Employment Law Daily Bank of America can’t dodge class California Labor Code claims
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Wednesday, August 8, 2018

Bank of America can’t dodge class California Labor Code claims

By Lisa Milam, J.D.

A Bank of America employee may proceed with the bulk of her California Labor Code and derivative claims, a federal court in California held, finding she asserted plausible allegations that the employer violated state-law overtime, meal and rest period, waiting-time and wage statement provisions. Much turned on whether bonuses had to be factored into the calculation of meal and rest period premiums, and also whether they constitute “wages” under the Labor Code. Although Bank of America’s motion to dismiss was denied in large part, to the extent the employee sought to recover for its failure to calculate her nondiscretionary bonuses into those premiums, the court ruled in Bank of America’s favor. The court also granted the employer’s motion to strike as redundant her claim under Labor Code section 204, which simply regulates the timing of wage payments (Frausto v. Bank of America, National Association, August 2, 2018, James, M.).

The plaintiff had worked for Bank of America for 18 years as a nonexempt employee. She alleged that throughout her employment, the banking giant did not pay the correct amount of overtime wages and failed to provide meal or rest periods or pay meal period premium wages. She also asserted the employer failed to furnish accurate wage statements, and did not timely pay all final wages due when it terminated her. She raised numerous California Labor Code claims and an unfair business practices (UCL) claim. After the employer removed the case to federal court, she tacked on a claim for civil penalties under the Private Attorneys General Act (PAGA). She was looking to certify a class action with two subclasses (a meal period subclass and a “late pay” subclass of employees whose final wages were not promptly disbursed upon termination). At issue here was Bank of America’s motion to dismiss and/or strike certain of her pleadings.

Overtime claims. The employee contended she was not paid the correct amount of overtime for weeks in which she worked beyond 40 hours. Specifically, she claimed she worked at least 52.62 overtime hours in 2016, and at least 64.77 overtime hours in 2017, and that Bank of America did not account for her nondiscretionary bonus when calculating her overtime rate (rather, it calculated her overtime based on her regular straight-time hourly rate). The employer argued she did not identify a specific workweek in which she earned a nondiscretionary bonus and wasn’t properly paid overtime, which was fatal to her California Labor Code claim. But “mathematical precision” as to the amount of overtime owed is not required, the court noted. She stated the amount earned in bonuses during 2016 and 2017, the reason for those nondiscretionary bonuses, and that the amount of the bonuses were not factored into her overtime pay. These allegations were enough to support a plausible inference that the employer failed to pay her the proper overtime rate, and were sufficient to survive a motion to dismiss.

Meal and rest periods—bonuses don’t count. The employee also alleged she didn’t receive any meal period premiums before 2017 despite missing meal periods at least once or twice a month, and was never paid for rest period premiums, even though she had to forego rest breaks one or twice a month as well. Bank of America urged that, at most, she claims to have skipped meal breaks because of her workload, and courts have rejected such allegations as conclusory and insufficient even when the plaintiff asserts that breaks were missed because of “so-called pressure” from the employer. Here too, the complaint allegations were sufficient to state a claim. She alleged specific employer policies that impeded her from taking her legally mandated meal and rest breaks; namely, a Bank of America manager had instructed class members by email that they must forego their breaks if necessary to deal with customers on calls.

The employee also claimed that on those occasions in 2017 when she was paid for missed meals, she was paid at the straight-time rate, without her earned bonuses factored in. Bank of America countered that California law does not require that bonuses be factored into meal period payments—all that is required is that she be paid at the “regular rate of compensation.” Here, the court noted the legislature’s clear distinction between “regular rate of compensation” for meal period purposes, as set forth in section 226.7(c), and “regular rate of pay” for overtime purposes (for which bonuses are required to be included in the calculation). The court cited numerous cases to support this reading, most significantly, the California Supreme Court’s holding in Murphy v. Kenneth Cole Products, Inc., which held that “the section 226.7 payment[] uses the employee’s rate of compensation,” and not the employee’s “regular rate” used for overtime purposes. Thus, although the court denied the motion to dismiss the meal period claims, it ruled in Bank of America’s favor as to whether bonuses had to be included when calculating payment for any missed meal periods.

For the same reason, the court refused to dismiss the claim alleging she was not paid for missed rest periods, rejecting Bank of America’s argument that she failed to allege a common policy or practice, uniformly applicable to all class members, to deprive employees of breaks. Likewise, to the extent her complaint sought those missed rest period payments to be calculated with her bonus payments calculated into the rate, the court ruled in the employer’s favor.

Waiting time penalties. The employee alleged her final paycheck was deficient because it didn’t include all of her overtime, meal period premium, and rest period premium wages owed, and that the waiting-time violation was willful. Rejecting Bank of America’s claim that her assertions of “willfulness” were conclusory, the court found the allegations sufficient to state a plausible claim for waiting-time penalties, pointing out that “willful” in this context merely meant intentional, and nothing more nefarious.

Bank of America also contended that the meal and rest period premiums don’t count as “wages” for purposes of the waiting-time provisions. The California Supreme Court has twice addressed (in different contexts) the issue whether compensation for missed meal and rest period premiums count as “wages earned” for purposes of Labor Code section 201, the waiting-time provision. In one case, the state high court rejected the notion that meal and rest period violations were “penalties” and thus subject to the statute of limitations related to penalties; instead, they were “wages,” subject to the limitations period for wages. Also, in a case where an employer sought attorney fees against employees in a failed meal and rest period action, the high court found the remedy for a section 226.7 meal period violation is a “wage,” but explained that the violation triggering the remedy is the “failure to provide meal or rest breaks,” and not nonpayment of wages. The federal courts have split on the issue as well, but a majority have found premiums for unpaid meal and rest breaks are “wages,” for which waiting-time penalties accrue if not timely paid at termination. Noting the broad construction of “wages” that the California Supreme Court has called for, the court here followed the majority of federal courts and held that unpaid meal and rest period premiums are “wages” for purposes of section 203. Therefore, the claim for waiting-time penalties survived dismissal.

Wage statements. The employee alleged Bank of America did not provide accurate wage statements. She asserted, among other contentions, that it failed to include premiums for meal and rest periods as wages. The employer argued meal and rest period premiums are “liquidated damages,” not wages. Again, the courts are split, but the majority have held that meal and rest premiums are “wages” and must be included in pay statements. Bank of America also argued that the employees suffered no injury from the allegedly inaccurate wage statements, but the court disagreed. The employee pleaded that as a result of the inaccurate wage statements, she and the class members were unable to determine whether they had been paid correctly for all hours worked. This was enough to allege an injury. The motion to dismiss the wage statements claims also was denied.

Derivative claims. Finally, the employee asserted a viable derivative claim under the UCL to the extent she was seeking restitution for wages owed. Courts have held that payments for meal and rest period premiums are restitutionary, as they belong to the employee. However, because she was no longer a Bank of America employee, she lacked standing to pursue her claims for injunctive relief under the UCL.

Also, because the statutory claims that form the basis of her PAGA cause of action survived, her derivative PAGA claim withstood Bank of America’s motion to dismiss as well.

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