Exclusion for Wage and Hour Law Claims Limited to Laws Concerning Duration Worked or Remuneration Received in Exchange for Work

The California Court of Appeal, applying California law, has held that the undefined term “wage and hour . . . law” in a wage and hour exclusion is limited to laws “concerning duration worked and/or remuneration received in exchange for work.”  S. Cal. Pizza Co., LLC v. Certain Underwriters at Lloyd’s London Subscribing to Policy No. 11EPL-20208, 40 Cal. App. 5th 140 (Ct. App. Sept. 20, 2019).

The insured, the owner of a restaurant franchise, sought coverage under an employment practices liability policy for a class action lawsuit alleging violations of the California Labor Code.  The insurer denied coverage based on a wage and hour exclusion, which excluded coverage for claims “based upon, arising out of, directly or indirectly connected or related to, or in any way alleging violation(s) of any foreign, federal, state, or local, wage and hour or overtime law(s)[.]”  The insured filed a coverage action.  The trial court granted the insurer’s demurrer, holding that the wage and hour exclusion excluded coverage for the class action lawsuit.

The Court of Appeal reversed, holding that at least some of the labor code provisions cited in the class action complaint did not constitute “wage and hour laws” and therefore those alleged code violations did not fall within the wage and hour exclusion.  Given that the term “wage and hour . . . law” was not defined in the policy, the Court of Appeal held that the term refers to laws “concerning duration worked and/or remuneration received in exchange for work.”  Applying this definition, the Court of Appeal concluded that the count alleging a failure to include all required information on wage statements constituted a “wage law,” given, among other reasons, that the code provision fell within the Labor Code chapter “Payment of Wages.”  The Court of Appeal also concluded, however, that the count alleging a failure to reimburse business-related expenses was not a wage and hour law because “[d]isbursements for losses and work related expenditures are not payments made in exchange for labor or services.”