California Court of Appeals, Fourth District, First Division
JOSE LUIS MORALES, and ROES 1 through 100, individually, and on behalf of all others similarly situated, Plaintiffs and Appellants,
v.
22ND DISTRICT AGRICULTURAL ASSOCIATION, Defendant and Respondent.
Order
Date August 5, 2016
APPEAL
from an order and judgment of the Superior Court of San Diego
County, No. 37-2013-40938-CU- OE-CTL Joel R. Wohlfeil, Judge.
Law
Offices of David J. Gallo and David J. Gallo for Plaintiffs
and Appellants.
Gordon
& Rees, James J. McMullen, Matthew G. Kleiner, Autumn
Moody and Justin Michitsch for Defendant and Respondent.
ORDER
MODIFYING OPINION AND DENYING REHEARING
THE
COURT:
It is
ordered that the opinion filed herein on July 13, 2016, be
modified as follows:
1. On
page 28 of the opinion the last sentence in subpart d,
addressing "Appellants' Proposed Special Jury
Instruction Number 5" is deleted, and the following
inserted:
On this
record, any assumed error in not giving the proposed
instruction was not prejudicial.
2. On
page 44 of the opinion the last sentence of the first
paragraph is deleted, and the following inserted:
As
relevant here, it exempts "any employees directly
employed by the State or any political subdivision thereof,
including any city, county, or special district." (Cal.
Code Regs., tit. 8, § 11100(1)(C).)
There
is no change in judgment.
The
petitions for rehearing are denied.
AARON,
J.
This
appeal addresses a collective action alleging nonpayment of
overtime, as required by state law under Labor
Code[1] section 510 and federal law under the
Fair Labor Standards Act of 1938 (FLSA, 29 U.S.C. § 201,
et seq.). We conclude that the trial court properly entered
judgment for the defendant on the FLSA claim. Defendant
proved the amusement or recreational exemption (29 U.S.C.
§ 213(a)(3), the amusement exemption) as an affirmative
defense and plaintiffs failed to show error in the denial of
their nonsuit motion, in the jury instructions, in the
verdict form or in the court's exclusion of witnesses
from the courtroom. We also conclude that the trial court
properly sustained defendant's demurrer to the section
510 claim, but further conclude that the court erred in
denying leave to amend.
FACTUAL
AND PROCEDURAL BACKGROUND
Plaintiff
Jose Luis Morales and 177 other similarly situated plaintiffs
(collectively appellants) sued their employer, the 22nd
District Agricultural Association of the State of California
(the DAA), alleging nonpayment of overtime, as required by
state law under section 510 and federal law under the FLSA.
The DAA is a California agency that owns and manages the Del
Mar Fairgrounds (Fairgrounds) and the Del Mar Horsepark
(Horsepark). The DAA leases out part of the Fairgrounds
property to the Surf & Turf Recreation Golf Center
(Recreation Center). Also on the Fairgrounds property is a
satellite wagering facility, which is leased to another
entity. The Horsepark is located on another parcel of land,
located about three miles from the Fairgrounds.
Appellants
are seasonal employees of the DAA who assist with amusement
and seasonal operations. Appellants are limited to working
119 days in a calendar year and are internally referred to as
"119-day employees." Appellants are not limited as
to the number of hours that they may work in those 119 days.
Appellants filed a putative class action against the DAA to
recover penalties and damages for alleged violations of state
and federal overtime laws. The trial court sustained, without
leave to amend, the DAA's demurrer to appellants'
section 510 cause of action. After the trial court
conditionally certified the case as a collective action, the
DAA answered the complaint, asserting the amusement exemption
as an affirmative defense to the remaining federal claim.
Under this exemption, an employee of an amusement or
recreational establishment is not entitled to overtime
compensation if certain criteria are met. (29 U.S.C. §
213(a)(3).)
In
response to a court-approved notice, 177 individuals joined
the action as additional plaintiffs. The trial court
bifurcated the action; the parties stipulated that the first
phase of trial would be for the exclusive purpose of
adjudicating the DAA's affirmative defense regarding the
applicability of the amusement exemption. Any remaining
issues would subsequently be tried before a new jury.
After
conclusion of the DAA's evidence, the trial court denied
appellants' oral motion for nonsuit. The jury rendered a
special verdict in favor of the DAA and the court later
entered judgment. Thereafter, the parties submitted a
stipulation regarding the form of judgment and attached a
proposed judgment. The trial court endorsed the parties'
stipulation, but did not separately enter the agreed form of
judgment. Appellants contend, and the DAA does not contest,
that the initial judgment, as modified by the order approving
the parties' stipulation, constitutes a final, appealable
judgment. Appellants timely appealed from the order
sustaining the demurrer and from the judgment.
DISCUSSION
Appellants
contend that reversal of the judgment in favor of the DAA on
their FLSA claim is required because the trial court: (1)
improperly denied their nonsuit motion; (2) erred in
instructing the jury; (3) provided an erroneous special
verdict form; and (4) improperly excluded party witnesses
from the courtroom. We address these contentions in part I of
this opinion, concluding that appellants have not met their
burden to demonstrate reversible error. In part II of the
opinion, we conclude that the trial court properly sustained
the DAA's demurrer to appellants' section 510 claim,
but further conclude that the court erred in denying leave to
amend.
I.
FLSA Claim
A.
Legal and Factual Background
The
FLSA requires that an employer pay overtime wages to
employees unless those employees are classified as exempt
employees under applicable law. (29 U.S.C. §§ 207,
213.) The FLSA requires overtime pay only if an employee
works more than 40 hours per week, regardless of the number
of hours worked during any one day. (29 U.S.C. §
207(a)(1).) However, the FLSA provides for a number of
exemptions to this general rule. (29 U.S.C. § 213.) One
of these exemptions is the amusement exemption that applies
to any employee of an establishment whose business is to
provide amusement or recreation. (29 U.S.C. §
213(a)(3).)
The
amusement exemption states, in relevant part, that it applies
to "any employee employed by an establishment which is
an amusement or recreational establishment, organized camp,
or religious or non-profit educational conference center, if
(A) it does not operate for more than seven months in any
calendar year, or (B) during the preceding calendar year, its
average receipts for any six months of such year were not
more than 33 ⅓ per centum of its average receipts for
the other six months of such year...." (29 U.S.C. §
213(a)(3).)[2]
The
amusement exemption thus has two main elements: first, the
business must qualify as an "amusement or
recreational" establishment and second, the
establishment must satisfy either the duration test or the
receipts test. (29 U.S.C. § 213(a)(3); 29 C.F.R. §
779.385 (2015).) The first element has two subparts: (1)
identifying the "establishment" and (2) determining
the "amusement or recreational" nature of that
establishment. "The logical purpose of the [amusement
exemption] is to exempt... amusement and recreational
enterprises... which by their nature, have very sharp peak
and slack seasons.... Their particular character may require
longer hours in a shorter season, their economic status may
make higher wages impractical, or they may offer non-monetary
rewards." (Brock v. Louvers and Dampers, Inc.
(6th Cir. 1987) 817 F.2d 1255, 1259.)
Appellants
contend that they are entitled to overtime wages under the
FLSA. As an affirmative defense, the DAA asserted that it is
exempt from the FLSA under the amusement exemption. The
matter proceeded to trial, at which the DAA presented
evidence that it is exempt from the FLSA under the amusement
exemption. After the conclusion of the DAA's evidence,
appellants orally moved for nonsuit, asserting that, as a
matter of law, the amusement exemption did not apply because
the DAA failed to show: (1) that it existed to promote youth
summer employment, and (2) that the majority of its income
was derived from amusement or recreation. The trial court
denied the motion, concluding that the evidence could support
a finding that the DAA operated as a single establishment,
that the nature of that single establishment was amusement or
recreational, and that it satisfied the receipts test.
B.
Eligibility for Amusement Exemption
As a
preliminary matter before we examine the nonsuit motion, the
parties dispute whether eligibility for the amusement
exemption turns on (1) the nature of the employer's
revenue producing activities, or (2) the work performed by
the employee. As appellants note, this question is of great
importance to this appeal because it impacts the order
denying nonsuit and some of the challenged jury instructions.
The parties have not cited, and we have not found, any
California case law addressing this issue. The parties rely
on federal case law. While we are not bound to follow federal
court precedent, " 'numerous and consistent'
" federal decisions may be particularly persuasive when
they interpret federal law. (Etcheverry v. Tri-Ag
Service, Inc. (2000) 22 Cal.4th 316, 320-321.)
Relying
on Brennan v. Six Flags Over Georgia, Ltd. (5th Cir.
1973) 474 F.2d 18 (Six Flags), appellants contend
that it is the "nature [or character] of the work"
and "not the source of the remuneration, that
controls" and "gives rise to the need for [the
amusement] exemption." (Id. at p. 19.) About a
year later, however, the Fifth Circuit came to the opposite
conclusion, holding that an employer's "principal
activity should be determinative of [its] eligibility for an
exemption." (Brennan v. Texas City Dike &
Marina, Inc. (5th Cir. 1974) 492 F.2d 1115, 1119
(Texas City).) The Fifth Circuit provided no reason
in Texas City regarding its change in position.
(Ibid.) The Sixth, First and Tenth Circuits later
adopted the Fifth Circuit's new position that it is the
employer's principal activity that controls.
(Marshall v. New Hampshire Jockey Club, Inc. (1st
Cir. 1977) 562 F.2d 1323, 1331, fn. 4 (Marshall);
Brennan v. Southern Productions, Inc. (6th Cir.
1975) 513 F.2d 740, 746-747; Hamilton v. Tulsa County
Public Facilities Authority (10th Cir. 1996) 85 F.3d
494, 497; Chessin v. Keystone Resort Management,
Inc. (10th Cir. 1999) 184 F.3d 1188, 1193-1194
(Chessin).)[3] We find these "numerous and
consistent" federal circuit court decisions to be
persuasive on the issue. (Conrad v. Bank of America
(1996) 45 Cal.App.4th 133, 150.)
Moreover,
appellants have not provided a reasonable basis for us to
reject these decisions. As one court noted, the plain
language of the amusement exemption suggests that the inquiry
"turns on the nature of the employer's business, not
on the nature of the employee's work."
(Marshall, supra, 562 F.2d at p. 1331, fn.
4.) Additionally, the applicable federal regulations state
that exemptions "depend on the character of the
establishment." (29 C.F.R. § 779.302 (2015).)
"[I]f the establishment meets the tests enumerated in
these sections, employees 'employed by' that
establishment are generally exempt" from the FLSA's
overtime provision. (Ibid.) Finally, a formal
opinion letter from the U.S. Department of Labor (DOL), Wage
and Hour Division provides: "Whether or not an
establishment has an 'amusement or recreational'
character for purposes of the section 13(a)(3) exemption
depends on its principal or primary activity." (DOL Wage
and Hour Division Opinion Letter FLSA 2006-39 (DOL 2006-39);
http://www.dol.gov/whd/opinion/FLSA/2006/2006_10_12_39_FLSA.htm
[as of July 12, 2016].) "[I]nterpretations contained in
formats such as opinion letters are 'entitled to
respect.' " (Christensen v. Harris County
(2000) 529 U.S. 576, 587.)
In
summary, we conclude that eligibility for the amusement
exemption turns on the nature of the employer's revenue
producing activities, not on the nature of the work performed
by the employee.
C.
Nonsuit Motion
Appellants
assert that one of the most important issues in this case in
the trial court was whether all of the DAA's business
operations, locations, buildings and departments constitute a
single establishment because, if it is deemed to be a single
establishment, it would satisfy the receipts test for the
claimed exemption. Appellants argued in the trial court that
they were entitled to a nonsuit because a required element of
the amusement exemption is showing that the employment
"plainly and unmistakably" falls within the letter
and spirit of the exemption, and the DAA had failed to show
that all of its operations constitute a single establishment.
The trial court denied the motion, finding that the DAA had
presented sufficient evidence from which the jury could find
that the DAA operated a single establishment, and that the
nature of the establishment was amusement or recreational.
The
principal purpose in enacting the FLSA was to protect all
covered workers from substandard wages and oppressive working
hours. (Barrentine v. Arkansas-Best Freight System,
Inc. (1981) 450 U.S. 728, 739.) A defendant bears the
burden of proof of establishing the applicability of an FLSA
exemption as an affirmative defense. (Ramirez v. Yosemite
Water Co. (1999) 20 Cal.4th 785, 794-795
(Ramirez); accord, Corning Glass Works v.
Brennan (1974) 417 U.S. 188, 196-197.) Determining
whether an exemption applies is a fact-specific inquiry.
(Vinole v. Countrywide Home Loans, Inc. (9th Cir.
2009) 571 F.3d 935, 945.)
As a
general matter, FLSA exemptions " 'are to be
narrowly construed against the employers seeking to assert
them and their application [is] limited to those
establishments plainly and unmistakably within their terms
and spirit.' " (Arnold v. Ben Kanowsky,
Inc. (1960) 361 U.S. 388, 392; Guerrero v. Superior
Court (2013) 213 Cal.App.4th 912, 941
(Guerrero).) Appellants, however, seek to transform
this policy statement into a new standard of proof.
Appellants' have cited no authority to support their
contention, and we reject it. The amusement exemption has
two, and only two, elements: first, the business must qualify
as an "amusement or recreational" establishment
and, second, the establishment must satisfy either the
duration test or the receipts test. (29 U.S.C. §
213(a)(3); 29 C.F.R. § 779.385 (2015).)
The
parties stipulated that, if the DAA were viewed in the
aggregate as a single establishment, it would meet the
receipts test of the amusement exemption. Accordingly, we
focus on the first element of the amusement exemption and
examine whether the trial court properly denied nonsuit
because the DAA presented evidence showing (1) that it is a
single establishment, and (2) that the nature of its
principal or primary activity is amusement or recreational.
A party
is entitled to a nonsuit when, as a matter of law, the
evidence presented by the party opposing the nonsuit is
insufficient to allow a jury to find in the opposing
party's favor. (See Saunders v. Taylor (1996) 42
Cal.App.4th 1538, 1541.) In ruling on a nonsuit motion the
trial court must interpret all of the evidence most favorably
to the party opposing the nonsuit and most strongly against
the party seeking the nonsuit, and must resolve all
presumptions, inferences, conflicts, and doubts in favor of
the party opposing the nonsuit. (Powerhouse Motorsports
Group, Inc. v. Yamaha Motor Corp., U.S.A. (2013) 221
Cal.App.4th 867, 887.) We review the ruling on a nonsuit de
novo, applying the same standard as the trial court.
(Saunders v. Taylor, supra, 42 Cal.App.4th
at pp. 1541-1542.) Thus, the issue before us is whether the
evidence presented by the DAA, viewed favorably to its cause,
was insufficient as a matter of law to show that the DAA
operated a single establishment and that the nature of its
principal or primary activity was amusement or recreational.
1.
Single Establishment
Application
of the amusement exemption depends on the general character
of the establishment/employer. (29 C.F.R. § 779.302
(2015).) The term "establishment" refers to a
" 'distinct physical place of business.' "
(29 C.F.R. § 779.23 (2015).) An "
'enterprise' " may be "composed of a single
establishment." (29 C.F.R. § 779.303 (2015).)
"The term 'establishment, ' however, is not
synonymous with the words 'business' or
'enterprise' when those terms are used to describe
multiunit operations. In such a multiunit operation some of
the establishments may qualify for exemption, others may
not." (Ibid.) Leased departments in a
departmentalized store are generally not considered to be
separate establishments for purposes of the exemptions. (29
C.F.R. § 779.306 (2015).)
Both
parties cite 29 C.F.R. § 779.305 (2015), which provides
that an establishment should be considered separate under the
FLSA if "(a) It is physically separated from the other
activities; and (b) it is functionally operated as a separate
unit having separate records, and separate bookkeeping; and
(c) there is no interchange of employees between the
units."[4] The trial court instructed the jury
with a modified version of this regulation.
29
C.F.R. § 779.305 (2015) describes a three-part test for
distinguishing whether "two or more physically separated
portions of a business though located on the same
premises … may constitute more than one
establishment for purposes of the exemptions." (Italics
added.) However, we question whether this test applies where,
as here, multiple premises are involved. Significantly, the
fact that multiple premises are involved is not fatal to a
finding that the multiple premises constitute a single
establishment. (Mitchell v T. F. Taylor Fertilizer Works,
Inc. (5th Cir. 1956) 233 F.2d 284, 285, 287
(Mitchell) [fertilizer dry mixing plant and office
located on different premises constituted a single
establishment for purposes of the retail or service
establishments exemption]; Doe v. Butler Amusements,
Inc. (N.D. Cal. 2014) 71 F.Supp.3d 1125, 1127, 1140-1141
(Doe) [cross-motions for summary judgment denied
where carnival operating in more than one physical location
could constitute a single establishment]; see also
Marshall, supra, 562 F.2d at p. 1331
("[[W]e think it appropriate to proceed beyond [29
C.F.R. § 779.305 (2015)] and look more broadly into
'the integrity of the economic… and functional
separation between the business units.' "].) As the
Mitchell court noted, "the suggestion that the
right to an exemption depends upon such factors as whether
part of the business is separated by a partition, or is
conducted in an adjoining building, or in a building across
the street or five blocks away, does not recommend itself as
a rational distinction; furthermore, it does not appear to
have been the intent of Congress." (Mitchell,
supra, at pp. 285-286.)
The
Doe court examined 29 C.F.R. § 1620.9 (2015), a
regulation issued by the U.S. Equal Employment Opportunity
Commission to interpret the Equal Pay Act (EPA), which is
part of the FLSA. (Doe, supra, 71 F.Supp.3d
at p. 1134 & fn. 5.) The definition of
"establishment" is important to EPA analysis
because the statute prohibits pay discrimination on the basis
of sex within an "establishment." (29 U.S.C. §
206(d)(1).) 29 C.F.R. § 1620.9 (2015) provides that
"each physically separate place of business is
ordinarily considered a separate establishment, " but in
unusual circumstances "two or more portions of a
business enterprise, even though located in a single physical
place of business, may constitute more than one
establishment" or "two or more distinct
physical portions of a business enterprise [could be treated]
as a single establishment. For example, a central
administrative unit may hire all employees, set wages, and
assign the location of employment; employees may frequently
interchange work locations; and daily duties may be virtually
identical and performed under similar working
conditions." (Italics added.) The Doe court
concluded, and we agree, that this regulation offers guidance
as to the meaning of "establishment" in the context
of overtime and minimum wage claims. (Doe,
supra, 71 F.Supp.3d at p. 1134 & fn. 5.)
Accordingly,
reliance by the parties and the court on the three-part test
of 29 C.F.R. § 779.305 may be misplaced. Appellants,
however, do not claim error on this ground. Thus, we examine
the trial court's ruling on the nonsuit motion utilizing
the three-part conjunctive test of 29 C.F.R. § 779.305
(2015) to determine whether the DAA presented evidence
showing that it operates as a single establishment. Under
this test, evidence showing physical and functional
separation, and no interchange of employees is sufficient to
show that an establishment should be considered separate,
rather than a single establishment.
The
Horsepark is physically separated from the Fairgrounds.
Nonetheless, the DAA presented evidence showing that its
Board of Directors oversees the Fairgrounds, the Horsepark
and the Recreation Center. The day-to-day operations of the
Recreation Center are performed by private companies that run
their respective businesses under written leases and
operating agreements with the DAA, but the DAA, as the
landlord, handles major issues such as plumbing or electrical
problems. The chief financial officer for the DAA testified
that the DAA has an organizational chart. Different areas of
responsibility are divided into departments, with different
department numbers. All departments are "very tightly
linked together" and they share employees and resources.
A single set of books exists for all of the departments and
the departments cannot function separately. The DAA has a
single operating bank account for all departments. The
Horsepark does not have a separate bank account or accounts
payable department.
The
department heads for all departments report to the executive
management of the DAA. The departments do not have separate
executive officers or boards of directors. Additionally, the
DAA's accounting staff is used interchangeably as needed
at the Horsepark to track accounts receivables, and the
DAA's employees perform necessary maintenance, recycling,
marketing, security and janitorial work for all departments.
The Horsepark and the DAA use the same payroll and human
resources departments.
This
constitutes substantial evidence showing that the two
separate properties qualify as a single establishment, since
they are not functionally operated as separate departments,
do not have separate records and separate bookkeeping, and
there is an interchange of employees between them. Although
appellants may have presented conflicting evidence on this
element, conflicting evidence is disregarded ...