California Wage and Hour Potpourri: Liquidated Damages, UCL Awards, Sick Leave Penalties, Rent in Waiting Time Penalties, and More

The California Court of Appeal’s recent decision in Seviour-Iloff v. LaPaille covered a variety topics, favoring employers and employees. Among them, the decision clarified the limitations period on a Labor Commissioner wage claim, made clear that an award under the Unfair Competition Law (UCL) (including a longer limitations period) is not mandatory, recognized a more employer-friendly defense against liquidated damages for minimum wage violations, held private plaintiffs cannot sue for penalties under California paid sick leave law, and that the value of rent for lodging provided to an employee must be included in calculating waiting time penalties.

Work Only For Rent Leads to Wage Claims

Plaintiffs Laurance Iloff and Elsie Seviour-Iloff performed various tasks on the property of Bridgeville Properties, Inc. (BPI).  BPI provided them with free rent, but otherwise did not pay the couple. After BPI terminated the plaintiffs, they filed wages claims with the state Labor Commissioner. The couple sought allegedly unpaid regular wages, overtime, liquidated damages for failure to pay minimum wage, and waiting time penalties. After a hearing, the Labor Commissioner ruled in favor of the plaintiffs, finding an oral employment agreement to perform services in lieu of paying $650 in monthly rent. The agency found BPI’s chief executive officer and chief financial officer, Cynthia LaPaille, personally liable.
 
LaPaille and BPI appealed for a trial de novo in Humboldt County Superior Court. The plaintiffs, represented in court by the Labor Commissioner, added claims at that stage. That court found that the plaintiffs were employees of BPI. It awarded them wages, statutory damages for BPI’s failure to provide a wage statement, waiting time penalties, and travel expense reimbursements. The trial court declined to award liquidated damages, penalties for violations of sick leave notice requirements, or to hold LaPaille personally liable. Plaintiffs appealed, with the Court of Appeal addressing several wage and hour issues as follows.

Limitations Period Runs From Filing Labor Commissioner Claim

The Court of Appeal concluded that the lower court erred in determining the limitations period. It held that the period runs from when an employee files the initial claim with the Labor Commissioner, rather than the complaint filed later before a Labor Commissioner hearing. A preliminary investigation and, in most cases, a conference involving the parties takes place before the pre-hearing complaint. In reality, several months or more can pass between the filing of the initial claim and the complaint. Following the California Supreme Court’s decision in Cuadra v. Millan, 17 Cal. 4th 855 (1998), which rejected the argument that the limitations period ran back from the date of the hearing, the court concluded that the filing of the initial Labor Commissioner claim actually initiates the wage claim process — and thus stops the running of the statute of limitations.

UCL Claim Rejected, With Relief Discretionary

In court, the plaintiffs added a claim under the UCL, or California Business and Professions Code section 17200 et seq. The California Supreme Court has held that employees may seek wages as restitution under such claim. The UCL has a four-year statute of limitations period, instead of the three-year limitations period with wage claims under the Labor Code. As a result, UCL claims are common as an additional claim in wage and hour lawsuits in California.
           
In this case, though, the trial court denied additional recovery under the UCL. The Court of Appeal affirmed. It noted that relief under the UCL is “purely equitable,” and thus left to the court’s discretion rather than being mandatory ― even if the court found underlying Labor Code violations. The trial court found that “the equities on both sides of this dispute” weighed in favor of not awarding additional relief under the UCL, focusing on what the court described as “the lack of expectation or understanding by all parties that wages were required to be paid.” Although the plaintiffs argued on appeal that the trial court should have focused on other factors, the Court of Appeal held that the trial court acted within its discretion.

No Discretion on Personal Liability

The Court of Appeal held that the trial court erroneously refused to impose personal liability on LaPaille. Under Labor Code section 558.1(a), certain individuals “acting on behalf of an employer” may be held personally liable for some wage and hour violations. They are individuals who are an owner, director, officer, or managing agent of the employer. The court held that a private plaintiff may sue based on Labor Code section 558.1. Even more significantly, it further held that courts do not have discretion on whether to impose individual liability, if an individual defendant meets the law’s definitions. Rather, Labor Code section 558.1’s language that an individual acting on behalf of an employer “may be held liable as the employer for such violation” refers to a plaintiff having the choice of whether to pursue individual liability, rather than giving the courts discretion to impose it.

Liquidated Damages Properly Denied On Minimum Wage

The Court of Appeal upheld that the trial court’s order denying liquidated damages for failure to pay minimum wage. Labor Code section 1194.2(a) allows an employee to recover liquidated “in an amount equal to the wages unlawfully unpaid and interest thereon” for failure to pay minimum wage. Under Labor Code section 1194.2(b), an employer may avoid these double damages by demonstrating that it acted “in good faith” and that it “had reasonable grounds” for believing that it did not violate the law. If so, the court or Labor Commissioner may refuse to award liquidated damages, or award a lower amount.
 
The Court of Appeal ruled that the trial court acted within its discretion in denying liquidated damages. It held that Labor Code section 1194.2 gives courts “considerable latitude,” by its terms only requiring that an employer demonstrate good faith and reasonableness “to the satisfaction of the court.” It noted that the husband proposed the work-for-rent arrangement, which both parties believed to have been an independent contractor relationship at the time. The court noted that California law on independent contractors and the appropriate test “was not entirely settled” during the time in question. The decision rejected the plaintiffs’ arguments that ignorance of the law cannot satisfy the statute’s defense, and that an employer must demonstrate a subjective belief that is objectively reasonable to others.
 
The Court of Appeal further rejected the argument that California’s liquidated damages section should be interpreted in accordance with the federal Fair Labor Standards Act’s (FLSA) similar provision. It distinguished the two laws as having different intentions. The FLSA provides liquidated damages “to serve as compensation for delayed payment rather than serve as a penalty,” with such an award provided in lieu of interest. California law, however, allows liquidated damages as a penalty, with employees able to recover liquidated damages and prejudgment interest (which the plaintiffs were awarded).
 
In addition, the Court of Appeal held that the fact an employee received an award of waiting time penalties under Labor Code section 203 (requiring a willful failure to pay wages) is not determinative of whether liquidated damages should be imposed. Under Labor Code section 203, an employer may avoid waiting time penalties by showing a “good faith dispute” over whether it owed the wages claimed. The liquidated damages law, though, has “no required showing of a dispute between the parties,” but only that the employer demonstrate that it acted in good faith and had reasonable grounds for believing it did not violate the law.

No Private Action for Paid Sick Leave Penalties

In court, the plaintiffs added a claim for administrative penalties for the alleged failure to provide paid sick leave under California’s Healthy Workplace, Healthy Families Act of 2014. The law provides for penalties of up to $4,000 per employee. The Court of Appeal held that private individuals do not have a private right of action – or the ability to sue on their own – for such penalties. Rather, as the law authorizes only the Labor Commissioner or the Attorney General to pursue them. It also held that an appeal for a trial de novo from a Labor Commissioner award does not provide an avenue for seeking these administrative penalties.

Waiting Time Penalties Should Include Value of Rent

The Court of Appeal held that the trial court erred in not including the value of the free rent when calculating the daily rate of pay for awarding waiting time penalties. Labor Code section 203(a) provides that an employee’s wages shall continue “at the same rate” for up to 30 days if not timely paid at the end of employment. As the court noted, Labor Code section 200(a) broadly defines “wages” as “all amounts for labor performed by employees of every description, regardless of whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other method of calculation.” Because it was “undisputed that rent was provided to plaintiffs as compensation for their work,” the Court of Appeal concluded that the value of the rent should have been in included with other wages in calculating waiting time penalties.

Takeaways for Employers

The decision in Seviour-Iloff is as an example to employers of the myriad claims and potential liability that can arise from an alleged independent contractor misclassification or other type of wage claim. The case contained favorable rulings for employers on UCL relief not being mandatory, the defense against liquidated damages for minimum wage violations, and no private right of action for sick leave penalties. Yet, it also should serve as a reminder of the importance of California employers ensuring compliance on the underlying issues to avoid any claims or liability in the first instance, instead of having to rely on the defenses that the decision addressed.