EEOC charge was not filed within 300 days of his termination, equitable tolling was appropriate because Josephs had diligently pursued his claim, was misled by the EEOC, relied on the misrepresentations made by the EEOC, and was acting pro se at the time. Additionally, although Josephs did not mention Pacific Bell's failure to reinstate him in his charge of discrimination, the court found that this claim was covered by the charge because the two allegations were "unquestionably related."

Next, the Ninth Circuit found that there was sufficient evidence to support the jury's findings. First, while the determination in 1982 that Josephs was insane did not necessarily mean that he was disabled, there was substantial evidence that Pacific Bell perceived him to be disabled. In fact, there was evidence presented at trial that Pacific Bell considered Josephs to be unfit to fill any position with the company. According to the court, this was sufficient to demonstrate that Josephs was regarded as disabled by Pacific Bell within the meaning of the ADA. The court also found the evidence sufficient to show that Josephs was qualified for the service technician position, despite his previous violent acts. Josephs had worked for ten years as a service technician without incident, and was performing his job well prior to his termination. Also, Pacific Bell had no written policies precluding individuals with criminal histories from such positions, and had reinstated the three individuals mentioned by Josephs. As such, there was sufficient evidence to support each of the jury's findings.

The Ninth Circuit went on to find that the district court did not abuse its discretion by admitting evidence relating to the statements made during the grievance process or the three other individuals who were allegedly reinstated. The statements made by Smith and Cruciotti were not statements made during compromise negotiations, because Josephs had not yet filed his lawsuit when the statements were made. As such, these statements were properly admitted into evidence. Additionally, the district court did not have to exclude evidence relating to the three other employees simply because their circumstances were not "nearly identical" to Josephs' situation. Rather, it was sufficient that these employees (1) were service technicians (2) failed to reveal prior criminal convictions, (3) were terminated, and (4) participated in Pacific Bell's grievance process.

Finally, the court found that the jury instructions given by the district court were not erroneous. Pacific Bell argued that the district court had improperly failed to note that it should not be held liable if it would have refused to reinstate Josephs regardless of his disability. However, the appellate court found it to be sufficient that the jury was told that Josephs' disability had to be a "motivating factor" in the decision to not reinstate him, and that Josephs was required to prove that he would have been reinstated "but for" his perceived disability. Additionally, Pacific Bell objected that the jury instructions led the jury to think that the evidence regarding the three employees had statistical value. The court rejected this claim, finding that the jury was properly told to consider the size of the group when weighing this evidence.

In a strongly-worded dissent, Judge Callahan objected that "as a result of the prejudicial admission of irrelevant evidence and the improper truncation of the jury instruction on mixed motives, the jury did not, and was not asked to, determine whether Pac Bell's concerns regarding Josephs were reasonable." Callahan noted that Josephs had attempted to kill a quadriplegic high school friend, yet was asking to return to a job where he would perform unsupervised in-home telephone repairs. Although Callahan questioned whether Josephs had exhausted his administrative remedies, her primary concerns were with the evidence admitted at trial and the instructions given to the jury.

Callahan first objected to the district court's admission of evidence regarding other employees who participated in Pacific Bell's grievance process. Callahan argued that these employees were not similarly situated because they had not "raised any issues of mental disability." Additionally, Callahan noted that the district court's jury instructions focused on whether Josephs was perceived as having a disability by Pacific Bell, and did not make clear that Josephs may have been disqualified to work as a service technician because of his past acts, regardless of how his mental health was perceived. As such, Callahan stated that the jury did not properly consider the reasonableness of Pacific Bell's concerns about Josephs. Callahan found this particularly disconcerting in light of California's law on negligent hiring. Under the facts presented here, Pacific Bell could be found liable if Josephs were to attack a customer.

Callahan did acknowledge that there was sufficient evidence to support the jury's verdict. However, she believed that the admission of irrelevant evidence and the erroneous jury instructions had prevented proper evaluation of Josephs' claim. As such, she would have vacated the judgement and remanded the case to the district court

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1. Opinion by Coffee, J., joined by Gilbert, P. J. and Yegan, J.

2. Opinion by Davis, J., joined by Sims, Acting P.J. and Butz, J.

3. Opinion by Leavy, J., joined by Graber, J. Dissent by Callahan, J.