Wells Fargo’s Attempt to Throw Out $97 Million Loss in Rest Break Case

In early November 2019, Wells Fargo Bank, N.A. (“Wells Fargo” or “Defendant”) asked the Ninth Circuit Court of Appeals (“Ninth Circuit”) to reverse a judgment of the U.S. District Court, Central District of California, in the case Patricia Barreras, et al. v. Wells Fargo Bank, N.A., et al., Case No. CV 17-4344 PA, that awarded nearly $100 million to a class of 4,481 non-exempt mortgage consultants for its failure to provide mandated rest breaks.

In March 2017, Patricia Barreras and Jacqueline Ibarra (“Plaintiff”) filed a lawsuit in California state court against Wells Fargo, alleging that, inter alia, it had failed to provide them and the putative class with requisite rest periods.  Thereafter, Patricia Barreras withdrew as lead plaintiff and the case was removed to federal court.  Subsequently, on July 25, 2017, the court certified a class of non-exempt mortgage consultants of Wells Fargo who worked during the period from March 17, 2013 to August 1, 2017.  In that same order, the court dismissed most of Plaintiff’s claims, leaving only the rest break claim and the portion of the UCL claim relating to rest break violations.

Under California Labor Code Section 226.7 and the Industrial Welfare Commission Wage Orders, every employer is required to authorize and permit all non-exempt employees to take, at a minimum, a net 10-minute paid rest period for every four hours worked or major fraction thereof.  Thus, if an employee works an eight-hour day, the employee is entitled to two 10-minute paid rest periods.  An employer may not require the employee to work during the rest periods.  If an employer does not authorize or permit a rest period, the employer is required to pay the employee one hour of pay at the employee’s regular rate of pay for each workday that the rest period is not provided.

Here, Plaintiff alleged that the class members “‘were routinely required to work through rest periods at the direction of Defendant and/or with Defendant’s knowledge and acquiescence,’ and ‘Defendant paid Plaintiff and class members based on a commission, and did not separately compensate them for their time.’”[1] Specifically, Plaintiff argued that the compensation system of the mortgage consultants failed because their regular hourly pay was merely an advance that is subtracted from future commissions.  Id.  On the other hand, Defendant described its compensation system as one where mortgage consultants “receive[d] a bona fide hourly wage for all hours worked (including rest time), plus they [were] eligible to earn incentive pay over and above that base hourly pay.”  Id.  Relying on a California Court of Appeal’s decision[2] which ruled that an employer’s commission-based compensation plan violated Labor Code Section 226.7 because it did not separately compensate employees for rest breaks, the court found that the Wells Fargo case “was not meaningfully different” and ruled that Plaintiff was entitled to summary judgment as to liability on her claim for unpaid rest breaks and on her UCL claim.  Id.   

Following this ruling, the parties agreed that “[t]he primary legal dispute will be over how to calculate ‘one additional hour at the employees regular rate of compensation for each workday that [a rest] period is not provided.”[3]  Defendant contended that the “regular rate of compensation” for purposes of a rest break violation is calculated by only including an employee’s hourly rate attributable to each class member in the company payroll system during the day of each qualifying shift, which would result in aggregate class-wide damages of $24,472,114.36.  Id.  On the other hand, Plaintiff argued that the “regular rate of compensation” is derived by adding all forms of qualifying compensation (including commissions and other non-discretionary pay) earned during the pay period, and dividing that sum by the total hours worked during the pay period, which would result in an aggregate class-wide damages of $97,284,817.91.  The court ultimately sided with Plaintiff, concluding that the “regular rate of compensation” is not limited to the hourly rate, but must include other forms of qualifying compensation.

While Wells Fargo urged the Ninth Circuit to reverse the District Court’s decision entirely, or at least significantly reduce the damages award made against Wells Fargo, the decision may stand and, if it does, Wells Fargo will be on the hook for nearly $100 million for failing to provide its employees mandated rest breaks.

The legal team at SFMS has substantial experience litigating employment matters.  If you have any questions regarding this subject or this posting, please contact John Roberts (jroberts@sfmslaw.com) or Alec Berin (aberin@sfmslaw.com).  We can also be reached toll-free at 866-540-5505.

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[1] January 19, 2018 District Court’s Summary Judgment Order, Dkt. No.35.

[2] Vaquero v. Stoneledge Furniture LLC, 214 Cal. Rptr. 3d 661 (Ct. App. 2017).

[3] May 8, 2018 District Court’s Findings of Fact and Conclusions of Law, Dkt No. 50.