An employee in California has two primary options to pursue a claim for the enforcement of minimum wage and overtime pay rights. The employee may seek judicial relief by filing an ordinary civil action. Alternatively, the employee can initiate an administrative action with the Division of Labor Standards Enforcement (DLSE). In Elsie Seviour-Iloff v. LaPaille, the California Court of Appeal set forth multiple important holdings expanding the scope and potential liability available to employees pursuing administrative relief for wage claims with the DLSE.

Background

Bridgeville Properties, Inc. (“BPI”) owned property in Humboldt County, California, which included eight rental units, a post office, and its own water system. During the relevant time period, Cynthia LaPaille served as BPI’s Chief Executive Officer and Chief Financial Officer.

Between 2009 and 2016, Elsie Seviour-Iloff and Laurance Iloff (“plaintiffs”), performed various tasks and odd jobs for BPI in exchange for free rent, but no other compensation. BPI eventually terminated the plaintiffs for suspected misconduct. 

On January 31, 2017, the plaintiffs each filed DLSE form 1, entitled “Initial Report or Claim,” with the Labor Commissioner. The Initial Report or Claim identified the employer, set forth wage information, and identified hours worked. Both plaintiffs alleged being owed $132,880. 

On May 17, 2017, the plaintiffs each executed a form entitled “Complaint,” which set forth the claimed regular and overtime wages contained in the Initial Report or Claim forms, but also included a request for liquidated damages and waiting time penalties. 

The Labor Commissioner concluded the plaintiffs were entitled to recover regular wages, overtime wages, liquidated damages, interest, and waiting time penalties, and that LaPaille was personally liable for those amounts. 

LaPaille and BPI appealed to the Superior Court. Following a five-day trial, the trial court concluded the plaintiffs were entitled to minimum wages and interest, statutory damages for BPI’s failure to provide a wage statement, waiting time penalties, and travel expense reimbursements. But, it declined to award liquidated damages for the minimum wage violations and concluded LaPaille was not personally liable. The plaintiffs then appealed.

The Court of Appeal’s Decision Expands Scope of Relief Available at Labor Commissioner Hearings

The plaintiffs raised several different arguments to the trial court’s judgment that resulted in important rulings for employers from the Court of Appeal.

Statute of Limitations

First, the plaintiffs argued that the trial court erred by calculating the statute of limitations for their unpaid wage claims from the date they filed Complaints, rather than the date they filed their Initial Report or Claim forms, with the Labor Commissioner. The Court of Appeal agreed that the filing of the Initial Report or Claim form initiates the “Berman” hearing procedure, the process by which employees seek administrative relief by filing a wage claim with the Labor Commissioner pursuant to a special statutory scheme set forth in Labor Code §§ 98 – 98.8.

The court explained that, because the plaintiffs used a form provided to them by the DLSE to initiate a wage claim, the Initial Report or Claim contained substantially all the information required to be included based upon the applicable Code of Regulations. In the court’s view, a contrary finding would undermine the accessible and more streamlined nature of the administrative forum for wage disputes.

Individual Liability

The Court of Appeal next examined whether Labor Code § 558.1 granted the trial court discretion to decide whether to impose such individual liability on LaPaille. Labor Code § 558.1 provides: “(a) Any employer or other person acting on behalf of an employer, who violates, or causes to be violated, any provision regulating minimum wages . . . may be held liable as the employer for such violation.” 

Before examining the trial court’s discretion, the Court of Appeal first determined that a private right of action to sue exists under Labor Code § 558.1. Pointing to both the non-exclusive administrative enforcement scheme for wage disputes, as well as the legislative desire to discourage employers from defaulting on wage judgments, the court held that Section 558.1 is not solely limited to enforcement by the Labor Commissioner.

The Court of Appeal then concluded that the statute grants discretion to the party prosecuting the action, not the court, because the prosecuting party may decide not to pursue individual liability if the employee is able to collect on the judgment from the employer. The court held that Section 558.1 does not grant judicial discretion in imposing liability if the individual is, in fact, someone who “violates, or causes to be violated” minimum wage laws.

Good Faith Defense to Liquidated Damages

The Court of Appeal affirmed that the trial court has considerable discretion to determine whether an employer has established the “good faith” defense to liquidated damages.

Labor Code § 1194.2 provides for liquidated damages where an employer has failed to pay the minimum wage. The California Supreme Court has commented that the liquidated damages allowed in Section 1194.2 are in effect a penalty equal and in addition to the amount of unpaid minimum wages. 

As the court noted, Section 1194.2 simply allows a court to exercise discretion in awarding liquidated damages if the employer demonstrates good faith and that the employer had reasonable grounds for believing it was not violating any Labor Code provision.

Under the unique facts in LaPaille, which involved a “barter situation” that the plaintiffs themselves proposed, the Court of Appeal affirmed the trial court’s finding that the employer acted in good faith and did not err in declining to award, in addition to the wages owed plus interest, the additional penalty of liquidated damages.

Calculation of Waiting Time Penalties

As to waiting time penalties owed on unpaid wages, the Court of Appeal held that the trial court failed to include the value of the plaintiffs’ housing when calculating the daily rate of pay. The court ultimately held that the value of the rent should have been incorporated into the calculation of the plaintiffs’ daily wages for purposes of calculating the amount of penalties under Labor Code § 203. 

Conclusion 

The Court of Appeal made important rulings that potentially could impact employers going forward, including as to the scope of relief available to employees pursuing employers and individuals for unpaid wages, in Berman hearings and beyond. Employers should consult their employment counsel to ensure they are complying will applicable Labor Code provisions.