Amaral v. Cintas Corp. No. 2

163 Cal.App.4th 1157

78 Cal. Rptr. 3d 572

FRANCISCA AMARAL et al., Plaintiffs and Appellants, v. CINTAS CORPORATION NO. 2 et al., Defendants and Appellants CITY OF HAYWARD, Intervener and Respondent.

No. A114510.

No. A114981.

Court of Appeals of California, First District, Division Three.

June 11, 2008.

Altshuler Berzon, Michael Rubin, Scott A. Kronland and Eileen B. Goldsmith for Plaintiffs and Appellants.

Patrick Whitnell and Kourtney C. Burdick for League of California Cities and California State Association of Counties as Amici Curiae on behalf of Plaintiffs and Appellants.

Squire, Sanders & Dempsey, Mark C. Dosker, Diane L. Gibson and Michael W. Kelly for Defendants and Appellants.

Michael J. O'Toole, City Attorney, and Daniel S. Connolly, Assistant City Attorney, for Intervener and Respondent City of Hayward.

OPINION

McGUINESS, P. J.

These appeals concern the constitutionality and application of a living wage ordinance enacted by the City of Hayward (City) and incorporated into its municipal contracts. Although Cintas¹ entered into such contracts with the City, it did not provide the minimum wages or benefits required by the ordinance to employees who worked in the company's stockroom or laundry production facilities, which are located outside of Hayward. Plaintiffs, representing a class of such employees, sued Cintas for violations of the living wage ordinance, Labor Code section 200 et seq., Business and Professions Code section 17200 and breach of contract. The trial court rejected Cintas's challenges to the constitutionality of the ordinance and, on cross-motions for summary judgment or summary adjudication, found that Cintas violated the ordinance, breached its contracts with the City, and violated several Labor Code provisions as well as Business and Professions Code section 17200. The court awarded back wages and unpaid benefits, imposed penalties for the Labor Code violations pursuant to the Labor Code Private Attorneys General Act of 2004 (Lab. Code, § 2698 et seq.), and awarded plaintiffs statutory attorney fees and costs. Cintas challenges nearly every aspect of these rulings on appeal. In separate cross-appeals, plaintiffs dispute the trial court's finding that Cintas's conduct was not "willful," challenge the court's calculation of penalties, and claim they are entitled to recover additional costs.

We conclude the trial court correctly decided all of the numerous legal issues presented. Accordingly, we affirm the judgment and postjudgment orders in their entirety.

BACKGROUND

During the period from July 1999 through the end of June 2003, the City contracted with Cintas for certain uniform and linen services. Cintas leased the City a variety of uniform garments as well as janitorial items such as shop towels and other towels, mops and industrial floormats. Cintas drivers collected soiled items from various City departments every week and delivered them to a Cintas facility for laundering. During the contract period, items from the City were processed at Cintas plants located in Union City and San Leandro. Cintas production workers would first unload items from the truck and sort them into bins by category (i.e., garments, towels and mats). The items were not separated by customer; instead, the garments and other items collected from the City were mixed with items from multiple other Cintas customers. Next, the items would be laundered, steamed or pressed (as necessary), inspected for damage, sorted again, and loaded back onto trucks for delivery. Cintas also maintained a stockroom in San Leandro. Stockroom workers filled requests for replacement garments, repaired damaged garments, and either applied or removed customer-requested logos and labels for the garments. Like production workers, Cintas employees in the stockroom worked on items for many different customers each day.

In April 1999, the City adopted the Hayward Living Wage Ordinance (LWO). (Hayward Ord. No. 99-03, adding ch. 2, art. 14, § 2-14.010 et seq. to Hayward Mun. Code.) In connection with this ordinance, the Hayward City Council made the following findings: "a. The City awards many contracts to private firms which provide services and labor to City government and to the public. [¶] b. Experience indicates that many City contractors who provide services and labor pay their employees ... wages at or slightly above the minimum required by federal and state minimum wage laws. [¶] c. Payment of inadequate compensation does not provide affected employees with resources sufficient to afford a decent standard of living in Hayward. [¶] d. The City intends to require contractors to provide a minimum level of compensation that will improve the level of services rendered to and for the City. [¶] e. Based upon public comment, testimony and studies, the City Council finds that the wage levels set by this ordinance are minimum compensation levels required to afford a decent standard of living in Hayward." (Hayward Ord. No. 99-03, at § 1.)

The LWO, which applies to all service contracts entered with the City on or after July 1, 1999, requires covered contractors to pay their employees at least $8 per hour if health benefits are provided, or $9.25 per hour if no health benefits are provided. (Hayward Mun. Code, § 2-14.020, subds. (a) (c).)² The ordinance defines "employee" as "any individual employed by a service contractor on or under the authority of any contract for services with the City or proposal for such contract." (Hayward Mun. Code, § 2-14.010, subd. (c).) A "service contract" triggering obligations under the LWO is defined as "any contract with the City, including a purchase order," involving an expenditure in excess of $25,000 for any of several enumerated services, including "[j]anitorial and custodial" services and "[l]aundry services." (Hayward Mun. Code, § 2-14-010, subd. (f).)³

Two months before the ordinance went into effect, the City's purchasing manager Ralph Costa sent Cintas a complete copy of the newly adopted LWO. In the facsimile cover sheet for this transmission, Costa reminded Cintas that the City intended to "add language to the renewal PO [purchase order] indicating that the contract is subject to the requirements of the ordinance." On June 9, 1999, the City followed up with a form letter stating that the City's renewable purchase order with Cintas was subject to the LWO and explaining the LWO's requirements. The letter asked vendors to indicate whether they would comply with the ordinance, warning that a refusal to comply would result in the vendor's contract or purchase order being cancelled. Dion Doshier, the general manager of Cintas's Union City plant, checked a box certifying that Cintas would comply with the LWO and returned the signed letter to the City. Doshier did not recall reading the LWO when he first certified that Cintas would comply with it. He did not discuss its requirements with a representative of the City or with anyone at Cintas; rather, Doshier assumed the contract was being renewed under the same terms and conditions as had previously applied.

The following year, on June 2, 2000, the City sent a letter informing Cintas of the new hourly minimum wages required under the LWO (based on cost of living adjustments). Once again, a representative of Cintas signed and returned the letter, certifying that Cintas would comply with the LWO.⁴ In addition, purchase orders from the City covering the period from July 1, 1999, through June 30, 2003, were stamped with the statement, "CINTAS agrees to comply with The City of Hayward Living Wage Ordinance ...."⁵ Meanwhile, no one at Cintas contacted the City with questions about its requirements or applicability.

In late May 2003, the City contacted Cintas about renewing its purchase order. When Matthew Ketchem, the general manager of Cintas's San Leandro plant, reviewed the paperwork forwarded by the City, he noticed statements requiring compliance with the Hayward Living Wage Ordinance. Ketchem asked around throughout the service department, but no one knew what the LWO was and no one had contacted the City to find out. Ketchem contacted his supervisor, a regional vice-president based in Seattle, Washington, and was told to terminate the contract. By letter of July 3, 2003, Cintas terminated its contract with the City. Throughout the period from 1999 to 2003, revenue from the City of Hayward contract constituted less than 1 percent of the total revenue Cintas received from all customers serviced at the Union City and San Leandro facilities.

On June 23, 2003, plaintiffs filed a class action complaint against Cintas based on the company's failure to compensate its Union City and San Leandro employees at hourly rates required by the LWO. The complaint alleged Cintas violated the LWO and associated Labor Code provisions (Lab. Code, §§ 204, 227.3), engaged in an unfair and unlawful business practice (Bus. & Prof. Code, § 17200), and breached its contract with the City of Hayward. After the Legislature enacted the Labor Code Private Attorneys General Act of 2004 (Lab. Code, § 2698 et seq.), which permits aggrieved employees to recover Labor Code penalties that previously could be pursued only by the Labor Commissioner, plaintiffs amended their complaint to seek additional penalties. The trial court certified a class consisting of all production and stockroom workers employed by Cintas at its facilities in Union City and San Leandro between July 1, 1999 and June 30, 2003. The court also permitted the City of Hayward to intervene as a plaintiff.

Early in the proceedings, Cintas moved for summary judgment on the ground that the City lacked authority to regulate wages for work performed outside of Hayward's territorial boundaries. (Cal. Const., art. XI, § 7.) The trial court denied the motion, concluding application of the LWO was a proper exercise of the City's contracting power. After the case proceeded through discovery, on September 23,...