November 10, 2025|Franchise Frontlines
November 10, 2025 | California Court of Appeal, First District, Division One | Unpublished Opinion
Executive Summary
In an unpublished decision, the California Court of Appeal affirmed substantial PAGA penalties against a massage-therapy business and its owner for violations arising from two compensation systems used during the plaintiff’s employment. According to the opinion, the employer compensated massage therapists through systems the plaintiff characterized as piece-rate structures that allegedly failed to pay for all hours worked, including rest periods and nonproductive time. After a bifurcated bench trial, the superior court found that both compensation systems violated California’s minimum wage laws, the statutory requirement to separately compensate rest periods and nonproductive time, and itemized wage-statement requirements. The Court of Appeal affirmed those determinations. The opinion also upheld personal liability for the business owner under Labor Code sections 558.1 and 1197.1.
Notably for franchisors, the trial court reduced the PAGA penalties in part because the franchisee used a payroll software system provided by the franchisor. Although the franchisor was not a party to the litigation, the case illustrates how franchisee wage-and-hour violations can intersect with franchisor-provided tools, systems, and guidance. The decision highlights the importance for franchisors in personal-services systems to understand California’s compensation rules and ensure that franchisees receive clear, accurate compliance support without crossing into employer-control territory.
Relevant Background
According to the opinion, the plaintiff was hired in 2013 as a massage therapist at Sunnyvale Massage, LLC, a personal-services business operating within a franchise system. The plaintiff alleged he was paid under two different compensation systems—the “Initial System” and the “Second System”—over the course of eight months. The opinion states that the Initial System paid therapists “per massage service(s) provided,” using “Base Pay” values assigned to each massage service, and paid hourly rates only for meetings, trainings, and certain other non-massage duties. All hours recorded by therapists were categorized either as “Massage Time” or “Non-Massage Time,” and a therapist’s Massage Time pay was calculated using a “variable rate” derived by dividing total assigned “Base Pay” values by total Massage Time hours.
The opinion notes that Sunnyvale adopted the Second System in January 2014 after notifying therapists that it was “changing how it reports pay” to comply with “changes in California law.” The new system purported to classify all hours using hourly designations such as “None/Regular,” while continuing to assign monetary values to massage services and issuing a “Massage Pay Bonus” when a therapist’s total “Massage Pay” exceeded the “Regular Hourly Pay” for the period. The plaintiff testified he did not recall receiving this change notice and was unaware of any meaningful change in how his pay was calculated. Sunnyvale terminated the plaintiff after he missed multiple scheduled shifts following a PAGA notice.
The plaintiff brought claims under PAGA alleging minimum wage violations, unlawful rest-period compensation, and inaccurate wage statements. The case proceeded through a bifurcated bench trial. Neither party requested a statement of decision after the liability phase or after the final decision, triggering the doctrine of implied findings. The trial court found the employer liable under both compensation systems and imposed civil penalties, including personal liability for the owner, Lisa Meteyer. The employer appealed.
Decision
The Court of Appeal affirmed the judgment, concluding that substantial evidence supported the trial court’s findings. The opinion explains that the trial court evaluated the compensation systems under both contractual and statutory frameworks. Relying on Oman v. Delta Air Lines and Gonzalez v. Downtown LA Motors, the Court held that employers must pay both (1) the contractually promised rate of pay, and (2) at least the minimum wage for each hour worked, and that employers may not “borrow” compensation for productive work to cover nonproductive time or rest periods.
The Court first addressed the Initial System. The opinion notes that the plaintiff’s offer letter stated, “Pay is per massage service(s) provided,” and that the statutory wage notice, required by Labor Code section 2810.5, designated pay as “Piece rate” and “per massage.” The Court found that these documents constituted substantial evidence that the parties agreed to a piece-rate basis of compensation for massage services. The Court accepted the trial court’s finding that Sunnyvale did not separately compensate rest periods or nonproductive time and instead spread the value of performed massages across all hours the therapist was clocked in—resulting in compensation that did not comply with the agreed contractual rate and did not satisfy the requirement to pay minimum wage for each hour worked.
Turning to the Second System, the Court again affirmed the trial court’s implied finding that the therapists’ compensation remained piece-rate in substance, despite the employer’s relabeling of pay categories. The opinion explains that the “Massage Pay Bonus” formula was mathematically identical to the Initial System: the therapist ultimately received the greater of (1) the sum of assigned massage values, or (2) hourly wages for all hours worked, but the hourly figure was effectively used to dilute the contracted piece-rate compensation. The Court emphasized that the economic outcome under the Second System was the same as the Initial System, supporting the trial court’s implied finding that the change was a reporting modification rather than a substantive alteration of the compensation agreement.
The Court then reviewed the wage-statement and rest-period findings. The opinion states that substantial evidence supported the conclusion that the employer did not separately itemize rest periods or nonproductive time on wage statements and did not pay separate minimum-wage compensation for such time as required by section 226.2. The Court found sufficient evidence that the employer violated minimum wage requirements under sections 1194 and 1197 and piece-rate requirements under section 226.2. The Court rejected the employer’s argument that average hourly earnings exceeded minimum wage, noting that California’s “no borrowing” rule prohibits using piece-rate earnings to satisfy minimum wage obligations for other hours.
The Court also upheld personal liability against Meteyer under sections 558.1 and 1197.1. The opinion describes testimony in which Meteyer explained her role in developing and implementing the compensation systems, drafting the wage notices, and overseeing payroll practices. The trial court found that the violations were “intentionally committed,” and the Court affirmed that finding based on evidence that the employer purposefully used compensation structures that paid only “some” of the hours worked and adopted a modified system that “changed the characterization” of pay without curing the underpayments. The Court concluded that Meteyer “caused” the minimum wage violations and was properly held jointly and severally liable for civil penalties.
Finally, the opinion highlights the trial court’s reasoning in assessing penalties. Although the trial court found intentional violations, it exercised discretion to impose less than the statutory maximum. Among the factors the court considered were that Sunnyvale was a single establishment, that the payroll software was “provided by the franchisor,” and that the owner had sold the business. The Court of Appeal did not disturb the trial court’s penalty analysis.
Looking Forward
This decision provides several important observations for franchisors, especially in personal-services systems where franchisees commonly use productivity-based compensation models and franchisor-provided scheduling, payroll, or point-of-sale software. Although the franchisor was not a party to the litigation, the trial court expressly referenced the franchisor’s payroll software when evaluating penalties. The court’s reduction in PAGA penalties based on that fact underscores that franchise systems may be implicated indirectly when franchisees rely on franchisor-provided tools that affect compensation practices. The case illustrates why franchisors may wish to invest in ensuring that their software systems, training materials, and operational guidance do not inadvertently encourage franchisees to adopt compensation models inconsistent with California’s wage-and-hour requirements.
The opinion also reinforces the importance of clearly delineating between brand standards—over which franchisors may exercise system-wide control—and wage-and-hour compliance decisions, which remain the responsibility of franchisees. Under different circumstances, courts may scrutinize franchisor involvement more closely, particularly if franchisor-provided systems influence how franchisee compensation is calculated or reported. Maintaining strong contractual disclaimers of employment control, providing accurate compliance education, and ensuring franchisees understand their independent obligations under state law may help reduce the risk of wage-and-hour disputes affecting the brand.
Finally, the trial court’s imposition of personal liability under sections 558.1 and 1197.1 serves as a reminder to franchisee owners that wage-and-hour compliance is critical. For franchisors, this decision underscores that offering compliance resources—while maintaining proper separation from employment decisions—may help reduce legal and operational risks for the entire system. At the same time, the decision illustrates that California courts may independently evaluate the substance of compensation systems regardless of how franchisees label them, and franchisors may benefit from reviewing their system tools to ensure they do not encourage practices inconsistent with California law.
This article is based solely on the opinion of the Court in this matter. The author has not conducted any independent investigation into the facts. For the avoidance of doubt, each statement related to the law and facts in this article is drawn from the Court’s opinion in this case.
Thomas O’Connell is a Shareholder at Buchalter APC and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.
This communication is not intended to create, and does not create, an attorney-client relationship or any other legal relationship. No statement herein constitutes legal advice, nor should it be relied upon or interpreted as such. This communication is for general informational purposes only and is not a substitute for legal counsel. Readers should not act or refrain from acting based on any information provided without seeking appropriate legal advice specific to their situation. For more information, visit www.buchalter.com.
