WILLIAM A. DAVIS, Plaintiff and Appellant, v. FARMERS INSURANCE EXCHANGE et al., Defendants and Respondents.
No. B257970
Second Dist., Div. Four.
Mar. 28, 2016.
245 Cal. App. 4th 1302 | 200 Cal. Rptr. 3d 315
The Anfanger Law Office and Nancy B. Anfanger for Plaintiff and Appellant.
Locke Lord and Stephen A. Taggy for Defendants and Respondents.
OPINION
MANELLA, J.—Appellant William A. Davis brought suit against respondents Farmers Insurance Exchange, Truck Insurance Exchange, Fire Insurance Exchange, Mid-Century Insurance Company and Farmers New World Life Insurance Company (collectively, Farmers), contending that as a district manager for Farmers he had been wrongfully classified as an independent contractor rather than an employee, that he had been wrongfully terminated, and that Farmers had failed to pay wages due during and at the termination of his employment.
Appellant asserted a common law claim for wrongful termination in violation of public policy; he did not assert a claim under the California Fair Employment and Housing Act (
On appeal, appellant contends the trial court erred in giving instructions based on the holding in Harris. He further contends he was entitled to declaratory relief, injunctive relief and attorney fees. Finally, he asserts the court erred in granting a directed verdict on his wage claim. We conclude the court did not err in giving the Harris instructions or in denying appellant alternative relief when the jury rejected his claim for damages. However, we conclude appellant presented sufficient evidence to allow his wage claim to go to the jury. We, therefore, reverse and remand for partial retrial on that claim. We otherwise affirm.
FACTUAL AND PROCEDURAL BACKGROUND
A. Background Facts
Appellant became an insurance agent for Farmers in 1977. In December 1983, he entered into a “District Manager‘s Appointment Agreement” with Farmers.1 Under the agreement, Farmers appointed appellant district manager of district No. 84, effective December 1, 1983, “and continuing until [the agreement is] terminated or cancelled.” Farmers agreed to pay appellant “an overwrite on all business produced by Agents of, and written by the Exchanges, Mid-Century and Farmers New World Life, in the District . . . in accordance with schedules and rules adopted from time to time by [Farmers] . . . .”2 Appellant agreed to “recruit for appointment and train as many agents acceptable to [Farmers] as may be required to produce sales in
The agreement stated that it “may be cancelled without cause by either [appellant] or [Farmers] on 30 days’ written notice . . . .” At the time of termination, Farmers could elect to pay ” ‘contract value’ ” to appellant, defined as the service commission overwrite paid to appellant during the six months immediately preceding the cancellation, increased by a multiplier based on the number of years of appellant‘s services. In October 2006, Farmers cancelled the appointment agreement, giving 30 days’ notice and thereafter paid appellant a total of approximately $500,000 in a series of payments made between April 2007 and April 2009. Appellant was 57 when the agreement was terminated.
B. The Complaint
In September 2008, appellant filed a complaint naming the entities that were parties to the appointment agreement.3 The complaint alleged that Farmers exercised control over appellant‘s operations and that appellant was an employee of Farmers. The complaint contended that appellant, as well as a number of other district managers whose contracts were terminated at approximately the same time, were wrongfully terminated due to their age.
The complaint asserted claims for wrongful termination in violation of public policy, failure to pay wages under the
The cause of action for failure to pay wages alleged that defendants violated
The operative complaint at the time of trial was the fifth amended complaint (5th AC). The 5th AC asserted substantially the same claims for failure to pay wages, termination in violation of public policy and violation of the UCL, and sought essentially the same remedies.5 Farmers answered the 5th AC, including several affirmative defenses. Under those entitled “Unclean Hands,” “Plaintiff‘s Own Act,” and “Justification/Privilege,” the answer alleged that appellant failed to recruit and train a sufficient number of agents to meet Farmers‘s goals and objectives.
C. Motion to Amend Complaint
In 2010, shortly before the original trial date and after the parties had completed extensive discovery, appellant moved to amend the complaint to add a claim under
D. Trial
1. Motion for Bifurcation
Prior to trial, appellant moved to bifurcate the proceedings, having the jury first determine whether he was an employee or an independent contractor before addressing liability and damages. The trial court granted the motion.
2. First Phase
In the first phase of trial, the jury heard evidence from appellant and three other former district managers about the level of control Farmers exercised over their duties.6 After hearing the evidence, the jury found that appellant was Farmers‘s employee.7
3. Second Phase
a. Evidence Pertinent to Age Discrimination Claim
In support of his claim that he was terminated due to age discrimination, appellant presented evidence that while a district manager, he received multiple awards and commendations up to and including the year he was terminated. In each of the four previous years, the value of the insurance sold from his district went up. Appellant and other witnesses testified that it was not unusual for district managers to fail to achieve specific assigned goals, and that appellant had failed to achieve goals assigned to him in the past without being terminated or threatened with termination. Appellant testified that the goals assigned him by his supervisors—Charles Dabelgott, the Southern California marketing manager, and Elizabeth Stella, the Southern Los Angeles Division marketing manager—in the year prior to his termination were higher than had ever been assigned him before. He was told by the division marketing manager who preceded Stella that it looked like Dabelgott was “out to get [him].”
Appellant presented evidence that the district managers in appellant‘s division—the Southern Los Angeles Division—were older, on average, than
Appellant also presented evidence of general comments made by management personnel suggesting age bias. In 2003, the president of Farmers talked about the importance of replacing “old tools” with “new tools.” People in management referred to the Southern Los Angeles Division‘s district managers as, the “old guys,” the “old farts” and the “Geritol gang.” In December 2004, a Farmers executive referred to them as a “bunch of old dogs,” and expressed surprise that they were doing so well. At a conference in January 2006, Farmers‘s chief marketing officer gave a presentation showing that the median age of the agency force was 51 or 52, and that medical premiums were going up; during the presentation he said he wanted the district managers to recruit younger agents.
In its defense, Farmers presented evidence that the Southern Los Angeles Division was not doing well, that its production figures were down, and that in 2004 and 2005 it was the poorest performing division in California, as well as one of the worst in the country. Farmers established that one of the division‘s district managers who had been terminated around the same time as appellant was in his 40‘s when he became a district manager and had been a district manager for only a few years prior to his termination. Farmers also presented evidence that a district manager younger than 40 was terminated during that period due to poor performance; that Frederick Howland, an older district manager, had been terminated after sending a salacious e-mail; that Timothy Crawley had been terminated after inflating the policy numbers for less successful agents; that some older district managers were retained; and that multiple individuals remained district managers in Southern California into their 60‘s and 70‘s.
With respect to appellant‘s claim that he was a good performer, Farmers presented evidence that appellant had failed to significantly expand the number of agents in his district between 1991 and 2006, had failed to achieve the goals assigned him for recruiting new agents between 2001 and 2003, and in 2005 had the second worst record among district managers in Southern California for recruiting new agents. With respect to the claim that the goals set for appellant prior to his termination were unrealistic, Farmers presented evidence that other district managers met or exceeded similar goals.
In June 2006, Stella recommended terminating appellant. She testified her recommendation was based solely on his lack of performance, and denied that appellant‘s age had anything to do with her decision. Bernard Shulz, who gave final approval for appellant‘s termination, denied considering appellant‘s age when making the decision. He denied ever hearing anyone in management express ageist sentiments. Shulz himself was 64 when he retired, and had been asked to stay on.
Stephen Feely, a Farmers vice-president who met with appellant after his termination to discuss the reasons for it, testified that appellant did not complain of having been discriminated against because of his age. Nor did he tell Feely he had heard any managerial personnel make offensive comments. Feely had never heard anyone in management make comments about the age of the district managers in the Southern Los Angeles Division.
b. Evidence Pertaining to Wage Claim Under Labor Code Section 200 et seq.
Appellant presented evidence that he entered into a series of loan agreements with Farmers‘s credit union over the years. Farmers allowed him to repay the loans over time, deducting periodic payments from his monthly compensation. When Farmers paid appellant the contract value after he was terminated, it deducted a $293,000 balloon payment to repay the balance due on the loans. The total deducted from the final compensation checks was $302,958. This sum included reimbursement for commissions previously advanced to appellant and his agents by Farmers.
c. Farmers‘s Motion for Directed Verdict
At the close of the second phase of trial, Farmers moved for a directed verdict on the wage claim. Farmers contended that appellant had proffered no evidence to support his claim that Farmers had failed to pay any compensation due him, or that any of the deductions taken from his compensation were improper or unauthorized. Farmers further contended that appellant‘s wage claim represented a backdoor attempt to assert a
Appellant argued that his wage claim was distinct from the
The court granted the motion for directed verdict, taking the wage claim from the jury‘s consideration. The court concluded that in the absence of a
d. Pertinent Jury Instructions
To guide their deliberations on appellant‘s remaining claim for age discrimination, the jurors were instructed in accordance with the post-Harris version of CACI No. 2430 that to establish a claim of discharge in violation of public policy due to age, “plaintiff must prove . . . that [his] age was a substantial motivating reason for [his] discharge.” In line with CACI No. 2507, “substantial motivating reason” was defined for the jurors as “a reason that actually contributed to plaintiff‘s termination,” that “must be more than a remote or trivial reason,” but “does not have to be the only motivating reason.” The court also gave CACI No. 2512: “If you find that age discrimination was a substantial motivating reason for plaintiff‘s discharge, you must then consider defendants’ stated reason for the discharge. [¶] If you find that plaintiff‘s poor job performance also was a substantial motivating reason, then you must determine whether the defendants have proven that it would have discharged plaintiff anyway based on poor job performance, even if they had not also been substantially motivated by age discrimination. [¶] . . . [¶] If you find that defendants discharged plaintiff only for a discriminatory reason, you will be asked to determine the amount of damages he is entitled to recover. [¶] If, however, you find that defendants would have discharged plaintiff anyway for a non-discriminatory reason, then plaintiff will not be entitled to reinstatement, back pay or damages.”
e. Jury‘s Special Verdict
The jury returned the following special verdict: Asked if appellant‘s age was “a substantial motivating reason” for his discharge, the jury answered, “Yes.” Asked if appellant‘s poor job performance also was “a substantial motivating reason” for the discharge, the jury answered, “Yes.” Asked if Farmers would have “discharged [appellant] anyway based on [his] poor job performance had [it] not also been substantially motivated by discrimination,” the jury again answered, “Yes.” Accordingly, the jury awarded appellant no damages.
E. Posttrial Motions
After the jury returned its verdict, Farmers lodged a proposed judgment, claiming to be the prevailing party and entitled to costs. Appellant filed an
Farmers responded to appellant‘s objections to its proposed judgment, asserting that because appellant had not prevailed on any cause of action tried to the jury, he could not be deemed the prevailing party. Farmers opposed appellant‘s request for a further hearing, contending that appellant had forfeited his right to assert the UCL claim by failing to raise any issue concerning the claim during the trial or trial setting, and by failing to ask the trial court to resolve it before presenting his legal claims to the jury under the general rule that equitable claims are to be tried before legal claims. Farmers also contended that to the extent the UCL claim was based on failure to pay wages, it was rendered moot by the directed verdict. Finally, Farmers contended that appellant was not entitled to attorney fees because he had not asserted a FEHA claim and did not meet the criteria for an award of fees under
The court denied appellant‘s request to adjudicate further claims. The court concluded that because appellant‘s claim was not premised on a statutory violation of FEHA, he was not entitled to “declaratory relief, injunctive relief, [or] attorney fees and costs on the basis of [Harris].” With respect to the UCL claim, the court observed that appellant had not attempted to pursue that claim until after the trial ended, and concluded the jury‘s findings were insufficient to support a UCL claim. It found the jury‘s determination that Farmers would have discharged appellant based on his poor job performance precluded any potential for injunctive relief.
The court analyzed appellant‘s entitlement to attorney fees under
Judgment was entered. Farmers was awarded costs of $181,356.79. This appeal followed.
DISCUSSION
Appellant‘s primary contention on appeal is that the trial court misinterpreted and misapplied the California Supreme Court‘s decision in Harris, supra, 56 Cal.4th 203. Appellant contends that Harris should be limited to FEHA claims, and that a plaintiff/employee asserting a claim for the common law tort of wrongful discharge in violation of public policy should be permitted to recover if he or she establishes that an improper motive formed any part of the decision, even if the employer establishes that the plaintiff‘s poor job performance alone would have led to termination. Alternatively, appellant contends that if Harris applies to common law wrongful discharge claims, he was entitled to declaratory and/or injunctive relief and attorney fees because he successfully persuaded the jury that his age was a substantial motivating factor in connection with the discharge. As explained below, we disagree.
Additionally, appellant appeals from the trial court‘s grant of a directed verdict on his wage claim, contending he presented sufficient evidence to allow the claim to go to the jury. With this contention we agree, and reverse the grant of a directed verdict.
A. Harris Instructions in Common Law Wrongful Discharge Claims
In Harris, the plaintiff sued under FEHA, claiming she had been terminated from her employment with the defendant city because she was pregnant. (Harris, supra, 56 Cal.4th at p. 211.) She did not pursue a common law wrongful discharge claim. At trial, the court refused a defense instruction informing the jurors that if they found “a mix of discriminatory and legitimate motives, the City could avoid liability by proving that a legitimate motive alone would have led it to make the same decision to fire her“; the jury was instead instructed, pursuant to CACI former No. 2500, that the plaintiff was entitled to judgment if she proved that her pregnancy “was a
The California Supreme Court held the trial court had erred in instructing the jury that an employee could prevail merely by proving that an illegitimate criterion was “a motivating factor.” (Harris, supra, 56 Cal.4th at p. 232; see id. at pp. 214–224, 231–232.) Focusing on FEHA‘s prohibition against adverse employment actions taken ” ‘because of’ ” a person‘s race, sex, disability, sexual orientation, or other protected characteristic, the court held that to establish a claim of employment discrimination under FEHA, the employee must instead ” ‘produce evidence sufficient to show that an illegitimate criterion was a substantial factor in the particular employment decision . . . .’ ” (Harris, supra, 56 Cal.4th at pp. 231, 232, quoting Price Waterhouse v. Hopkins (1989) 490 U.S. 228, 278 [104 L.Ed.2d 268, 109 S.Ct. 1775] (conc. opn. of O‘Connor, J.).) The court explained that FEHA does not prohibit “discrimination ‘in the air’ ” or permit an employee to recover based on “bigoted thoughts or beliefs” or ” ‘stray remarks’ ” (Harris, supra, at p. 231), but “prohibits discrimination that causes an employer ‘to refuse to hire or employ the person or to refuse to select the person for a training program leading to employment, or to bar or to discharge the person from employment or from a training program leading to employment, or to discriminate against the person in compensation or in terms, conditions, or privileges of employment’ ” (id. at p. 231, quoting
Following the California Supreme Court‘s decision in Harris, the Judicial Council amended CACI No. 2500, applicable to claims of disparate treatment under FEHA. It now states that to establish a claim of disparate treatment, the plaintiff must prove that the improper criterion was “a substantial motivating
As discussed, the CACI instructions, amended to conform to Harris, were given here. The jury found in favor of appellant on the question whether age discrimination was a substantial motivating reason for his discharge. However, it also found that Farmers would have discharged him in any event, based on his poor job performance. Appellant contends that the holding in Harris should be confined to FEHA claims and not be applied to claims of wrongful discharge in violation of public policy.11
We agree with the Mendoza and Alamo courts that the reasoning of Harris applies to claims of wrongful termination in violation of public policy as well as FEHA claims.12 The two claims are analogous, and unless one is barred by a failure to exhaust administrative remedies or the statute of limitations, they are likely to be pursued jointly. (See Stevenson v. Superior Court (1997) 16 Cal.4th 880, 908 [66 Cal.Rptr.2d 888, 941 P.2d 1157] [common law wrongful discharge claim “provides another legal theory on which employees may pursue remedies comparable in all relevant respects to those ... available to
Moreover, on multiple occasions, the California Supreme Court has held that where a wrongful termination claim would not be cognizable under the provisions of FEHA, the conduct at issue cannot offend fundamental public policy. (See, e.g., Silo v. CHW Medical Foundation (2002) 27 Cal.4th 1097, 1108–1109 [119 Cal.Rptr.2d 698, 45 P.3d 1162] [where employee of religious hospital terminated for discussing another religion in the workplace was barred from pursuing FEHA claim due to statutory exemption for religious corporations, hospital could not be held liable under theory of wrongful termination in violation of public policy]; Jennings v. Marralle (1994) 8 Cal.4th 121, 134–135 [32 Cal.Rptr.2d 275, 876 P.2d 1074] [FEHA exemption for employers who employ fewer than five persons precluded tortious wrongful discharge claim based on public policy].) If claims for wrongful termination in violation of public policy must track FEHA, it necessarily follows that jury instructions pertinent to causation and motivation must be the same for both. Accordingly, we conclude the trial court did not err in giving the instructions set forth in the CACI model jury instructions.14
As discussed, the jury found that appellant‘s age was a substantial motivating reason for his discharge, but that Farmers would have discharged appellant in any event, based on his poor job performance. The court in Harris addressed the relief available where the employee meets the burden of showing that discrimination was a substantial factor motivating the adverse employment decision, but the employer shows that “it would have made the same decision in any event.” (Harris, supra, 56 Cal.4th at p. 232.) The court rejected the suggestion that a plaintiff under these circumstances might be entitled to an order of reinstatement or backpay: “In the context of an allegedly unlawful termination, an order of reinstatement or backpay would not ‘redress the adverse effects of [discriminatory] practices on aggrieved persons’ [citation] if legitimate, nondiscriminatory reasons would have led the employer to terminate the employee in any event. Although such remedies might help to ‘prevent and deter unlawful employment practices’ [citation], they would do so only at the cost of awarding plaintiffs an unjustified windfall and unduly limiting the freedom of employers to make legitimate employment decisions. Curtailing employers’ prerogatives in this way—that is, forcing an employer to retain someone when it had sufficient and legitimate reasons not to do so—would cause inefficiency and would thus tend to ‘deprive[] the state of the fullest utilization of its capacities for development and advancement,’ contrary to the FEHA‘s purposes. [Citation.]” (Harris, supra, at pp. 232–233, quoting
The court held that for similar reasons, the plaintiff should not be awarded damages for economic loss: “Such an award would provide the plaintiff with an unjustified windfall.” (Harris, supra, 56 Cal.4th at p. 233.) The court reached the same conclusion with respect to monetary damages for noneconomic loss: “When an employee is fired, and when discrimination has been shown to be a substantial factor but not a ‘but for’ cause, we believe it is a fair supposition that the primary reason for the discharged employee‘s emotional distress is the discharge itself. Such distress is not compensable under the FEHA—indeed, compensation for such distress would be a windfall to the employee—if the employer proves it would have fired the employee anyway for lawful reasons.” (Id. at pp. 233–234.) In short, “a
The court went on to state, however, that the unavailability of damages or an order of reinstatement or backpay need not make a finding of unlawful discrimination an “empty gesture.” (Harris, supra, 56 Cal.4th at p. 234.) Citing
1. Declaratory and Injunctive Relief
Citing the California Supreme Court‘s discussion of available remedies in Harris, appellant contends he was entitled to declaratory and injunctive relief under the facts presented and the jury‘s findings. We conclude that appellant failed to properly raise or preserve issues pertaining to these remedies, and that in any event, no effective alternative relief was available.
In order for a party to pursue an action for declaratory relief, the grounds for such relief must be specifically pleaded in the complaint. (Jenkins v. JPMorgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497, 513–514
Further, although Harris was decided in February 2013, almost a year prior to the trial of this matter, appellant made no attempt to amend his complaint to add a claim for declaratory relief or to expand his request for injunctive relief to include relief relevant to his discrimination claim. Prior to trial, when the parties discussed the bifurcation motion and the order of trial, appellant neither asked the court to resolve any equitable issues first, nor suggested he intended to seek a court trial on any equitable claim following the jury trial. To the contrary, he took the position that Harris had no application to the issues at trial because he had not asserted a statutory claim under FEHA. In short, appellant did nothing to suggest he intended to seek injunctive relief in connection with his wrongful termination claim.
Finally, even had the trial court addressed appellant‘s UCL claim, the record did not support an award of injunctive relief. In order to grant injunctive relief under the UCL, “there must be a threat that the wrongful conduct will continue. ‘Injunctive relief will be denied if, at the time of the
Appellant claims an injunction is required to prevent Farmers from engaging in age discrimination against current employees. “[I]njunctive relief under the UCL is an appropriate remedy where a business has engaged in an unlawful practice of discriminating against older workers.” (Herr v. Nestlé U.S.A., Inc. (2003) 109 Cal.App.4th 779, 789, 787 [135 Cal.Rptr.2d 477], italics added [affirming trial court orders enjoining Nestlé from discriminating on the basis of age in promoting employees, and directing company to issue repudiation of its earlier memorandum recommending “‘hiring, identifying and developing young people to have in the long-term enough resources for future management‘“].) Appellant contends there was “ample evidence” that Farmers “engaged in a pattern of discrimination against older District Managers,” but cites nothing in the record to support that contention. Our review of the record reveals that one other district manager, Glenn Smith, was terminated under circumstances suggestive of age discrimination—some five years after appellant was terminated.18 The jury made no finding that age played a part in any other employment decision by Farmers, and its verdict represents, at best, a determination that appellant‘s age played a non-pivotal role in his discharge. On this record, there was insufficient evidence to support issuance of an injunction forbidding Farmers from engaging in age discrimination.
Appellant contends the California Supreme Court‘s decision in Harris supports an award of attorney fees. In Harris, the court stated that when a plaintiff in a FEHA action has proven that an adverse employment decision was substantially motivated by discriminatory intent, he or she may be eligible for attorney fees under
Under
The trial court‘s conclusion that the underlying litigation did not meet the criteria for an award of attorney fees under
Assessment of the final factor—the necessity and financial burden of private enforcement—further supports the court‘s finding. Appellant‘s reasonable expectation of financial benefits from the litigation was sufficient to motivate him to pursue the litigation. “The financial burden of private enforcement requirement means that an award of attorney fees under
As the trial court observed, appellant sought over $10 million in damages for his allegedly wrongful discharge. In addition, he expected to recover hundreds of thousands of dollars for improper wage deductions. On this record, it was reasonable for the court to find that at every critical juncture appellant expected a substantial financial recovery, and that this was sufficient motivation to pursue the case. In view of appellant‘s failure to meet the criteria for attorney fees under
C. Failure to Pay Wages
Farmers treated appellant as an independent contractor, deducting from his compensation premiums for his errors and omissions insurance, as well as the cost of supplies and equipment, along with other expenses incurred in operating an insurance business. In addition, when it terminated him, it deducted a balloon payment to repay the loans it had made to him over the years and the commissions advanced. However, appellant established in the first phase of trial that he was Farmers‘s employee, not an independent contractor, as Farmers claimed. As an employee, appellant was entitled to the benefit of wage laws requiring an employer to promptly pay all wages due, and prohibiting the employer from deducting unauthorized expenses from the employee‘s wages, deducting for debts due the employer, or recouping advances absent the parties’ express agreement. (See Cotter v. Lyft, Inc. (N.D.Cal. 2015) 60 F.Supp.3d 1067, 1073–1074 [“Whether a worker is classified as an employee or an independent contractor has great consequences. California law gives many benefits and protections to employees; independent contractors get virtually none.“]; Estrada v. FedEx Ground Package System, Inc. (2007) 154 Cal.App.4th 1, 15 [64 Cal.Rptr.3d 327] [drivers wrongly treated as independent contractors entitled to recover as employees under
The wages an employer owes its employees are accorded “a special status” under California law. (Kerr‘s Catering Service v. Department of Industrial Relations (1962) 57 Cal.2d 319, 325 [19 Cal.Rptr. 492, 369 P.2d 20] (Kerr‘s Catering).) Full and prompt payment of wages due an employee “is a fundamental public policy of this state.” (Gould v. Maryland Sound Industries, Inc. (1995) 31 Cal.App.4th 1137, 1147 [37 Cal.Rptr.2d 718].) “This public policy has been expressed in the numerous statutes regulating the payment, assignment, exemption and priority of wages.” (Kerr‘s Catering, supra, 57 Cal.2d at p. 325.) The chapter of the Labor Code governing compensation and payment of wages includes provisions requiring immediate payment of wages upon discharge, layoff or resignation (
Of particular pertinence here are Labor Code sections 221 and 224, which make it “unlawful for any employer to collect or receive from any employee any part of wages theretofore paid by said employer to said employee” (
Under the 1983 appointment agreement, appellant‘s compensation was to be based on a certain percentage of the commissions earned by the salespeople working in his district. Under California law, the obligation to pay a commission may be contingent on events that occur after the sale (such as the customer returning the merchandise), and amounts advanced to the salesperson may be deducted at a later date if the contingencies are not satisfied. (See Ralphs Grocery Co., supra, 42 Cal.4th at pp. 239–240, and cases cited therein.) The employer also may deduct expenses directly related to a sale, such as free shipping or free products offered by the salesperson to induce the sale. (See Aguilar v. Zep (N.D.Cal., Aug. 27, 2014, No. 13-cv-00563-WHO) 2014 U.S.Dist. Lexis 120315, p. *49.) However, the preconditions to earning the commission must be “clearly expressed[,] ...
This principle was first propounded by the California Supreme Court in Kerr‘s Catering. There, the employer promised a commission of 15 percent on all sales in excess of a certain minimum to the employees who sold food items from its lunch trucks, but deducted cash shortages resulting from the failure to properly charge for the sold items. The court held the deductions were improper, observing that “some cash shortages, breakage and loss of equipment are inevitable in almost any business operation” and should be borne as a “business expense,” rather than deducted from a promised commission. (Kerr‘s Catering, supra, 57 Cal.2d at p. 329.) This holding was applied to managerial employees in Quillian v. Lion Oil Company (1979) 96 Cal.App.3d 156 [157 Cal.Rptr. 740] (Quillian). There, the court found that commissions similarly calculated on sales volumes and reduced by cash and merchandise shortages improperly placed the “burden of losses” on the managers and thus violated Labor Code section 221 and other statutory provisions, even though the managers had executed written contracts agreeing to this method of salary calculation. (Quillian, supra, 96 Cal.App.3d at pp. 159–160, 163.)
More recently, in Hudgins, supra, 34 Cal.App.4th 1109, the court addressed an employer policy that promised salespersons commissions based on completed sales, but deducted on a pro rata basis returned merchandise that could not be traced to a particular sale or salesperson. The court found the policy “calls for deduction from earned commission wages of all sales associates a sum of money representing what would otherwise be business losses ....” (Hudgins, supra, at p. 1123.) The court explained that this was improper under Labor Code section 221: “[T]he Legislature has recognized the employee‘s dependence on wages for the necessities of life and has, consequently, disapproved of unanticipated or unpredictable deductions ....” (Hudgins, supra, at p. 1119.) “By enacting section 221, and retaining it as interpreted by the courts and [the Industrial Welfare Commission], the Legislature has prohibited employers from using self-help to take back any
In cases such as Kerr‘s Catering, Quillian and Hudgins, the courts’ findings were based on the impermissibility of transferring to the employee, by way of wage deductions, the financial burden of business expenses that otherwise would be borne by the employer. California law also prohibits other types of wage deductions taken for the sole benefit of the employer. In Agnew v. Cameron (1967) 247 Cal.App.2d 619 [55 Cal.Rptr. 733], the court rejected an employer‘s attempt to recoup advances from an employee‘s final compensation, where the employer failed to establish the parties’ agreement expressly permitted it. In Barnhill, supra, 125 Cal.App.3d 1, the employer deducted a balloon payment from the employee‘s final check to recoup the balance due on a loan made to the employee a few months earlier. (Id. at p. 4.) The appellate court affirmed an award to the employee of the wages due and held that the employer was “not entitled to a setoff of debts owing it by an employee against any wages due that employee.” (Id. at pp. 6, 9.) The same conclusion was reached in California State Employees’ Assn. v. State of California (1988) 198 Cal.App.3d 374 [243 Cal.Rptr. 602] where the employer sought to recoup an accidental overpayment of wages by deducting sums from the employees’ current paychecks. The court agreed with Barnhill that “wages actually earned during the current pay period are due, and the fact that the employee owed a debt to the [employer], even for a prior overpayment, does not ‘affect the validity or alter the amount of the [current] claim’ for wages earned.” (California State Employees’ Assn., supra, 198 Cal.App.3d at p. 378; accord, Sciborski v. Pacific Bell Directory, supra, 205 Cal.App.4th at p. 1166 [“Labor Code section 221 prohibits an employer from deducting amounts from an employee‘s wages, even as a setoff for amounts clearly owed by the employee.“]; Phillips v. Gemini Moving Specialists (1998) 63 Cal.App.4th 563, 574 [74 Cal.Rptr.2d 29] [“[T]here is in this state a fundamental and substantial public policy protecting an employee‘s wages, and that protection includes freedom from setoffs ....“]; see also Kerr‘s Catering, supra, 57 Cal.2d at p. 325 [“[An employee‘s wages are] ... generally beyond the reach of claims by creditors including those of an employer.“].)
With respect to loan repayments, the Division of Labor Standards Enforcement (DLSE) has taken the position that employers may take deductions to recover debts owed them, “provided that the amount of the deduction from any one paycheck cannot exceed the amount authorized by the employee for any such deduction, and that after making any such authorized deduction, the employee must still receive no less than the minimum wage ....” (Dept. of Industrial Relations, DLSE Opn. Letter No. 1999.09.22-1 (Sept. 22, 1999) p. 3.)22 Otherwise, the employer must “pursue a civil action to recover any unpaid debt from the employee.” (DLSE Opn. Letter No. 1999.09.22-1, supra, at p. 3.) Farmers contends appellant authorized all the deductions taken from his compensation, but provides no citation to the record supporting this assertion. Our own review of the record reveals no evidence that appellant agreed to have a balloon payment taken from his final compensation.23
Similarly, with respect to commission advances, California law permits an employer to recover the excess of advances over commissions where there is an agreement in place to do so. (Agnew v. Cameron, supra, 247 Cal.App.2d at p. 622; Koehl v. Verio, Inc. (2006) 142 Cal.App.4th 1313, 1330 [48 Cal.Rptr.3d 749].) Farmers does not direct us to any agreement permitting it to recover the advances it withheld from appellant‘s final compensation, and our review of the record reveals none. (See Agnew v. Cameron, supra, at p. 624 [employer bears burden of establishing existence of agreement requiring return of advances on commissions when employee resigns].)
Farmers contends the premiums for appellant‘s errors and omissions policy represented a “personal expense.” This is contrary to legal authority. California law directs employers to indemnify employees for all expenses and losses incurred in direct consequence of the discharge of their duties,
With respect to the remaining disputed deductions, they appear on their face to be for standard business expenses, not chargeable to an employee, even a commissioned sales employee. Farmers contends the deductions were for expenses that “increase[d] the basis on which [appellant‘s] commissions were calculated” and were, therefore, properly charged to him. As appellant‘s commissions were based on his agents selling Farmers‘s insurance, every additional dollar he earned represented an increase to Farmers‘s bottom line. A DLSE opinion letter addressing whether the expense of hiring an assistant could be charged to an insurance company‘s commissioned sales manager explains why such expenses are not transferable: “[Labor Code provisions] announce the long-standing policy of the State of California in regard to an employer‘s obligation to pay all costs his employee expends or loses in carrying out the duties of the employment. The employment of more help to either sell insurance or help with the paperwork so that others would be free to sell more insurance is a ‘direct consequence of the discharge of [the manager‘s] duties.’ [[] As is clear from the [Labor Code], under the California law, an employer may not ‘pass through’ the normal costs of operating a business to the employee he hires. Debiting an employee‘s earned wages to cover a normal operating expense of the employer is not allowed in California.” (Dept. of Industrial Relations, DLSE Opn. Letter No. 2000.08.01 (Aug. 1, 2000) p. 4.) Stated succinctly: “It would appear to be axiomatic that any increase in the amount of legitimate sales
Farmers contends appellant bore the burden of establishing that the expenses at issue were both “necessary” and “directly incurred in the discharge of [appellant‘s] duties.” (Italics omitted.) We disagree. An employee seeking to recover under
In sum, in support of his wage claim, appellant presented evidence that multiple deductions were taken from his compensation that were not clearly authorized by law. Farmers persuaded the trial court that it was entitled
DISPOSITION
The judgment in Farmers‘s favor on appellant‘s claim for wrongful termination is affirmed. The court‘s order denying appellant attorney fees, costs, and injunctive and declaratory relief on this claim is affirmed. The court‘s order granting a directed verdict on appellant‘s wage claim is reversed. Absent resolution of appellant‘s wage claim, the court‘s finding that Farmers was the prevailing party entitled to costs is premature. Accordingly, we also reverse that finding. The matter is remanded for partial retrial of appellant‘s wage claim and the UCL claim to the extent it seeks restitution for Farmers‘s alleged failure to pay wages in accordance with the views set forth in this opinion. Each side shall bear its own costs on appeal.
Epstein, P. J., and Willhite, J., concurred.
A petition for a rehearing was denied April 21, 2016, and the opinion was modified to read as printed above.