Summary
holding that plaintiff had adequately alleged that individual "caused" the Labor Code violations and therefore may be liable for section 558 penalties
Summary of this case from Moua v. Int'l Bus. Machs. Corp.Opinion
NO. CIV. S-08-567 LKK/DAD.
February 20, 2009
ORDER
Plaintiff is a former employee of defendant Zamora Automotive Group and/or Robert Zamora ("Zamora"), who has brought suit on behalf of himself and a putative class alleging violations of state labor laws and of the California Unfair Competition law, Cal. Bus. Prof. Code §§ 1700 et seq. Also named as defendants are several other business entities alleged to comprise the Zamora Automotive Group. Pending before the court is Zamora's and Zamora Automotive Group's motion for judgment on the pleadings. The court resolves the motion on the papers.
I. BACKGROUND
All allegations described herein derive from plaintiff's Second Amended Complaint and are taken as true for the purposes of this motion only.
Plaintiff makes various allegations regarding defendant Zamora's role in the events giving rise to the causes of action. He alleges that Zamora "owns and controls" Zamora Automotive Group and "is a joint employer of the class" or, alternatively, that it is an alter-ego, non-registered dba of Zamora. Second Amended Complaint ("SAC") ¶¶ 11, 12. Zamora is also alleged to "exercise[] control over the labor practices of Zamora Automotive Group and [to have] caused the violations" set forth in the complaint. Id. ¶ 11.
Plaintiff further alleges that the automobile dealerships named as defendants were agents of Zamora. Id.; see also id. ¶ 23. He alleges that Zamora was Vice President, Secretary, and Chief Financial Officers of all or almost all of the named dealerships and that some of them were registered dbas of Zamora. Id. ¶ 13. Zamora is alleged to own over fifty percent of the shares of some of these dealerships and to be responsible for setting policies concerning the payment of wages at all of them, which was the cause of the harms claimed by plaintiff. Id. ¶¶ 14-22. Essentially, plaintiff's theory is that "[a]lthough Robert Zamora has set up an elaborate scheme of corporations, all of the employees are managed and employed as though it were one business operated by Robert Zamora." Id. ¶ 36.
II. STANDARD FOR MOTION FOR JUDGMENT ON THE PLEADINGS UNDER FEDERAL RULE OF CIVIL PROCEDURE 12(C)
A motion for judgment on the pleadings may be brought "[a]fter the pleadings are closed but within such time as to not delay the trial." Fed.R.Civ.P. 12(c). All allegations of fact by the party opposing a motion for judgment on the pleadings are accepted as true. Doleman v. Meiji Mut. Life Ins. Co., 727 F.2d 1480, 1482 (9th Cir. 1984). A "dismissal on the pleadings for failure to state a claim is proper only if `the movant clearly establishes that no material issue of fact remains to be resolved and that he is entitled to judgment as a matter of law.'" Id. (quoting 5 C. Wright A. Miller, Federal Practice and Procedure: Civil § 1368, at 690 (1969)); see also McGlinchy v. Shell Chemical Co., 845 F.2d 802, 810 (9th Cir. 1988).When a Rule 12(c) motion is used to raise the defense of failure to state a claim, the motion is subject to the same test as a motion under Rule 12(b)(6). McGlinchy, 845 F.2d at 810;Aldabe v. Aldabe, 616 F.2d 1089, 1093 (9th Cir. 1989). Thus, the motion will be granted only if the movant establishes that "no relief could be granted under any set of facts that could be proven consistent with the allegations." Hishon v. King Spalding, 467 U.S. 69, 73 (1984); see also Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Newman v. Universal Pictures, 813 F.2d 1519, 1521-22 (9th Cir. 1987). The court must accept all material allegations of the complaint as true and all doubts must be resolved in the light most favorable to the plaintiff. N.L. Indus. Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986).
III. ANALYSIS
Defendants move for judgment on the pleadings on two grounds. First, they contend that the compensation scheme they utilized for plaintiff and the purported other class members is lawful, as a matter of law. Second, defendant Zamora argues that plaintiff has not adequately pled a basis for his liability, as a corporate officer cannot be liable for the violations of the Labor Code plaintiff alleges. The court considers each argument in turn. For the reasons stated herein, the court denies the motion in part and grants it in part.
A. Lawfulness of the Compensation Scheme
Although not pled in detail in plaintiff's complaint, plaintiff and defendants both agree that the corporate defendants used a "flag rate" or "piece rate" compensation system for the automobile mechanics they employed. See Mot. for J. on the Pleadings at 8-10; Opp'n to Mot. for J. on the Pleadings at 7-9. This compensation method pays employees set rates for completing certain tasks or producing units of goods. Cal. Div. of Labor Standards Enforcement Policies Interpretations Manual ("DLSE Manual") § 2.5.1. For example, under a piece rate system, a mechanic would be paid a fixed amount per type of automotive repair he completed based on the estimated time it would take to perform that repair, regardless of how much time it actually took him. Id. § 2.5.2(1) ("Examples of piece rate plans [include]: Automobile mechanics paid on a `book rate' (i.e., brake job, one hour and fifty minutes, tune-up, one hour, etc.) usually based on the Chilton Manual or similar"). Plaintiff alleges that this payment system violates California labor laws because it does not compensate employees for work they perform that is not "piece" work, such as attending meetings and training sessions, setting up their work stations, and having a state-mandated work break.See Opp'n to Mot. for J. on the Pleadings at 8-9. Defendants argue that the piece rate system is lawful, as a matter of law, so long as the average hourly compensation for employees does not fall below the minimum wage.
Defendants request that the court take judicial notice of the DLSE Manual. A court may take judicial notice of a fact not subject to reasonable dispute, either because the fact is generally known within the territorial jurisdiction of the trial court or because the fact is capable of accurate and ready determination from sources whose accuracy cannot reasonably questioned. Fed.R.Evid. 201(b). A court shall take judicial notice of a judicially noticeable fact "if requested by a party and supplied with the necessary information." Fed.R.Evid. 210(d).
Here, the DLSE Manual is a public document, and therefore the court is able to accurately and readily determine its contents. Defendants have complied with Federal Rule of Evidence 201(d) by requesting judicial notice and supplying the court with a copy of the applicable sections of the DLSE Manual. Therefore, the court takes judicial notice of the DLSE Manual.
It appears that plaintiff has alleged a valid theory of recovery on this issue such that judgment on the pleadings is not appropriate. In Armenta v. Osmose, Inc., 135 Cal. App. 4th 314 (2005), the California Court of Appeals held that an employer who uses an averaging method to determine employees' hourly wages may violate the state minimum wage law, because the law requires employees to be paid for each hour worked. In Armenta, the plaintiffs were employed by a company that maintained utility poles for utility companies. 135 Cal. App. 4th at 316. Employees' time was considered "productive," if it directly related to maintaining the poles, or "nonproductive," which included tasks like travel time, engaging in safety meetings, loading vehicles, completing paperwork, and maintaining the vehicles. Id. at 317-18. Employees were only paid for "productive" time, but the employer argued that this did not violate state minimum wage laws because the amount compensated for "productive" time averaged to an hourly wage that exceeded the state minimum. Id. at 319.
The Court of Appeals rejected this theory. Although an averaging method may be lawful under the federal Fair Labor Standards Act and although California labor law was partially patterned on federal law, the California statutes "reveal[] a clear legislative intent to protect the minimum wage rights of California employees to a greater extent than federally." Id. at 322-24. The court observed that California Wage Order No. 4, which is the relevant state regulation, provided that employees be paid not less than the minimum wage "for all hours worked," evincing the intent that employees be paid for each hour worked.Id. at 323. It also observed that Labor Code sections 221 and 222 prohibited employers from withhold or collect from employees any portion of their wages that had been agreed upon; in the defendants' averaging compensation scheme, a portion of the employee's wage per "productive" hour was effectively withheld and used as compensation for the "non-productive" hours. Id. Moreover, the averaging scheme contravened Labor Code section 223, which bars employers from secretly paying a lower wage than that set by statute or contract. Id. Finally, the court observed that the state labor codes were more generous generally that the comparable federal statutes in setting forth minimum wage standards. Id. at 324.
Defendants attempt to distinguish Armenta on the grounds that the employers in that case designed the compensation scheme so as not to compensate employees for "nonproductive" hours, because the employers instructed employees not to report nonproductive hours and because the employees in Armenta were purportedly paid on hourly rates, not piece rates. These factual differences do not appear dispositive, as the Armenta court plainly held "[t]he averaging method used by the federal courts for assessing a violation of the federal minimum wage law does not apply" to alleged violations of California minimum wage laws. 135 Cal. App. 4th at 323. Here, plaintiff alleges that defendants utilized a compensation scheme that possessed the same central characteristics which the Armenta court rejected, in that employees are not necessarily compensated for every hour worked and an employee is compensated for non-piece rate hours with wages accrued during piece hours. This method of compensation is what the Armenta court found violated Labor Code sections 221, 222, and 223. Id. at 323.
Defendants also contend that the California Court of Appeals' decision in Fitz-Gerald v. SkyWest Airlines, 155 Cal. App. 4th 411 (2007), both demonstrates the narrowness of the holding inArmenta and the lawfulness of the compensation scheme at issue in this case. Defendants' argument is unpersuasive. In SkyWest, the court of appeals upheld a grant of summary judgment to the defendant employer on the grounds that the plaintiff employees' action for violation of state minimum wage laws was preempted under the Railway Labor Act, because the employer was an airline. 155 Cal. App. 4th at 415-16. The SkyWest court expressly distinguishedArmenta on the grounds that the latter did not deal with preemption, which was the central issue in SkyWest. Id. at 416-17. Similarly, there is no indication that federal preemption is relevant to the instant case and therefore SkyWest has little applicability to the allegations here. It certainly does not, despite defendants' contention otherwise, stand for the proposition that the compensation scheme alleged here is lawful under state law.
As defendants observe, the SkyWest court characterizedArmenta's holding as "[a]n employer may not invoke a federal minimum wage averaging formula to defend against a minimum wage claim where the employer, in violation of its own wage agreement, pays no wage for an hour worked." 155 Cal. App. 4th at 417. Defendants argue that because plaintiff does not allege that defendants violated its own wage agreement, its conduct cannot be held unlawful. Defendants' interpretation distorts the holding ofArmenta. As discussed above, Labor Code section 223 bars an employer from secretly withholding a portion of an employee's agreed upon wage in order to use that wage to pay the employee for other time worked. Labor Code sections 221 and 222 prohibit an employer from paying an employee less than minimum wage for each hour worked, whether through a wage agreement or not. The SkyWest court recognized this to be the basis for the Armenta court's holding. See SkyWest, 155 Cal. App. 4th at 417 n. 2. In other words, neither the Armenta nor the SkyWest court held that an employer may violate Labor Code sections 221, 222, or 223 so long as the employer does not violate its own wage agreements.SkyWest, therefore, does not provide grounds for granting defendants' motion.
Finally, defendants argue that their compensation scheme is lawful because they did not preclude employees from earning piece rate compensation. Defendants rely on section 47.7 of the DLSE Manual, which discusses piece rate compensation and provides, "if, as a result of the directions of the employer, the compensation received by piece rate . . . workers is reduced because they are precluded, by such directions of the employer, from earning . . . piece rate compensation during a period of time, the employee must be paid at least the minimum wage. . . ." Defendants argue that plaintiff has not alleged that defendants precluded him from earning piece rate compensation and therefore the compensation scheme is valid according to the DLSE. This position appears to be an unduly narrow reading of plaintiff's allegations. Plaintiff alleges that there are activities that are necessary and incidental to performing the work for which an employee can receive piece rate compensation, such as preparing one's work station or attending training. See Opp'n at 8-9. Because these tasks are essential to the piece rate work and are uncompensated, the compensation scheme would appear to violate the minimum wage laws as well as run afoul of the DLSE's interpretation thereof. Accordingly, it appears that plaintiff has alleged a valid theory of recovery.
Moreover, even if defendants' narrower interpretation of the DLSE Manual's pronouncement is correct, it would not be proper to grant their motion. It is simply not the case that there are no possible set of facts consistent with plaintiff's allegations that would permit his recovery. See Hishon, 467 U.S. at 73. If defendants are correct, that a piece rate system is lawful so long as an employee is paid minimum wage for times during which he is precluded by his employer from earning a piece rate, it is appropriate to permit the plaintiff to conduct discovery in order to develop facts on this issue.
B. Basis of Liability of Defendant Zamora
Defendant Zamora moves for judgment on the pleadings on the grounds that, as a corporate officer, he cannot be liable for violations of state wage and hour laws. Defendant's status as a corporate officer may not alone be the basis of his liability. Plaintiff has also pled, alternatively, that Zamora is plaintiff's joint employer or the alter ego of the corporate defendant or the person who caused the Labor Code violations. Plaintiff has successfully pled that Zamora is a joint employer and that he caused the violations at issue, but has not adequately pled that Zamora is an alter ego of the corporate defendants. Defendant's motion is granted to that extent.
Preliminarily, defendant Zamora is correct that the California Supreme Court has held that a corporate officer cannot be liable for the wage and hour violations of the corporation on the basis of his status alone. In Reynolds v. Bement, 36 Cal. 4th 1075 (2005), the California Supreme Court considered whether plaintiff employees could allege that individual defendants, who were all officers, directors, or otherwise agents of their corporate employer, were liable for violations of state labor laws. Plaintiffs had alleged that these individual defendants "directly or indirectly . . . employed or exercised control over wages, hours, or working conditions of Class members" and "caus[ed] the corporate defendants to violate the overtime regulations . . . and commit other statutory violations." Reynolds, 36 Cal. 4th at 1081. Plaintiffs alleged violations of the state minimum wage and overtime laws, as well as other Labor Code violations. Id. at 1083.
The court rejected plaintiffs' assertions that the individual defendants could be liable for Labor Code violations. Id. at 1087-88. The court observed that the relevant Labor Code sections did not define "employer," but rejected plaintiffs' argument that the Industrial Welfare Commission's ("IWC") definition should be read into the statutes. Id. at 1084-86. The IWC creates regulations for employment throughout the state, set forth in Wage Orders. Id. at 1084, citing Tidewater Marine Western, Inc. v. Bradshaw, 14 Cal. 4th 557, 561 (1996). Wage Order 9, which applies to the automobile industry, defines "employer" as one who "exercises control over the wages, hours, or working conditions of any person." Id. at 1085;see also IWC Wage Order No. 9-2001(2)(G). The court concluded that there was no indication that the legislature intended to incorporate this definition in the Labor Code sections. Id. at 1086.
Instead, the court explained, a term that is undefined in a statute should be interpreted in accordance with common law. Id. at 1086-87. Under California common law, individual agents, officers, or employees of a corporate employer have not been encompassed in the term "employer" in the context of Labor Code violations. Id. at 1087-88. The court relied in part onOppenheimer v. Robinson, 150 Cal.App. 2d 420, 424 (1957), where a railroad superintendent had been held not to be the plaintiff's employer, in an action to recover unpaid wages, because he had not been a party to the employment contract or otherwise had a duty to pay the plaintiff's wages. See also Shoemaker v. Myers, 52 Cal. 3d 1, 24 (1990) ("corporate agents and employees acting for and on behalf of a corporation cannot be held liable for inducing a breach of a corporation's contract"). The court recognized that a corporate agent may be liable to an employee on an alter ego theory or where a statute expressly provides for it.Reynolds, 36 Cal. 4th at 1089 n. 10. Accordingly, to the extent that plaintiff alleges that Zamora is liable for Labor Code violations simply by virtue of being the owner of Zamora Automotive Group or otherwise controlling it, this theory must fail.
Plaintiff has adequately alleged, however, that Zamora "caused" the Labor Code violations, which may cause him to be subject to civil penalties. Labor Code § 558 provides, "Any employer or other person acting on behalf of an employer who violates, or causes to be violated, . . . any provision regulating hours and days of work in any order of the Industrial Welfare Commission shall be subject to a civil penalty. . . ." As the Reynolds court acknowledged, the text of this section expands liability to include agents of the employer. See Reynolds, 36 Cal. 4th at 1089. Here, plaintiff has alleged that Zamora, in his capacity as owner of Zamora Automotive Group, "caused" the wage and hour violations alleged in the complaint, including regulations set forth in IWC Wage Orders. SAC ¶¶ 11, 51, 59, 97, 98. Plaintiff's claims based on violations of IWC regulations are therefore adequately pled against defendant Zamora.
The California Private Attorney General Act, Cal. Labor Code § 2699, permits a civil action to be brought for any violation of a Labor Code provision that provides for a civil penalty.
Plaintiff has also pled adequately that Zamora is the joint employer of plaintiff. Under California law, whether entities are joint employers of an employee depends on a factual inquiry into the "totality of the working relationship of the parties," rather than application of a particular test such as the "interference test" or "economic realities test." Vernon v. State, 116 Cal. App. 4th 114, 125 n. 7 (2004). Instead, the court considers the nature of the work relationship, "with emphasis upon the extent to which the defendant controls the plaintiff's performance of employment duties." Id. at 124, 126. Courts have found myriad facts to be relevant, including whether the defendant pays the employee's salary and taxes, owns the equipment necessary for the employee to perform his job, has authority to hire, train, fire, or discipline the employee, or has discretion to set the employee's salary. Id. at 125 (collecting cases). Here, plaintiff has alleged some facts that Zamora was plaintiff's joint employer. He alleges that Zamora owns the dealership where plaintiff works and that he controls compensation and other labor policies, including monitoring the implementation of those policies. SAC ¶¶ 11, 14-22. These allegations are sufficient to state a claim against Zamora on the basis of his joint employment of plaintiff.
Finally, plaintiff has not adequately pled that Zamora is the alter ego of defendant Zamora Automotive Group. Under an alter ego theory, the stockholders of a corporation may be individually liable where it would be equitable to do so. Assoc. Vendors, Inc. v. Oakland Meat Co., Inc., 210 Cal. App. 2d 825, 837 (1962). Generally, alter ego liability is considered equitable where there is a unity of interests and ownership between the corporation and the individual and if the corporation alone were held liable, there would be an inequitable result. Id. Factors that courts have found militated towards finding alter ego liability include commingling of assets, treatment of the assets of the corporation as the individual's own, failure to maintain corporate records, employment of the same employees and attorneys, undercapitalization, and use of the corporation as a shell for the individual. Id. at 838-40 (collecting cases).
Here, plaintiff has pled facts adequate to allege that there is a unity of interests between the corporate defendants and Zamora. He alleges that Zamora owns and controls fifty-one percent of the shares of Zamora Automotive Group and many of the individual dealerships and that he is the President, Vice President, and Secretary and/or Chief Financial Officer at all of them. SAC ¶¶ 13-22. He also alleges that Zamora dictates the day-to-day business at these dealerships to the extent that he controls the implementation of wage polices. Id. ¶¶ 11, 14-22. These allegations suffice to plead a unity of interests between Zamora and the corporate defendants. See, e.g., Assoc. Vendors, 210 Cal. App. 2d at 837; Talbot v. Fresno-Pacific Corp., 181 Cal. App. 2d 425 (1960); Goldberg v. Engelberg, 34 Cal. App. 2d 10 (1939).
Nevertheless, plaintiff not pled facts that suggest that failure to impose alter ego liability would lead to an inequitable result. Plaintiff alleges that Zamora is the owner of Zamora Automotive Group, which is comprised of individual dealerships, which Zamora also controls and holds stock. SAC ¶¶ 11-22. He does not allege, however, that any of the individual dealerships or Zamora Automotive Group are undercapitalized, lack corporate assets, are shells created to avoid personal liability or any other facts that suggest that it would be inequitable to hold only the corporate defendants liable for their acts. This renders deficient plaintiff's allegations against Zamora on an alter-ego theory. See Assoc. Vendors, supra.
IV. CONCLUSION
For the reasons stated herein, defendant's motion to dismiss is GRANTED IN PART and DENIED IN PART. Plaintiff is granted fifteen days from the date of this order to file an amended complaint.IT IS SO ORDERED.