California Court of Appeal

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 SullivanA little more than two years ago, we wrote about how a California Court of Appeal’s decision exposed health care employers to litigation if they relied upon IWC Wage Order 5 for meal period waivers. That decision was Gerard v. Orange Coast Memorial Medical Center (“Gerard I”), where the Court of Appeal concluded that IWC Wage Order 5 was partially invalid to the extent it authorized second meal period waivers on shifts over 12 hours. Much has happened since then.

After Gerard I was published, the Legislature moved quickly to enact SB 327, which amended Labor Code section 516 to state in pertinent part that “the health care employee meal period waiver provisions in Section 11(D) of [IWC] Wage Orders 4 and 5 were valid and enforceable on and after October 1, 2000, and continue to be valid and enforceable. This subdivision is declarative of, and clarifies, existing law.” In enacting SB 327, the Legislature specifically noted “the uncertainty caused by a recent appellate court decision” – Gerard I – and that “without immediate clarification, hospitals will alter scheduling practices.”

After SB 327 was enacted, the California Supreme Court directed the Court of Appeal to vacate its decision in Gerard I and to reconsider the case in light of SB 327. The Court of Appeal has now done so. On March 1, 2017, in an unpublished opinion, the Court of Appeal in Gerard II held that SB 327 is effective retroactively. As a result, the second meal period waivers that the plaintiffs had signed were valid and enforceable. Consequently, the Gerard II Court affirmed the trial court’s order granting summary judgment, denying class certification, and striking class allegations.

The Gerard II decision is a welcome development for California health care employers who have relied upon IWC Wage Order 5 for second meal period waivers, reinforcing the use of such waivers for employees who work more than 12 hours in a shift.

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.

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.

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.