HR Management & Compliance

Can California Employer Find Any Silver Linings in $102 Million Verdict?

Meal period and wage statement claims continue to haunt California employers. Most of you know you must factor nondiscretionary bonuses into the regular rate of pay when you calculate overtime. However, such bonuses also need to be factored into the regular pay rate when the 1-hour meal period premium is calculated.

In the following case, Walmart correctly factored the bonus payments into the overtime rate but didn’t do the same thing for meal premium payments. That and a problem with its wage statements led to a $102 million verdict against the company. But the result could have been far worse.

Not Just Another Meal Period Claim

Roderick Magadia filed suit against Walmart, alleging the company failed to pay adequate compensation for missed meal breaks and provide adequate wage statements. He also sought penalties under the Private Attorneys General Act (PAGA) for the same violations. In January 2017, Judge Lucy Koh of the U.S. District Court for the Northern District of California certified three classes of employees in the case.

The first class included employees who received quarterly nondiscretionary bonuses and were paid a meal premium payment at any point from December 2012 through the present. For this class, it was undisputed that Walmart paid a quarterly bonus and employees correctly received a pay adjustment to their regularly hourly rate as a result. However, meal period premiums were paid at employees’ regular rate without factoring the incremental upward adjustment to the hourly rate as a result of the nondiscretionary bonus.

In the second class were employees who received nondiscretionary bonuses and worked overtime from December 2015 to the present. Again, Walmart correctly factored the bonus into employees’ regular rate for purposes of calculating overtime payments but coded the overtime on its wage statements as a lump sum without including the hours worked or the hourly rate, as required by Labor Code Section 226(a).

The third class consisted of employees who were terminated either voluntarily or involuntarily from December 2015 to the present. The terminated employees received a check for all wages earned through their termination, yet their final checks didn’t include specific pay period start or end dates. At the close of the next biweekly pay period, however, Walmart generated a final wage statement for the terminated employees that did include pay period start and end dates.

In May 2018, 6 months before the trial was to begin, Judge Koh granted partial judgment to Magadia, finding Walmart violated the Labor Code by not including pay period start and end dates on employees’ final wage statements. The judge held a 3-day trial beginning in November 2018. After posttrial briefings, she issued her final decision on May 31, 2019.

$102 Million Award Could Have Been Worse

Testifying on behalf of the meal period class, Magadia stated he took “late” meal breaks, but he never specified whether those late breaks took place after the fifth hour as required for a violation of Labor Code Section 226.7. Because he didn’t prove that he personally suffered a violation, the court decertified the meal period class.

However, the judge found Magadia had established a PAGA violation because Walmart violated Section 226.7 by not correctly calculating the meal period premium for employees who received nondiscretionary bonuses. The court therefore awarded PAGA penalties in the amount of $70,000.

Turning to the second class, the court found the code Walmart used for an upward pay adjustment when an employee received a nondiscretionary bonus and worked overtime didn’t show how many overtime hours he worked or his overtime rate.

The court assessed $48,046,000 in statutory damages for violations dating back to December 2016. The employees also sought $131,427,750 in PAGA penalties on top of the statutory damages, but the court reduced the PAGA award to $48,046,000, finding a larger amount would be unjust and oppressive.

The court cited several other cases in which the PAGA awards were significantly reduced and looked to settlements (including those involving the same attorneys the employees had in this case) in which courts had apportioned a very small percentage of the overall settlement to the PAGA claims. The court noted that the violation was based on nondiscretionary bonuses that Walmart had no duty to pay, and penalizing the company disproportionately in comparison to the actual statutory damages might deter employers from paying nondiscretionary bonuses to employees.

The court then turned to Magadia’s claim for failure to provide accurate wage statements. To recover penalties under Labor Code Section 226 for such a claim, the employee must establish that the violation was “knowing and intentional.” Because case law isn’t clear that a final pay statement must comply with Section 226 when an employer issued a second semimonthly final wage statement that was compliant, the court found that Walmart had a good-faith belief that its final pay statements didn’t need to comply with Section 226.

However, after the court’s ruling in May 2018 that its final pay statements did violate Section 226, the company didn’t change its practice. The court therefore found its violation from that point on was “knowing and intentional.”

The employees requested $5,823,900 in statutory damages, but their calculations were based on violations that occurred from December 2015 to the present rather than May 2018 to the present. Because the employees submitted no other damages calculations to satisfy their burden, the court awarded no statutory damages for this claim.

The employees also requested $28,928,500 in PAGA penalties, but the court reduced that amount to $5,875,700 for two reasons. First, as it had already concluded, the law was uncertain in this area before its May 2018 ruling. Second, it found that a $28 million PAGA award would be unjust and oppressive. Magadia v. Wal-Mart Associates, Inc., U.S. District Court for the Northern District of California, Case No. 17-cv-00062-LHK., May 31, 2019 (published).

Bottom Line

Yes, Walmart got hit with a $102 million verdict, but it was able to avoid close to $6 million in statutory damages because the employees made a critical error in proving their damages. They also sought more than $160 million in PAGA penalties on top of their statutory damages, yet the court reduced that award to just under $54 million.

In addition, Walmart dodged a potentially large statutory damages award for the meal period claim because Magadia didn’t suffer a personal injury and a class couldn’t be certified for the claim. Despite those silver linings, Walmart has signaled that it intends to appeal the court’s ruling.

Can’t get enough of California workplace policies, state-specific updates, and best practices? Attend: HR Comply California, in Los Angeles, CA on October 7-9, 2019. Michelle Lee Flores will be presenting a session on FMLA/CFRA certifications and if you’re interested in learning more about avoiding sexual harassment claims, join Kelly O. Scott, Esq., for the session: New Challenges in Defending Sexual Harassment Claims: How to Avoid Hostile Work Environment Claims under FEHA and Foster a Culture of Respect to Minimize Risk. Click here to learn more, or to register today!