Wage and Hour Defense Blog

Wage and Hour Defense Blog

The Wage Hour Implications of California’s New Paid Sick Leave Law

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Our colleague, Matthew A. Goodin, has written a piece about California’s new paid sick leave law entitled “California Employers Beware: It’s Time to Rewrite Your Sick-Leave And PTO Policies.”

The law impacts at least one wage-hour issue – paystub requirements – which are explained in Matthew’s  piece:

Paystub requirements Under the new law, an employee’s paystub (or another document provided to the employee on the employer’s designated payday) must set forth the amount of accrued sick leave the employee has available. Unless employers want to issue a separate document to each employee at every pay period, this requirement will most likely require most employers to make changes to their paystubs. Employers who use a third-party vendor for their payroll should not assume that their vendor will make the appropriate changes.  For example, many paystubs currently reflect the amount of sick leave an employee has used both in the current pay period and year-to-date, but do not reflect the amount accrued as required by AB 1522. Accordingly, employers should contact their payroll vendors to ensure their vendor will timely implement the changes required by the new law.

 With the statute’s July 1, 2015 deadline rapidly approaching, now is the time for employers to begin reviewing the paystub requirements and other obligations imposed by the new law.

Strategic Use of Arbitration Agreements in FLSA Context Gets Boost

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In a case that has strategic implications for employers’ use of arbitration agreements in response to collective claims brought under the Fair Labor Standards Act (“FLSA”), the Eighth Circuit has held that former servers at an Arkansas pizzeria chain lack standing to challenge the pizzeria’s enforcement of an arbitration agreement that bars current employees from joining the FLSA collective action.  Conners v. Gusano’s Chi. Style Pizzeria, No. 14-1829 (8th Cir. Mar. 9, 2015).

In Conners, the plaintiff filed a proposed collective action lawsuit on behalf of herself and other restaurant servers, alleging Gusano’s maintained an illegal tip pool in violation of the FLSA.  One month later, Gusano’s distributed a new arbitration agreement to all current servers which required individual arbitration of all employment disputes, including Conners litigation.

The former servers, who were not subject to the new agreement and had moved for conditional class certification, argued that Gusano’s engaged in improper communication with putative class members and sought to preclude the pizzeria from enforcing the agreement against the current servers.  In arguing that they had standing to challenge the agreement, the former servers alleged that they had suffered “a concrete and particularized injury” in the form of an increased share of litigation expenses.  Even assuming that was true, the Eighth Circuit held that the plaintiffs could not show an “actual or imminent” threat because, at the time of the challenge to the agreement, no current employees had opted into the lawsuit, and there was no indication that the arbitration agreement had chilled the participation of any current employees.  Therefore, the plaintiffs lacked standing and the courts did not have jurisdiction to enjoin the enforcement of the arbitration agreement.

Companies facing potential class or collective actions under the FLSA or state wage laws in the Eighth Circuit should take heed of the pizzeria’s strategic use of arbitration agreements in this case.  Gusano’s acted quickly after the filing of the Conners lawsuit and issued a new arbitration policy.  Notably, the arbitration agreement contained an explanation of “its scope, the required procedures for invoking arbitration, the effect the agreement will have on the employee’s ability to pursue relief in court, the right of every employee to opt out of the agreement free of retaliation, and how to opt out effectively.”  Along with the new agreement, the pizzeria issued a two-page memorandum describing the agreement’s terms in “plain English” and expressly explaining to employees that their failure to opt-out of the new policy would prevent them from joining the pending lawsuit.  By doing so, Gusano’s appears to have complied with the U.S. Supreme Court’s admonishment in American Express v. Italian Colors Restaurant, 133 S. Ct. 2304 (2012), that express contractual waivers of class arbitration are enforceable.

By acting swiftly and transparently, Gusano’s may limited the scope of the proposed collective action in Conners, and companies, particularly those in the Eighth Circuit, in similar situations should take note.  This strategy, however, is not without legal risk, and courts in other circuits may have a different view of Gusano’s course of conduct.  Employers who act too hastily and heavy-handedly in procuring signed agreements may be accused of improperly coercing employees into waiving their rights, which may nullify the waiver.  Further, if a new arbitration agreement is distributed before notice of a pending collective action has been disseminated, the employer might unintentionally inform employees about, and potentially encourage them to join, the lawsuit.

There are practical considerations as well.  Seeking a waiver of class or collective arbitrations under these circumstances may damage employee relations and erode employee morale if employees perceive that their employer is attempting to unfairly restrain the rights.  In addition, an employer may be subjected to increased fees if a number of employees bring individual arbitrations or if employees file suit in court and forces the employer to move to enforce the arbitration agreement.  Each of these considerations must be weighed carefully before instituting a new policy.

The Supreme Court Approves DOL Interpretive Rules Holding That Mortgage-Loan Officers Are Entitled To Overtime

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The United States Supreme Court has upheld an Administrator’s Opinion issued by the United States Department of Labor stating that “typical” mortgage-loan officers are not covered by the Administrative exemption to the FLSA’s overtime requirements.

The Supreme Court’s decision in Perez v. Mortg. Bankers Ass’n reversed a Circuit Court decision vacating the Opinion for failure to comply with the procedural requirements of the Administrative Procedure Act (“APA”).  Specifically, the Supreme Court ruled that the APA expressly exempts the Department of Labor (and other federal agencies) from the notice-and-comment rulemaking process when it makes changes to its own interpretive rules.

Rulemaking under the APA

The APA distinguishes between two types of rules. Purchase agreement for house

The first type, “interpretive rules,” are issued to advise the public of the agency’s construction of the statutes and rules which it administers.  “Interpretive rules” do not require notice-and-comment rulemaking.

The second type, “legislative rules,” have the force and effect of law and are issued through notice-and-comment rulemaking.

The APA establishes a three-step procedure for “notice-and-comment rulemaking.” First, the agency must issue a notice of the proposed rule. Second, the agency must give “interested persons” the opportunity to submit written comments, and the agency must respond to those comments. Third, when the agency issues its final rule, it must include in the rule’s text a statement of the basis and purpose of the rule.

Applicability of the Administrative Exemption to Mortgage-Loan Officers

The dispute in Perez v. Mortg. Bankers Ass’n arose from a lengthy controversy over whether mortgage-loan officers are covered by the administrative exemption to the FLSA.

  • In 1999 and 2001, the Wage and Hour Division of the DOL issued letters interpreting the FLSA and concluding that mortgage-loan officers did not qualify for the administrative exemption to the overtime pay requirements of the FLSA.
  • In 2006, the Wage and Hour Division reversed its position and issued an opinion letter finding that mortgage-loan officers fell within the administrative exemption.
  • In 2010, the DOL again changed its interpretation (without giving notice or an opportunity for comment), withdrew the 2006 opinion letter and issued an Administrator’s Interpretation stating that mortgage-loan officers do not qualify for the administrative exemption.

The Administrator’s Interpretation regarding Mortgage-loan Officers.

The 2010 Administrator’s Interpretation focused on whether the “typical” mortgage-loan officer was engaged in the administration of the employer’s business, or in the production of its products.

The Administrator cited to caselaw stating that the primary business purpose of mortgage-loan companies “is to design, create and sell home lending products.”

The Interpretation then stated that the primary duties of a mortgage-loan officer were making sales and related work “such as collecting financial information from customers, entering it into the computer program to determine what particular loan products might be available to that customer, and explaining the terms of the available options and the pros and cons of each option, so that a sale can be made…”  These activities constitute “the production work of an employer engaged in selling or brokering mortgage loan products.”

The Interpretation further stated that the duties of mortgage-loan officers “do not relate to the internal management or general business operations of the company” and thus do not qualify for the Administrative exemption.

The Administrator’s Interpretation noted that it applied only to employees who spend the majority of their time working inside their employer’s place of business and thus do not qualify for the Outside Sales exemption.

Notice-and-Comment Rulemaking is not required for Interpretive Rules

In July 2013, the D.C. Circuit vacated the Administrator’s Interpretation based on its prior decision in Paralyzed Veterans of Am. v. D. C. Arena L.P.  That decision held that, if an agency wishes to issue a new interpretation of a regulation, and the new interpretation deviates significantly from the prior interpretation, the Agency must use the APA’s notice-and-comment procedures.

The Supreme Court found that by mandating notice-and-comment procedures when an agency changes its interpretation of one of the regulations it enforces, the Paralyzed Veterans doctrine was contrary to the rulemaking scheme established by Congress in the APA.

The judgment of the D.C. Circuit (vacating the Administrator’s Interpretation that mortgage-loan officers do not qualify for the administrative exemption) was therefore reversed.

Justices Alito, Scalia and Thomas Express Concern over Excessive Agency Power

Separate concurrences by Justices Alito, Scalia and Thomas raised concerns regarding the power vested in federal agencies by the APA and the Supreme Court’s decisions requiring deference to rules promulgated by federal agencies (beginning with its 1945 decision in Bowles v. Seminole Rock & Sand Co.).

Justice Scalia’s concurring opinion, for example, states that the Supreme Court’s has undermined the role of the courts by creating an “elaborate law of deference to agencies’ interpretations of statutes and regulations.”  In effect, the Supreme Court’s deference jurisprudence gives interpretive rules the same force of law as legislative rules, while omitting the procedural safeguards of notice-and-comment rulemaking.

Justice Thomas expressed similar concerns, and Justice Alito noted that he awaited a case in which the validity of the Seminole Rock doctrine could be explored through full briefing and argument.

The Impact of Perez v. MBA

The immediate effect of Perez is that courts must give deference to the Administrator’s Opinion that the “typical” mortgage-loan officer is not exempt from the overtime requirements of the FLSA and should be paid overtime compensation.  Companies employing those mortgage-loan officers should review the circumstances of their employment promptly to determine whether those individuals in fact are “typical” and should be classified as non-exempt.

Furthermore, in light of Perez, new administrative guidance interpreting the FLSA may be forthcoming.  The DOL has, for example, expressed significant concern over what it describes as the “fissured workplace” in which the role of the traditional employer is divided through “business models like subcontracting, temporary agencies, labor brokers, franchising, licensing and third-party management.”  Given these concerns, and in light of the NLRB’s recent position that McDonald’s  Corporation is a “joint employer” of the workers of its franchisees, interpretive guidance regarding the definition “employer” and “joint employer” would not be surprising.

Accordingly, employers should be prepared for the possibility of further administrative reinterpretations of the FLSA that are issued without any opportunity for notice and comment.

The Ninth Circuit’s Request That the California Supreme Court Clarify Ambiguous Language in California’s Day-of-Rest Requirements Could Have a Tremendous Impact Upon Employers

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It is not often that long-standing laws cause a federal court to throw up its arms, but for the second time in little over a year, the Ninth Circuit Court of Appeals has done just that in attempting to understand a California employment law.

Last year, the Ninth Circuit threw up its hands and asked the California Supreme Court to clarify California’s obscure “suitable seating” laws, about which we wrote here.

Now, in Mendoza v. Nordstrom, Inc., the Ninth Circuit has thrown up its hands again, this time asking the California Supreme Court to clarify California’s day-of-rest laws.

man-in-suit-in-pool-on-float-shutterstock_151117196The Ninth Circuit has held that the statutory language in those laws is ambiguous, and the interpretation of certain words such as “any” or “cause” could lead to very different conclusions – and very different liability findings. Assuming the California Supreme Court accepts the challenge, its decision could have a huge impact on how employers set employee schedules or permit employees to swap shifts. And it could walk many employers right into wage-hour class actions based upon their past practices and interpretation of those terms.

Specifically, rather than try to interpret the statutory language itself, the Ninth Circuit has asked the California Supreme Court to answer the following three questions:

(1) With regard to California Labor Code section 551, which  provides that “[e]very person employed in any occupation of labor is entitled to one day’s rest therefrom in seven,” is the required day of rest calculated by the workweek, or is it calculated on a rolling basis for any consecutive seven-day period? As the Court noted, this is no mere matter of semantics. One answer would lead to liability for the employer, while the other would not.

(2) With regard to California Labor Code section 556, which exempts employers from providing such a day of rest when the total hours of employment do not exceed 30 hours in any week or six hours in “any” one day thereof, does the exemption apply when an employee works less than six hours in any one day of the applicable week, or does it apply only when an employee works less than six hours in each day of the week? As the Court noted, the word “any” could support either interpretation. And, again, this is not a matter of semantics. The different interpretations of “any” would lead to very different liability determinations.

(3) With regard to California Labor Code section 552, which provides that an employer may not “cause” his employees to work more than six days in seven, what does the word “cause” mean? Does it mean “force, coerce, pressure, schedule, encourage, reward, permit, or something else?” Again, the different interpretations of “cause” will lead to different liability determinations.

The California Supreme Court’s anticipated answers to these questions could have a huge impact upon employers in California, particularly in the hospitality and retail industries where it is not uncommon to schedule employees to work seven days or more in a row with shifts of varying lengths, and where employees may often swap shifts with each other such that they are working seven days or more in a row. Should the Supreme Court rule, for instance, that it is unlawful to permit employees to work seven days in a row spanning two workweeks, even where the employees wish to do so, employers will need to change their practices going forward to ensure that does not occur – and they may face class action lawsuits for permitting it to occur in the past.

California Court of Appeal Decision Exposes Healthcare Employers to Litigation if They Relied upon Wage Order for Meal Period Waivers

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Employers in California – and healthcare employers in particular – have been besieged by wage-hour class actions for more than a decade. They have been sued repeatedly on claims that they have not complied with the terms of Industrial Welfare Commission (“IWC”) Wage Orders. Now, as a result of a new decision from the California Court of Appeal, they may face lawsuits based not on a failure to comply with the language of a Wage Order, but because they in fact relied upon language in a Wage Order. It is a development that may lead many employers to throw up their hands and quote the old adage, “Damned if you do, damned if you don’t.”

The IWC issues industry-specific Wage Orders with which employers are expected to comply. The failure to comply may lead not only to agency investigations, but to class action lawsuits seeking damages, a variety of penalties, interest, and attorney’s fees.

On February 10, 2015, in Gerard v. Orange Coast Memorial Medical Center, the California Court of Appeal held that it was improper for an employer to rely upon the language of the governing Wage Order. The employer had relied upon a provision of Wage Order 5 that expressly authorized healthcare workers to waive one of their two required meal periods on shifts longer than 12 hours. The Court of Appeal concluded that the provision was contrary to the California Labor Code and partially invalidated it.

Blindfolded businessmanIn reaching this conclusion, the Court of Appeal determined that the IWC had no authority to adopt a regulation that conflicts with the express language of California Labor Code section 512(a), which provides as follows: “An employer may not employ an employee for a work period of more than 10 hours per day without providing the employee with a second meal period of not less than 30 minutes, except that if the total hours worked is no more than 12 hours, the second meal period may be waived by mutual consent of the employer and the employee only if the first meal period was not waived.” (Italics added.) For this reason, the Court partially invalidated Wage Order 5 to the extent it authorized second meal break waivers on shifts longer than 12 hours.

With one exception, the Court determined that the hospital and employees must now litigate whether or not the Court’s decision should apply retroactively. That one exception, however, is significant as the Court ruled that “there is no compelling reason of fairness or public policy that warrants an exception to the general rule of retroactivity for our decision partially invalidating [Wage Order 5]. Plaintiffs are entitled to seek premium pay . . . for any failure by [Orange Coast] hospital to provide mandatory second meal periods before [February 10, 2015] that falls within the governing three-year limitations period.” That premium pay which the Court determined the Gerard plaintiffs are entitled to seek consists of one hour of pay at an employee’s regular rate of compensation for each employee who worked more than 12 hours and did not get a second meal period – and for each instance there was no second meal period.

The decision is a troubling development for California healthcare employers who have relied upon the regulation – and that may now face class action lawsuits precisely because they did so. Healthcare employers that have relied on Wage Order 5’s express language permitting employees to waive their second meal periods when working more than 12 hours in a shift should reevaluate their practices with counsel promptly to determine how to address such practices prospectively. And, unfortunately, they may now also face lawsuits based upon their past reliance on the Wage Order.

California Court of Appeal Holds That On-Call Rest Periods Are Permissible, Reverses $90M Judgment

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On January 29, 2015, the California Court of Appeal published its long-awaited decision in Augustus v. ABM Security Services, Inc., reversing a near-$90 million judgment awarded in the favor of a certified class of current and former security guards on rest period claims. The decision is a welcome development for California employers, particularly those who ask employees to remain on-call while on breaks in case they are needed.

The Court of Appeal explained that the trial court’s judgment had rested on the false premise “that California law requires employers to relieve their workers of all duty during rest breaks.”

As the Court explained, while ABM’s security guards were required to remain on call during their rest breaks, they engaged in various non-work activities, such as smoking, reading, making personal telephone calls, and surfing the Internet. The Court determined that on-call restrictions were not sufficient to constitute “work” such that guards were not relieved from working during their rest breaks. Significantly, the Court stated that while “an on-call guard must return to duty if called to do so, [] remaining available to work is not the same as actually working.”

In reaching its conclusion, the Court rejected the employees’ argument that a prior Court of Appeal decision regarding rest breaks for security guards – Faulkinbury v. Boyd & Associates, Inc. – “recognized that Wage Order No. 4 requires that all rest breaks be duty free.” Distinguishing Faulkinbury, the Court held that the issue in that case was whether a class could be certified on the facts in that case given that the employer “maintained no ‘policy regarding the provision of rest breaks to security guards and had an express policy requiring all security guards to remain at their posts at all times.’” But the Faulkinbury Court “made no attempt to examine the merits of the employer’s policy or determine the scope of the DLSE’s opinion that rest periods must be duty free.”

The Court also rejected the employees’ assertion that, in Brinker Restaurant Corp. v. Superior Court, the California Supreme Court held that “an employer must relieve an employee of all duty on a rest break and relinquish any control over how the employee spends his or her time.” The Court acknowledged that while Brinker was instructive on the requirements for meal periods and class certification generally, “it said nothing about an employer’s obligation to relieve an employee of all duty on a rest break.”

The employees also argued that two prior decisions – Morillion v. Royal Packing Co. and Aguilar v. Association for Retarded Citizens – supported the notion that on-call rest breaks are unlawful. The Court again rejected the employees’ position because the Morillion and Aguilar cases determined what constitutes compensable work time, which was not at issue in Augustus since “a rest period is already compensable work time.”

Finally, recognizing the recent Mendiola v. CPS Security Solutions, Inc. case, about which we wrote here, the Court concluded that “although on-call hours constitute ‘hours worked,’ remaining available to work is not the same as performing work.”

For these reasons, the Court determined that the trial court’s orders granting summary adjudication and summary judgment in favor of the employees – which hinged on an erroneous interpretation of rest period requirements – must be reversed.

Separately, the Court determined that, based on the facts presented at the trial court, the trial court could reasonably conclude that “ABM possessed a uniform policy of requiring its security guards to remain on call during their rest breaks,” and under Brinker, “[w]hether such a policy is permissible is an issue ‘eminently suited for class treatment.’” Accordingly, the Court affirmed the decision certifying the class.

The decision is helpful to California employers as it clarifies that merely being on call during a rest break – while still being able to engage in many personal activities – does not render a rest period invalid and thus subject an employer to payment of a missed rest period premium. At this time, it is unclear whether the employees will petition the California Supreme Court to review this decision.

District Court Judge Vacates DOL’s Modified Definition of “Companionship Services”

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Just over three weeks after vacating a regulation barring third party employers from claiming the companionship exemption for minimum wage and overtime, in a January 14, 2015 decision in Home Care Association of America v. Weil, U.S. District Court Judge Richard Leon has also vacated the Department of Labor’s attempt to drastically narrow the definition of “companionship services” (29 CFR Sec. 552.6,). Judge Leon had previously stayed the changes in the new definition, originally scheduled to go into effect on January 1, 2015.

The new definition of “companionship services” would have drastically limited the provision of “care” – assistance with “activities of daily living” and “instrumental activities of daily living” –  to less than 20% of an employee’s total weekly hours worked. For the past forty years, there had been no limitation on the amount of such care, although there was a 20% limitation on the performance of general household work.  As a result, the vast majority of employees currently providing companionship services would no longer have qualified for the exemption.

In vacating the definition, Judge Leon found the DOL’s narrowed definition of “care” contrary to the statute and both arbitrary and illogical. Noting that the statutory exemption by its terms applies to services for individuals who “are unable to care for themselves,” he held that the new regulations’ drastic limitation in the quantity of the very “care” the elderly and disabled need directly contradicted the statute:  “Indeed, what services could possibly be required more by those ‘unable to care for themselves’ than care itself?” That the DOL was attempting to limit the very thing essential to the daily survival of the elderly and disabled was nonsensical.

Judge Leon also sharply criticized the DOL’s blatant disregard of Congressional intent geared towards preserving the companionship exemption for the benefit of the “millions of American families [struggling each day to financially] care for their loved ones.” Bearing in mind the ever-increasing number of families that will share in the struggle of caring for the elderly and disabled, Judge Leon reiterated that the DOL cannot circumvent the electorate.  As Judge Leon noted, even when the FLSA was otherwise amended, or when attempts were made to remove the exemption from third party employers, there was no attempt to change the definition of companionship services.  If Congress has not redefined the 40-year-old exemption, then the DOL should not be able to do it now, he reasoned.

The DOL has not yet indicated whether it will appeal, but an appeal is highly likely.

As we have previously noted, even though the long-standing FLSA minimum wage and overtime companionship services exemption definitions now will remain in effect for at least the near future , employers must still remember to comply with applicable state and local laws that may require minimum or higher wages and/or overtime for companionship services.

The ABC Test Determines Independent Contractor Status Under the New Jersey Wage Payment and Wage Hour Laws

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Michael D. ThompsonOn January 14, 2015, in Hargrove v. Sleepy’s LLC, the New Jersey Supreme Court answered a certified question from the Third Circuit and held that the “ABC” test governs whether a plaintiff is an employee or an independent contractor under the New Jersey Wage Payment Law and the New Jersey Wage and Hour Law.

Therefore, companies defending their independent contractor classifications in either litigation or government investigations under these statutes will be required to show that an individual providing services:

(A)       is free from the company’s control in performing the services;

(B)       performs work outside the usual course of the company’s business or outside the company’s place of business; and

(C)       is engaged in an independently established business.

The plaintiffs in Hargrove v. Sleepy’s delivered mattresses for Sleepy’s, and filed suit under the New Jersey Wage Payment law (and several other statutes) alleging that Sleepy’s misclassified them as independent contractors.  The case was litigated before the U.S. District Court for the District of New Jersey.

Sleepy’s argued that plaintiffs’ status as employees should be decided under the “right to control” test applied by to ERISA claims by the United States Supreme Court in Nationwide Mutual Ins. Co. v. Darden.

The District Court applied the “right to control” test and concluded that the plaintiffs were, in fact, independent contractors.  The plaintiffs appealed to the Third Circuit Court of Appeals.

In May 2013, the Third Circuit petitioned the New Jersey Supreme Court to answer the following question:

Under New Jersey law, which test should a court apply to determine a plaintiff’s employment status for purposes of the New Jersey Wage Payment Law, N.J.S.A. § 34:11-4.1, et seq., and the New Jersey Wage and Hour Law, N.J.S.A. § 34:11-56a, et seq.?

Seal of the Supreme Court of New JerseyThe New Jersey Supreme Court granted the petition by the Third Circuit.

The New Jersey Supreme Court noted that neither the Wage Payment Law nor its regulations provide criteria for distinguishing between an employee and an independent contractor.  However, the New Jersey Department of Labor and Workforce Development’s regulations implementing the Wage Hour Law expressly provide that the distinction between an employee and an independent contractor should be resolved by reference to the ‘ABC’ test.”

The Supreme Court of New Jersey stated that the “express purpose” of both statutes is to foster “the provision of greater income security for workers.”  The Court asserted that the “ABC” test “operates to provide more predictability” than other tests of independent contractor status, and that there was no good reason “to depart from the standard adopted by the DOL to guide employment status determinations or to disregard the long-standing practice of treating both statutory schemes in tandem.”

For those reasons, the New Jersey Supreme court held that any dispute regarding independent contractor status arising under the Wage Payment Law and the Wage and Hour Law should be resolved by utilizing the “ABC” test.

The decision in Hargrove v. Sleepy’s is important in large part because the “ABC” test is significantly different from other independent contractor tests.  In particular, employers should scrutinize the New Jersey Supreme Court’s description of part C of the test as (requiring an independently-established business):

Therefore, part C of the “ABC” test is satisfied when an individual has a profession that will plainly persist despite the termination of the challenged relationship… When the relationship ends and the individual joins the ranks of the unemployed, this element of the test is not satisfied.

Accordingly, New Jersey employers should further examine their independent contractor relationships against the criteria of the “ABC” test.

California Supreme Court Holds That Sleep Time May Not Be Excluded from Hours Worked in Certain Industries

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On January 12, 2015, the California Supreme Court issued its decision in Mendiola v. CPS Security Solutions, Inc. While it will have no impact upon most employers, it is a decision that will have significant impact on some. It may well lead to the filings of class action lawsuits against some employers alleging that they did not pay employees for sleep time – lawsuits those employers now may have great difficulty defending.

To the surprise of some, the Court concluded that security guards who are assigned 24-hour shifts, but sleep 8 of those hours, must be compensated for the entire 24 hours. The Court reached this conclusion despite the fact that the employees agreed in advance that such sleep time should be excluded from their hours worked – and despite the fact that a prior Court of Appeal decision had approved such agreements several years ago.

The case involves interpretation of California Industrial Welfare Commission (“IWC”) Wage Order 4, which governs employees in professional, technical, clerical, mechanical, and similar occupations. (The IWC has issued different Wage Orders for different industries.)

Guards working 24-hour shifts for CPS had agreed that their 8 hours of sleep time would not be compensated. The issue was then raised in two putative class action lawsuits. Reversing the appellate decision on this issue, the California Supreme Court has held that the guards’ “on-call hours constituted compensable hours worked and, further, that CPS could not exclude ‘sleep time’ from plaintiffs’ 24-hour shifts . . . .”

Addressing whether “on-call” time is compensable, the Court reiterated the factors to which other courts have looked : “(1) whether there was an on-premises living requirement; (2) whether there were excessive geographical restrictions on employee’s movements; (3) whether the frequency of calls was unduly restrictive; (4) whether a fixed time limit for response was unduly restrictive; (5) whether the on-call employee could easily trade on-call responsibilities; (6) whether use of a pager could ease restrictions; and (7) whether the employee had actually engaged in personal activities during call-in time.” Additionally, the courts have also considered whether the time “is spent primarily for the benefit of the employer and its business.” Applying these factors, the Court determined that the guards should have been compensated for their on-call time.

The Court then concluded that sleep time could not be excluded from hours worked – even by agreement. Such agreements had generally been permitted since at least April 2011 when the Court of Appeal issued its decision in Seymore v. Metson Marine, Inc. The Seymore Court held that “California law authorizes employers to enter into an agreement with their 24-hour employees to exclude from compensation eight hours of sleep time in each 24-hour period,” following applicable federal regulations and a prior California appellate opinion in Monzon v. Schaefer Ambulance Service, Inc. Importantly, the Monzon Court found that such an exclusion was permissible under Wage Order 9, governing ambulance drivers and attendants. It did not address Wage Order 4, the one at issue in Mendiola.

The Mendiola Court disapproved of Seymore “as an improper extension of Monzon.” Moreover, noting the differences in the various Wage Orders, the Court explained, “Unlike Monzon, which at least could point to some evidence of the IWC’s intent concerning ambulance drivers and attendants, Seymore identified no such indication, much less convincing evidence, that the IWC intended to permit the exclusion of sleep time from compensable hours worked for all employees working 24-hour shifts.” The Court looked at Wage Order 4, finding that it contained no signal that the IWC intended to adopt a sleep time exclusion, while other wage orders – specifically, Wage Orders 5 and 9 – had done so. And because there was no evidence that the IWC intended to incorporate the federal sleep time exclusion into Wage Order 4, the employer was not permitted to exclude sleep time from the guards’ compensable hours worked in 24-hour shifts.

Significantly, the California Supreme Court declined to make its holding apply only prospectively, meaning that employers who believe they had been complying with the law under Seymore may well find themselves subject to wage claims for unpaid sleep time. That would include class action lawsuits, which may be difficult for some employers to defend in light of the Mendiola decision.

Employers who deduct employees’ hours worked for “on-call” time and/or agreed-upon sleep time should reevaluate their practices with counsel to determine how those employees must be paid, if at all, for such time.

Sixth Circuit Concludes That Ambulance Company Does Not Need To Compensate EMTs for “On-Call” Meal Periods

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In Jones-Turner v. Yellow Enterprise Systems, LLC, the Sixth Circuit recently upheld summary judgment in favor of an ambulance company in a collective action filed by three EMTs, finding that the plaintiffs’ meal and rest breaks were not compensable under the Fair Labor Standards Act (“FLSA”) and Kentucky law.  The Court analyzed whether the ambulance company’s policy of having “on-call” lunch periods required EMTs to be compensated for that time.

According to the “on-call” lunch period policy, EMTs in the field were not allotted a specific time period for lunch but were instructed to take advantage of down time between ambulance runs to eat a meal.  The EMT crews  were required to radio the dispatcher to request a lunch break.  During their lunch break, the crews were subject to various restrictions.  For instance, the crews had to eat within one mile of an assigned stand-by location.  If the crews were out of their unit, they had to maintain radio contact, they were expected to answer the radio after the first call and they were subject to any available run.  If an employee was unable to take a lunch break due to call volume, the company required the employee to submit a missed lunch form.

The Court noted that there did not appear to be any evidence that employees were frequently interrupted by radio contact.  Likewise, there was no evidence that crews could only eat in their ambulances.  To the contrary, the evidence showed that they could leave the ambulance so long as they maintained radio contact.   The Court explained that it may have reached a different conclusion if EMTs were required to stay in their ambulances or if they had to drive or perform other duties.

The decision is helpful to employers as it clarifies that merely carrying a radio or monitoring a radio during lunch does not result in the meal period being compensable under the FLSA.  Although employers must be careful that they do not require employees to perform work during their meal periods, being subject to an emergency call does not transform meal periods into compensable time under the FLSA.

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