32 Litigating CA Wage & Hour Class and PAGA Actions (23rd Edition) Seyfarth Shaw LLP | www.seyfarth.com Koehl actually went further than Steinhebel in two respects. Steinhebel ended the chargeback inquiry at whether the chargebacks at issue violated Section 221. Koehl went further by affirming the judgment in the defendant’s favor on a separate, alternative basis—i.e., that even if the chargeback violated Section 221, it was nonetheless saved by an exception to Section 221 set forth in Labor Code section 224.159 Koehl also went beyond Steinhebel in holding that the doctrine of unconscionability did not invalidate the chargeback system.160 Section 224 provides, in relevant part, that Section 221 “shall in no way make it unlawful for an employer to withhold or divert any portion of an employee’s wages when ... a deduction is expressly authorized in writing by the employee to cover ... deductions not amounting to a rebate or deduction from the standard wage.” Although Steinhebel took note of Labor Code Section 224, it did not rely on it to support the holding that the chargeback there was lawful.161 By contrast, Koehl held that Section 224 rendered the chargeback system at issue lawful even if it otherwise violated Section 221.162 To support that conclusion, the court interpreted Section 224 as permitting a chargeback system where (1) the chargeback is authorized in writing; and (2) the compensation system includes base pay (i.e., a “standard wage“) that is not subject to the chargeback.163 If that is indeed the proper meaning of “standard wage,” then employers should be able to defend existing chargeback systems as long as the employees have acknowledged the system in writing and the chargeback is taken only from incentive pay that is paid over and above a base wage. Koehl also held that the chargeback at issue was not unconscionable. The court noted that there was no element of unfair surprise given that the chargeback system was common in the industry and was clearly disclosed to the employees. Furthermore, given that the employees had a continuing duty to service the customers, there was a valid basis for the employer to hold them responsible for customers canceling internet service in the first three months.164 Although the California Supreme Court denied review in both the Steinhebel and Koehl decisions, its Ralphs II opinion implicitly approved of those decision. In discussing the limited scope of Section 221, Ralphs II cited Steinhebel and Koehl with approval, thereby effectively strengthening their precedential value.165 In 2012, the California Court of Appeal went even further than Steinhebel with its decision in Deleon v. Verizon Wireless, LLC.166 Deleon ruled that a commission advance is not a wage, because all conditions for performance have not been satisfied; accordingly, Verizon’s chargeback provisions did not violate Section 221.167 Deleon also held that an employee does not have to sign an acknowledgement of a compensation plan in order to be bound 159 Id. at 1337-38. 160 Id. at 1338-40. 161 Steinhebel v. Los Angeles Times Comm’ns., LLC, 126 Cal. App. 4th 696, 707 (2005). 162 Koehl v. Verio, Inc., 142 Cal. App. 4th at 1337-38. 163 Id. 164 Id. 165 Prachasaisoradej v. Ralphs Grocery Co., 42 Cal. 4th 217, 220 (2007). 166 207 Cal. App. 4th 800 (2012). 167 Id., 207 Cal. App. 4th at 809-10.
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