Header graphic for print
CAFA Law Blog Information, cases and insights regarding the Class Action Fairness Act of 2005

California Waiting Time Penalties May Benefit Employers in Establishing the Amount in Controversy

Posted in Case Summaries, Wage and Hour

Mackall v. Healthsource Global Staffing, Inc. Case No. 16-cv-03810 (N.D. Cal. Sept. 2, 2016).

A district court in California found that allegations of wilful failure to timely pay wages are sufficient to support estimations of waiting time penalties at a 100% rate.

The plaintiff, Karen Mackall, filed this putative class action in the Superior Court of California, county of Alameda, on behalf of a class of all current and former non-exempt hourly Registered Nurses employed by the defendant. The plaintiff alleged causes of action for failure to pay minimum wages; failure to pay overtime compensation; failure to provide meal and rest periods; failure to keep accurate payroll records; and failure to pay wages of terminated or resigned employees etc. The plaintiff also asserted a claim under PAGA.

The defendant removed the action under CAFA asserting minimal diversity claiming that it was a citizen of California, whereas, the home mailing addresses for the putative class members established that many them were citizens of other states. The defendant asserted that the class consisted of at least 1,242 putative class members and the amount-in-controversy exceeded $5 million.

The plaintiff responded with a motion to remand arguing that the defendant failed to prove that the amount-in-controversy exceeded CAFA’s statutory requirement of $5 million. The amount-in-controversy was the only dispute between the parties.

The defendant argued that its use of 100% violation rate for failure to pay overtime (calculated as one hour of overtime due per shift worked) was appropriate for waiting time penalties based on the plaintiff’s allegation that the defendant consistently maintained and enforced unlawful policies; that the nurses routinely worked over 8 or 12 hours a day and 40 hours per week; and that the defendant failed to pay the nurses for that overtime. However,   similar calculations for other liability were dismissed based on the allegations of plaintiff’s pleading which precluded the presumption of a 100% violation rate.

The District Court observed that in Garza v. Brinderson Constructors, Inc., 2016 WL 1298390 (N.D. Cal. Apr. 4, 2016), that the defendant could not rely on the allegations that the plaintiffs regularly worked shifts more than eight hours and the defendant maintained a policy or practice of Labor Code violations to support their use of 100% violation rate with respect to missed break claims. The Garza court remarked that there was no reasonable basis for a 100% violation rate where the complaint did not allege a 100% violation rate and the defendant failed to show that its assumption was reasonable.

Similarly, the Mackall court remarked that, while the plaintiff’s allegations here can plausibly be read to allege that the defendant failed to pay overtime for putative class members regularly and consistently, there was nothing in the complaint that suggested that the defendant failed to do so every time for every shift for certain overtime violations, meal and rest break violations and waiting time penalties. Accordingly, the District Court concluded that the defendant failed to submit any evidence to back up its calculation or otherwise explain why a 100% violation rate was a reasonable assumption.

The defendant then presented a more conservative calculation, i.e., each class member may have missed one hour of overtime for each period of employment, resulting in $163,620 in damages for the overtime claim. Given the allegations by the plaintiffs, the District Court concluded that the defendant’s assumption of one hour of overtime violation per term of employment was reasonable and the $163,620 estimate was appropriately considered towards the amount-in-controversy, at least 1,242 persons.

As to the meal and rest break violations, the defendant based its calculations on the assumptions that the putative class members missed on average 2.5 meal periods and 2.5 rest periods for each term of employment, resulting in $204,525 for the missed meal periods, and $204,525 for the missed break periods. The defendant performed this calculation because the plaintiff alleged that the defendant’s policies consistently violated the labor code, it willfully refused to permit putative class members from taking breaks, and the class members were often forced to forego those breaks.

The District Court remarked that, as with overtime calculations, the Ninth Circuit had rejected 100% violation rate assumptions where the defendants’ calculations assumed that a meal or rest violation occurred each workday. The defendant relied on a Central district case, Oda v. Gucci Am., Inc., 2015 U.S. Dist. LEXIS 1672 (C.D. Cal. Jan. 7, 2015), which allowed a 50% violation rate estimate based on policy or practice allegations, but conceded that several Northern District cases had held that assumptions of one missed meal and break per pay period were reasonable considering policy and practice allegations and allegations that the defendants regularly denied class member breaks. Under that more conservative estimate, the defendant calculated $81,810 for the missed meal breaks and $81,810 for the missed rest breaks as part of the amount in controversy. The District Court found that this calculation was reasonable and supported by the evidence.

The main issue in this action was whether the defendant’s calculation of waiting time penalties of $26,932,500 was supported. The plaintiff alleged that the defendant was liable for waiting time penalties under Cal. Labor Code §§ 201-203 for its failure to pay all wages due including overtime compensation and meal and rest premiums.  The defendant relied on the plaintiff’s allegations that it failed to pay all wages due and owing on termination, and the defendant willfully failed and refused, and continued to fail and refuse to pay wages upon termination.  The defendant then assumed that each putative class member would be entitled equal to one workday’s wages for up to a maximum 30 days of waiting time penalties if the nurses were to prevail.  With approximately 1,425 separate terminations, the defendant estimated an amount-in-controversy equal to $26,932,500.

In Garza, the court concluded that the allegations of willful failure to timely pay final wages (based on alleged overtime and meal and rest break violations) were sufficient to support estimations of waiting time penalties at a 100% rate. The plaintiff here failed to offer any alternative calculation in a lower amount for waiting time penalties. Because the premiums for missed meal periods and rest periods were wages, the District Court concluded that the employer’s failure to pay those wages triggered penalties under § 203. Accordingly, the District Court found that the plaintiff failed to respond to the defendant’s calculation $26,932,500 with any evidence or arguments that supported an amount-in-controversy lower than the statutory requirement of $5 million.

Accordingly, the District Court concluded that the defendant’s calculations for overtime violations and missed meal and rest breaks coupled with waiting time penalties met CAFA’s jurisdictional threshold, and denied the plaintiff’s motion to remand.

– Mag Bickford and Camille Bryant