2019-00252461-CU-OE

Daniel Herrera vs. FPI Management, Inc.

Nature of Proceeding: Hearing on Demurrer to First Amended Complaint

Filed By: Brand, Jeffrey A.

Defendant FPI Management, Inc.’s (“Defendant”) demurrer to the second cause of action in plaintiff Daniel Herrera and Araceli Garcia’s (collectively, “Plaintiffs”) First Amended Complaint (“FAC”) is SUSTAINED without leave to amend.

“A demurrer tests the legal sufficiency of the complaint … .’” (Golden Gate Hill Development Co., Inc. v. County of Alameda (2015) 242 Cal.App.4th 760, 765.) In determining whether a plaintiff properly stated a claim for relief, the Court shall treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions, or conclusions of fact or law.

In this putative wage and hour class action, Plaintiffs allege numerous causes of action premised on Labor Code violations. The second cause of action is for violation of Labor Code § 226, which provides for a penalty against employers who fail to provide accurate itemized wage statements.

“The Legislature enacted section 226 to ensure an employer ‘document[s] the basis of the employee compensation payments’ to assist the employee in determining whether he or she has been compensated properly. [Citations.] Section 226 ‘play[s] an important role in vindicating [the] fundamental public policy’ favoring ‘“‘full and prompt payment of an employee’s earned wages.’”’ [Citation.]” (Soto v. Motel 6 Operating, L.P. (2016) 4 Cal.App.5th 385, 390; see Maldonado v. Epsilon Plastics, Inc. (2018) 22 Cal.App.5th 1308, 1337 [“The purpose of requiring greater wage stub information is to insure that employees are adequately informed of compensation received and are not shortchanged by their employers”]).

On June 25, 2019, this Court sustained Defendant’s demurrer to the second cause of action in Plaintiff’s complaint on the ground it failed to state a cause of action pursuant to Maldonado v. Epsilon Plastics, Inc., supra. The Court reasoned Plaintiffs had failed to sufficiently allege an injury independent of the underlying failure to pay overtime claim.

Plaintiffs filed the FAC on July 8, 2019, pursuant to the Court’s minute order. The FAC now includes an allegation that the inaccurate wage statements “caused actual injury to Plaintiffs and Regular Rate Class Members as they were not able to accurately calculate their wages.” (FAC ¶¶ 23, 38.)

Defendant now demur again to the second cause of action in the FAC on the grounds that Plaintiffs have still failed to allege any injury arising from the alleged failure to issue accurate itemized wage statements under Labor Code § 226. Defendants argue the second cause of action is still based on the first cause of action for overtime wages and, therefore, fails as a matter of law pursuant to Maldonado, supra.

In opposition, Plaintiffs argue the FAC is sufficient, on demurrer the Court need not determine whether Plaintiffs will ultimately prevail in establishing the existence of an injury, and it is premature to rule on this demurrer because whether a plaintiff can assert a claim for violation of Labor Code § 226(a) based on an underlying failure to pay wages is currently before the California Supreme Court in Steward v. San Luis Ambulance, Inc. (9th Cir. 2017) 878 F.3d 883.

Labor Code § 226(a) requires an employer to provide an accurate itemized statement including certain information such as gross wages earned, total hours worked, all deductions, net wages earned, and all applicable hourly rates and the corresponding number of hours worked. Recovery is only permitted under this statute by “[a]n employee suffering injury as a result of a knowing and intentional failure by an employer to comply with subdivision (a)…” (Labor Code § 226(e).) “To recover damages under section 226, subdivision (e), an employee must suffer injury as a result of a knowing and intentional failure by an employer to comply with the statute.” (Price v. Starbucks Corp. (2011) 192 Cal.App.4th 1136, 1142.) Section 226(e) provides that an employee is only deemed to suffer injury if the employer fails to provide a wage statement or provides an incomplete statement and the employee “cannot promptly and easily” determine the required information. “For purposes of this paragraph, ‘promptly and easily determine’ means a reasonable person would be able to readily ascertain the information without reference to other documents or information.” (Labor Code § 226(e)(2)(C).)

In Maldonado, the court found that defendant had utilized an unlawful alternative workweek schedule that resulted in unpaid overtime. While the court affirmed the award for unpaid overtime based on the unlawful schedule, the court rejected the trial court’s award of wage statement penalties. The court stated that the alternative workweek schedule “ultimately turned out to be invalid mandates that the employees receive unpaid overtime, interest, and attorney’s fees. (§ 1194, subd. (a).) It does not mandate that they also receive penalties for wage statements that accurately reflected their compensation under the rates at which they had worked at the time.” (Maldonado, supra, at 1337.) The Court rejected the plaintiffs’ argument that “any failure to pay overtime at the appropriate rate also generates a wage statement injury justifying the imposition of wage statement penalties – an apparent unintentional double recovery.” ( Maldonado, supra, at 1336.) The court explained this was not the purpose of section 226, which was drafted to ensure the documentation of wages actually paid. ( Maldonado, supra, at 1337.) Thus, Maldonado found that a separate wage statement violation could not be alleged where the cause of action is premised solely on the underlying failure to pay overtime claims. “Inaccurate wage statements alone do not justify penalties; the plaintiffs must establish injury flowing from the inaccuracy.” ( Maldonado, supra, at 1334.)

First, Plaintiffs’ argument that proceeding with a decision on this demurrer would be premature is not well-taken. While further clarification from the California Supreme Court on this issue will be well received, Plaintiffs have not presented any legal authority indicating the current status of the law should not control. Accordingly, the Court will proceed and issue a ruling on the merits based on the law as it currently stands.

Second, in ruling on this demurrer, the Court makes no determination as to whether Plaintiffs will “ultimately prevail” in establishing the existence of an injury. The Court is well versed in the legal standard applicable on demurrer, which is applies herein. The

purpose of a demurrer is to test the legal sufficiency of a claim. (Donabedian v. Mercury Ins. Co. (2004) 116 Cal. App. 4th 968, 994.) A demurrer admits the truth of all material facts properly pled and the sole issue raised by a general demurrer is whether the facts pled state a valid cause of action – not whether they are true. (Serrano v. Priest (1971) 5 Cal. 3d 584, 591.) Moreover, nowhere in the demurrer does Defendant argue or seek a determination as to whether Plaintiff’s will ultimately prevail. The demurrer only challenges whether the allegations are sufficient to state a cause of action.

Finally, Plaintiffs argue the additional allegations in the FAC regarding injury are sufficient. That is, Plaintiffs now allege that they have suffered actual injury because the inaccurate wage statements precluded them from accurately calculating their wages. (FAC ¶ 23, 38.) The Court is not persuaded. The alleged underlying facts remain the same. That is, the FAC alleges Defendant failed to include non-discretionary bonus wages in calculating the applicable overtime rate, which led to a miscalculation of Plaintiffs overtime wages. In turn, this error was transferred onto Plaintiffs’ wages statements. To be clear, the allegations remain that the wage statements were inaccurate because Plaintiffs were paid incorrect overtime rates and these same incorrect overtime rates were identified in the wage statements. Accordingly, as in Maldonado, the wage statements accurately reflected Plaintiffs’ compensation under the rates at which they had worked at the time. The mere fact that the overtime rates are allegedly incorrect because they failed to include non-discretionary bonus wages does not alone justify penalties under Labor Code § 226. ( See Maldonado, supra, at 1336-1337.) As noted in the decision, “the absence of accurate wages earned will be remedied by the violated wage and hour law itself.” (Id. at 1337.) To warrant wage statement penalties, the plaintiff would have to show he suffered some type of injury. While the court found that “the absence of the hours worked will give rise to an inference of injury,” it determined that the mere absence of accurate wages earned will not. (Id.) Because the plaintiff there had alleged only the absence of accurate wages earned but had not shown she suffered any injury, the court held that the trial court improperly awarded damages under Section 226(e). (Id.)

As a result, the demurrer to the second cause of action is SUSTAINED. Leave to amend is denied as Plaintiff has not set forth any argument as to how it could cure the defect. A court may sustain a demurrer with or without leave to amend. (Code Civ. Proc. 472a(c).) A demurrer must be sustained without leave to amend absent a showing by plaintiff that a reasonable possibility exists that the defect can be cured by amendment. (Blank v Kirwan (1985) 39 Cal.3d 311, 318.) The burden of proving such reasonable possibility rests squarely on the plaintiff. (Torres v City of Yorba Linda (1993) 13 Cal.App.4th 1035, 1041.) Plaintiff has not met that burden.

This minute order is effective immediately. No formal order pursuant to CRC Rule 3.1312 or further notice is required.