Drumm v. Morningstar, Inc., No. 3:2008cv03362 - Document 143 (N.D. Cal. 2009)
Court Description: ORDER DENYING MOTIONS FOR JUDGMENT AS A MATTER OF LAW(tehlc4, COURT STAFF) (Filed on 11/5/2009)
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Drumm v. Morningstar, Inc. Doc. 143 1 IN THE UNITED STATES DISTRICT COURT 2 FOR THE NORTHERN DISTRICT OF CALIFORNIA 3 4 5 MICHAEL DRUMM, 6 Plaintiff, 7 8 v. MORNINGSTAR, INC., 9 NO. C08-03362 TEH ORDER DENYING MOTIONS FOR JUDGMENT AS A MATTER OF LAW Defendant. 11 For the Northern District of California United States District Court 10 This matter is before the Court on the motions for judgment as a matter of law 12 pursuant to Federal Rule of Civil Procedure 50, made orally by Defendant Morningstar, Inc. 13 and Plaintiff Michael Drumm on October 21 and October 22, 2009. The Court took both 14 parties’ motions under submission. The jury returned a verdict in favor of Mr. Drumm, 15 concluding that the sabbatical policy at Morningstar is a vacation subject to California Labor 16 Code section 227.3, and that Mr. Drumm had accrued 30 unused vacation days, for which he 17 was owed $9,692.31. The jury also awarded an additional $9,692.31 in waiting time 18 penalties. 19 For the reasons set forth below, both motions are DENIED. 20 21 LEGAL STANDARD 22 Rule 50(a) allows a party to move for judgment as a matter of law anytime before the 23 case is submitted to the jury. Such a motion may be granted if, after the party opposing the 24 motion “has been fully heard on an issue,” the Court “finds that a reasonable jury would not 25 have a legally sufficient evidentiary basis to find for the party on that issue.” Fed. R. Civ. P. 26 50(a). When the motion is not granted, “the court is considered to have submitted the action 27 to the jury subject to the court’s later deciding the legal questions raised by the motion.” 28 Fed. R. Civ. P. 50(b). Dockets.Justia.com 1 “Motions for judgment as a matter of law in jury trials are governed under the same 2 standard as summary judgment motions, albeit at a later stage of the proceeding.” Computer 3 Access Tech. Corp. v. Catalyst Enters., Inc., 273 F. Supp. 2d 1063, 1066 (N.D. Cal. 2003). 4 In ruling on a Rule 50 motion after the jury has rendered a verdict, the Court must first 5 “determine the correct law,” and then “review the jury’s factual findings to determine 6 whether they are supported by substantial evidence.” Funai Elec. Co., Ltd. v. Daewoo Elecs. 7 Corp., 593 F. Supp. 2d 1088, 1092 (N.D. Cal. 2009). “A jury’s verdict must be upheld if it is 8 supported by substantial evidence,” which “is evidence adequate to support the jury’s 9 conclusion, even if it is also possible to draw a contrary conclusion from the same evidence.” 11 motion may also be made “on purely legal grounds,” taking “the jury’s findings at face For the Northern District of California United States District Court 10 Johnson v. Paradise Valley Unified Sch. Dist., 251 F.3d 1222, 1227 (9th Cir. 2001). Such a 12 value.” K & T Enters., Inc. v. Zurich Ins. Co., 97 F.3d 171, 175 (6th Cir. 1996). 13 14 DISCUSSION 15 I. Plaintiff’s Motion 16 Plaintiff moved the Court to rule in his favor as a matter of law, arguing that 17 undisputed facts supported the conclusion that Morningstar’s sabbatical plan was vacation, 18 that Mr. Drumm used none of his sabbatical leave, and that Morningstar’s failure to pay Mr. 19 Drumm for his vested time upon termination was willful. Since the jury ruled in Plaintiff’s 20 favor on each of those questions, Plaintiff’s motion is DENIED as moot. 21 22 II. Defendant’s Motion 23 Defendant argues that the Court should have concluded, as a matter of law, that 24 Morningstar’s sabbatical policy is not a vacation subject to section 227.3. Morningstar also 25 objects to the jury instruction on this issue, which provided that a sabbatical is a vacation if it 26 meets any one of four factors listed in a July 13, 1987 opinion letter by the California 27 Division of Labor Standards Enforcement (“DLSE”), as well as in the DLSE’s Enforcement 28 Policies and Interpretations Manual (“Manual”). Defendant contends that the Manual is to 2 1 be given “no weight” because its failure to comply with the Administrative Procedure Act 2 renders it “void.” Tidewater Marine Western, Inc. v. Bradshaw, 14 Cal. 4th 557, 576 (1996). 3 According to Morningstar, the Court should have decided this question as a matter of law 4 without resort to the four-prong test, which the DLSE developed to avoid having to assess 5 sabbatical plans on a case-by-case basis – something Morningstar asserts is well within the 6 competence of this Court. 7 In interpreting section 227.3, this Court “must determine what meaning the state’s 8 highest court would give to the law.” Bass v. County of Butte, 458 F.3d 978, 981 (9th Cir. 9 2006). “In the absence of such a decision, a federal court must predict how the highest state 11 other jurisdictions, statutes, treatises, and restatements as guidance.” Ariz. Elec. Power For the Northern District of California United States District Court 10 court would decide the issue using intermediate appellate court decisions, decisions from 12 Coop., Inc. v. Berkeley, 59 F.3d 988, 991 (9th Cir. 1995). As Morningstar acknowledged, 13 there is no state court decision clarifying whether a time-off policy characterized as a 14 “sabbatical” by an employer falls under section 227.3. This Court is therefore charged with 15 determining how the California Supreme Court would likely rule on this question. 16 The Court’s analysis begins “with the statute’s words, assigning them their usual and 17 ordinary meanings, and construing them in context.” Wells v. One2One Learning Found., 39 18 Cal. 4th 1164, 1190 (2006). “If the words themselves are not ambiguous, we presume the 19 Legislature meant what it said, and the statute’s plain meaning governs.” Id. 20 “If statutory language permits more than one reasonable interpretation, courts may consider 21 extrinsic aids, including the purpose of the statute, the evils to be remedied, and public 22 policy.” Prospect Med. Group, Inc. v. Northridge Emergency Med. Group, 45 Cal. 4th 497, 23 507 (2009). 24 Section 227.3 provides that “whenever a contract of employment or employer policy 25 provides for paid vacations, and an employee is terminated without having taken off his 26 vested vacation time, all vested vacation shall be paid to him as wages at his final rate in 27 accordance with such contract of employment or employer policy respecting eligibility or 28 time served[.]” Cal. Lab. Code § 227.3. Any dispute over vested vacation time is to be 3 1 resolved applying “the principles of equity and fairness.” Id. At issue is the meaning of 2 “vacation time”: whether it is limited to traditional vacations, or also includes longer 3 stretches of paid leave characterized by an employer as a “sabbatical.” The statute never 4 defines vacation, and offers few clues as to whether Morningstar’s sabbatical policy would 5 fall within the statute’s mandate. 6 Although no California case law discusses section 227.3’s applicability to sabbaticals, 7 the California Supreme Court has offered guidance on the meaning of “vested vacation 8 time.” In Suastez v. Plastic Dress-Up Co., 31 Cal. 3d 774 (1982), the court explained that “it 9 is important to keep in mind the nature of vacation pay” in “considering the meaning of the 11 “vacation pay” as “simply a form of deferred compensation,” its purpose being “‘to offer a For the Northern District of California United States District Court 10 phrase ‘vested vacation time’ as used in section 227.3.” Id. at 779. The court characterized 12 reward of additional wages for constant and continuous service.’” Id. at 780 (quoting Posner 13 v. Grunwald-Marx, Inc., 56 Cal. 2d 169, 186 (1961)). Vacation pay is, in this respect, 14 “similar to pension or retirement benefits, another form of deferred compensation,” which 15 “‘do not derive from the beneficence of the employer, but are properly part of the 16 consideration earned by the employee.’” Id. (quoting In re Marriage of Fithian, 10 Cal. 3d 17 592, 596 (1974)). 18 Morningstar’s sabbatical plan is consistent with the characterization of “vacation” in 19 Suastez. In its offer letter to Mr. Drumm, Morningstar touted its “generous paid time-off 20 programs” as part of its “excellent package” of benefits. Def.’s Ex. U, at 2. An attachment 21 to the offer letter, titled “Morningstar’s Benefit Description,” characterizes the sabbatical as 22 follows: 23 24 25 After four years of full-time employment at Morningstar, you can take six weeks paid leave to explore, experiment, or pursue any interest for which you could otherwise never find the time. What you do is up to you. We see the sabbatical as a way of saying thanks for helping us grow, and as a way to help you grow. 26 Id. at 4. This sabbatical program shares many features of a “vacation” as described by the 27 California Supreme Court. It is “part of the consideration earned by the employee,” Suastez, 28 31 Cal. 3d at 780, i.e. consideration for “four years of full-time employment at Morningstar.” 4 1 As such, it constitutes “deferred compensation.” Id. Furthermore, the sabbatical is a benefit 2 presented in the employment offer and therefore constitutes a component of the total 3 compensation plan. Finally, Morningstar vice president for human resources Melia Kimura 4 testified that the sabbatical policy was implemented “to reward employees for their continued 5 dedication to the company,” Reps.’ Tr. 10/21/09, at 71:13-17, much the way the California 6 Supreme Court described vacation as “a reward . . . for constant and continuous service,” 7 Suastez, 31 Cal. 3d at 780. 8 However, neither Suastez nor any other California case addresses whether section 9 227.3’s mandate with respect to “paid vacations” would apply to a “paid leave” under 11 delineated narrow circumstances under which a sabbatical policy would not fall under For the Northern District of California United States District Court 10 Morningstar’s sabbatical policy. This question has been addressed by the DLSE, which has 12 section 227.3’s mandate. The DLSE’s position evolved over the course of three opinion 13 letters dated December 13, 1986 (providing that “each case will have to be decided on its 14 own facts”); July 13, 1987 (setting forth the four criteria that a sabbatical must meet not to be 15 subject to section 227.3); and October 6, 1987 (creating an exception “for firms which had a 16 policy that antedated Suastez and which historically offered sabbatical leaves to employees 17 other than high level managerial professionals”). The standard adopted by the DLSE to 18 assess sabbaticals under section 227.3 is a four-prong test: 19 20 21 22 23 [I]n order for a sabbatical not to be subject to S 227.3 and Suastez, the following criteria must be met. The sabbatical must be for an extended period of time beyond what is normally granted for vacation. It cannot replace or displace the vacation normally earned each year but must be in addition to a regular vacation program. Sabbatical leave may only be provided to high level managers and professionals in advanced fields. Finally, sabbatical leave should be granted infrequently, such as every 7 years, though in certain circumstances a shorter period may be acceptable. 24 DLSE Opinion Letter, 7/13/87. A version of the same test also appears at section 15.1.13 of 25 the DLSE’s Manual. The standard evolved, according to the last of the letters on this issue, 26 because “the chances for avoiding Suastez are too great, and the difficulty of consistent 27 28 5 1 enforcement too obvious, to warrant a case-by-case analysis.” DLSE Opinion Letter, 2 10/6/87. 3 4 5 6 7 8 9 11 For the Northern District of California United States District Court 10 The DLSE’s guidance was the basis for the jury instruction on this issue: A sabbatical policy only gives rise to vested vacation time under the policy when any of the following is true: 1. The sabbatical leave is for a short period of time, similar to that which is normally granted for vacation; 2. The sabbatical leave replaces or displaces earned vacation; 3. The sabbatical leave is granted more frequently than once every number of years; or 4. The sabbatical leave is available to more employees than high-level managers and professionals in advanced fields. If any one (or more) of the above is true, you must find that defendant’s sabbatical policy was a vacation plan. If none of the above is true, you must find that defendant’s sabbatical policy was a sabbatical, and your verdict should be for defendant. 12 13 Instruction No. 22. After hearing this instruction, the jury concluded that Morningstar’s 14 sabbatical policy does give rise to vested vacation time. 15 Defendant argues that it was improper for the Court to place any reliance on DLSE 16 policies in interpreting section 227.3. Morningstar is correct that the Manual does not carry 17 the force of law and is not binding, because the policies contained therein are “regulations 18 that [are] void because they [were] not . . . promulgated in compliance with the 19 Administrative Procedure Act.” Gattuso v. Harte-Hanks Shoppers, Inc., 42 Cal. 4th 554, 563 20 (2007) (citing Tidewater, 14 Cal. 4th at 572). However, “[u]nlike interpretive policies 21 contained in the [Manual], advice letters are not subject to the rulemaking provisions of the 22 APA.” Morillion v. Royal Packing Co., 22 Cal. 4th 575, 584 (2000). Thus the opinion 23 letters, “while not controlling upon the courts by reason of their authority, do constitute a 24 body of experience and informed judgment to which courts and litigants may properly resort 25 for guidance.” Koehl v. Verio, Inc., 142 Cal. App. 4th 1313, 1334 n.7 (2006) (quoting 26 Yamaha Corp. of Am. v. State Bd. Of Equalization, 19 Cal. 4th 1, 14 (1998)). 27 The issue is not whether the opinion letters bind this Court, but rather how much 28 weight they may carry in the absence of binding authority. The California Supreme Court 6 1 observed this year that “[c]onsistent administrative construction of a statute, especially when 2 it originates with an agency that is charged with putting the statutory machinery into effect, is 3 accorded great weight.” Ste. Marie v. Riverside County Regional Park & Open-Space Dist., 4 46 Cal. 4th 282, 292 (2009) (internal citations omitted). That the interpretation at issue here 5 takes the form of an opinion letter does not rob it of all authority: 6 Significant factors to consider include whether the administrative interpretation has been formally adopted by the agency or is instead in the form of an advice letter from a single staff member, and whether the interpretation is long-standing and has been consistently maintained. Such deference is also appropriate for practical reasons: “When an administrative interpretation is of long standing and has remained uniform, it is likely that numerous transactions have been entered into in reliance thereon, and it could be invalidated only at the cost of major readjustments and extensive litigation.” 7 8 9 11 For the Northern District of California United States District Court 10 12 Id. at 292-93 (internal citations omitted). While an opinion letter carries less weight than a 13 formally adopted interpretation, a letter of longstanding duration is more authoritative than 14 one of more recent vintage. The opinion letters at issue here have been in place for more 15 than two decades, and may therefore – under Ste. Marie – be accorded some weight.1 16 The opinion letters provide persuasive authority for distinguishing between vacation 17 and sabbatical leave. When section 227.3 was adopted in 1972, the legislature likely did not 18 intend it to apply to the “traditional sabbatical arrangement (i.e., 4 months off after 7 years)” 19 historically offered to academics, DLSE Opinion Letter, 12/13/86, which would not have 20 been considered “vacation” within the ordinary meaning of the term. However, sabbatical 21 policies like that at Morningstar – which the company began offering in 1993, two decades 22 after the passage of section 227.3 – blur the line between traditional sabbaticals and 23 vacations. Indeed, the DLSE observed that the definition of sabbatical – “a leave of absence 24 with pay for ‘travel, research, or rest’” – “could also be applied to a vacation.” DLSE 25 Opinion Letter, 7/13/87. The DLSE therefore listed characteristics of a traditional sabbatical 26 1 The U.S. Supreme Court has held, in the context of federal administrative law, that “interpretations contained in formats such as opinion letters are ‘entitled to respect’ . . . but 27 only to the extent that those interpretations have the ‘power to persuade.’” Christensen v. Harris County, 529 U.S. 576, 587 (2000) (quoting Skidmore v. Swift & Co., 323 U.S. 134, 28 140 (1944)). 7 1 that distinguish it from a vacation, and required that all of the criteria be met “for a sabbatical 2 not to be subject to” section 227.3. Id. A sabbatical that met only some of the criteria was 3 not sufficiently distinct from vacation to excuse compliance with section 227.3. Only if a 4 policy hues closely to the traditional conception of sabbatical will it not be subject to the 5 statute. 6 Morningstar’s argument that the opinion letters carry no weight is, at the very least, 7 disingenuous. Morningstar relied on DLSE opinion letters in drafting its own proposed jury 8 instruction on sabbatical leave, which included a version of the DLSE’s four-prong test and 9 would have instructed the jury – drawing language from an opinion letter – to classify as 11 Proposed Instruction No. 3, Dkt. No. 114. Both parties based their proposed jury instructions For the Northern District of California United States District Court 10 vacation any “sabbatical” so named as a “subterfuge” to avoid section 227.3.2 See Def.’s 12 on DLSE opinion letters, and appeared to be in agreement – until Defendant’s Rule 50 13 motion – that reliance on DLSE policies was appropriate.3 14 Although not bound by the DLSE’s standards, the Court adopted them as a persuasive 15 application of section 227.3 to a sabbatical plan. Section 227.3 treats vacation pay as 16 “wages,” which “are jealously protected by statutes for the benefit of employees.” Boothby 17 v. Atlas Mech., Inc., 6 Cal. App. 4th 1595, 1601 (1992). Only a leave policy that is truly 18 distinct from vacation should be relieved from such protection. The applicability of section 19 227.3 should hinge not on an employer’s semantic choices, but on objective criteria. The 20 DLSE adopted such criteria, requiring that a sabbatical be something more than a longer, 21 less-frequent variant on vacation to avoid section 227.3. The DLSE’s criteria have been in 22 place for more than two decades, and employers are likely to have relied on its guidance with 23 2 Morningstar would have instructed the jury that a sabbatical policy “only gives rise to vested vacation time under the policy when the sabbatical is a subterfuge for vacation.” 24 Defendant’s Proposed Instruction No. 3, Dkt. No. 114. This suggests that the applicability of section 227.3 hinges on the employer’s intent to avoid the statute. The key inquiry should be 25 whether the “sabbatical” possesses the objective characteristics of a sabbatical – which would justify differential treatment – and not the employer’s subjective rationale in adopting 26 the term. 3 27 Morningstar had raised its argument at least once prior to the Rule 50 motion, objecting to Plaintiff’s proposed jury instructions on the basis that the DLSE policies “are not 28 binding on this Court.” Def.’s Objs. to Pl.’s Proposed Jury Instructions, Dkt. No. 115, at 4. 8 1 respect to their own time-off policies. As such, the Court did not err in instructing the jury 2 based on the DLSE standards. Furthermore, whether Morningstar’s policy fit the 3 characteristics of a vacation was a question of fact that the Court properly allowed the jury to 4 decide, as was the issue of whether Morningstar willfully failed to pay Mr. Drumm wages 5 owed upon his termination. 6 Defendant’s motion for judgment as a matter of law is DENIED. 7 8 IT IS SO ORDERED. 9 11 For the Northern District of California United States District Court 10 Dated: 11/05/09 THELTON E. HENDERSON, JUDGE UNITED STATES DISTRICT COURT 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 9
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