Molina v. Lexmark International
Filed 9/19/13 Molina v. Lexmark International CA2/2
California Rules of Court, rule 8.1115(a), prohibits courts
and parties from citing or relying on opinions not certified for publication or
ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115
IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND
APPELLATE DISTRICT
DIVISION
TWO
RON MOLINA,
Plaintiff and Respondent,
v.
LEXMARK INTERNATIONAL, INC.,
Defendant and Appellant.
B227746, B233272,
B234675, B237836
(Los Angeles County
Super. Ct. No. BC339177)
APPEAL from a judgment of the
Superior Court of
County. Gregory Alarcon, Judge. Reversed in part and remanded; affirmed in
part.
Jackson Lewis, Frank M. Liberatore,
Henry L. Sanchez, Sherry L. Swieca and Sarine C. Sahatjian for Defendant and
Appellant.
Law Offices
of Sheila Thomas, Sheila Y. Thomas; Lawson Law Offices, Antonio M. Lawson;
Bird, Marella, Boxer, Wolpert, Nessim, Drooks & Lincenberg, Thomas R.
Freeman, Ekwan E. Rhow, Bonita D. Moore, Karis A. Chi; Law Offices of Richard
M. Pearl and Richard M. Pearl for Plaintiff and Respondent.
* * * * * *
In this
consolidated appeal, appellant and employer Lexmark International, Inc.
(appellant) challenges a class action $7,777,620 amended judgment entered
against it after a court trial.
name="_ftnref1" title="">[1] The trial court determined appellant’s
vacation policy between 1991 and 2009 constituted a “use it or lose it policyâ€
in violation of Labor Code
name="_ftnref2" title="">[2] section 227.3.
The appeal raises a number of issues including whether: the class was properly certified; the policy
was a lawful “accrual capâ€; and damages were properly calculated and/or awarded
to all or some of the class members.
Appellant also challenges awards of costs in the amount of $145,341.93
and attorney fees in the amount of $5,722,008.
With
respect to the judgment as amended, we conclude the trial court erred in
calculating the wages to include commissions rather than base rate of pay. In all other respects, the judgment as
amended is affirmed. We also affirm the
postjudgment awards of costs and attorney fees in their entireties.
FACTUAL AND PROCEDURAL BACKGROUND
Vacation Policy
Appellant
is a Delaware corporation with its principal place of business in Lexington,
Kentucky. Appellant has been qualified
to do business in California since 1991.
Appellant, which is a “spin-off†of IBM, began operating as a separate
entity in March 1991. From 1991 through
2009, appellant has employed a total of 181 employees in California. At the time of trial, appellant had 41
California employees. The class members
were or are employed as account and sales managers.
In 1991,
appellant’s new owners offered a number of IBM employees incentives to work for
the new company including signing bonuses and recognition of accrued IBM
benefits. Appellant promised to honor
vacation and personal choice days.
Accrued vacation at IBM could be carried over to employment with
appellant. IBM employees had the right
to defer vacation time from year to year if they had five years of service or
were at least 50 years old. Under the
IBM policy, employees had a minimum requirement to take 10 vacation days in the
year or within a grace period ending April 30 of the next year.
The parties
stipulated that, for each year since 1991, appellant “had only one vacation and
personal choice day policy per year applicable to its California
employees.†The parties also
stipulated: “[appellant] has since 1991
applied each of its vacation and personal choice day policies in the same
manner to all of its California employees.â€
However, as noted below, the vacation policies varied somewhat between
1991 and 2006.
Appellant
changed its vacation policy effective May 31, 1991 through December 31,
1994. Under the new policy, appellant
informed managers that the company would “require that employees use all of
their earned vacation by year-end.†The
policy states: “This will be effective
for 1991 and all future years. No earned
vacation may be deferred and the grace period for unused vacation is
discontinued. Also beginning in 1992,
each employee with deferred vacation days will be required to use
ten previously deferred days annually until all deferred vacation is
used.†Under the new policy, “[v]acation
earned in 1991 which is not used will be lost.â€
A senior manager of employee relations testified in a deposition that
the new policy would reduce any succeeding year’s vacation time by the number
of unused vacation dates. Under the
May 31, 1991 policy, employees accrued vacation on an anniversary date.
In January
1995, appellant changed its policy to permit employees to accrue vacation
within a calendar year rather than on an anniversary date. There were no other changes to the May 1991
policy. Thus, appellant’s vacation
policy from 1995 through January 2001 required all employees to take all their
vacation in the calendar year it was earned.
Employees could not “carry over any unused vacation days into the next
year.â€
Effective
January 1, 2001 through December 2005, appellant’s vacation policy was that an
employee “must use all accrued vacation by the end of the year in which it was
accrued.â€
In January
2006, appellant revised its vacation policy regarding California
employees. The revised policy
provides: “Employees who are based in
California are expected to use their entire accrued vacation during the year in
which it accrued just as all other employees.
However, in the event that business needs prevent an employee from using
all of his or her vacation in a given year, any remaining vacation will carry
over to the following year subject to the limitation that no employee may have
more than 240 accrued hours of vacation and/or personal choice holiday
time at any given time. . . .â€
Appellant
normally sent policy changes to its employees.
However, employees were not informed of the 2006 vacation policy
change. Cynthia Brooker testified that
she was currently employed at Lexmark.
She was a supervisor from 1997 through 2004. She discovered the 2006 policy change
regarding California employees after she became a manager and again when she
went online to look at appellant’s employee manual.
Appellant
also offered four or five personal choice days, which were meant to be floating
holidays. Footnote six of appellant’s
opening brief concedes “that personal choice days are legally equivalent to
vacation days under California law, and, as such, all references to vacation
days or vacation pay . . . include personal choice days.†The personal choice days were lost if not
used in the year they accrued. There was
no payout for unused personal choice days at the time of termination.
The Complaint
Respondent,
Ron Molina, filed the class action complaint against appellant on August 31,
2005. The complaint alleged appellant’s
vacation policy violated section 227.3 by depriving California employees
of earned wages. The complaint contained
five causes of action for: unpaid wages
for accrued vacation pay (§ 200 et seq.); unpaid wages for accrued
vacation due upon termination (§§ 201-204, 210, 227.3); penalties for
unpaid wages upon termination (§ 203); unfair competition (Bus. &
Prof. Code, § 17200 et seq.); and unpaid wages for commissions (solely as
to respondent). The complaint requested
damages, injunctive relief and attorney fees.
Compensation was sought for unpaid vacation wages for the four years
preceding the filing of the complaint.
The trial court subsequently granted leave to amend the complaint
to: allege claims for unpaid personal
choice days; extend the period of liability to appellant’s inception in 1991;
and add a punitive damages claim.
On August
17, 2006, appellant filed a motion to strike portions of the amended complaint,
which referred to current and future employees on the ground section 227.3 only
applied to former employees. On
September 14, 2006, the trial court granted the motion with respect to future
employees. But, the trial court denied
the motion to strike as to current employees on the ground case law
interpreting section 227.3 was not limited to whether an employee must be paid
at termination. Rather, the section also
concerned whether an employer could force forfeiture of accrued vacation
through a use it or lose it policy. On
October 2, 2006, respondent filed an amended complaint to eliminate claims on
behalf of future employees.
Class Certification
Respondent
filed a motion for class certification on March 19, 2007. He defined the proposed class as “All
California employees of Lexmark International, Inc. employed from January 1,
1991 to the present.†The trial court
granted the class certification motion on June 20, 2007. The class consisted of 178 of appellant’s
current and former employees. The trial
court found common issues of fact and law predominate and to the extent there
was different vacation usage amongst the various class members, the damages
could be easily calculated. The trial
court also found: the class was
ascertainable and consisted of 178 of appellant’s current and former employees;
the claims were typical of the class representative; and the class
representation was adequate.
name="_ftnref3" title="">[3] The trial court determined a class action was
a superior means rather than individual trials to redress the alleged
wrongdoing ( i.e., to prevent advantage to appellant from a policy of requiring
employees to lose unused vacation).
Liability Evidence
The trial
court bifurcated the liability and damages phases of the case. The following evidence was presented during
the liability phase of the trial.
In 1991,
appellant stopped tracking its employees’ vacation usage.
keeping track of vacation accrual and usage of the employees they
supervised. The managers chose the
method of keeping track of the time.
When an employee left the company, appellant’s human resources
department contacted the manager to determine the number of vacation and
personal choice days an employee was owed.
Each manager would then consult his or her records and the employee
regarding the vacation usage.
The
evidence showed that vacation usage by employees varied. Appellant presented evidence which showed
that some members of the class had taken some or all of their vacation
time. A manager testified appellant’s
employees had pressure to meet sales quotas and that employees would often miss
vacation days trying to meet year-end goals.
One employee testified that Lexmark was a growing and brand new
company. Employees did not feel
comfortable taking vacation because they had to meet their numbers. Management set high quotas to encourage
employees to “stretch†to meet goals.
The employee testified that she “never made quota until the very last
month or two weeks into it or to the very end.â€
Commissions made up approximately 40 percent of employees’ annual
compensation. Employees “weren’t going
to reach [their] salary potential unless [they] made [their] numbers first.â€
In October
2003, class member Manfred John Washington sent an e-mail to Brooker, who was
his immediate supervisor. The e-mail
stated appellant’s vacation policy violated California law. The e-mail contained a link to the California
Division of Labor Standards Enforcement Web site. Brooker forwarded the e-mail to human
resources generalist Rebecca Cox on October 27, 2003. In her e-mail, Brooker stated: “Hi Becky, How do I address this issue with
my California employees? Lexmark policy
states that we do not carry over vacation and California State Law says it is
illegal not to let an employee carry over their vacation.†The e-mail was forwarded to Cox’s supervisor,
Susan Gentry. Gentry promised to
follow-up on the information in a telephone call with Washington and Brooker
and in an e-mail with Washington.
Washington
subsequently sent another e-mail to Gentry and Cox which provided the same link
provided in the original e-mail to Brooker.
Gentry shared the information with corporate counsel, Robert
Patton. Patton referred Gentry to
vice-president of human resources, Jeri Stromquist Isbell. Isbell eventually instructed Gentry to draft
an e-mail to California managers, which emphasized that employees were to use
all their vacation by the end of the year.
On October
14, 2005, appellant’s general counsel sent an e-mail to its California
managers. The e-mail stated that
appellant was reviewing its vacation and personal time policy in
California. The California employees
were to fill out a “survey†indicating whether he or she had taken “allâ€
vacation and personal time given by appellant.
The employees were instructed to identify all vacation and personal time
not taken while working for appellant.
Employees were required to “certify†the information was accurate and
correct. By taking the “survey,â€
employees agreed that they were subject to disciplinary action for false or
inaccurate information. Two employees
testified that the threat of disciplinary action including termination affected
the results of the survey. This was
because the survey covered an entire course of employment and they did not have
documentation to support whether the time was taken or not taken. One manager testified that he understood that
unused vacation from prior years had been forfeited. Therefore, he answered he had taken all the
vacation even though the response was inaccurate.
On
September 30, 2005, the California Labor Commissioner determined that appellant
had a “use it or lose it†policy that violated section 227.3. Appellant was ordered to pay class member
John Martin damages for lost vacation and personal choice day wages from
January 2001 through March 2005.
In May
2006, Washington filed a complaint with the California Labor Commissioner
against appellant seeking vacation and personal choice day wages due at the
time of termination from the company. On
January 23, 2007, the Commissioner awarded Washington a “pro rata†share of
earned vacation wages for the time period between January 1, 2006 and May 23,
2006.
The Liability Determination
The trial
court determined that vacation pay is a form of deferred compensation, which
vests as labor is rendered. Section
227.3 protects vested wages from forfeiture under “use it or lose itâ€
policies. The trial court determined
Lexmark’s vacation policy violated the provisions of section 227.3 prohibiting
forfeiture of vacation and personal choice days and requiring payment upon termination
of all vacation and personal choice day wages.
The trial
court further concluded the law and the facts did not support any of
appellant’s affirmative defenses. The
statute of limitations was tolled because Lexmark had a vacation policy that required
forfeiture of vacation and personal choice days. And, the law and the facts did not support
the affirmative defense that class members John Martin and Manny Washington
must be excluded from the class.
The class
was not limited to former employees employed from August 31, 2001, who did not
sign releases upon termination.
Section 206.5 “prohibits an employer from requiring an execution of
any release of a claim or right on account of wages due or to become due,
unless payment of those wages have been paid.â€
Appellant failed to produce any evidence that terminated employees were
paid all accrued, unused vacation wages which were owed. The court found that “Lexmark cannot rely
upon releases that violate the requirements of
. . . [sections] 206 and 206.5.â€
The trial
court found that appellant’s policy constituted a violation of California
Business and Professions Code section 17200. Appellant was ordered to develop and
implement vacation and personal choice policies for California employees that
they may carry over vacation and may accrue up to 240 hours of vacation and
personal choice days without a business needs requirement. The trial court also ordered appellant
to: (1) notify its California
employees in writing of their rights under sections 200 et seq. and 227.3;
and (2) maintain a tracking system to notify the California employees of usage
and unused vacation and personal choice days.
Damages Evidence
In the
damages phase of the trial, the parties presented conflicting lay evidence
concerning the amount of vacation time the employees had used or lost during
the course of employment with appellant.
The parties’ experts disagreed on the methodology for calculating the
damage to the class.
Respondent’s
expert, Amy Aukstikalnis, Ph.D., had expertise in class actions involving
economics and employment litigation. Her
expertise included calculation of damages in class actions, wage and hour, meal
and rest breaks and a vacation forfeiture case.
Aukstikalnis used information from appellant’s vacation pay policy on
how the vacation time and personal choice days accrued annually. She then relied on birth and start date data
from information provided by appellant to calculate accruals on an annual
basis. She multiplied that rate by
regular pay rate based on gross earnings during the last year of employment
with appellant. This amount was
calculated after she subtracted any amount for vacation paid at termination,
separation or severance payment. She
then subtracted out any vacation days where appellant’s records showed that a
class member had received vacation payouts upon termination.
Aukstikalnis
calculated wait time penalties by multiplying 30 days of wage at the final rate
for all class member terminated as of October 2007. She calculated interest on the accrued
vacation through October 31, 2009.
Aukstikalnis
opined that the value of lost vacation and personal choice day wages was
$10,539,043. The calculation was for the
time period between 1991 and year-end 2007.
The interest accrued through June 30, 2008 was $3,981,537 at 10 percent
per annum. The total damage estimate was
$16,721,608 valuing the forfeited vacation time and waiting time
penalties. The $16,721,608 figure
represented a forfeiture rate of 100 percent. She also calculated forfeiture rates of 80
percent and 65 percent. She subtracted
what was paid out at the time of termination from each rate.
Appellant’s
expert, Stefan Boedeker, specialized in statistics and economics. His methodology involved a review of company
policy and other company records to establish vacation the individuals were
entitled to receive. He considered the
measure of damages by making an assessment of vacation usage. Boedeker reviewed a list of current and
former employees, biographical information about them, termination information
showing vacation payouts, pay stubs, employee surveys and deposition
testimony. He used a statistical
approach because appellant had no vacation usage records. He extrapolated from available data to
estimate vacation usage for individuals for whom he had no data. Boedeker opined that the value of the
vacation and personal time not taken from current and former employees was
$594,398. His opinion assumed the
vacation days did not expire and were not subject to an accrual cap. The total was $405,000 if current employees
were subtracted.
The parties
pointed out what they perceived to be the weaknesses or flaws in their
opponent’s expert’s methodology. For
example, respondent focused on the fact appellant’s expert did not consider
vacation and personal choice time which had been lost due to the vacation
policy.
By
contrast, appellant criticized respondent’s expert for not using a statistical
model and for using accrued vacation from employment with IBM. Appellant also found fault with
Aukstikalnis’s testimony that she did not consider any evidence of vacation
usage other than records showing vacation time was paid out at the time of
separation. The $16,721,608 figure was
based on an assumed 100 percent forfeiture of vacation by all class
members. The rate was premised upon the
fact that there were no contemporaneous company records which she considered to
be the most reliable source of information.
The Statement of Decision and
Judgment
On June 18,
2010, the trial court issued its statement of decision on class action
damages. The trial court found appellant
“failed to maintain accurate and adequate records of the employees’ vacation
usage and forfeitures.†The trial court
noted that California had adopted United States Supreme Court authority in
(1946) 328 U.S. 680 (Anderson)
regarding the burden of proving damages in wage and hour cases where the
employer failed to maintain records.
The trial
court found respondent satisfied the initial burden of proving work had been
performed and employees were not properly compensated under an illegal use it
or lose it policy. The burden then
shifted to appellant to refute respondent’s evidence with evidence of the
precise amount of work performed or sufficient evidence to negate
inferences. The burden shifted because
fundamental fairness standards required that injured parties be compensated for
damage proximately caused by a wrongdoer and the essential facts necessary to
prove the damages were exclusively in appellant’s knowledge and control. In the absence of the evidence, the trial
court was authorized to award damages even if the calculation is only an
approximation.
The trial
court noted that there were flaws in the analyses of both experts. With respect to appellant’s expert the trial
court concluded that the methods withstood an admissibility challenge by
respondent. But, the trial court gave
very little weight to his analysis because of “the extremely limited data setâ€
available given appellant’s failure to keep proper business records.
The trial
court found similar flaws in respondent’s expert analysis. Although her analysis contained a reliable
total possible day estimate less payouts at termination, it failed to account
for class member evidence indicating usage rates greater than
zero percent. So, while dismissing
the 100 percent forfeiture rate, the trial court determined
“Dr. Aukstikalnis’s calculations serve as a reliable base from which the
court may calculate a more reasonable damage measure.â€
The
statement of decision states: “Because
of the aforementioned deficiencies, it is within the court’s discretion to
determine a reasonable approximation of damages . . . . Taking into account the flaws and limitations
inherent in both [respondent’s] and [appellant’s] calculations, which ranged
from 10.3 [percent] to 80 [percent], this court finds that a
reasonable approximation of the forfeiture rate is 45.2 [percent].†Under this rate, the trial court awarded
damages in the total amount of $8,299,242, including estimated forfeiture,
interest, wait-time penalties and offsets.
The trial court rejected appellant’s claims that all applicable class
members should be deposed to determine damages on the ground such a process
would defeat the purpose of class action litigation. That is a class action is “a reasonably
expeditious means of calculation and distribution of class-wide aggregate
damages if individual adjudication of entitlements of all class members or a
substantial portion of the class members would impose impossible burdens on
courts and the litigants.â€
The trial
court entered a judgment in favor of the class on September 20, 2010 in the
amount of $8,299,242 plus interest.
Respondents were awarded attorney fees upon motion and costs upon a
timely filed memorandum of costs. The
trial court awarded injunctive relief pursuant to Business and Professions Code
section 17200 et seq. With regard
to its California employees, appellant was ordered, among other things, to
develop and implement vacation and personal choice policies providing that they
may carry over at least 240 hours of earned vacation and personal choice
holidays without a business needs requirement.
The trial court retained jurisdiction to interpret, implement, and enforce
the judgment. Appellant filed a notice
of appeal of the judgment on September 30, 2010 (case No. B227746).
The New Trial Motion and Amended Judgment
On October
18, 2010, appellant moved for a new trial, on among other grounds, that the
damages award was excessive. Appellant
asserted the award improperly included damages for current employees, who had
not been terminated within the meaning of section 227.3 The award should have excluded $1,865,276 in
damages for IBM legacy days. The award
was excessive in that it was calculated at gross rate of pay. Appellant’s vacation policy since 1991 has
clearly been that vacation pay is not a “gross rate of pay†but at base rate of
pay.
Appellant
also asserted the trial court erred in its findings regarding Boedeker’s expert
opinion and the percentages of damages.
Appellant argued the statement of decision failed to address many of
appellant’s claims including IBM legacy employees and the alleged deficiencies
in relying on Aukstikalnis’s expert opinion.
Appellant
contended the statement of decision was inconsistent because it conflicted with
prior rulings that: current employees
were not entitled to damages; and wait time penalties accrue only after October
2003. The statement of decision did not
address the manner and or method of distribution of damages. The trial court cannot set appellant’s
accrual cap. The burden was improperly
shifted to appellant because it had no statutory obligation to maintain
vacation records and class members had superior knowledge of vacation
usage. Respondent did not meet the
burden of establishing class damages.
The trial court improperly denied appellant the right to depose all 176
class members in order to show actual damages.
On November
17, 2010, the trial court granted the new trial motion in part by subtracting
the payment of damages to current employees from $8,299,242. The trial court reopened the proceedings for
introduction of additional evidence on damages.
The trial court rejected appellant’s other claims on the ground they
lacked merit.
On January
21, 2011, the trial court reopened trial on the damages issue and ordered
further briefing. The parties filed
additional briefs with evidence. On
March 7, 2011, the trial court issued a ruling on damages calculations in
response to appellant’s new trial motion.
The trial court found that respondent’s calculation of damages of
$7,774,620 was correct. On April 21,
2011, the trial court amended the September 20, 2010 judgment “as to the amount
of the damage award only.†The trial
court ruled: “The original judgment, as
amended, stands.†On May 24, 2011,
appellant filed a notice of appeal of the amended judgment (case No. B233272).
The Costs and Attorney Fee Awards
On March
17, 2011, respondent filed a memorandum of costs seeking $156,899.76 in
costs. After appellant filed a motion to
strike costs, the trial court awarded respondent $145,341.93 in costs on May
25, 2011. Appellant appealed the cost
award on July 21, 2011 (case No. B234675).
On June 20,
2011, respondent filed a motion for an attorney fee award and additional
costs. Appellant opposed the
motion. The hearing on the attorney fees
motion was originally set for July 29, 2011.
Prior to the hearing date, appellant moved ex parte for production of time
records in electronic form or alternatively for an extension of time to oppose
the motion. The parties subsequently
agreed to a continued hearing. On
July 13, 2011, appellant filed a notice of ruling which stated that, upon
stipulation of the parties, the hearing date was continued to September 13,
2011. However, apparently due to some
misunderstanding between the parties, the original hearing date remained on the
court’s calendar.
On
September 29, 2011, after briefing, motions, and stipulations, the trial court
issued an order on respondent’s application to set a new hearing date for award
of reasonable attorney fees. The
September 29, 2011 order provided among other things that the judgment was
effectively entered on April 21, 2011.
Respondent’s new trial motion, which was originally filed on June 14,
2011 [sic], was set to be heard on
July 29, 2011. The trial court concluded
that, if respondent filed a Code of Civil Procedure section 473 motion,
the trial court would grant him relief for excusable neglect based on the
misunderstanding as well as appellant’s notice of ruling.
On October
6, 2011, respondent filed a motion for relief from default pursuant to Code of
Civil Procedure section 473. On
October 28, 2011, the trial court entered an order granting respondent relief
pursuant to Code of Civil Procedure section 473. On October 28, 2011, the trial court granted
respondent’s motion for attorney fees and costs in the amount of $5,722,008.07. Appellant appealed the attorney fee award on
December 9, 2011 (case No. B237836).
DISCUSSION
Class
Certification
In a
supplemental opening brief, appellant argues the trial court abused its
discretion in certifying or refusing to decertify the class for alleged
violations of section 227.3. To
support this contention, appellant relies primarily on Duran v. U.S. Bank National Assn. (2012) 203 Cal.App.4th 212,
review granted and opinion superseded by Duran
v. U.S. Bank National Assn. (2012) 275 P.3d 1266.
Code of
Civil Procedure section 382 provides that a class action may be brought “when
the question is one of a common or general interest, of many persons, or when
the parties are numerous, and it is impracticable to bring them all before the
court.†A class
action is authorized when a plaintiff meets his or her burden of establishing
the existence of an ascertainable class and a well-defined community of
interest. (Lockheed Martin Corp. v. Superior Court (2003) 29 Cal.4th 1096,
1103–1104; Washington Mutual Bank v.
Superior Court (2001) 24 Cal.4th 906, 913.)
“The community of interest
three factors: (1) predominant common
questions of law or fact; (2) class
representatives who can adequately represent the class.â€
(Richmond v. Dart Industries, Inc.
(1981) 29 Cal.3d 462, 470; accord, Sav-On
Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 326.)
The focus
in a class certification dispute is not on the merits but on the procedural
issue of what types of questions are likely to arise in the litigation—common
or individual. (Sav-On Drug Stores, Inc. v. Superior Court, supra, 34 Cal.4th at pp. 326–327; Lockheed Martin Corp. v. Superior Court, supra, 29 Cal.4th at pp. 1106–1107; Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 439–440.) Thus, the existence of some common issues of
law and fact does not dispose of the class certification issue. (Lockheed
Martin Corp. v. Superior Court, supra,
at pp. 1108–1109; Washington Mutual Bank
v. Superior Court, supra, 24
Cal.4th at p. 913.) Rather, in order to
justify class certification, a class plaintiff is required to establish the
“questions of law or fact common to the class predominate over the questions affecting the individual
members.†(Washington Mutual Bank v. Superior Court, supra, at p. 913, italics added; accord, Lockheed Martin Corp. v. Superior Court, supra, at p. 1108.) “[I]f a
class action ‘will splinter into individual trials,’ common questions do not
predominate and litigation of the action in the class format is
inappropriate.†(Hamwi v. Citinational-Buckeye Inv. Co. (1977) 72 Cal.App.3d 462,
471; accord, McCullah v. Southern Cal.
Gas Co. (2000) 82 Cal.App.4th 495, 501–502.) Thus, a class action is inappropriate if each
class member is required to “litigate substantial and numerous factually unique
questions to determine his or her individual right to recover.†(Acree
v. General Motors Acceptance Corp. (2001) 92 Cal.App.4th 385, 397; accord,
(2003) 120 Cal.App.4th 746, 756; Bell v.
Farmers Ins. Exchange (2004) 115 Cal.App.4th 715, 742.) But, a class action may be maintained even if
each class member must individually show eligibility for recovery or the amount
of damages. (Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004,
1022; Sav-On Drug Stores, Inc. v.
Superior Court, supra, at
pp. 332–333.)
Review
of a class certification “is narrowly circumscribed.†(Brinker
Restaurant Corp. v. Superior Court, supra,
53 Cal.4th at p. 1022.) In
explained: “‘The decision to certify a
class rests squarely within the discretion of the trial court, and we afford
that decision great deference on appeal, reversing only for a manifest abuse of
discretion: “Because trial courts are ideally
situated to evaluate the efficiencies and practicalities of permitting group
action, they are afforded great discretion in granting or denying
certification.†[Citation.] A certification order generally will not be
disturbed unless (1) it is unsupported by substantial evidence, (2) it rests on
improper criteria, or (3) it rests on erroneous legal assumptions. [Citations.]’
[Citations.] Predominance is a
factual question; accordingly, the trial court’s finding that common issues
predominate generally is reviewed for substantial evidence. [Citation.]
We must ‘[p]resum[e] in favor of the certification order
. . . the existence of every fact the trial court could
reasonably deduce from the record . . . .’ [Citation.]â€
(Ibid.)
predominance finding.
Appellant
claims the predominance finding was deficient.
We find no basis for setting it aside because the finding was supported
by substantial evidence. The parties stipulated that appellant had one
vacation policy since 1991 which had been uniformly applied to all its
employees. Appellant’s written vacation
policy required employees to “use or lose†vacation and personal choice days. The class action alleged that this policy
violated California law. Evidence
presented in support of the certification motion showed that respondent and
other putative class members had forfeited vacation and personal choice under
the alleged illegal policy. Thus, the
trial court did not abuse its discretion in finding common issues predominate
as to whether an illegal employment policy was imposed against the putative
class members. (See Brinker Restaurant Corp. v. Superior Court, supra, 53 Cal.4th at pp. 1032–1033; Prince v. CLS Transportation, Inc. (2004) 118 Cal.App.4th 1320,
1328.)
For that
reason, there is no merit to appellant’s claim the certification motion should
have been denied because the amount of damages varied with individual class
members based on how many vacation days they may have forfeited. The fact “that each member of the class must
prove his [or her] separate claim to a portion of any recovery by the class is
only one factor to be considered in determining whether a class action is
proper.†(Vasquez v. Superior Court (1971) 4 Cal.3d 800, 809.) As previously noted, the class action could
be maintained even if individual claims of recovery and the amount of damages
differed among the class members. (See
supra, 53 Cal.4th at p. 1022;
supra, 34 Cal.4th at
pp. 332–333.)
Appellant
also contends the class was not ascertainable.
“The ascertainability requirement is a due process safeguard, ensuring
that notice can be provided ‘to putative class members as to whom the
judicata.’ [Citation.] ‘Class members are “ascertainable†where they
may be readily identified without unreasonable expense or time by reference to
official records. [Citation.]’ [Citation.]
In determining whether a class is ascertainable, the trial court
examines the class definition, the size of the class and the means of
identifying class members.
[Citation.]†(
207 Cal.App.4th 639, 647–648; see also Hicks
v. Kaufman & Broad Home Corp. (2001) 89 Cal.App.4th 908, 914.)
In
this case, the class was defined as “All California employees of Lexmark
International, Inc. employed from January 1, 1991 to the present.†The parties agreed that there were 178 former
and current employees of Lexmark that comprised the class as defined. The class members were identified by
Lexmark’s corporate records. (
Cal.App.3d 926, 932.) There was nothing
amiss in the trial court’s determination that the class was ascertainable.
not preclude class certification.
Appellant
asserts, in certifying the class, the trial court improperly rejected its
affirmative defenses that certain class members were potentially barred
by: a four-year statute of limitations
(Code Civ. Proc., §§ 312, 337); collateral estoppel or res judicata
principles; voluntary releases; and status as current employees. Normally, “[t]he certification question is
‘essentially a procedural one that does not ask whether an action is legally or
factually meritorious.’†(
supra, 29 Cal.4th at p. 1104 quoting Linder
v. Thrifty Oil Co., supra, 23 Cal.4th at pp. 439–440.) The assertion of an affirmative defense such
as a limitations defense does not categorically preclude class
certification. (Lockheed, supra, at
pp. 1104–1106 & fn. 4.) Rather,
“‘[t]he ultimate question in every case of this type is whether
. . . the issues which may be jointly tried, when compared with
those requiring
so numerous or substantial that the maintenance of a class action would be
advantageous to the judicial process and to the litigants.’ [Citations]â€
(Id. at
pp. 1104–1105.) We cannot conclude
that, at the time of class certification motion, the existence of potential
affirmative defenses regarding limitation of actions, releases, collateral estoppel
or res judicata principles precluded class treatment of the alleged
unlawful vacation policy.
Liability
for Appellant’s Vacation Policies
Appellant
claims the trial court misinterpreted section 227.3 and erroneously concluded
that the vacation policies provided for forfeiture rather than “accrual
caps.†To the extent resolution of the
issue involves interpretation of the statute, the question is legal requiring
de novo review. (Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 801;
787, 799; In re Marriage of Norviel
(2002) 102 Cal.App.4th 1152, 1157.) But,
the trial court’s resolution of the dispute as to whether appellant’s stated
policy was an accrual cap rather than a use it or lose policy is more in the
nature of a factual issue (Boothby v.
Atlas Mechanical, Inc. (1992) 6 Cal.App.4th 1595, 1603), which we review
for substantial evidence. (
639, 660; SFPP v. Burlington Northern
& Santa Fe Ry. Co. (2004) 121 Cal.App.4th 452, 461–462.)
section 227.3.
Section
227.3 provides: “Unless otherwise
provided by a collective-bargaining agreement, whenever a contract of
employment or employer policy provides for paid vacations, and an employee is terminated
without having taken off his vested vacation time, all vested vacation shall be
paid to him as wages at his final rate in accordance with such contract of
employment or employer policy respecting eligibility or time served; provided,
however, that an employment contract or employer policy shall not provide for
forfeiture of vested vacation time upon termination. The Labor Commissioner or a designated
representative, in the resolution of any dispute with regard to vested vacation
time, shall apply the principles of equity and fairness.â€
“It is
established that vacation pay is not a gratuity or a gift, but it is, in
effect, additional wages for services performed.†(Suastez
v. Plastic Dress-Up Co. (1982) 31 Cal.3d 774, 779 (Suastez).) And, once vacation
pay has vested, section 227.3 precludes its forfeiture. (Suastez,
supra, at p. 784;
Cal.App.3d Supp. 1, 5.) Thus, a policy
that forces employees to either use or forfeit already accrued vacation time
violates section 227.3. (
Atlas Mechanical, Inc., supra, 6 Cal.App.4th at p. 1601.)
The
evidence in this case established that, beginning in 1991, appellant adopted a
policy that required class members to take vacation and personal choice
days. A number of employees lost
vacation and personal choice days as a result of the policy. Under the policy, employees were only paid
for vacation time accrued during the years they were terminated without regard
to prior vested vacation which had been forfeited. We agree with the trial court’s determination
that appellant had an illegal policy that forced its employees to either use or
forfeit already accrued vacation time in violation of section 227.3. (Boothby
v. Atlas Mechanical, Inc., supra, 6 Cal.App.4th at p. 1601.)
appellant had a forfeiture policy.
Appellant
claims it could not have violated section 227.3 because its vacation
policy was an “accrual cap†rather than a forfeiture policy. Boothby
v. Atlas Mechanical, Inc., supra,
6 Cal.App.4th at page 1601 explained the distinction between the two
concepts as follows: “A ‘use it or lose
it’ vacation policy provides for forfeiture of vested vacation pay if not used
within a designated time, while a ‘no additional accrual’ vacation policy
prevents an employee from earning vacation over a certain limit. Although both policies achieve virtually the
same result, the former is impermissible and the latter permissible.â€
the employment agreement is deferred compensation for services rendered, the
right to paid vacation vests as the employee labors. It
However, if the employment agreement precludes an employee from accruing
more vacation time after accumulating a specified amount of unused vacation
time (a ‘no additional accrual’ policy), the employee does not forfeit vested
vacation pay. A
additional accrual’ policy simply provides for paid vacation as part of the
compensation package until a maximum amount of vacation is accrued. The policy, however, does not provide for
paid vacation as part of the compensation package while accrued, unused
vacation remains at the maximum. Since
no more vacation is earned, no more vests.
A ‘no additional accrual’ policy, therefore, does not attempt an illegal
forfeiture of vested vacation. [¶] As stated in Henry v. Amrol, Inc.
(1990) 222 Cal.App.3d Supp. 1, the law does not prevent an employer from
‘announcing a level beyond which additional vacation time would no longer
accrue. This would prevent additional
vacation from vesting after a certain level had been reached. However, once vacation time has vested, it
cannot be divested. There is an obvious
difference between a policy which prevents additional vacation time from
accruing after a certain amount of such time accrues and a policy which would
divest an employee of already accrued vacation time.’ [Citations.]â€
(Boothby v. Atlas Mechanical, Inc.,
supra, 6 Cal.App.4th at pp.
1601–1602.)
Appellant’s
primary claim is that since 2006 it has an accrual cap policy. In 2006 appellant revised its vacation policy
regarding California employees. The
revised policy provided California employees were expected to use entire
accrued vacation during the accrual year.
However, to the extent there were business needs, “any remaining
vacation will carry over to the following year subject to the limitation that
no employee may have more than 240 accrued hours of vacation and/or person
choice holiday time at any given time. . . .â€
We begin by
noting that there was no evidence appellant notified its California employees
including the supervisors of this 2006 policy change. Indeed, many employees still understood that
vacation and personal choice days which were not taken were lost. One of appellant’s current employees, who was
also a supervisor, testified that she only discovered the new policy by chance
online. The failure to notify its
employees of the purported business exception created in 2006 accrual cap was
sufficient to raise the inference that there was no real change in what the
trial court determined was a forfeiture policy.
Furthermore,
the record does not show appellant ever announced a level beyond which
additional vacation time would no longer accrue prior to 2006. Indeed, appellant does not dispute that its
2001-2005 policy specifically stated it was use it or lose it. From May 1991 through 2000, the vacation
policy stated accumulated but unused vacation time could be carried over into
the next year. The employee’s allotment
was reduced by the number of vacation days that carried over. However, the record shows the policy
ultimately divested employees of already accrued vacation time. Employees were told that they either take
vacation or they lost it. They could not
carry over vested time. At the beginning
of the year, the employees started fresh.
Employees testified that they lost vacation hours when they did not take
all of their vacation. This was
sufficient evidence to show a forfeiture policy rather than an accrual cap.
Damages
Appellant
claims the damages award must be set aside because: the class failed to submit evidence of
classwide damages; and, the trial court erroneously shifted the burden of proof
to appellant to disprove damages.
In
measure of damages where an employer failed to compensate employees for
overtime under the Fair Labor Standards Act of 1938 (29 U.S.C. § 201 et
seq.) and failed to keep adequate records.
(Anderson,
rejected the Circuit Court of Appeals’ conclusion the employees had the burden
of proving they did not receive wages and overtime payments. (Id.
at p. 687.) Rather, the employees had
the burden of proving: (1) the work was
performed; and (2) there was inadequate compensation. (Ibid.) But, the remedial nature of the Fair Labor
Standards Act as well as the great public policy in its enactment “militate[d]
against making that burden an impossible hurdle for the employee.†(Ibid.)
Standards Act required the employer to keep proper records of wages, hours, and
other employment conditions and practices.
As such, the employer “is in position to know and to produce the most
probative facts concerning the nature and amount of work performed.†(Anderson,
supra, 328 U.S. at p. 687.)
themselves; even if they do, the records may be and frequently are
untrustworthy. It is in this setting
that a proper and fair standard must be erected for the employee to meet in
carrying out his burden of proof. [¶]
accurate records, the employee may easily discharge his burden by securing the
production of those records. But where
the employer’s records are inaccurate or inadequate and the employee cannot
offer convincing substitutes, a more difficult problem arises. The solution, however, is not to penalize the
employee by denying him any recovery on the ground that he is unable to prove
the precise extent of uncompensated work.
Such a result would place a premium on an employer’s failure to keep
proper records in conformity with his statutory duty; it would allow the
employer to keep the benefits of an employee’s labors without paying due
compensation as contemplated by the Fair Labor Standards Act. In such a situation we hold that an employee
has carried out his burden if he proves that he has in fact performed work for
which he was improperly compensated and if he produces sufficient evidence to
show the amount and extent of that work as a matter of just and reasonable
inference. The burden then shifts to the
employer to come forward with evidence of the precise amount of work performed
or with evidence to negative the
reasonableness of the inference to be drawn from the employee’s evidence. If the employer fails to produce such
evidence, the court may then award damages to the employee, even though the
result be only approximate.
[Citation.]†(
687–688.)
California courts to shift the burden of proof to employers when their failure
to keep adequate records would prevent employees from proving labor
disputes. (See Bell v. Farmers Ins. Exchange, supra, 115 Cal.App.4th 715 [unpaid
overtime compensation]; Hernandez v.
Mendoza (1988) 199 Cal.App.3d 721, 726–728 [overtime hours]; see also
163 Cal.App.4th 1157, 1188–1189 [to prove the class members];
133 Cal.App.4th 949, 961–963 [meal and rest time breaks].)
Contrary to
appellant’s assertions otherwise, the burden shifts even in the absence of a
statutory recordkeeping duty. (
163 Cal.App.4th at p. 1188; Hernandez v.
Mendoza, supra, 199 Cal.App.3d at
p. 726.) “[T]he underlying rationale for
burden shifting is not the employer’s duty of recordkeeping but the
‘fundamental principle of American jurisprudence that for every wrong there is
a remedy, and that, unless countered by public policy, an injured party should
be compensated for all damage proximately caused by the wrongdoer. [Citations.]’
[Citation.]†(
at p. 1190; Hernandez v. Mendoza,
Here, the
class presented evidence of forfeited unused vacation pay. Appellant had not kept vacation records since
1991. Under these standards, the trial
court properly shifted the burden of proof.
Due
Process
Appellant
is also not entitled to prevail on its claims its due process rights were
violated by the trial court’s use of a statistical methodology to calculate an
aggregate damage.
explained: “the question whether a
procedural device used in judicial proceedings to deprive a defendant of
property comports with due process is determined by a balancing of interests: ‘[F]irst, consideration of the private
interest that will be affected by the [procedure]; second, an examination of
the risk of erroneous deprivation through the procedures under attack and the
probable value of additional or alternative safeguards; and third,
. . . principal attention to the interest of the party seeking
the [procedure], with, nonetheless, due regard for any ancillary interest the
government may have in
forgoing the added burden of providing greater protections.’ [Citations.]â€
(Id. at pp. 751–752
quoting Connecticut v. Doehr (1991)
501 U.S. 1, 11.)
Appellant’s
interest, which was affected by the method of proof, was the total liability to
the class members for forfeited vacation and personal choice days. But, appellant’s due process objection to a
statistical sampling determination must be limited to the argument “the
procedure affected its overall liability for damages.†(Bell
v. Farmers Ins. Exchange, supra,
115 Cal.App.4th at p. 752.) This is
because appellant’s liability is not affected by determining the individual
entitlements of class members. The
presence of members in the class, who may not be entitled to damages, while
pertinent to the trial court’s discretion in certifying the class, is not pertinent
to due process principles unless inclusion of those class members increased the
total amount of damages. (
Second, the
risk of an erroneous deprivation did not preclude the statistical
methodology. Bell v. Farmers Ins. Exchange, supra,
115 Cal.App.4th 715, rejected the argument that the determination of aggregate
damages on the basis of statistical inferences improperly allows particular
employees to recover damages who are otherwise not entitled to them. Bell
noted the same possibility existed in federal wage cases as well as most class
actions. (Id. at p. 750.) As a result,
individualized proof of damages is not required because it “would challenge all
class action judgments adopting reasonably expeditious means of distributing
the recovery among class members.†(
Bell further explained that
the use of statistical sampling to calculate damages yielded an average figure
which would overcompensate some and under compensate other individual
employees. (Id. at pp. 750–751.) But,
the disadvantage to the individual employees offered a means of vindicating
underlying labor policies without clogging courts or deterring small claimants
who could not afford the cost of litigation.
(Ibid.)
Indeed, an
employer who is liable for unpaid wages “cannot be heard to complain that the
damages lack the exactness and precision of measurement,†which would have been
possible with adequate record keeping. (
688.) Even if the lack of adequate
record keeping is mistaken, an employer, who has received the benefit of the
employees’ work, “cannot object to the payment for the work on the most
accurate basis possible under the circumstances.†(Ibid.) In addition, rules prohibiting recovery of
uncertain and speculative damages are inapplicable in such case because those
rules only apply “where the fact of damage is itself uncertain.†(Ibid.) Rather, the damage is made certain by
proof: (1) the employee performed work;
and (2) the employer did not pay as required by law. (Ibid.) “The uncertainty lies only in the amount of
damages arising from the statutory violation by the employer. In such a case ‘it would be a perversion of
fundamental principles of justice to deny all relief to the injured person, and
thereby relieve the wrongdoer from making any amend for his acts.’ [Citation.]
It is enough under these circumstances if there is a basis for a
reasonable inference as to the extent of the damages. [Citations.]â€
(Ibid.) Under a just and reasonable inference
analysis, the question is whether the testimonial evidence is “‘fairly
representational.’†(
Here, the
evidence established that appellant began enforcing a use it or lose it
vacation policy with its employees beginning as early as 1991. A number of employees forfeited all or some
of the vacation and personal choice days.
Appellant kept no records of accrued vacation time. Appellant had a policy of not paying its
employees for vested unused vacation days when they terminated their
employment. The trial court calculated
damages at a forfeiture rate of 45.2 percent. The evidence varies as to whether some
employees forfeited all, some, or none of their vacation and personal choice
days as a result of the forfeiture policy dating back to 1991. Thus, an inference may be that the employer
is actually advantaged as to those class members, who forfeited as much as
100 percent of their vacation and personal choices days.
Under the
circumstances, the trial court had discretion “to weigh the disadvantage of
statistical inference—the calculation of average damages imperfectly tailored
to the facts of particular employees—with the opportunity it afforded to
vindicate an important statutory policy without unduly burdening the
courts.†(Bell v. Farmers Ins. Exchange, supra,
115 Cal.App.4th at p. 751.)
Third, the
trial court’s utilization of the statistical sampling method comported with due
process principles. “In this area of
litigation, the California Supreme Court has in fact ‘challenged the trial
courts to develop “pragmatic procedural devices†to “simplify the potentially
complex litigation while at the same time protecting the rights of all the
parties.†[Citations.]’â€
State of California v. Levi Strauss & Co. (1986) 41 Cal.3d 460,
471.) Due process principles do not
prevent a trial court from calculating damages on a classwide basis as opposed
to requiring individual testimony by all class members. (Bell
v. Farmers Ins. Exchange, supra,
at p. 747; Bruno v. Superior Court
(1981) 127 Cal.App.3d 120, 129, fn. 4.)
This is because “‘such an aggregate calculation will be far more
accurate than summing all individual claims.’â€
(Bell v. Farmers Ins. Exchange,
supra, at p. 747, fn. 19.)
The use of
pattern and practice evidence by representative testimony of a small percentage
of employees is a common practice in wage disputes for back pay in federal and
state courts. (
| Description | In this consolidated appeal, appellant and employer Lexmark International, Inc. (appellant) challenges a class action $7,777,620 amended judgment entered against it after a court trial.[1] The trial court determined appellant’s vacation policy between 1991 and 2009 constituted a “use it or lose it policy†in violation of Labor Code[2] section 227.3. The appeal raises a number of issues including whether: the class was properly certified; the policy was a lawful “accrual capâ€; and damages were properly calculated and/or awarded to all or some of the class members. Appellant also challenges awards of costs in the amount of $145,341.93 and attorney fees in the amount of $5,722,008. With respect to the judgment as amended, we conclude the trial court erred in calculating the wages to include commissions rather than base rate of pay. In all other respects, the judgment as amended is affirmed. We also affirm the postjudgment awards of costs and attorney fees in their entireties. |
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