Labor & Employment Law Daily Sealy workers’ California Labor Code claims withstand LMRA preemption challenge
Wednesday, February 20, 2019

Sealy workers’ California Labor Code claims withstand LMRA preemption challenge

By Lisa Milam, J.D.

The employees’ state-law wage claims were not preempted, but federal labor law barred their retaliation and wrongful termination claims under California law.

Federal labor law did not preempt California Labor Code wage claims brought by employees of a Sealy mattress manufacturing facility who claimed that the company didn’t pay them the proper (higher) rate set forth in the operative collective bargaining agreement when performing certain jobs, and that it shorted them on overtime pay. However, their state-law wrongful discharge and retaliation claims were precluded. A federal court in California granted in part, and denied in part Sealy’s partial motion for judgment on the pleadings (Sarmiento v. Sealy, Inc., February 14, 2019, Tigar, J.).

State-law claims. The employees worked a few different jobs concurrently at the mattress manufacturing facility—loader, taper, or sewer—and there were different hourly rates for each, pursuant to the parties’ CBA. But the employees contended they weren’t paid the proper rates when performing the higher-paid jobs. They also claimed that they regularly worked shifts of longer than 12 hours but weren’t paid the proper overtime rate, and that their wage statements omitted certain information required under California law.

They filed a variety of class action wage claims under California law, including claims alleging they were secretly paid lower wages than provided for in the CBA, in violation of Labor Code § 223; and Labor Code § 222 claims that Sealy withheld wages due under the CBA. They also alleged derivative claims under the Private Attorney General Act, among others. At issue here was whether the Section 222 and 223 claims and PAGA claims were preempted by LMRA Section 301.

Labor Code provisions. The employees’ Section 222 and 223 claims both rose from the same factual allegations: that they weren’t paid the proper hourly rate for certain tasks as required by the collective bargaining agreement. Section 223 requires that, “[w]here any statute or contract requires an employer to maintain the designated wage scale, it shall be unlawful to secretly pay a lower wage while purporting to pay the wage designated by statute or by contract.” Section 222 provides that “[i]t shall be unlawful, in case of any wage agreement arrived at through collective bargaining, either wilfully or unlawfully or with intent to defraud an employee, a competitor, or any other person, to withhold from said employee any part of the wage agreed upon.”

Sealy argued that because the employees’ claims are expressly based on breaches of the CBA, they are preempted under the first Burnside prong (the Ninth Circuit’s two-prong test for determining whether Section 301 preemption applies). Section 222 specifically require a “wage agreement arrived at through collective bargaining,” and Section 223 applied here only because the CBA is a “contract [that] requires an employer to maintain the designated wage scale.”

Still, “the fact that statutory provisions are contingent upon some predicate right conferred by the CBA is not dispositive,” the court noted. It pointed to the Ninth Circuit’s 2018 en banc holding in Alaska Airlines v. Schurke, which applied the Burnside test to a case involving in employee’s right under Oregon law to reschedule vacation leave for family medical purposes—in which the right to vacation leave was conferred under a CBA in the first place. In that case, the appeals court determined that the right to reschedule vacation leave was independent of the CBA at step one, and so would not require interpretation of the CBA at step two.

Protections beyond the CBA. Likewise, Sections 222 and 223 confer protections to employees beyond their right to the wages set forth in a CBA, the court reasoned; these provisions set conditions on wage deductions independent of the CBA. The provisions were enacted in 1937 in response to situations in which “kickbacks” or other secret deductions made it look like an employer was paying workers in accordance with the terms of their contract, or pursuant to statutory requirements, but employers were in fact paying less. The statutes sought to remedy situations where workers were paying back a portion of their wages so that they were effectively earning less than required, in practice.

Moreover, as a state appeals court observed, the provisions were intended to ferret out instances where such wage underpayment was being hidden from “applicable enforcement authorities,” be it the union or the state labor commissioner. These provisions also were meant to ensure that an employer was not effectively reducing a CBA’s hourly wage rate by “averaging times where employees were paid CBA wages with intermittent unpaid hours during a workday to fulfill the employer’s minimum wage obligations.”

Thus, these Labor Code sections were directed at conduct beyond just enforcing a CBA-authorized wage scale; they addressed state wage policies that were implicated even where the conduct was permissible under the operative CBA. Consequently, the wage claims were not preempted under the first Burnside prong.

No CBA interpretation required. Nor were the claims preempted under the second Burnside prong. The court took judicial notice of the CBA (rejecting the employees’ protestations that the document wasn’t authenticated) but concluded it didn’t have enough information to determine whether there was a genuine dispute over the meaning of the relevant contract terms.

At any rate, it rejected Sealy’s assertion that it would take a detailed examination of the CBA’s procedures for devising the appropriate hourly pay rate in order to resolve the claims at hand. It might simply be a matter of looking at the higher rate to determine the difference between the rate paid and the rate owed—and under controlling Supreme Court precedent (the 1994 decision in Livadas v. Bradshaw), “the need to consult the CBAs to determine the wage rate to be used in calculating liability cannot, alone, trigger Section 301 preemption.” (Notably, at the hearing on the motion, the court had asked Sealy to specify the CBA provisions at issue that the court would need to interpret, and the employer was unable to do so, the court noted.)

Wrongful discharge claims preempted. The employees also asserted state-law claims on their own behalf arising from their discharge following a confrontation with management during a town hall meeting. They sued for common-law wrongful termination in violation of public policy. However, applying usual Section 301 preemption principles, the court held that the employees could not proceed with their wrongful termination claims because their contract had a grievance arbitration procedure, and they did not timely allege a hybrid claim asserting that the union violated its representation duty under the contract by failing to pursue a grievance on their behalf.

In addition, they alleged unlawful retaliation under Labor Code Section 923, which provides that, as a matter of public policy, employees “shall be free from the interference, restraint, or coercion” in, among other things, “concerted activities for the purpose of collective bargaining or other mutual aid or protection.” They asserted that their actions at the meeting, during which they challenged a newly announced discipline policy, constituted concerted activities, and that they were fired in retaliation for those activities. However, the protections set forth in Section 923 are nearly identical to those afforded under the NLRA, so the case for Garmon preemption was clear.

The court briefly grappled with the Ninth Circuit’s 1987 decision in Paige v. Henry J. Kaiser Co., an outlier decision cited by the employees in support of their contention that the claims were not preempted because they did not violations of the NLRA, but of state law, and they were, after all, the masters of their own complaint. Numerous courts (none of which were controlling here) have rejected the reasoning of the opinion, which is tough to square with Garmon, and no published Ninth Circuit case appears to have embraced this notion. Here, the court reconciled Paige by finding it was really a case about federal removal jurisdiction, and so was not on point, since the plaintiffs had filed suit in federal court.

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