In calculating damages, the defendant in this action had added damages that were outside the statute of limitations and otherwise inapplicable. Rejecting the defendant’s calculations, a District Court in California remanded the action to state court.
The plaintiff, a sales associate, brought an action alleging failure to pay overtime wages, to provide itemized wage statements, to timely pay all wages due, and unfair business practices, all in violation of California law.
The defendant removed the action from Superior Court of California, County of San Mateo to the District Court under CAFA. The plaintiff asserted that the total amount recoverable in the lawsuit did not exceed $5 million, and accordingly moved for remand. The District Court granted the motion.
The District Court noted that the class was estimated to be greater than 200 individuals and the parties were diverse. Thus, the District Court moved to determine whether the amount in controversy requirement of CAFA had been established.
The defendant asserted that the amount in controversy exceeded $20 million. The defendant claimed that, during the four years open under the statute of limitations, 7,247 employees had worked overtime and earned commissions and, if commissions had been included in the base pay, the shortfall in overtime pay totaled $161,544.
The District Court observed that the defendant’s calculations pertaining to the statutory penalties were faulty. The limitations period for statutory penalties is one year. The defendant did not provide the overtime deficit for the one year, but the District Court noted that it would be a subpart of the four-year overtime deficit of $161,544. During the one-year limitation period for penalties, the defendant stated that 3,853 individuals worked overtime and earned commissions and there were 37,401 pay periods.
The District Court, however, opined that the defendant’s assumption that all 3,853 employees worked overtime in every possible pay period had no support in the record and was extravagant. The District Court remarked that actual overtime was not spread evenly over all employees and all pay periods but was clumped or concentrated in busy seasons, busier stores and for busier employees. Further, the plaintiff herself alleged that she worked overtime only “frequently”, which the District Court translated to mean “less than always.”
Also, the District Court observed that the defendant’s calculation showed only 36 minutes of overtime per employee per week on average, which was a very low number, and suggested that some employees worked no overtime in some periods. The District Court remarked that it was unreasonable for the defendant to assume every employee invariably worked overtime in every pay period, and observed that while averages were useful for some purposes, the use of averages did not validate the defendant’s assumption.
Although the defendant asserted that over an entire four-year period, only $161,544 would be due in overtime, for a single year, it stated that the statutory penalties would exceed $20 million. The defendant claimed that, for purposes of the penalties, no averages were used, but instead the actual number of pay periods in which the 3,853 employees worked overtime.
The defendant referred to a declaration by its Director of Human Resources Operations which stated that the 3,853 individuals worked a combined total of 37,401 pay periods, but it did not state that they worked overtime in all the pay periods. The District Court denied the defendant’s requested leave to file additional support for its proposition that the individuals worked overtime in all of the pay periods.
Next, the District Court noted that the stacking of penalties posed yet another problem. For the single mistake of failing to include commissions in the overtime base, the plaintiff asserted five separate labor code violations that could lead to statutory penalties. One was a penalty for failure to pay overtime at the appropriate rate, and another was for denying employees minimum wage and overtime. The District Court, however, opined that it was not plausible that one penalty could be piled on another for a single substantive wrong, and observed that no actual holding in any judicial decision had approved such stacking.
Finally, the District Court noted that the defendant had provided a wage deduction statement detailing the debits and credits leading to the final paycheck number. The complaint merely alleged that the compensation base for the overtime calculation should have included the commissions, not that there was a failure to provide a wage deduction statement along with the paycheck. The District Court remarked that nothing in §§226.3 or 226(a) provides that the requirements for a wage-deduction statement or for maintaining records are violated merely because the statements and records, although otherwise provided and maintained, include an error in calculating a line item. Accordingly, the District Court ignored calculation of this penalty.
The District Court noted that the defendant had stacked penalties to exceed five million although one of the penalty sections, namely §226.3, had no plausible application.
Thus, because the defendant failed to show with reasonable estimates that the amount in controversy in the action exceeded $5 million, the District Court granted the plaintiff’s motion and remanded the action to the Superior Court of California, County of San Mateo.