Employers must post a separate appeal bond after an amount is awarded to an employee by the Labor Commissioner. That was the lesson learned in Adanna Car Wash Corp. v. Gomez (2023) 87 Cal. App.5th 642. In this case, the court found that an employer could not substitute the $150,000 bond it already had for the car wash it operated with an appeal bond. Labor Code section 2055, requires a bond as a condition of business licensure, but a separate bond is required under Labor Code section 98.2, which addresses bond requirements in regard to Labor Commissioner awards.

Facts of the Case

Jesus Gomez was employed by Adanna Car Wash. He brought a wage claims against Adanna that was heard by the Labor Commissioner. Gomez was awarded $23,915.59 for unpaid overtime pay, meal period premium pay, rest period premium pay, liquidated damages, interest and waiting time penalties. Under section 98.2, subdivision(a) of the Labor Code "a party to a Labor Commissioner proceeding may seek review of an order, decision, or award by filing an appeal to the superior court, where the appeal shall be heard de novo." Subdivision (b) requires that if the employer appeals, they must post a bond.

Adanna filed a "Department of Industrial Relations Notice of Appeal De Novo" and a "Notice of Posting Bond Re Department of Industrial Relations Notice of Appeal De Novo." The notice of posting bond stated: “NOTICE IS HEREBY GIVEN that, pursuant to California Labor Code, § 98.2(b), Appellant hereby posts an appeal bond in the amount of the Order, Decision, or Award from which Appellant appeals. The Original of the appeal bond is appended hereto as Exhibit ‘A.’” The first page of exhibit A was a “Hudson Continuation Certificate,” which indicated the Hudson Insurance Company (Hudson) had issued Adanna Car Wash Corporation a California “Car Wash Bond” in favor of the Department of Industrial Relations.

Gomez moved to dismiss the appeal because Adanna “failed to deposit/post a proper undertaking or bond, which is a jurisdictional prerequisite for appeal under Labor Code section 98.2(b).” Adanna argued that the car wash bond satisfied the requirements for the appeal bond required under section 98.2.

This case involves the differences in bond requirements between separate sections of the labor code, namely, section 98.2 and section 2055. The trial court found that section 2055 undertaking is required of all car wash owners as a condition of operating that business. That bond does not qualify as an appeal bond under section 98.2. Adanna appealed this decision.

Requirements of Employer Appeal from Labor Commissioner Decision

An employee may bring an action against an employer for alleged nonpayment of wages as a civil action in court or as a wage claim with the Labor Commissioner. Cardinal Care Management, LLC v. Afable (2020) 47 Cal. App.5th 1011, 1018. If a wage claim is heard and decided by the Labor Commissioner, either party may appeal to the superior court within ten days of the decision. An employer who appeals must also post a bond in the amount of the award according to Labor Code section 98.2, subd.(b). "The purpose of this requirement is to discourage employers from filing frivolous appeals and from hiding assets in order to avoid enforcement of the judgment." Burkes v. Robertson (2018) 26 Cal. App.5th 334, 341-342.

The Two Bonds at Issue in This Case

This case involves two bonds. The first is the car wash bond that was required under Labor Code section 2055 and the second was the litigation bond required by section 98.2. Section 98.2, subdivision (b) states “the undertaking shall consist of an appeal bond issued by a licensed surety or a cash deposit with the court in the amount of the order, decision, or award.” § 98.2, subd. (b). This appeal bond is forfeited when the employer's appeal fails or is withdrawn and a timely payment of the award is not forthcoming. The $150,00 bond required under section 2055 of the Labor Code is a condition of obtaining a license or permit to run the car wash. "An employer shall not conduct any business until the employer obtains a new surety bond and files a copy of it with the Labor Commissioner." §2055, subd.(b)(3).

Here the document referred to by the employer references the bond required to run their business pursuant to section 2055. That bond may not replace the additional bond required pursuant to the wage litigation brought by Gomez. This substitution of one bond for the other is not permitted under the law. Code of Civil Procedure section 995,140, subd.(b) clearly states, "A bond provided for or given in an action or proceeding does not include a bond provided for, or given as, a condition of a license or permit." §995.140, subd.(b); Walt Rankin & Associates v. City of Murrieta (2000) 84 Cal. App.4th 605, 618.

The Court Will Not Allow the Car Wash Bond to Act as a Substitute for the Appeal Bond

Adanna argued that "the car wash bond's purpose and it effect are identical to that of the appeal bond" and that use of the car wash bond as the appeal bond, "places no additional burden on the employee but provides the employee with an ally in the form of the Labor Commissioner” and that "the Labor Commissioner undertakes to enforce the bond obligations in a circumstance where the employer fails to pay timely a judgment affirming the Labor Commissioner Award or a finding in favor of the employee." Cardinal Care Management, LLC v. Afable 47 Cal. App.5th at 1018. The crux of their stance is that the car wash bond should also satisfy the requirements of the appeal bond.

The court, however, pointed out significant differences in the nature and purposes of the two bonds. The car wash bond is payable to the people of the State of California and "shall be for the benefit of any employee damages by his or her employer's failure to pay wages, interest on wages, or fringe benefits." §2055, subd.(b)(1). The employee is only an indirect beneficiary of the car wash bond. Gomez would be required to take additional action to recover pursuant to the funds held under the car wash bond.

The appeal bond under section 98.2, however, differs in that it applies directly to the employee bringing an action before the Labor Commissioner. It is a "streamlined method for the enforcement of any Labor Commissioner award in favor of the employee. It guarantees immediate forfeiture of the bond to the respondent employee when the employer fails to pay the amount owed within 10 days of the entry of judgment, dismissal, or withdrawal of the appeal, or execution of the settlement agreement." §98.2, subd.(b).

Legislative Purpose Underlying Section 98.2

Prior to 2000, employers were not required to post a bond pursuant to section 98.2. The Legislature amended the code and required employers to post an appeal bond in an effort to offer employees additional protection in case an employer failed to pay the award handed down by the Labor Commissioner. The legislative history shows that lawmakers were concerned that "unscrupulous employers, particularly those in the underground economy, were filing frivolous appeals of Labor Commissioner decisions with the superior court in an effort to drag out litigation and hide assets so that workers would not be able to collect on judgments, even if ultimately successful on appeal." Sen. Com. on Labor and Industrial Relations, Analysis of Assem. Bill NO. AB 2772. With the addition of the bond requirement, the Legislature sought to eliminate potentially frivolous appeals and further protect employees.

Based on this analysis, the court found that the appeal bond was a condition of filing before the Labor Commissioner and the failure to post such a bond was a basis for dismissal. "The purpose of this requirement is to discourage employers from filing frivolous appeals and form hiding assets in order to avoid enforcement of the judgment." Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1129. Thus, the court determined that the car wash bond could not be substituted for or qualify as an appeal bond. The decision was affirmed.

In conclusion, employers should be aware that the bond obtained pursuant to licensure of their business will not satisfy an appeal bond required by the Labor Commissioner. It is a separate requirement that must be treated accordingly to comply fully with the law.

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