ORDER GRANTING MOTION TO DISMISS FIRST AMENDED COMPLAINT WITH LEAVE TO AMEND Re: Dkt. No. 37
WILLIAM H. ORRICK, District Judge.
Plaintiff Thomas Hennighan brings suit against defendants Insphere Insurance Solutions, Inc. ("Insphere"), and HealthMarkets, Inc. ("HealthMarkets") for violations of the California Labor Code and California's Unfair Competition Law. HealthMarkets moves to dismiss with prejudice Hennighan's First Amended Complaint ("FAC") for failure to state a claim against it. Based on the parties' briefs and argument of counsel, and for the following reasons, HealthMarkets's Motion to Dismiss is GRANTED WITH LEAVE TO AMEND.
For purposes of this Motion to Dismiss, the Court accepts as true the following factual allegations in Hennighan's FAC.
Insphere sells insurance policies and employs at least three categories of employees: sales agents, who sell selected insurance policies; sales leaders, who can earn commissions on their own sales, but also train, supervise, and motivate sales agents; and division managers, who only train, supervise, and motivate sales agents and leaders in their divisional office. FAC ¶¶ 12-13. While sales leaders and division managers are generally paid from "overwrite commission" based on their agents' sales, they "have no control over the business." FAC ¶ 14.
When a sales agent sells a policy, the application is sent to selected carriers for approval. Insphere then requires the sales agent to take a cash advance on the prospective commission, which Insphere treats as a loan subject to interest that the sales agent must repay even if the policy is later rejected by the consumer or carrier. FAC ¶ 15. Until November 2009, sales leaders and division managers were responsible for a variable percentage of their sales agents' outstanding debt. "Productive" sales agents may be promoted as sales leaders, but their loans are paid off through deductions from their overwrite commission.
Hennighan "began his employment with Defendant INSPHERE in May 2005 as a Sales Agent." FAC ¶ 10. During his approximately two years in that position, he became one of the top sales agents at Insphere, earning many awards and accolades. FAC ¶ 22. Although Insphere paid Hennighan an 8.5 percent commission rate on sold policies when he began working, the rate was lowered to six percent in November 2010, and Hennighan was "required  to reimburse" Insphere for the rate difference on past sales, plus interest. FAC ¶ 16. Also, Insphere would sometimes demand return of his commission checks. FAC ¶ 16. As part of his work, Hennighan would have to spend his own money on travel, the cost of acquiring new leads, computer equipment, phone costs, licenses, insurance, and business attire. FAC ¶ 17.
"During most of his employment" at Insphere, Hennighan did not believe Insphere was paying its sales agents and leaders properly. FAC ¶ 18. On November 18, 2011, Hennighan filed a complaint with the Labor Commissioner alleging violations of the Labor Code because Insphere misclassified its employees as independent contractors and was not paying them or providing proper itemized statements. FAC ¶¶ 18, 23. Hennighan's direct supervisor told him that he was causing problems through his complaint and said that it was "not a smart move, " that "he would have no friends, " and not to "throw this job away." FAC ¶ 19. The "hostile work environment" created by his supervisor and the fear of similar retaliation from seeing how Insphere treated other sales leaders and agency managers who filed complaints with the Labor Commissioner caused Hennighan "extreme anxiety and stress, " affecting his work performance and home life, and resulting in lower sales and income. FAC ¶ 20. Around April 27, 2012, Hennighan was notified that his "Independent Contractor Agreement" was being cancelled, thus ending his employment with Insphere. FAC ¶ 21.
Hennighan alleges that he has fulfilled his administrative exhaustion requirements. After he filed his initial complaint with the Labor Commissioner on November 18, 2011, he attended a hearing to address the complaint on January 30, 2012, and the Commissioner declined to take action. On October 25, 2012, Hennighan filed a retaliation complaint with the Labor Commissioner, and on November 8, 2012, he filed a complaint with the Labor and Workforce Department Agency. FAC ¶ 23.
On January 22, 2013, Hennighan filed suit in the Superior Court of California, Santa Clara County. On February 13, 2013, Insphere removed the case to this Court. On February 20, 2013, Insphere moved to dismiss the complaint for failure to state a claim against it. On April 24, 2013, the Honorable Jon Tigar granted in part and denied in part the motion to dismiss, dismissing with prejudice Hennighan's claim under California Labor Code Section 205 and dismissing with leave to amend Hennighan's claim under California Labor Code Section 2802, and allowing other claims to go forward against Insphere. On May 27, 2013, Hennighan filed his FAC. On June 11, 2013, the parties stipulated to dismiss without prejudice then-defendants The Blackstone Group L.P., Goldman Sachs Capital Partners, and DLJ Merchant Banking Partners. Only Insphere and HealthMarkets remain as defendants.
The FAC asserts the following causes of action: (1) unlawful discharge, discrimination, and retaliation under California Labor Code Sections 98.6 and 1102.5; (2) wrongful termination in violation of public policy codified in California Labor Code Sections 98.6, 1102.5, 204, 226, 226.7, 227, 510, 512, 1194, and 2802 and Business and Professions Code Section 17200; (3) failure to immediately pay wages upon discharge under California Labor Code Section 201; (4) failure to make agreed upon vacation payments under California Labor Code Sections 227 and 227.3; (5) failure to provide itemized wage statements under California Labor Code Section 226; (6) failure to provide meal and break periods under California Labor Code Sections 226.7 and 512; (7) failure to pay overtime wages under California Labor Code Sections 510 and 1194; (8) failure to indemnify work-related expenditures under California Labor Code Section 2802; (9) unlawful, unfair, and fraudulent business practices under Business and Professions Code Section 17200 as ...