United States District Court, N.D. California
ORDER ON MOTION FOR SUMMARY JUDGMENT ON PLAINTIFF DAVID OVADIA'S CLAIMS Re: Dkt. No. 112
WILLIAM H. ORRICK, District Judge.
Plaintiff David Ovadia signed a settlement agreement with defendant Zep, Inc., his former employer, that included a complete release of all of his employment-based claims in exchange for payment of $8000. The question I must decide on summary judgment is whether the release is valid in light of California Labor Code sections 206.5 and 2804, which prohibit the settlement of wage and business expense claims under certain circumstances, and whether the settlement agreement was unconscionable. There was a genuine dispute between Ovadia and Zep over the wage issues, allowing them to be settled by agreement, the business expense issues were also susceptible to settlement, and the agreement was not unconscionable. As a result, I will GRANT Zep's motion for summary judgment against Ovadia.
FACTUAL AND PROCEDURAL BACKGROUND
Zep is a company that sells janitorial and sanitation supplies. On December 30, 2010, former Zep employees Keith Britto and Justin Cowen filed a putative class action in the Superior Court of California for Alameda County captioned Britto, et al. v. Zep Inc., et al., Case No. VG10553718 (" Britto "), alleging that Zep had violated California law by (i) failing to reimburse sales representatives for work-related expenses; and (ii) improperly deducting certain expenses from representatives' wages. Suh Decl., Ex. D. Ovadia, a former sales representative for Zep, was an unnamed putative class member.
Ovadia signed Zep's "Salesman's Exclusive Account Contract" when he was hired. It set forth Ovadia's commission as follows: "[T]he Company will pay the Salesman a commission of 50% of the profit on the sales made by the Salesman after deducting the cost of the merchandise sold plus a sum equal to 10% of the sales price for overhead expenses." Grosman Decl., Ex. A. Ovadia alleges that throughout his employment, Zep made illegal deductions from his wages and unlawfully required him to pay his own business expenses.
During the pendency of the Britto action, Zep extended settlement offers to several putative class members. On May 24, 2011, Zep sent a letter to Ovadia offering him $8, 000 to settle any potential claims related to the Britto action. Grossman Decl., Ex. B. Attached to the letter was a copy of the first amended complaint in the Britto action and a Settlement and Release Agreement. Id.
The letter summarizes the claims made in the Britto action and states that the "settlement offer  is intended to provide you compensation in return for a release of potential claims related to this lawsuit." Id. The letter states that "the Company believes it did not violate any law." Id. The letter further states that nevertheless, if "the Company does not prevail in the litigation, you may be entitled to recover money as a result of this lawsuit. At present, there is no set formula or calculation for any potential recovery" but "recovery could potentially include reimbursement for business-related expenses, recovery of any improper deductions, prejudgment interest, civil and/or statutory penalties, as well as attorneys' fees." The letter then offers Ovadia $8, 000 "[b]ased on our review of commissions, deductions and the issues raised by the lawsuit...." Id.
The letter repeatedly states that employees who decline the settlement offer will not be retaliated against. See Id. ("Whether or not you choose to accept this offer will have no impact whatsoever on your future employment with the Company.... I want to assure you that we will not tolerate any retaliation against any employee as a result of not accepting this offer or participating in this lawsuit.... Absolutely no adverse action will be taken against you no matter what you decide to do.") The letter advises Ovadia to "make a decision for yourself" and provides contact information for Zep's counsel and counsel for the putative class plaintiffs in Britto, which are the same attorneys representing Ovadia in this action. The letter requests a response by June 24, 2011. Id.
Around the same time, Zep was changing its compensation and reimbursement policies. The letter references this policy shift and states, "As you are aware, the Company is modifying its commission policies and agreements to eliminate the risks created by the lawsuit. The offer contained in this letter and your decision to accept or reject this offer are completely independent of those policy changes which will occur whether or not you accept this offer."
The attached settlement and release agreement states, in relevant part, "Sales Representative... does hereby release, acquit and agree to a complete settlement of any and all claims... known and unknown... that Sales Representative may have against the Company... including a claim for failure to pay wages, for unlawful deductions, for failure to reimburse business related expenses, for unfair competition, for statutory and/or civil penalties pursuant to the California Labor Private Attorney General Act, and for wage statement deficiencies." Id. The settlement and release agreement contains a waiver under California Civil Code section 1542. See CAL. CIV. CODE § 1542 ("A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.").
Ovadia signed the release on June 20, 2011 and was paid $8, 000 by Zep. less withholdings. Grossman Decl. ¶ 7; Ovadia Depo. at 136:4-22. On May 7, 2012, the Superior Court denied class certification in the Britto action. Shortly thereafter, more than fifty former Zep employees brought this action, including Ovadia. They are asserting the same claims alleged in the Britto action.
Summary judgment is proper "if the movant shows that there is no genuine dispute as toany material fact and the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a). The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The moving party, however, has no burden to disprove matters on which the non-moving party will have the burden of proof at trial. The moving party need only demonstrate to the court "that there is an absence of evidence to support the nonmoving party's case." Id. at 325.
Once the moving party has met its burden, the burden shifts to the non-moving party to "designate specific facts showing a genuine issue for trial." Id. at 324 (quotation marks omitted). To carry this burden, the non-moving party must "do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). "The mere existence of a scintilla of evidence... will be insufficient; there must be evidence ...