Every year, the California Supreme Court decides cases that have significant impact for California employers. In its most recent term, the Court addressed a variety of relevant employment issues. Below, we summarize some important cases, and also address additional key issues awaiting the Court’s review.

Pineda v. Bank of America

Because Jorge Pineda gave two weeks’ notice of his resignation from Bank of America, he was entitled to be paid his final wages on his last day of employment. But the Bank paid him four days late, so Pineda sought a “waiting time” penalty under Labor Code Section 203, on behalf of himself and other employees similarly situated. He also sought penalties as restitution under California’s Unfair Competition Law (“UCL”).

The Bank claimed Pineda had not filed his suit in time. Under California Code of Civil Procedure Section 340, the statute of limitations for an action for penalties is one year. But Pineda claimed the applicable statute of limitations was three years, under Labor Code Section 203(b), which applies to claims for wages not properly paid at termination. The Bank argued that because Pineda’s claim was only for penalties, and not any underlying wages, the three-year statute of limitations did not apply.

Although the trial court agreed with the Bank and the appellate court affirmed, the Supreme Court reversed. It concluded that the legislature intended section 203(b) to apply to claims for penalties, even if the employee did not seek to recover the underlying wages. The Court reasoned that a different conclusion would lead to inconsistent results and would give defendants the opportunity to “game the system”-for example, by waiting to pay disputed wages until after a year passed, thereby precluding a claim for penalties.

The Court upheld the trial court’s rejection of the UCL claim, however. It reasoned that purpose of restitution is to restore the status quo, while the purpose of penalties under section 203 is to encourage employees to pay final wages on time and to punish them when they do not.

Sonic-Calabasas A, Inc. v. Moreno

In Sonic-Calabasas A, Inc. v. Moreno, the Supreme Court addressed whether an employee could agree to waive his right to an administrative hearing before the California Labor Commissioner. The plaintiff agreed to arbitrate all disputes with his employer, but later filed a claim with the Labor Commissioner for unpaid vacation. When the employer petitioned to compel arbitration, the plaintiff claimed he was entitled to a “Berman” hearing before the Labor Commissioner to resolve his claim.

The Court decided that requiring the employee to waive his right to the Berman hearing was against public policy and unconscionable. The waiver was procedurally unconscionable because the employee was required to sign it as a condition of employment. It was substantively unconscionable because it only benefited the employer at the employee’s expense. Finding the employee could not waive the right to a Berman hearing was not inconsistent with the arbitration agreement, the Court held, because after the hearing, the employer could still compel arbitration.

While this case suggests employees cannot voluntarily waive the right to Berman hearings, the U.S. Supreme Court’s recent decision in AT&T v. Concepion may compel a different result. Stay tuned.

Sullivan v. Oracle

In a case particularly significant for multistate employers, the Supreme Court addressed whether non-exempt employees based outside of California are entitled to the protections of California’s overtime laws when working here. The plaintiffs in Sullivan v. Oracle were instructors from other states who claimed they should be paid overtime according to California’s rules, which were more favorable than the rules in their home states. Although the case was heard in federal court, the Ninth Circuit asked the California Supreme Court to address whether California’s overtime laws applied to the employees when working full days or weeks in the state.

The Court held the employees were entitled to overtime under California law. It reasoned that the legislature explicitly exempted out-of-state employers from compliance with some state laws, such as California’s workers’ compensation law. On the other hand, the legislature did not specifically exempt out-of-state employers from California overtime laws. Also, while the employees’ home states did not have an interest in regulating overtime in Californiaäóîone state did not even have its own overtime law and the other state’s overtime law only applied within its bordersäóîCalifornia had a strong interest in applying its overtime law to nonexempt, out-of-state workers. If out-of-state workers were not paid overtime according to California rules, employers would have an incentive to “import” workers, the Court reasoned.

The plaintiffs also filed a UCL claim for restitution based on the employer’s failure to pay overtime under California law and under federal law in other states. While the Court confirmed that the failure to pay overtime under California law could form the basis for a UCL action, it rejected the plaintiffs’ attempt to revive time-barred federal claims in other states using the UCL. The Court reasoned that the legislature had not indicated it intended the UCL to apply beyond California’s borders.

While the Sullivan decision has significant implications for multistate employers, the Court limited its holding to overtime claims. In other words, the Court did not extend the protection of California’s other wage and hour laws (such as meal periods, rest periods, itemized pay statements, and so forth) to out-of-state employees working within the state.

California Grocers Association v. City of Los Angeles

The City of Los Angeles, like many other municipalities, has a local ordinance that requires large grocery stores to hire the store’s existing non-managerial employees for a 90- transition period following a change in ownership. During the transition period, the employees may only be dismissed for cause, and at the end of the transition period, the employees are entitled to a written evaluation of their performance.

The California Grocers Association challenged the ordinance on the grounds that it was preempted by the California Health and Safety and Labor Codes and federal law, and that it violated the equal protection clauses of the state and federal constitutions. The Court did not agree. The ordinance was not preempted by health and safety laws, which regulated the required safety-related training and knowledge of the workers. In contrast, the ordinance only addressed who should be hired, not what those employees hired should know about food safety. Also, the ordinance was not preempted by the National Labor Relations Act because it did not address the “process of establishing terms of employment,” i.e. the collective bargaining process, but instead focused on “the content of those terms.” Finally, the ordinance did not run afoul of the equal protections clauses of the federal or state constitutions because the City of Los Angeles had a rational reason for applying the rule only to large grocery stores.

The California Grocers Association argued that the ordinance would unfairly result in unionized workplaces remaining unionized, but the Court dismissed the concern, because the ordinance applies to both unionized and nonunionized workplaces. While the ordinance is limited to large grocery stores in Los Angeles, the City’s success defending the ordinance may result in other municipalities enacting similar restrictions.

Pending Cases

Below are some important cases still pending before the Court:

Brinker Restaurant Corp v. Superior Court: Employers continue to wait for guidance from the Court about whether they have a duty to require meal and rest breaks for non-exempt employees, or whether providing the breaks is sufficient.

C.A. v. William S. Hart Union High School District:: The Court will address whether a school district may be held liable for the negligent hiring, retention, and supervision of a guidance counselor who molested a student, when the school knew the counselor had a history of child molestation.

County of Los Angeles v. Los Angeles County Employee Relations Committee: The Court will decide whether a union has the right to obtain personal contact information of non-union member employees.

Harris v. Superior Court: At issue is whether claims adjusters employed by insurance companies are exempt from overtime requirements under California’s administrative exemption.

Harris v. City of Santa Monica: The Court will address an employer’s burden of proof in a “mixed motive” case where an employee claimed she lost her job because of poor performance (a legal reason) and because she was pregnant (an illegal reason).

Kirby v. Immoos Fire Protection: The Court will address whether Labor Code Section 1194, which does not permit an employer to recover attorney fees for unsuccessful minimum wage and overtime claims, precludes an employer from recovering fees when it successful defeats claims for meal and rest period violations, but not minimum wage and overtime claims.

Ralphs Grocery Co. v. United Food & Commercial Workers: The Court will decide whether the parking area and walkway in front of a grocery store is a public forum where employees may picket during labor disputes.

Seabright v. U.S. Airways: The Court will clarify whether in certain circumstances an employee of an independent contractor may sue the hirer of the contractor for an on-the-job injury.

California employers must keep up with employment law developments. The California Supreme Court will continue to take an active role in the workplace, and employers must stay abreast of those developments if they want to avoid liability. Of course, the California Supreme Court’s decisions are just one source of new legal developments. Employers also must pay attention to lower courts’ rulings, federal courts’ opinions, and new statutes and regulations as well.