Smith v. Rae-Venter Law Group

Citation58 P.3d 367,127 Cal.Rptr.2d 516,29 Cal.4th 345
Decision Date02 December 2002
Docket NumberNo. S098760.,S098760.
PartiesTimothy L. SMITH, Plaintiff and Appellant, v. RAE-VENTER LAW GROUP, Defendant and Appellant.
CourtUnited States State Supreme Court (California)

Timothy L. Smith, in pro. per.

Law Offices of Ellen Lake, Ellen Lake, Oakland; Norland & Kays and Gregg L. Kays,' San Jose, for Plaintiff and Appellant.

Miles E. Locker, San Francisco, for the Division of Labor Standards Enforcement as Amicus Curiae on behalf of Plaintiff and Appellant.

Michael Gaitley, San Francisco, and David Pogrel, for The Legal Aid Society— Employment Law Center as Amicus Curiae on behalf of Plaintiff and Appellant.

Cynthia Rice, Santa Rosa, and Michael Meuter, for California Rural Legal Assistance, Inc., as Amicus Curiae on behalf of Plaintiff and Appellant.

Genevie Gallegaos, for La Raza Centro Legal, Inc., as Amicus Curiae on behalf of Plaintiff and Appellant.

Marci Seville, and Donna Ryu, Berkeley, for Women's Employment Rights Clinic as Amicus Curiae on behalf of Plaintiff and Appellant.

Helen Yu-chuin Chen, San Francisco, for Asian Law Caucus as Amicus Curiae on behalf of Plaintiff and Appellant.

Margaret Stevenson and Ellen Braff Fuajardo for East Palo Alto Community Law Project as Amicus Curiae on behalf of Plaintiff and Appellant.

Marcela Siderman for Legal Aid Foundation of Los Angeles as Amicus Curiae on behalf of Plaintiff and Appellant.

Gus T. May, Marc L. Bender, Los Angeles, and Cassandra Stubbs, for Bet Tzedek Legal Services as Amicus Curiae on behalf of Plaintiff and Appellant,

Curiale Dellaverson Hirschfield Kelly & Kraemer, Curiale Dellaverson Hirschfield Kraemer & Sloan, Stephen J. Hirschfield, Felicia R. Reid and Donna M. Rutter, San Francisco, for Defendant and Appellant.

Paul, Hastings, Janofsky & Walker, Paul Grossman, George W. Abele and Deborah S. Weiser, Los Angeles, for California Employment Law Council as Amicus Curiae on behalf of Defendant and Appellant.

Mitchell Silberberg & Knupp, William L. Cole, Lawrence A. Michaels, Kevin E. Gaut, Los Angeles; Law Office of Steven Drapkin and Steven Drapkin, Los Angeles, for the Employers Group as Amicus Curiae on behalf of Defendant and Appellant.


"If an employer fails to pay wages in the amount, time, or manner required by contract or by statute, the employee has two principal options. The employee may seek judicial relief by filing an ordinary civil action against the employer for breach of contract and/or for the wages prescribed by statute. (Lab.Code, §§ 218, 1194.) Or the employee may seek administrative relief by filing a wage claim with the [California Labor Commissioner] pursuant to a special statutory scheme codified in sections 98 to 98.8," commonly known as a Berman hearing. (Cuadra v. Millan (1998) 17 Cal.4th 855, 858, 72 Cal.Rptr.2d 687, 952 P.2d 704, italics omitted.) Where the administrative remedy is pursued, both parties have the right to appeal the decision of the Labor Commissioner (commissioner) to the trial court. (Lab.Code, § 98.2, subd. (a).)1 In the event such an appeal is taken, section 98.2, subdivision (c) (section 98.2(c)) provides that the court shall assess costs and reasonable attorney fees against an appellant who "is unsuccessful in the appeal." The purpose of this fee-shifting provision is to discourage frivolous and meritless appeals from the commissioner's decisions.

We granted review to settle a conflict between this case and earlier reported decisions on the meaning and nature of the requirement that the appealing party be "unsuccessful in the appeal" in order for the fee-shifting provision to take effect. The earlier cases, decided in the context of employer appeals but stating a rule that has been applied in both employer and employee appeals, hold that the fee-shifting provision becomes operative only when the judgment of the trial court completely eliminates the commissioner's administrative award. (Cardenas v. Mission Industries (1991) 226 Cal.App.3d 952, 960, 277 Cal.Rptr. 247 (Cardenas); see also Triad Data Services, Inc. v. Jackson (1984) 153 Cal.App.3d Supp. 1, 200 Cal.Rptr. 418 (Triad).) The Court of Appeal below rejected that test, concluding instead that a party (either employer or employee) who seeks review of a commissioner's award is successful in the appeal when the resulting judgment is more favorable to that party than was the administrative award from which the appeal was taken.

We conclude that the rationale of the Court of Appeal's decision is substantially sound but that the judgment must be reversed to modify the disposition. The construction of section 98.2(c) that the Court of Appeal adopted (comparison of the resulting judgment with the administrative award from which the appeal was taken to determine whether the appealing party was unsuccessful for fee-shifting purposes) represents a clear break from the construction given the statute in Triad and Cardenas (fee-shifting provision becomes operative only when the judgment of the trial court completely eliminates the commissioner's administrative award). This latter standard appears to have been uniformly applied until the Court of Appeal's decision in this case. Although the general rule is that judicial decisions are to be given retroactive effect, there is a recognized exception when a decision changes a settled rule on which the parties below have relied. (See, e.g., Brennan v. Tremco Inc. (2001) 25 Cal.4th 310, 318, 105 Cal.Rptr.2d 790, 20 P.3d 1086; Droeger v. Friedman, Sloan & Ross (1991) 54 Cal.3d 26, 45, 283 Cal.Rptr. 584, 812 P.2d 931; Woods v. Young (1991) 53 Cal.2d 315, 329-331, 279 Cal.Rptr. 613, 807 P.2d 455.) Because plaintiff in this case, and perhaps others similarly situated, relied on the rule announced in Triad and Cardenas in electing to appeal the commissioner's award to the trial court, our holding parting company with that rule will be applied prospectively only to those appeals from the commissioner's decisions filed in the trial court after the date this decision becomes final.

Factual and Procedural Background

The Court of Appeal found the following facts, most of which are drawn from the record of the trial de novo, relevant to the issues raised on appeal. Rae-Venter Law Group (RVLG), a small law firm specializing in biotechnology patent law, was founded in September 1995 by Attorney Barbara Rae-Venter, who was the firm's sole shareholder. Timothy L. Smith, then a recent law school graduate with a Ph.D. in molecular biology, joined RVLG at its inception as an associate attorney. Smith resigned his employment with RVLG one year later, in September 1996. During that year, he and Rae-Venter were the only attorneys at RVLG. In his letter of resignation, Smith asked RVLG to pay him for four weeks of accrued vacation time and to reimburse him for certain business expenses and for health insurance.

RVLG responded with a written memorandum in which it disputed both Smith's claim for vacation wages and his business expense claim. RVLG did reimburse Smith for health insurance premiums, as demanded.

Unhappy with RVLG's resolution of his demands, Smith filed a wage claim with the Department of Labor Standards Enforcement (i.e., the commissioner). In October 1996, the commissioner gave RVLG notice of Smith's claims. That notice repeated Smith's claims for vacation wages and for reimbursement of business expenses. In addition, Smith claimed entitlement to unpaid bonuses and reimbursement for a miscellaneous deduction taken from his final paycheck. Later, in June 1997, the commissioner filed a formal complaint on Smith's behalf. Like the earlier notice, the complaint sought reimbursement for claimed business expenses and for the miscellaneous deduction from Smith's final pay. The complaint also repeated Smith's earlier demand for vacation and bonus wages, although in somewhat higher amounts, and in addition included a new claim for reimbursement of periodic unemployment insurance deductions mistakenly deducted from Smith's wages due to a payroll computer program error. The complaint also sought "waiting time" penalties and prejudgment interest. (§§ 203, 98.1.)

In late August 1997, a Labor Commission hearing officer heard Smith's complaint. On September 3, 1997, the hearing officer made an award to Smith totaling $8,878.57. The award included $6,865.31 in wages, representing payment for four weeks of vacation together with reimbursement for the unemployment insurance deductions; statutory interest on those wages, which amounted to $632.94; and $1,380.32, the amount Smith sought for unpaid business expenses. The hearing officer denied Smith's other claims, including his claim for $12,000 in bonuses. The hearing officer further determined that no waiting time penalties were due because a bona fide dispute existed between the parties regarding Smith's wage claims. Within 10 days, RVLG sent the commissioner a cashier's check made payable to Smith for $8,878.57, the full amount of the award. One week later, on September 19, 1997, Smith filed his notice of appeal, seeking a trial de novo on his claims. Because Smith had appealed, the commissioner returned RVLG's check.

On February 5 and 6, 1998, a two-day court trial de novo was conducted in the Santa Clara County Superior Court. In his trial brief, Smith listed his claimed damages, which included unpaid vacation and bonus wages, unreimbursed business expenses, and unauthorized deductions from his pay, plus interest on all of those amounts. He also sought statutory waiting time penalties. (§ 203.) At trial, both parties submitted testimonial and documentary evidence and written and oral argument. On February 17, 1998, the court filed a memorandum of decision concluding Smith was entitled to payment for vacation wages and reimbursement both for the unemployment insurance deductions and for the unreimbursed business expenses, together with interest on all of those amounts from the date of his resignation. Like the...

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