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Naranjo v. Spectrum Security Services, Inc.

California Court of Appeals, Second District, Fourth Division

September 26, 2019

GUSTAVO NARANJO et al., Plaintiffs and Appellants,
v.
SPECTRUM SECURITY SERVICES, INC., Defendant and Appellant.

          APPEAL and cross-appeal from a judgment of the Superior Court of Los Angeles County No. BC372146, John A. Kronstadt and Barbara M. Scheper, Judges. Affirmed in part and reversed in part with directions.

          Marsili Rapp, Howard Z. Rosen, Brianna M. Primozic and Jason C. Marsili for Plaintiffs and Appellants.

          Carothers DiSante & Freudenberger, Dave Carothers and Steven A. Micheli for Defendant and Appellant.

          DUNNING, J. [*]

         INTRODUCTION

         Named plaintiff and class representative Gustavo Naranjo and a certified class of former and current employees took their lawsuit against defendant Spectrum Security Services, Inc. (Spectrum) to trial. They alleged Labor Code section 226.7[1] meal break violations and sought premium wages, derivative remedies pursuant to sections 203 (waiting time penalties) and 226 (itemized wage statement penalties), and attorney fees. The results were mixed, and both sides appeal.

         We hold: (1) at-will, on-call, hourly, nonexempt employees who are paid for on-duty meal periods are also entitled to premium wages if the employer does not have a written agreement that includes an on-duty meal period revocation clause (§ 226.7); (2) unpaid premium wages for meal break violations accrue prejudgment interest at seven percent; (3) unpaid premium wages for meal break violations do not entitle employees to additional remedies pursuant to sections 203 and 226 if their pay or pay statements during the course of the violations include the wages earned for on-duty meal breaks, but not the unpaid premium wages; (4) without section 226 penalties, attorney fees pursuant to section 226, subdivision (e) may not be awarded; and (5) the trial court prejudicially erred in denying certification of a rest break class.

         FACTUAL AND PROCEDURAL BACKGROUND

         Spectrum contracts exclusively with federal agencies. Its officers take temporary custody of federal prisoners and ICE (Immigration and Customs Enforcement) detainees who must travel offsite for medical treatment or other appointments, and they provide continuous supervision until the individuals are returned to their custodial locations. Spectrum officers also guard witnesses awaiting court appearances. In Spectrum parlance, the individuals they transport and guard are referred to as “posts”; i.e., a post is a person, not a location.

         Spectrum’s officers are at-will, on-call, hourly, nonexempt employees. Spectrum’s company policy has always required on-duty meal periods, for which the employees are paid at their regular rate. Although Spectrum typically assigns two officers or an officer and supervisor to each post, Spectrum officers cannot leave the room or building where their post is located. On occasion, they can coordinate with other Spectrum officers and go nearby to eat or pick up food for themselves and colleagues, but they must remain on-call and within radio range.

         For the relevant time period before October 1, 2007, Spectrum had two different employee manuals. The first was the Standing Operational Procedures (SOP) manual. The SOP was replaced in 2006 with the SOPP (Standing Operational Procedures and Policies) manual. The “Work Breaks” sections in both manuals contained the following introductory language: “This job does not allow for breaks other than using the hallway bathrooms for a few minutes.” The SOP and SOPP included similar meal break policy language, with a short list of “do’s” and a longer list of “don’ts.” Neither the SOP nor the SOPP included a written advisement that employees could revoke, in writing, the on-duty meal break policy agreement at any time.

         Employees did not sign the SOP or SOPP. They did sign a separate document acknowledging their receipt and careful examination of the SOP or SOPP, as well as a variety of other Spectrum documents.

         “Memorandum 33” was issued on October 1, 2007, after this lawsuit was filed. This one-page document addressed only meal and rest breaks. Unlike the SOP and SOPP, Memorandum 33 advised, “Meal and rest periods must be taken.” It reaffirmed Spectrum’s longstanding policy that meal and rest periods were “on duty.” Memorandum 33 included the following paragraph above the employee signature line: “I agree to accept ‘paid On-Duty’ meal periods during my employment with [Spectrum]. I understand that this agreement may be revoked in writing at any time. However, I also understand that due to the nature of work performed by Spectrum, agreeing to ‘On-Duty’ meal periods is a condition of continued employment. I further understand that this agreement does not create a guarantee for continued employment and does not change my at-will employment status with Spectrum.”

         Naranjo began working for Spectrum in December 2006. He was terminated in May 2007 after he left his post for a meal break.

         Naranjo filed this lawsuit as a putative class action the following month, alleging Spectrum failed to provide its security personnel with meal and rest breaks, as required by section 226.7 and Industrial Wage Commission (IWC) Wage Order No. 4-2001 (Cal. Code Regs., tit. 8, § 11040 (Wage Order 4). Before Naranjo filed his motion for class certification, Spectrum was granted summary judgment on the basis that all causes of action were preempted by the McNamara-O’Hara Service Contract Act of 1965 (41 U.S.C. § 351 et seq.). This court rejected Spectrum’s federal preemption/lack of jurisdiction arguments based on the Service Contract Act, reversed as to the causes of action based on alleged Labor Code violations (§§ 203, 226, and 226.7), and otherwise affirmed. (Naranjo v. Spectrum Security Services, Inc. (2009) 172 Cal.App.4th 654, 667-668 (Naranjo I).)

         Naranjo’s class certification motion was heard before the Supreme Court issued its decision in Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004 (Brinker). The trial judge granted the motion in part and denied it in part. A class of “‘all non-exempt detention officers and security officers employed by Spectrum in California during the Class Period of June 4, 2004 to the present’” was certified as to the first cause of action (meal period violations (§ 226.7)), third cause of action (waiting time penalties (§ 203)), and fourth cause of action (itemized wage statements (§ 226)). The trial court qualified Naranjo as the class representative and the law firm of Posner & Rosen as class counsel.

         The trial court declined to include the second cause of action for alleged rest break violations in the class certification order. The trial court acknowledged Spectrum’s companywide policy not to permit duty-free rest breaks; but nevertheless found that common questions did not predominate, which meant Naranjo’s claims were not typical and the class action format was not the superior means to resolve the rest break claim. The trial court was persuaded that common fact issues did not predominate because “some of the declarants on [Spectrum’s] side assert that [Spectrum] did permit duty-free rest breaks.” The following year, post-Brinker, the new trial judge declined to revisit the denial of Naranjo’s motion to certify a rest break class.

         The parties stipulated to try the lawsuit in three phrases.[2] The first phase was a bench trial involving several Spectrum affirmative defenses. Spectrum lost. As the phase one rulings are not implicated in this appeal, we forgo a discussion of them.

         Next, the meal break class cause of action was tried to a jury. The meal break class spanned the period from June 4, 2004 through the time of trial and consisted of two subclasses. The “pre-Memorandum 33” subclass included employees who worked through September 30, 2007; the “Memorandum 33” subclass included employees who signed that agreement, effective October 1, 2007.

         The pre-Memorandum 33 subclass, insisting its members worked without a legally compliant meal break policy, filed a series of motions in limine. At the trial court’s invitation, Spectrum made an offer of proof. The trial court considered the arguments and documents and excluded the proffered evidence.

         At the close of testimony, the trial court granted a directed verdict in favor of the pre-Memorandum 33 meal break subclass: “Spectrum failed to comply with the requirements of the wage order since it had no written agreement with its employees by which employees agreed to the on-duty meal period and were advised that their agreement could be revoked in writing. Spectrum argued that its written policy and procedure manuals consistently advised employees that meal periods would be on duty. In addition, according to Spectrum, employees could in effect revoke their agreement to the on-duty meal period by declining to accept an assignment on any given day or to request not to be scheduled for a particular day. Although the [trial] court does not disagree that the foregoing facts were proven by Spectrum, ... [t]he combination of policies and procedures along with the on-call status of employees is not a substitute for the mandated written agreement.”

         With this ruling, and based on Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094 (Murphy), the parties stipulated the pre-Memorandum 33 meal break subclass was owed $1, 393, 314 in premium pay for the period from June 4, 2004 until September 30, 2007. The jury returned a verdict in Spectrum’s favor against the Memorandum 33 subclass.

         The third phase, again a bench trial, concerned only the pre-Memorandum 33 meal break subclass and the two Labor Code derivative causes of action−section 203’s waiting time penalties and section 226’s itemized wage statement penalties. Relying again on Murphy’s holding that premium pay awarded to employees for noncompliant meal break policies is a wage and not a penalty for statute of limitations purposes, the trial court determined sections 203 and 226 were potentially applicable.[3]

         Because Spectrum failed to pay the pre-Memorandum 33 meal break subclass a one-hour premium for each workday the noncompliant meal break policy was in effect, that sum was not reflected in employee’s paychecks. The trial court concluded this failure was “knowing and intentional, ” pursuant to section 226, entitling the pre-Memorandum 33 meal break subclass to itemized wage statement penalties. The parties stipulated the section 226 penalty was $399, 950.

         Section 203, unlike section 226, requires a finding of willfulness by the employer before penalties may be assessed. The trial court determined Spectrum’s failure to include the meal break premium wage in the final paychecks of employees who separated from the company was not willful and ruled in Spectrum’s favor on the section 203 waiting time penalties claim.

         Judgment was entered January 31, 2014. The trial court awarded prejudgment and postjudgment interest, each at 10 percent. As named plaintiff and class representative, Naranjo received a $10, 000 service/enhancement payment. Class counsel Posner & Rosen were awarded attorney fees as part of the judgment pursuant to section 226, subdivision (e), albeit in an amount less than requested.

         Both sides appeal from the judgment. Spectrum challenges its liability for premium wages to the pre-Memorandum 33 meal break subclass and for section 226 itemized wage statement penalties, the stipulated premium wage award, the award of prejudgment interest, and the section 226, subdivision (e) award of attorney fees to class counsel. The pre-Memorandum 33 meal break subclass attacks the denial of section 203 waiting time penalties and the trial court’s decision to apportion and reduce the attorney fees. Pursuant to Code of Civil Procedure section 906, Naranjo also seeks review of the intermediate order denying certification of the proposed rest break class.

         DISCUSSION

         I. At-will, On-call, Hourly, Nonexempt Employees who are Paid for On-duty Meal Periods also Are Entitled to Premium Wages if the Employer Does Not Have a Written Agreement with an On-duty Meal Period Revocation Clause

         A. Overview and Standard of Review

         California’s wage and hour protections for employees include guaranteed meal and rest periods. (Brinker, supra, 53 Cal.4th at p. 1017.) These guarantees are set forth in the Labor Code (§ 512) and IWC wage orders. Wage orders are “legislative regulations specifying minimum requirements with respect to wages, hours, and working conditions.” (Augustus v. ABM Security Services, Inc. (2016) 2 Cal.5th 257, 262, fn. 5 (ABM Security).) Wage orders represent the IWC’s interpretation of Labor Code provisions (Ramirez v. Yosemite Water Co. (1999) 20 Cal.4th 785, 801 (Yosemite Water) and have the same force and effect as statutes (Alvarado v. Dart Container Corp. of California (2018) 4 Cal.5th 542, 552). Together, the Labor Code and IWC wage orders provide “complementary and occasionally overlapping sources of authority.” (Brinker, at p. 1026.)

         We review de novo trial court interpretations of the Labor Code and IWC wage orders. (ABM Security, supra, 2 Cal.5th at p. 262.) We generously construe statutory and regulatory provisions in favor of protecting employee rights (ibid.) and accord IWC interpretations “considerable judicial deference” (Yosemite Water, supra, 20 Cal.4th at p. 801).

         Additionally, our review is assisted by Division of Labor Standards Enforcement (DLSE) opinion letters. The DLSE enforces the Labor Code and IWC wage orders and issues written opinion letters interpreting the latter. (Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575, 581.) Although DLSE opinion letters do not receive the same deferential treatment as IWC wage orders, they frequently offer valuable guidance for courts tasked with independent review of Labor Code and wage order provisions. (Brinker, supra, 53 Cal.4th at p. 1029, fn. 11.)

         B. Governing Principles-Mandatory Meal Periods

         Mandatory meal and rest period laws and regulations are motivated by concerns for employee health and safety to ensure that employees have “time free from employer control... to be able to accomplish important personal tasks.” (Murphy, supra, 40 Cal.4th at p. 1113.) For this reason, meal breaks typically are “off the clock” and represent unpaid time during the employee’s workday. The traditional remedy for a meal break violation has been injunctive relief. (Id. at pp. 1113, 1105.)

         With the enactment of section 226.7 in 2000, however, the Legislature authorized monetary remedies for violations of meal and rest break laws and regulations. (Brinker, supra, 53 Cal.4th at p. 1017.) During the timeframe relevant to this litigation, section 226.7, subdivision (b) read as follows: “If an employer fails to provide an employee a meal period... in accordance with an applicable order of the [IWC], the employer shall pay the employee one additional hour of pay at the employee’s regular rate of compensation for each work day that the meal or rest period is not provided.”[4]

         Subdivision 11(A) of Wage Order 4 specifies, “Unless the employee is relieved of all duty during a 30 minute meal period, the meal period shall be considered an ‘on duty’ meal period and counted as time worked. An ‘on duty’ meal period shall be permitted only when the nature of the work prevents an employee from being relieved of all duty and when by written agreement between the parties an on-the-job paid meal period is agreed to. The written agreement shall state that the employee may, in writing, revoke the agreement at any time.” Subdivision 11(B) adds, “If an employer fails to provide an employee a meal period in accordance with the applicable provisions of this order, the employer shall pay the employee one (1) hour of pay at the employee’s regular rate of compensation for each workday that the meal period is not provided.” (Cal. Code Regs., tit. 8, § 11040, subd. 11(A), (B), italics added.)

         C. Governing Principles-On-Duty Meal Breaks

         The Legislature and IWC recognize certain occupations do not lend themselves to providing employees with off-duty meal breaks. Wage Order 4 authorizes on-duty meal breaks if the conditions in subdivision 11(A) set forth above are met. The Supreme Court has described the on-duty meal period exception as “exceedingly narrow, applying only when (1) ‘the nature of the work prevents an employee from being relieved of all duty’ and (2) the employer and employee have agreed, in writing, to the on-duty meal period. [Citation.] Even then, the employee retains the right to ‘revoke the agreement at any time.’” (ABM Security, supra, 2 Cal.5th at pp. 266-267.)

         The DLSE has opined that “blanket” agreements for on-duty meal periods are acceptable, so long as they “expressly state that the employee may, in writing, revoke the agreement at any time, as required under [the applicable ] Wage Order.” (Meal Periods for Fuel Carriers Subject to Federal Safety Regulations (June 9, 2009), p. 9, <https://www.dir.ca.gov/dlse/opinions/2009-06-09.pdf> (Fuel Carriers).) Fuel Carriers also advises that an on-duty meal period is “counted as time worked. Furthermore, unless the conditions are met for an on-duty meal period as required under [the] Wage Order... [the employee is] entitled to one additional hour of pay at the employee’s regular rate of compensation” pursuant to section 226.7. (Id. at pp. 5-6.)

         Brinker explained that once an employee has been on the job “for five hours, an employer is put to a choice: it must (1) afford an off-duty meal period; (2) consent to a mutually agreed-upon waiver if one hour or less will end the shift; or (3) obtain written agreement to an on-duty meal period if circumstances permit. Failure to do one of these will render the employer liable for premium pay. (§ 226.7, subd. (b); Wage Order No. 5, subd. 11(A), (B).)” (Brinker, supra, 53 Cal.4th at p. 1039.) In this regard, Brinker quoted with approval the following excerpt from the amicus brief DLSE submitted in that case: “‘The employer that refuses to relinquish control over employees during an owed meal period violates the duty to provide the meal period and owes compensation [and premium pay] for hours worked.’” (Id. at p. 1040, fn. 19.)

         To summarize, employees who sign on-duty meal agreements that include a right-to-revoke clause are entitled to be paid their regular wages for every on-duty meal period, but they are not entitled to one-hour of premium pay.[5] However, if all the requirements for a compliant on-duty meal period are not met, e.g., there is no signed agreement with a right-to-revoke clause, the employer owes employees their regular wage for working during the meal break, plus one hour of premium pay for every workday the meal break policy was noncompliant, also at the employees’ regular rate of compensation. (Wage Order 4, subd. 11(A); Kaanaana v. Barrett Business Services, Inc. (2018) 29 Cal.App.5th 778, 802, review granted on another issue Feb. 27, 2019, S253458 (Kaanaana); Zakaryan v. The Men’s Wearhouse, Inc. (2019) 33 Cal.App.5th 659, 668, review granted July 10, 2019, S255610 and disapproved on another point in ZB, N.A. v. Superior Court (Sept. 12, 2019, S246711) __ Cal.5th __, __ [“If an employer does not comply with the meal and rest break rules applicable to nonexempt employees, an employee is entitled to an additional hour’s pay for each workday that a meal or rest period was not offered. (§ 226.7, subd. (c).)”].)

         D. Analysis

         Pre-Memorandum 33, Spectrum employees did not sign a written agreement concerning the on-duty meal period. Nor were employees advised they could “in writing, revoke the agreement at any time.” (Cal. Code Regs., tit. 8, § 11040, subd. 11(A).) Nevertheless, Spectrum took the position it “substantially complied, if not strictly complied, with the intent of IWC Wage Order 4’s requirements for a permissible on-duty meal period; and the officers understood and agreed to the on-duty meal periods, and knew they could ‘revoke’ the agreement in several ways, including declining an assignment.” Spectrum argued it was not necessary “to ‘cobble’ together documents [for the employees] to understand they were agreeing to on-duty meal periods. If they did not want to work a day with an on-duty meal period, they could decline an on-call assignment or ask for another shift, or ask for other [unspecified] accommodations, or they could quit.”

         Although the trial court rejected this argument, it did so only after reviewing the eight documents Spectrum submitted, none of which included the mandatory right-to-revoke language set forth in Wage Order 4. The trial court also did not permit Spectrum to present witness testimony as to any oral on-duty meal break agreements. At the close of evidence, the trial court granted a directed verdict in favor of the pre-Memorandum 33 meal break subclass.

         On appeal, Spectrum complains the evidentiary rulings and directed verdict were the result of the trial court’s erroneous conclusion that Wage Order 4 required “the on-duty meal period agreements [to] be contained in one document” and deprived it of the opportunity to show that a collection of documents in its possession demonstrated “the parties’ understanding and intent, and practice and performance, ” all within the spirit of Wage Order 4.

         Spectrum’s “single document” argument does not withstand scrutiny. Rather, it appears to be an effort to deflect attention from the uncontroverted fact that, regardless of the number of documents involved, none included a compliant written meal period break policy before the issuance of Memorandum 33. The ...


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