The California Supreme Court issued several important decisions in 2024 about issues such as the application of PAGA to public employees and the definition of “hours worked.”

Several cases are pending before the state’s high court. Here are the highlights and what the cases could mean for employers in the Golden State.

Brown v. City of Inglewood

Issue presented: Are elected officials “employees” for purposes of whistleblower protection under Labor Code section 1102.5, subdivision (b)?

Brown, the elected treasurer of Inglewood since 1987, sued the City and several members of the Inglewood City Council. Brown alleged that after she reported concerns about financial improprieties, the City and the individual defendants defamed and retaliated against her. She brought claims for defamation, violation of Labor Code section 1102.5 (which prohibits retaliation against employees for reporting illegal activities), and intentional infliction of emotional distress (IIED).

The defendants filed a special motion to strike the complaint under California’s anti-SLAPP statute, which aims to prevent lawsuits that are intended to silence free speech. The trial court granted the motion in part but denied it regarding the Section 1102.5 retaliation claim and the IIED claim based on retaliation.

On appeal, the California Court of Appeals reversed the trial court’s decision in part. The appellate court ruled that Brown, as an elected official, is not considered an “employee” under Section 1102.5, and therefore, her retaliation claim under this statute was not legally sufficient. The Court of Appeal reasoned that the inclusion of elected officials in the definition of “employee” in other statutes (e.g., the Workers’ Compensation Act) but not within the definition for purposes of Section 1102.5 reflected the legislature’s plain decision to deny them the protections of that section of the Labor Code. Consequently, the court also struck down the retaliation-based IIED claim against the individual defendants. 

The California Supreme Court’s decision will be significant for public entities as it clarifies the scope of whistleblower protection under Labor Code section 1102.5.

California Department of Corrections and Rehabilitation v. Workers’ Comp. Appeals Bd

The issue presented: Should the calculation of enhanced workers’ compensation benefits for an employer’s serious and willful misconduct under Labor Code section 4553 be based on temporary disability payments available under the Labor Code?

Michael Ayala, a correctional officer, was severely injured in a preplanned attack by inmates in August 2002. Ayala filed a workers’ compensation claim, alleging that his injury was caused by the serious and willful misconduct of his employer, the California Department of Corrections and Rehabilitation (CDCR). Under Labor Code section 4553, such allegations could increase the compensation recoverable by one-half if proven.

The Workers’ Compensation Appeals Board (WCAB) initially found that CDCR had failed to act on credible threats of inmate violence, which were reported before the attack. This decision was based on the Board’s finding that CDCR took the facility off lockdown despite knowing about the planned attack.

However, the California Court of Appeal annulled the WCAB’s decision. The Court held that the compensation Ayala received while on industrial disability leave and enhanced industrial disability leave did not qualify as “compensation” under Section 4553 because while the Government Code did provide for industrial disability leave and enhanced industrial disability leave, their inclusion of “temporary disability” under the Government Code definition of “industrial disability” did not alter the Labor Code’s definition for the purposes of determining compensation under Section 4553. Therefore, the base compensation for calculating the increased award should have been what Ayala would have received on temporary disability, which is typically two-thirds of his salary.

The decision will be important for employers in evaluating the settlement of serious and willful claims, which typically are not covered by worker’s compensation insurance.

Fuentes v. Empire Nissan, Inc.

The issue presented: Where an arbitration agreement is fair in substance, is it nevertheless unenforceable for unconscionability where it is a one-page form with tiny, seemingly blurred print, largely unreadable, and presented on a take-it-or-leave-it basis?

Here, the trial court held the arbitration agreement procedurally unconscionable. The Court of Appeal reversed, holding that while the tiny font of the agreement created a problem of procedural unconscionability, the substance of the arbitration agreements was fair and there was therefore no reason to invalidate the agreements for unconscionability.

The result of this case will shape the future of employment arbitration agreement enforceability, which has been changing dramatically in recent years.

Iloff v. LaPaille

Issues Presented: For an employer to establish its “good faith” defense to liquidated damages, must it demonstrate that it took affirmative steps to ascertain whether its pay practices complied with the Labor Code and Industrial Welfare Commission Wage Orders? 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?

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

The issues here are the Court of Appeal’s holdings that liquidated damages were not appropriate for failure to pay minimum wages under Labor Code section 1194.2(a), and that plaintiffs do not have private rights of action for sick leave penalties.

Section 1194.2(a) allows courts to reduce or eliminate liquidated damages where an employer can show that 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.

Moreover, sick leave penalties require independent actions by the Labor Commissioner or Attorney General’s office, and no private right of action exists to enforce the requirements of the Healthy Workplaces, Health Families Act. 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.

Separately, and not at issue with the Supreme Court, the Court of Appeal held that LaPaille may be held personally liable due to her managerial role with BPI under Labor Code section 558.1(a), which expressly permits personal liability for individuals “acting on behalf of an employer.” It further held that the trial court had discretion as to whether equitable relief for unfair business practices 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 in denying equitable relief.

Zhang v. Superior Court

Issue Presented: If a party moves to compel arbitration in a non-California forum pursuant to a forum-selection clause and seeks to stay related California litigation under Section 1281.4, can the opposing party preempt the court’s “competent jurisdiction” requiring a stay of the California litigation by merely invoking Labor Code section 925? Moreover, can a party to an arbitration agreement circumvent the arbitration agreement’s delegation of all issues to an arbitrator by invoking Labor Code section 925?

Plaintiff Zhang is a former Dentons law firm partner who worked in California. After Dentons removed him from the partnership for diverting money owed to the firm, they initiated arbitration in New York pursuant to a signed arbitration agreement contained within the partnership agreement entered into between Plaintiff and his former firm. Zhang then filed suit in California, arguing that he was an employee and that Labor Code section 925 preempted arbitration in New York. Section 925 contains a prohibition against requiring a California employee to adjudicate California claims elsewhere. Dentons sought a stay under Section 1281.4. The trial court granted Denton’s motion for a stay. After the Court of Appeal denied Zhang’s petition for a writ and the Supreme Court ordered the Court of Appeal to review, it denied Zhang’s petition on the merits, deciding (1) that the stay was properly granted because the partnership agreement delegated to the arbitrator all questions of arbitrability; (2) the New York court was a court of competent jurisdiction because Section 925 did not automatically strip another state’s courts of jurisdiction; and (3) giving effect to the delegation clause comported with the Federal Arbitration Act, because doing so protected the right to enforce negotiated arbitration agreements.

This case is crucial for employers because it may affect who can benefit from Labor Code section 925, and therefore preempt forum-selection clauses.