Labor & Employment Law Daily Employees of airline caterer can’t claim restitution under CARES Act after layoffs
News
Thursday, February 25, 2021

Employees of airline caterer can’t claim restitution under CARES Act after layoffs

By Ronald Miller, J.D.

The employees’ allegation that the employer received payroll support funding from the federal government was not sufficient to establish that the employer had “taken” money or property or was otherwise “in possession of funds rightfully belonging to them.”

Class action claims by employees of an airline caterer who alleged that the employer laid-off or furloughed them in violation of public policy, the California Unfair Competition Law (UCL), and breached its fiduciary duty in violation of the terms of payroll support it was awarded pursuant to the CARES Act were dismissed by a federal district court in California. Because the employees did not allege a real or immediate threat that they would be subject to illegal conduct by the employer in the future or that they have suffered injuries that are compensable by restitution, they lacked standing to pursue a claim under the UCL. Similarly, the court dismissed the employees’ common law claims for wrongful termination and breach of fiduciary duty as not coming within the purview of the CARES Act (Scott v. Gate Gourmet, Inc., February 22, 2021, Snyder, C.).

CARES Act. The employees alleged that after the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law, the employer began laying off or furloughing hundreds of workers. According to the employees, at the time of the layoffs, the employer was aware that federal funds would be made available to it “with the purpose of protecting workers and helping to retain employees.” They alleged that the layoffs were “in direct contravention of the purpose behind the financial bailout [defendant] applied for and received under the CARES Act.”

Presently before the court was the employer’s motion to dismiss this class action alleging claims for (1) wrongful termination in violation of public policy; (2) violation of the California Unfair Competition Law (UCL); and breach of fiduciary duty. The employees alleged that they and members of the class were laid off by the employer in violation of the terms and conditions of the payroll support that the employer was awarded pursuant to the CARES Act. For their part, the employees moved to remand the action to state court.

The employer argued that the employees’ common law claims failed because the CARES Act does not provide a private right of action, and that each of their state-law claims failed to state a claim upon which relief could be granted.

Unfair competition claim. Here, the employees alleged that the employer violated the UCL by engaging in “an unlawful, unfair, and fraudulent business practice.” As a threshold matter, they had to establish standing to obtain one of the remedies available under the statute. “[R]emedies for individuals under the UCL are restricted to injunctive relief and restitution.” Injunctive relief is available if the allegedly wrongful conduct is ongoing or likely to recur. To establish an entitlement to restitution, “a plaintiff must demonstrate that the defendant is in possession of money or property taken from [him] or her” or in which plaintiff otherwise has an ownership interest.

The court found that the employees failed to adequately allege they were entitled to injunctive relief or to recover restitution in connection with the employer’s allegedly unfair and fraudulent conduct. First, with respect to injunctive relief, the employees failed to plead facts demonstrating that their alleged harms were ongoing or likely to recur. Rather, each employee alleged that they were not currently employed by the employer because of the layoffs. Consequently, they lacked standing to seek an injunction because they were not personally threatened by the employer’s ongoing unfair or unlawful employment conduct.

Second, the employees had not alleged the type of injuries that are compensable by restitution. To the extent that they sought to recover “profits and gains resulting from” the employer’s decision to lay off employees despite receiving federal payroll support, the employees did not plead facts demonstrating a vested ownership interest in those funds that would establish a right to restitution. Without more, the employees’ allegation that the employer received payroll support funding was not sufficient to establish that it had “taken” money or property or was otherwise in possession of funds rightfully belonging to the employees. Moreover, “nonrestitutonary disgorgement” of funds unlawfully or unfairly obtained from a third party—such as the Treasury Department—is not an available remedy in an individual action under the UCL.

Accordingly, because the employees failed to allege facts that supported standing under the UCL, the court granted the employer’s motion to dismiss their claim for restitution.

Wrongful termination. The court was persuaded by the reasoning of the Seventh Circuit in Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (2012), in finding that the absence of a private right of action under the CARES Act did not require the dismissal of the employees’ common law claims for wrongful termination and breach of fiduciary duty. Still, the court determined that the employees’ wrongful termination claim failed because they did not sufficiently allege that they were terminated for engaging in protected activity. Rather, they alleged only that they were employed by the employer when the CARES Act was signed, at which time the employer was made aware that federal funds would be available for the purpose of helping it retain employees. Those allegations were insufficient to support a claim that they were discharged because they engaged in protected activity and thus their wrongful termination claim was dismissed.

Breach of fiduciary duty. Further, the court rejected the employees’ complaint allegations that the CARES Act established a fiduciary duty because it provided federal money for the continuation of employee wages, salaries, and benefits. The employees failed to point to any specific provision of the CARES Act that gave rise to a fiduciary relationship, including the employer’s receipt of federal funds. Likewise, the employees did not allege the existence of any agreement or representation that the employer undertook to act as a fiduciary for its employees. Accordingly, the court found that their allegations were insufficient to state a claim for breach of fiduciary duty.

Interested in submitting an article?

Submit your information to us today!

Learn More

Labor & Employment Law Daily: Breaking legal news at your fingertips

Sign up today for your free trial to this daily reporting service created by attorneys, for attorneys. Stay up to date on labor and employment legal matters with same-day coverage of breaking news, court decisions, legislation, and regulatory activity with easy access through email or mobile app.