Ruelas v. Costco Wholesale Corp.

67 F.Supp.3d 1137

Noe Ruelas, Plaintiff

v.Costco Wholesale Corporation, et al., Defendants.

Case No. 5:14–cv–02474–PSG

United States District Court, N.D. California, San Jose Division.

Signed September 8, 2014

William Lucas Marder, Polaris Law Group, LLP, Hollister, CA, for Plaintiff.

Simon Lee Yang, Seyfarth Shaw LLP, Los Angeles, CA, for Defendants.

ORDER GRANTING MOTION TO DISMISS IN–PART

(Re: Docket No. 8)

PAUL S. GREWAL, United States Magistrate Judge

California's Labor Code has long authorized its labor law enforcement agencies, departments and divisions to assess and collect civil penalties for code violations by an employer.¹ A decade ago, the Governor signed the Labor Code Private Attorneys General Act of 2004 (“PAGA”) to permit private, and not just public, enforcement. “An aggrieved employee [may] invoke a private civil action on behalf of himself or herself and other current or former employees to recover civil penalties if the LWDA [Labor and Workforce Development Agency] does not do so. The penalties collected in these private civil actions are to be distributed 75 percent to the estate and 25 percent to the aggrieved employee.”² PAGA also expanded the penalties for labor code violations and authorized private enforcement of these expanded penalties.

Invoking these private enforcement rights under PAGA, Plaintiff Noe Ruelas filed this case against Defendant Costco Wholesale Corporation and Does 1 through 10 (“Costco”) for giving him a defective final pay statement and failing to provide meal periods.³ Costco now moves to dismiss. The court GRANTS the motion as to all of Ruelas's claims except Ruelas's claim for violation of Section 512 of the California Labor Code and recovery under Section 2699(f) of PAGA, which survives.

I. BACKGROUND⁴

On March 6, 2014, Ruelas was fired from his job with Costco in Monterey County, California. On that day, Costco gave Ruelas a corporate check with a detachable part that did not identify the inclusive dates of the pay period or Ruelas's name. The entire check was, however, stapled to a separate document that identified both items.⁵

During Ruelas's nearly seven years with Costco, Costco frequently failed to provide employees meal periods, although Costco paid the employees an extra hour of pay as mandated by Section 226.7(c).⁶

In a complaint initially filed in Monterey Superior Court,⁷ Ruelas first claims Costco violated Section 226(a) by failing to provide a compliant itemized statement as a “detachable part of the check, draft, or voucher.”⁸ Ruelas's second claim comprises a variety of subclaims. Ruelas claims Costco's failure to provide legally compliant itemized pay statements not only gives rise to payments under 226.7(c) but also payments and penalties under Sections 226(e),⁹ 226.3, and PAGA, specifically Section 2699(a).¹⁰ Ruelas also claims Costco's failure to provide meal periods violated Sections 226.7(b),¹¹ giving rise to additional penalties under Section 2699(a). Ruelas finally claims Costco's failure to provide meal periods violated Section 512,¹² giving rise to penalties under both Section 2699(f)¹³ and Section 558.¹⁴ In sum, for violations of Sections 226(a), 226.7(b), and 512, Ruelas initially sought payments and penalties pursuant to Sections 226(e), 226.3,¹⁵ 558, 2699(a), and 2699(f) as well as reasonable attorney's fees. Ruelas later disavowed any claims based on Sections 226.3 and 558.¹⁶

II. LEGAL STANDARDS

A complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.”¹⁷ If a plaintiff fails to proffer “enough facts to state a claim to relief that is plausible on its face,” the complaint may be dismissed for failure to state a claim upon which relief may be granted.¹⁸ A claim is facially plausible “when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”¹⁹ Accordingly, under Fed. R. Civ.P. 12(b)(6), which tests the legal sufficiency of the claims alleged in the complaint, “[d]ismissal can be based on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory.”²⁰ “A formulaic recitation of the elements of a cause of action will not do.”²¹

On a motion to dismiss, the court must accept all material allegations in the complaint as true and construe them in the light most favorable to the non-moving party.²² The court's review is limited to the face of the complaint, materials incorporated into the complaint by reference, and matters of which the court may take judicial notice.²³ However, the court need not accept as true allegations that are conclusory, unwarranted deductions of fact, or unreasonable inferences.²⁴ “Dismissal with prejudice and without leave to amend is not appropriate unless it is clear ... that the complaint could not be saved by amendment.”²⁵

III. DISCUSSION

A. Ruelas Fails to Plead a Violation of Section 226(a)

Ruelas first seeks a $50 Section 226(e) payment for a violation of Section 226(a) based on the detachable portion of his final paycheck, which fails to state his name and the first day of the pay period. Section 226(a) requires a compliant itemized statement “either as a detachable part of the check, draft, or voucher paying the employee's wages, or separately when wages are paid by personal check or cash.” Ruelas does not dispute that stapled to that paycheck and detachment was an itemized statement containing both Ruelas's name and the beginning date of the pay period,²⁶ but nevertheless contends Costco was obligated to provide the information on the detachment because the check was corporate and not personal.²⁷

The Labor Commissioner has confirmed that Section 226(a)'s purpose is to allow the continued use of detachable pay stubs but not require them: “in the context of the entire subsection it appears to allow for the continued use of the convenient and traditional ‘pay stub’ alternative to a separate statement in writing.”²⁸ Given the Labor Commissioner's clarification of the purpose of Section 226(a) and, more fundamentally, the court's own reading of the plain language of the statute, there is no plausible dispute that Costco complied with Section 226(a)'s requirements when it provided a corporate check stapled to an itemized statement. The purpose of the section was plainly satisfied: Ruelas was told in no uncertain terms both the pay period and his name. So, too, was the plain language of the section: nothing suggests that a corporate check does not qualify as a personal check of the company in this circumstance. To hold otherwise would be to elevate form over substance in the rankest way. Because Ruelas received a compliant wage statement, he fails to state a claim for injury under Section 226(a),²⁹ and his claim for Section 226(e) payments must be dismissed.

Because Costco provided a compliant wage statement, Ruelas also does not state a claim for inadequate wage statement penalties under Section 2699(f).³⁰

B. Ruelas Fails to Plead a Claim for Penalties Based on a Violation of Section 226.7(b)

The parties do not dispute that Costco violated Section 226.7(b) by failing to respect Ruelas and others' meal periods. They also do not dispute that Section 226.7(c) specifies an extra hour of pay for each violation of Section 226.7(b), and Costco paid these amounts to Ruelas. What is disputed, however, is whether these amounts are “civil penalties” provided by the Labor Code so as to preclude Ruelas's claim here. Section 2699(f) allows an individual to seek relief when a section of the Labor Code has been violated, but only where the Code provides no civil penalties.³¹

Ruelas argues Section 226.7(c) is not a civil penalty for the purposes of Section 2699(f) because the payment is paid to an individual employee rather than the Labor Commissioner.³² Ruelas justifies the potential double payment by noting that a failure to provide meal periods harms the state as well as the individual because it jeopardizes public safety.³³ Costco responds that California case law uses the terms “civil penalty” and “statutory penalty” interchangeably,³⁴ and in no way distinguishes between the two for purposes of Section 2699(f). Costco further notes that Section 226.7(c) payments are recoverable by the Labor Commissioner,³⁵ undermining any notion that they are any less a civil penalty when paid directly to an employee.

Costco has the better of the argument. An additional hour of pay to employees who do not receive the meal period required by Section 226.7(b) is plainly a “civil penalty” for purposes of precluding a private suit under Section 2699(f). This court has previously explained that when “the wrong at issue in Section 226.7 is the non-provision” of meal periods, the case falls under the California Supreme Court's “characterization of Section 226.7's payment as penalties.”³⁶ Indeed, as the Enrolled Bill Report for AB 2509, the statute creating Section 226.7(c) penalties, explains, Section 226.7(c) payments for meal-period violations were created because “[n]either Labor Code § 512 [or § 558 ] nor the IWC orders contain penalties for violation of [meal-period] provisions.”³⁷ The Labor Commission also recognizes Section 226.7(c) payment as a penalty to encourage employer compliance with the meal-period laws:

The legislative history of Labor Code section 226.7 clearly indicates that the payment was meant to be a penalty. The payment provision of Labor Code section 226.7 was enacted as part of Assembly Bill 2509 of the 1999–2000 Regular Session of the California Legislature. The Assembly Floor Analysis of AB 2509 as amended on August 25, 2000, demonstrates that the Legislature intended to create a penalty. Specifically, in the description of the Senate amendments to AB 2509, section 4 states that the amendments “Delete the provisions related to penalties for an employer who fails to provide a meal or rest period, and instead codify the lower penalty amounts

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