California wage and hour

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 On March 1, 2017, in an unpublished opinion, the Court of Appeal in Gerard II held that SB 327 is effective retroactively.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.

Vintage State Flag of California

On October 2, 2015, Governor Jerry Brown signed AB 1506, insulating employers from Private Attorneys General Act (“PAGA”)lawsuits based on employee wage statements if employers cure certain defects in the wage statements within 33 days of being put on notice of them.

The law is being celebrated by some as a major development that will significantly reduce the number of PAGA lawsuits filed against California employers.  Unfortunately, there may be a bit of a misunderstanding about what the new law does and how far it reaches.  While it is certainly a positive step for employers that will insulate them from some PAGA claims, its impact on PAGA lawsuits will likely be minimal, at best.

PAGA allows employees to file suit against their employers for alleged violations of the California Labor Code, and to do so on behalf of all “aggrieved employees.”  And it allows those employees to receive up to $200 per person per violation.  Because each pay period in which a violation occurs is generally considered to be a violation, the potential penalties under PAGA can be enormous depending on the number of different Labor Code violations alleged and the size of an employer’s workforce.

Importantly, PAGA claims are not considered “class actions.” While employers in California have been besieged by wage-hour class actions, they have also been besieged by PAGA claims addressing the same issues.  Sometimes the PAGA claims are filed in the same lawsuit with the class claims; sometimes they are filed as separate lawsuits. However they are filed, PAGA claims are often little more than strategic claims meant to drive up the settlement value of class actions or to force employers to settle claims on a classwide basis.

Most PAGA lawsuits would appear to include claims based on defective wage statements. That is not going to change, at least not in any significant way, with AB 1506.

The new law does not provide that employers must be permitted to cure all defects in wage statements before a PAGA claim can be filed.  Instead, it provides that employers must be provided a brief opportunity to cure a couple of specific defects in employee wage statements once put on notice of those defects through a letter to the state Labor Workforce and Development Agency (“LWDA”). It is limited to the failure to specify the pay period covered by the paycheck, and the failure to provide the employer’s name or address on the wage statement.  That’s it.

For employers whose wage statements don’t include one or both of those items, the new law is obviously a meaningful development.  Once put on notice of those defects, they can cure them by sending out compliant wage statements for the prior 3 years.

However, the impact of the new law on the filing of PAGA lawsuits, including those with wage statement components, will likely be tiny.

Very few PAGA lawsuits are based solely on claims that the wage statements did not include the pay period or the employer’s name or address.  Instead, to the extent individuals bring PAGA claims based on employees’ wage statements, they are typically tied to claims that employees were not paid for all time worked or did not receive premiums for missed meal or rest periods.  That is, the alleged wage statement violation is that the wage statement did not accurately record all of the wages that the employee should have received.  The new law will have no impact on those claims.

While AB 1506 may not have a huge impact on PAGA litigation, all employers with employees in California would be wise to take this opportunity to review their wage statements to ensure that they provide all of the items required by California law, including an identification of the pay period covered by the wage statements and inclusion of the employer’s name and address.  And should they ever receive notice of the defects, they would be wise not only to cure those defects, but to do so for the prior three-year period to avoid PAGA liability for that aspect of the wage statements.

 

 

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.

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.

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.

By Michael Kun

Much has already been written about last week’s California Supreme Court decision in Duran v. U.S. Bank Nat’l Ass’n, a greatly anticipated ruling that will have a substantial impact upon wage-hour class actions in California for years to come.  Much more will be written about the decision as attorneys digest it, as parties rely on it in litigation, and as the courts attempt to apply it.

In a lengthy and unanimous opinion, the California Supreme Court affirmed the Court of Appeal’s decision to reverse a $15 million trial award in favor of a class of employees who claimed they had been misclassified as exempt, and to decertify the class.  How the$15 million award had been obtained in the first place has been the subject of much discussion and more than a bit of ridicule.  In short, the trial court had tried the case by essentially pulling names from a hat to determine which class members would be able to testify at trial, with the defendant precluded from presenting evidence as to other employees.  The California Supreme Court described this approach as a “miscarriage of justice.”   It then discussed in great length whether, when and how statistical sampling could be used in these cases, among other things.

Already, both the plaintiffs’ bar and the defense bar are claiming that the Supreme Court’s decision is a victory for them.

Because the Supreme Court did not foreclose the possibility that statistical evidence could be used to establish liability in these types of cases – instead, it recognized that “[s]tatistical sampling may provide an appropriate means of proving liability and damages in some wage and hour class actions” —  the plaintiffs’ bar is claiming victory.  To the extent they contend that Duran allows the use of statistical evidence to prove liability, they are ignoring the most important word in that sentence – “may” – along with the various caveats laid out by the Court.

Because the Supreme Court explained that the process must allow an employer to impeach the statistical model and litigate its affirmative defenses, and that there must be “glue” holding claims together beyond statistical evidence, the defense bar is likewise claiming victory.  But even they must admit that it is not the death blow to wage-hour class actions that they may have hoped for.

In truth, Duran is a unusual decision in that it provides more than a few quotes for plaintiffs’ lawyers and defense lawyers alike to rely on.

Ultimately, the most important language in Duran may be this: “A trial plan that relies on statistical sampling must be developed with expert input and must afford the defendant an opportunity to impeach the model or otherwise show its liability is reduced.”

What does this mean?

It means that some trial plans based on statistical sampling may be approved.

And it means that some trial plans based on statistical sampling may not be approved.

It means that a trial court’s analysis will turn, at least in part, on whether the employer will be able to impeach the model and show that it does not work.

And it means that, more than ever, these cases are going to require the parties to retain expert witnesses, and whether classes will be certified will turn on those expert witnesses.  Remember, the Court did not just say that a trial plan that relies on statistical sampling might be appropriate.  No, it said that such a trial plan “developed with expert input” might be appropriate.

The result of all of this is that, with the plaintiffs’ bar now emboldened because the door has not been shut on the use of statistical evidence on liability, employers may face even more wage-hour class actions in California than before.

And statistical experts can go buy those new houses, cars and boats they’ve been eyeing because their services will be in greater demand than ever.  They are the real victors in this decision.

By:  Adam C. Abrahms

Last week Assembly Bill 889 cleared a California State Senate Committee, advancing it one step closer to becoming state law.  The bill, authored by Assemblyman Tom Ammiano (D – San Francisco), seeks to extend most of California’s strict wage and hour regulations to domestic employees working in private homes.  While the bill excludes babysitters under the age of 18, it extends California wage and hour protections to babysitters over the age of 18 as well as any other housekeeper, nanny, caregiver or other domestic worker.

Should the bill become law individual Californians and California families who employ the services of these domestic workers will be required to follow the same overbearing regulations that currently plague California’s small and large businesses.  Specifically, absent the applicability of narrow and limited exceptions, individuals/families using domestic services from babysitting to adult caregiving and transportation to housekeeping will, among other mandates, be required to:

  • Pay their domestic workers in accordance with California overtime rules including time and half for over 8 hours in a day; ·
  • Provide duty-free meal periods for domestic workers working over 5 hours in a day; ·        
  • Permit paid rest periods for domestic workers working over 3 ½ hours in a day; ·       
  • Maintain and record the actual start and end time for all work periods (including meal periods);
  • Provide detailed and regular itemized pay check statements detailing hours of work, rates of pay and deductions; and
  • Comply with certain notice posting and record keeping requirements.

Above and beyond the regular requirements of California law, the bill imposes a new and special requirement that individuals/families employing domestic workers provide them specific food items of their worker’s choosing if meals are part of the worker’s compensation.  The bill also explicitly provides domestic workers the protections of California’s Workers Compensation System and requires individuals/families employing the services of domestic workers to comply with the applicable workers compensation laws. 

In addition to any other damages and attorney’s fees resulting from an individual/families’ failure to comply with California’s complex wage and hour laws, the bill imposes a new $50 penalty for each day an individual/family violates the bill’s mandates. 

The bill now moves onto the full California State Senate for consideration. In unrelated news, California’s unemployment rate is amongst the highest in the nation as businesses find friendlier climates in neighboring states.