Potential Liability Stemming From a Continuous Violation (Failure to Pay Overtime) May Stretch Way Beyond the Current Statute of Limitations (Up to the Hire Date).
On January 24, 2013, in a landmark ruling affecting Business & Professions Code section 17200 (Unfair Competition Law) cases, the California Supreme Court unanimously held in Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal. 4th 1185 that the common law equitable exceptions to the statute of limitations applied to UCL claims, settling a longstanding split within the Courts of Appeal. Though the facts of the case did not pertain to labor or employment issues, the Supreme Court’s holding is extremely important for California businesses and employers, as the vast majority of business and employment litigation claims are coupled with UCL claims.
II. FACTS & PROCEDURAL HISTORY
The dispute before the Supreme Court arose from a photocopy equipment lease between Jamsid Aryeh and Canon Business Solutions, Inc.
Mr. Aryeh ran a copying business under the name ABC Copy & Print and entered into two agreements with Canon (one in November 2001 for a black and white copier and one in February 2002 for a color copier) to lease copiers for a 60 month term. The agreements required Mr. Aryeh to pay monthly rent for each copier, subject to a maximum copy allowance. If Mr. Aryeh exceeded the monthly allowance, he had to pay an additional per copy charge. The agreements also provided that Canon would service the copiers.
Beginning in 2002, Mr. Aryeh noticed discrepancies between meter readings taken by Canon employees and the actual number of copies made on each copier, and he began compiling independent records. Mr. Aryeh alleged that Canon employees had run thousands of test copies during 17 service visits between February 2002 and November 2004, which he claimed resulted in him exceeding his monthly allowances and having to pay excess copy charges and fees to Canon.
Mr. Aryeh did not file his complaint alleging Canon violated the UCL until January 31, 2008. In that complaint, Mr. Aryeh alleged that Canon knew or should have known it was charging for excess copies and that the practice of charging for test copies was both unfair and fraudulent.
Canon demurred to Mr. Aryeh’s complaint on the grounds that the UCL claim was barred by the statute of limitations set forth under Business & Professions Code section 17208 for the complaint had not been filed within four years of the first violation allegedly occurring in 2002. The trial court sustained the demurrer. Mr. Aryeh filed a second amended complaint that identified 13 overcharges within the four-year limitation period. After Canon demurred for a second time, the trial court dismissed the action without leave to amend.
The trial court read state law as establishing that the clock on a UCL claim starts running when the first violation occurs. Consequently, because the amended complaints established a first violation in 2002, the claim was barred by the four-year statute of limitations. Mr. Aryeh appealed.
The Second District Court of Appeal, in a divided 2-1 decision, affirmed the trial court’s dismissal and held that the common law principles did not apply to avoid the statute of limitations. The appellate court reasoned Mr. Aryeh knew shortly after entering into his second contract in February 2002 that Canon was overcharging for the test copies, but still waited to bring his case for another six years. Mr. Aryeh appealed to the California Supreme Court and the Supreme Court granted review.
III. CALIFORNIA SUPREME COURT OPINION
Justice Kathryn M. Werdegar wrote the opinion on behalf of the seven member California Supreme Court. Justice Werdegar’s opinion held that the UCL’s silence on the issue of when a UCL claim accrues triggers a presumption in favor of applying settled common law exceptions to UCL claims.
Generally, a cause of action accrues at the time when the cause of action is complete with all of its elements, or when a suit may be maintained. Thus, the period in which a plaintiff must bring suit or be barred, runs from the moment the claim accrues. However, Justice Werdegar’s holding opened the flood gates to allowing common law exceptions to UCL claims, the two most pertinent being the continuing violation and continuous accrual doctrines.
As to the continuing violation doctrine, the doctrine aggregates a series of wrongs or injuries and treats the limitations period as accruing for all of them upon the commission or sufferance of the last of them. The continuing violation doctrine is applied when a pattern of reasonably frequent and similar acts justify treating the acts as an indivisible course of conduct actionable in its entirety, despite some of it having occurred outside and some inside the statute of limitations. The court rejected the applicability of this particular doctrine to Mr. Aryeh’s complaint because Mr. Aryeh had alleged a series of discrete, independently actionable wrongs, and was therefore not a situation where a wrongful course of conduct became apparent after an accumulation of multiple harms.
As to the continuing accrual doctrine, the doctrine provides that where there is an ongoing duty which is owed that is susceptible to recurring breaches, each breach of the duty owed triggers its own limitations period, such that a suit for relief may be partially time-barred as to older events but timely as to those within the applicable limitations period. In determining whether the doctrine applied to Mr. Aryeh’s complaint, the court found that (1) Canon sent bills on a regular basis requesting payment for test copy charges that were unfair or fraudulent, (2) Canon had an ongoing duty not to impose unfair charges, and (3) this continuing duty to avoid unfair charges was susceptible to recurring breaches. As a result, the Court held that the continuing accrual doctrine applied, and a new limitations period began with each alleged improper collection. Thus, Mr. Aryeh’s allegations concerning monthly charges for copies made by Canon were not completely time-barred.
IV. LEGAL ANALYSIS
The Supreme Court’s ruling will have drastic implications for businesses and employers.
At a minimum, plaintiff employees and/or customers who have brought a UCL claim and seek to evade the complete voidance of their claims due to the UCL’s statute of limitations will analogize their case to the Aryeh decision and argue that their claim is only partially time barred under the continuous accrual doctrine.
At the other end of the spectrum, the Supreme Court left the door wide open for plaintiff employee(s) and/or customer(s) to aggregate a series of wrongs or injuries and treat the limitations period as accruing for all of them upon the commission or sufferance of the last of them under the continuing violation doctrine. So long as the plaintiff employee(s) and/or customer(s) are able to distinguish themselves factually from Mr. Aryeh’s complaint and allege that the defendant in their situation exhibited a pattern of reasonably frequent and similar unlawful acts justifying application of the continuing violation doctrine, such plaintiffs will be able to seek redress for all of the acts as if they were an indivisible course of conduct actionable in its entirety.
Thus, a plaintiff employee who earned $15 per hour and was not lawfully paid 5 hours of overtime per week from defendant employer, may now have a potential claim against their employer for the entire time the employee was employed by the employer (i.e., potentially 30 years). Putting this into perspective, the value of plaintiff employee’s claim against his/her employer jumped from merely $23,400 [52 wks x 5 hrs per wk x 4 yr statute of limitations x (1.5 x $15)] to $175,500 [52 wks x 5 hrs per wk x 30 yr employment x (1.5 x $15)].
Businesses and employers are encouraged to take heed to the Supreme Court’s ruling and take the necessary steps to make sure that it is in full compliance with the law in order to protect itself as much as possible from potential liability.
If you feel that a former employee(s) and/or customer(s) may potentially have a claim against you and/or your business, please feel free to contact me or any other attorney at Tredway, Lumsdaine & Doyle, LLP.
If you have any questions or would like to learn more about the issues raised by the Court in the decision, please feel free to contact me or any other attorney at Tredway, Lumsdaine & Doyle, LLP.
Written By: Carlos A. Becerra, Esq.