California Wage-Hour Law

It is no secret that California’s wage-hour laws are complex and often raise questions that employers, employees and the courts struggle with. As we wrote here more than a year ago, faced with questions regarding California’s ambiguous “day of rest” laws, the Ninth Circuit Court of Appeals threw up its hands and asked the California Supreme Court to clarify those laws.

Among the questions to be answered was one that impacts a great many employers, particularly those in the retail and hospitality industries – does the requirement that an employee be provided a “day of rest” apply to each workweek (such that an employee could be scheduled to work 12 consecutive days over two workweeks), or does it apply to each rolling, 7-day period (such that employees could never be scheduled to work more than 6 consecutive days)?

Employers have been awaiting the Supreme Court’s decision, not just because it could require them to change their scheduling practices, but because an adverse interpretation of the “day of rest” laws could lead to a great many lawsuits and exposure over past practices.

The California Supreme Court issued its opinion in Mendoza v. Nordstrom, Inc. on Monday.  And the Court’s answers to the Ninth Circuit’s questions are ones that should please most employers.

Perhaps most importantly, the Supreme Court concluded that “a day of rest is guaranteed for each work week,” not for each rolling, 7-day period – a conclusion that would allow an employer to schedule an employee to work for as many as 12 consecutive days without violating the law (so long as the employee is not required to work 7 in one workweek).

The California answered the Ninth Circuit’s questions as follows:

  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 7-day period?

As the Ninth Circuit Court noted, this question was no mere matter of semantics. One answer would lead to liability for the employer, while the other would not.

Reviewing the “manifestly ambiguous” statutory language and legislative history, the California Supreme Court concluded, “A day of rest is guaranteed for each workweek. Periods of more than six consecutive days of work that stretch across more than one workweek are not per se prohibited.”

The Court explained, “The Legislature intended to ensure employees, as conducive to their health and well-being, a day of rest each week, not to prevent them from ever working more than six consecutive days at any one time.”

  1. 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 Ninth Circuit noted, the word “any” could support either interpretation. And, again, this was not a matter of semantics. The different interpretations of “any” would lead to very different liability determinations.

The California Supreme Court concluded, “The exemption for employees working shifts of six hours or less applies only to those who never exceed six hours of work on any day of the workweek. If on any one day an employee works more than six hours, a day of rest must be provided during that workweek, subject to whatever other exceptions might apply.”

  1. 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” would lead to different liability determinations.

The California Supreme Court concluded, “An employer causes its employee to go without a day of rest when it induces the employee to forgo rest to which he or she is entitled. An employer is not, however, forbidden from permitting or allowing an employee, fully apprised of the entitlement to rest, independently to choose not to take a day of rest.”

The California Supreme Court’s answers to these questions – particularly the first and third – will likely be greeted with much relief from employers in California, especially in the retail and hospitality industries where it is not uncommon to schedule employees to work 7 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.

Persons who live and work outside of California, including employment attorneys and the most seasoned of human resources personnel, are often confounded when they first learn about California’s Private Attorneys General Act (“PAGA”).  And, for many, the first they learn about PAGA is when a PAGA lawsuit has been filed against their company.

The same series of questions and answers often follow:

A single individual can file a lawsuit against an employer alleging that all employees were subjected to certain violations of the California Labor Code?

Yes.

Even if there are thousands of employees?

Yes.

And the employee doesn’t need to get a class certified to proceed?

Correct, because PAGA claims are considered “representative claims,” not “class claims.” (Although courts are beginning to rule more and more that PAGA claims cannot proceed to trial if they are “unmanageable.”)

And each employee can recover up to $200 per pay period for each Labor Code violation?

Yes.  They can get up to $100 for the first pay period, and $200 for each subsequent pay period.

So, hypothetically, if there were five different violations per pay period, each employee could recover up to $1000 per pay period?

Yes.

But 75% of what employees recover must then be returned to the state?

Generally, yes. It must go to the Labor and Workforce Development Agency (“LWDA”).

Why?

Because it’s part of the statute – 75% goes back to the LWDA.

But a plaintiff must arbitrate PAGA claims if he or she signed an arbitration agreement, right?

Generally, no.

But PAGA claims are covered by class action waivers, right?

To date, the courts have held that they are not covered by class action waivers.

Can PAGA lawsuits be removed to federal court under the Class Action Fairness Act?

Generally, no, because PAGA claims aren’t “class actions” per se.  They’re “representative actions.” However, if PAGA claims are filed as part of a complainat that contains class claims, they could still wind up in federal court if the class claims are removable.

Little by little, the courts have answered these and other PAGA-related questions. But at least one major question has remained – are PAGA plaintiffs entitled to a jury trial?

While the appellate courts have yet to weigh in on this issue, the trial courts are doing so as more and more PAGA cases are being filed and as they approach trial. And, to date, they all appear to conclude that a PAGA plaintiff is not entitled to a jury trial. Several of these decisions are in cases we have handled, and we are not at liberty to discuss them. However, another trial court has recently reached the same conclusion. In Espinosa v. Bodycote Thermal Processing, Inc., Judge John Shepard Wiley concluded that PAGA plaintiffs are not entitled to a jury trial because PAGA claims are equitable in nature.

While Judge Wiley’s conclusion is consistent with the other courts that have reviewed the issue, only time will tell whether the California Courts of Appeal agree when the issue is inevitably presented to them. For now, employers with operations in California should take some comfort in knowing that PAGA claims are likely to be tried to a judge and not to a jury.

A federal district court in California has weighed in on the question of whether student-athletes are employees for the purposes of minimum wage and overtime laws. And, like the courts before it, it has rejected that notion.

In Dawson v. National Collegiate Athletic Association, No. 16-cv-05487-RS (N.D. Ca. April 25, 2017), the United States District Court for the Northern District of California has joined the Seventh Circuit Court of Appeals and other courts in holding that athletes are not employees entitled to minimum wage and overtime time pay.

In Dawson, a former college football player for the University of Southern California filed a putative class action against the NCAA and the associated conference, claiming he was denied full pay for all hours worked, including overtime. Rather than applying the four factor “economic reality” test that the Ninth Circuit has adopted, the district court focused on the “true nature of the relationship.” Borrowing from the Seventh Circuit’s reasoning in Berger v. Nat’l Collegiate Athletic Ass’n, 843 F.3d 285 (7th Cir. 2016), the court concluded that “student athletic ‘play’ is not ‘work,’ at least as that term is used in the FLSA.”

The court rejected the Plaintiff’s argument that the situation differed from Berger because the students in that case were track and field athletes, while the Dawson athletes played Division I football, which generates massive revenue for schools. The court noted that Plaintiff cited no authority to support this distinction.

The court also relied on the U.S. Department of Labor’s Field Operations Handbook, which indicates that students who participate in extracurricular activities generally are not employees of the school, distinguishing them from work-study students who typically are considered employees. The court drew a distinction between sports and work-study programs, labelling the latter as programs that benefit the school. Conversely, the court felt that football exists for the benefit of the student and only in limited circumstances, for the benefit of the school.

Thus, one federal court in California has joined the parade of courts that have rejected the concept of student athletes being employees of the schools where they are engaged in sports. The issue is likely to be appealed to the Ninth Circuit. And only time will tell whether the Ninth Circuit will confirm this result or whether it will conclude that student-athletes in fact are employees.

Featured on Employment Law This Week – California health care workers can still waive some breaks.

In February 2015, a California appeals court invalidated an order from the Industrial Welfare Commission (IWC) that allowed health care workers to waive certain meal breaks. The court found the order, which allowed the workers to miss one of their two meal periods when working over eight hours, was in direct conflict with the California Labor Code. The state legislature then passed a new law giving the IWC authority to craft exceptions going forward for health care workers. This month, the appeals court concluded that its 2015 decision was based on a misreading of the statute and that even waivers occurring before the new law are valid.

Watch the segment below and see our recent post on this topic.

Kevin SullivanOn February 28, 2017, the California Court of Appeal issued its opinion in Vaquero v. Stoneledge Furniture, LLC. The opinion provides guidance to California employers who pay their hourly employees on a commission basis but do not pay separate compensation for time spent during rest periods.

In the case, the employer kept track of hours worked and paid hourly sales associates on a commission basis where, if an employee failed to earn a minimum amount in commissions – comprising of at least $12.01 per hour in commission pay in any pay period – then the employee was paid a “draw” against future advanced commissions. The commission agreement explained: “The amount of the draw will be deducted from future Advanced Commissions, but an employee will always receive at least $12.01 per hour for every hour worked.” In other words, for hourly sales associates whose commissions did not exceed the minimum rate in a given week, the employer clawed back (by deducting from future paychecks) wages advanced to compensate employees for hours worked, including rest periods. The commission agreement did not provide separate compensation for any non-selling time, such as time spent in meetings, on certain types of training, and during rest periods. Although employees clocked out for meal periods, they did not clock out for rest periods.

Two former employees brought suit, alleging, among other things, that the employer did not pay all wages earned during rest periods. The employer filed a motion for summary judgment, arguing that “the rest period claim failed as a matter of law because Stoneledge paid its sales associates a guaranteed minimum for all hours worked, including rest periods.” The trial court granted the employer’s motion, finding that, under the employer’s system, “there was no possibility that the employees’ rest period time would not be captured in the total amount paid each pay period.” The employees appealed.

The California Court of Appeal reversed the trial court’s decision, starting with the premise that the “plain language of Wage Order No. 7 requires employers to count ‘rest period time’ as ‘hours worked for which there shall be no deduction from wages.’” (Italics added by the Court.) The Vaquero Court relied on a 2013 decision in Bluford v. Safeway, Inc., where a sister court had held that this language in Wage Order 7 requires employers to “separately compensate[]” hourly employees for rest periods where the employer uses an “activity based compensation system” that does not directly compensate for rest periods.

Finding that “nothing about commission compensation plans justifies treating commissioned employees differently from other [hourly] employees,” the Vaquero Court agreed with the Bluford Court’s holding that “Wage Order No. 7 requires employers to separately compensate employees for rest periods if an employer’s compensation plan does not already include a minimum hourly wage for such time.” And because the Vaquero employer did not separately compensate its sales associates for rest periods, the Court of Appeal reversed summary judgment.

As had been the case for employers with piece-rate compensation plans, the Vaquero decision makes clear that commission-based compensation plans must separately account for – and pay for rest periods – to comply with California law.

On November 30, 2016, the California Court of Appeal issued its opinion in Driscoll v. Granite Rock Company. The opinion provides guidance to California employers who enter into on-duty meal period agreements with their employees.

In Driscoll, the trial court had certified a class of approximately 200 concrete-mixer drivers who alleged they were not provided off-duty meal periods pursuant to California law. Those claims proceeded to a bench trial and the trial court found in favor of the employer. The employees then appealed.

The Court of Appeal upheld the employer’s on-duty meal period agreements, noting that the employer’s “policies regarding meal periods [we]re particularly appropriate in the context of the ready mix concrete industry.” The Court of Appeal cited the 2012 decision in Brinker, where the California Supreme Court held that “[w]hat [off-duty meal practices that] will suffice may vary from industry to industry, and we cannot in the context of this class certification proceeding delineate the full range of approaches that in each instance might be sufficient to satisfy the law.” Relying on Brinker, the Driscoll Court concluded that “the issue of different industry practices is a factual determination. Here, while on the job, mixer drivers manage a rolling drum of freshly batched concrete at any given time throughout their work day. When a driver is able to take a duty-free lunch period is dependent on the state of the concrete in his or her truck, and the nature of the construction job to which the driver is attending.”

The Court of Appeal also rejected the employees’ arguments that the employer required employees to enter into on-duty meal period agreements. The trial court had “found that when a concrete-mixer driver requested to have an off-duty meal period, Graniterock granted that request, and relinquished all control of the employee for the 30-minute off-duty period.” The Court of Appeal concluded that doing so satisfied the Brinker standard.

The Driscoll decision is a welcome one for employers – especially those facing class actions – that use on-duty meal period agreements as it reaffirms their validity.

Our colleague Michael Kun, co-editor of this blog, shared his thoughts on various wage and hour issues in the publication of “7 Deadly Sins,”  which discusses FLSA violations that must be avoided to ensure compliance at your company, published by TSheets.

Following is an excerpt:

“The most common issues we see regarding meal and rest periods occur in states like California where state laws – rather than the FLSA – require that employees be provided those breaks at certain times during the day, and employees are entitled to significant penalties if they are not provided breaks in compliance with the law. …”

Read the full post here.

One of the top stories featured on Employment Law This Week: The U.S. Court of Appeals for the Ninth Circuit reaffirms an employer’s time-rounding practice. A call-center employee in California recently brought a class action lawsuit against his employer for time-rounding practices. The employee claims that the policy caused him to be underpaid by a total of $15 over 13 months. Relying on a California Court of Appeals precedent, the Ninth Circuit found that the company’s facially neutral rounding policy—one that rounds time both up and down—is legal under California law. The employee also argued that he was denied payment for a total of one minute when he logged into call software before he clocked in. The Ninth Circuit found that the de minimis doctrine applied in this case, because identifying a single instance in order to provide payment would create an undue burden on the employer.

View the episode below or read more about this story in a previous blog post.

Clock FaceOn May 2, 2016, the Ninth Circuit issued a published opinion in Corbin v. Time Warner Entertainment-Advance/Newhouse Partnership. The Corbin Court best summarized the action in its opening sentence: “This case turns on $15.02 and one minute.” The “$15.02” represented the wages the plaintiff claimed he lost over a period of time as a result of the company’s neutral time-rounding policy. And the “one minute” represented the amount of off-the-clock time that the plaintiff worked, which the Court held was de minimis and, therefore, not compensable.

Federal and California authorities have found that an employer complies with the law if it has a facially neutral time rounding policy – one that rounds time both up and down – and if, in practice, the policy is also neutral.

In Corbin, there was no dispute that Time Warner had a facially neutral rounding policy. Rather, Corbin argued that rounding was only permissible under circumstances that would create undue burdens on employers.

Following the California Court of Appeal’s decision in See’s Candy Shops, Inc. v. Superior Court, the Ninth Circuit rejected the employee’s argument that rounding violates California law that requires employees to be paid all wages due for each pay period where the employer does not engage in a “‘mini actuarial process at the time of payroll’ and reconcile the rounding with actual time punches.” The Court held that such a view was too short-sighted: “Employers use rounding policies to calculate wages efficiently; sometimes, in any given pay period, employees come out ahead and sometimes they come out behind, but the policy is meant to average out in the long-term.” The Ninth Circuit also found that such an interpretation would render rounding practices useless because “employers would have to ‘un-round’ every employee’s time stamps for every pay period to verify that the rounding policy had benefitted every employee.”

The employee’s records in Corbin demonstrated that sometimes rounding worked in his favor, and sometimes it did not. The Ninth Circuit determined that is exactly how rounding is intended to work and, thus, found that the company’s time-rounding practice was neutral in its application.

Also at issue in the case was the de minimis doctrine, which permits the non-payment of wages when the employer meets a three-prong test where courts are instructed to “consider (1) the practical administrative difficulty of recording the additional time; (2) the aggregate amount of compensable time; and (3) the regularity of the additional work.”

The plaintiff if Corbin – a call center employee – claimed that on one occasion he logged into call software before he clocked in for timekeeping purposes, although at all other times he clocked in before starting the program. The employee claimed that Time Warner should have known about this one-time log-in issue and compensated him for it because it had access to the records. The Ninth Circuit rejected this assertion: “Corbin’s contention that the de minimis doctrine does not apply because [Time Warner] could ascertain the exact log-in/out times by scouring its computer records is baseless; the de minimis doctrine is designed to allow employers to forego just such an arduous task.”

The Ninth Circuit also found that Corbin’s proposed standard would require employers to undermine their policies “prohibiting off-the-clock work by proactively searching out and compensating violations.” And because there was only one minute at issue and it was an irregular practice, the de minimis doctrine applied.

The Ninth Circuit’s opinion reaffirms the long-standing practice of rounding employees’ time so long as it is done in an even-handed manner. The Corbin Court’s opinion also confirms that employers are not required to scavenge through their records to ensure that any off-the-clock work did not occur, and that they need not compensate employees for de minimis time.

The top story on Employment Law This Week is California’s statewide $15 minimum wage.

On April 4, Governor Jerry Brown signed a bill that will raise California’s minimum wage to 15 dollars an hour by 2022 for companies with more than 25 employees. The increase will begin next year, moving from 10 dollars an hour to $10.50. California – one of the world’s biggest economies – is the first U.S. state to commit to a 15 dollar minimum wage. And the trend is continuing, with similar legislation signed in New York last week as well. David Jacobs from Epstein Becker Green has more on the trend and what employers in California can do to prepare.

View the episode below or learn more about the New York legislation in an EBG Act Now Advisory.