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.

Perhaps in response to protests brought by employees and their advocates in recent years, states, counties, and cities across America have been increasing their minimum wage in piecemeal fashion. Few employers are fortunate enough to need worry about only one minimum wage—the federal minimum wage that is the floor below which employers may not go (unless an employer is not covered under the FLSA). Most large employers that operate in multiple states must now navigate a minimum-wage patchwork in which the hourly rate varies from state to state and, sometimes, between counties and cities.

Although the federal minimum wage is $7.25 per hour, 29 states and the District of Columbia have a minimum wage greater than the federal minimum wage. And those states are consistently increasing their minimum wage—New Jersey just passed legislation increasing its minimum wage from $8.38 per hour to $8.44 per hour, effective January 1, 2017, which is also when the Montana minimum wage will go from $8.05 to $8.15 per hour.

California is arguably the most difficult minimum-wage patchwork for employers to navigate. From a present minimum wage of $10 per hour, the California minimum wage will increase one dollar per hour each year until it reaches $15 per hour in 2022. But those increases also result in increasing the minimum salary that must be paid to employees who qualify for most overtime exemptions in California. Because most exempt employees in California must make at least twice the minimum wage on an annual basis, the current minimum salary for exempt employees who work for employers having more than 25 employees will increase from the present minimum of $41,600 per year to a minimum of $62,400 by 2022. (However, if the DOL’s rule goes into effect on December 1, 2016, requiring a new minimum salary of $47,476, then that will be the new floor below which employers may not pay their employees on a salary basis.)

In addition to minimum-wage increases on a statewide level, numerous California cities and counties have passed ordinances increasing their own minimum wages. From San Diego to Berkeley, the minimum wage in many cities has increased quicker than the state minimum wage. California’s minimum wage is presently $10.00 per hour. Employers in Santa Clara and Palo Alto, however, must pay their employees at least $11.00 per hour. Employees across the bay in Oakland must be paid at least $12.25 per hour. San Diego employers must pay their employees $10.50 per hour, as do Santa Monica employers that employ more than 25 employees.

California cities are not the only ones that have increased their minimum wage faster than their resident states. Employers in Albuquerque have had an $8.50 minimum wage since 2013, greater than the $7.50 required under New Mexico law. Similarly, Chicago has a $10.50 minimum wage, although Illinois mandates only $8.25. Seattle businesses that employ less than 500 persons must pay their employees $12.00 per hour, but Washington has a minimum wage of only $9.47.

A version of this article originally appeared in the Take 5 newsletter Five Critical Wage and Hour Issues Impacting Employers.”

As if California employers were not already besieged with wage-hour class actions and agency complaints, the state’s controller has now decided to get in on the action.

As The Los Angeles Times reported last week, Controller John Chiang has initiated a new program he calls “Operation Pay-Up” to recover unpaid wages.  The article may be found here

In short, the Controller is using California’s Unclaimed Property Law to attempt to gain restitution of wages believed to be withheld from employees.  Any recovered wages that are unclaimed will be transferred to the state treasury, with the controller’s office attempting to locate the employees.

At this stage, it is too early to tell how broad “Operation Pay-Up” will be or the companies or industries that it will focus on – let alone how the program will interact with class actions or agency complaints. 

But, at the very least, it is yet another reminder to employers doing business in California that they need to get up to speed on the state’s intricate wage-hour laws and take steps to ensure compliance.

And for those employers who need a primer on California wage-hour laws, EBG’s free wage-hour app puts those laws — and federal laws and the laws of other states – at your fingertips. 

As if traffic in California was not bad enough by itself, employers in the trucking industry have one more thing to worry about – whether they are complying with California’s meal and rest break laws.  In  Dilts v. Penske Logistics, LLC, the plaintiffs represent a class of delivery drivers and installers.  Defendants had hoped to avoid the claim that they had violated California’s meal and rest break laws by arguing that as “motor carriers” the Federal Aviation Administration Authorization Act of 1994 (“FAAAA”) preempts California’s meal and rest break laws.  The trial court agreed and granted the defendants’ motion for summary judgment.  However,  the Ninth Circuit reversed finding that California’s meal and rest break laws are not the type of laws related to prices, routes, or services that Congress intended to preempt.

Defendants argued, among other things, that the requirement that drivers pull over and stop for each break period necessarily dictates that they alter their routes and that finding routes that allow drivers to comply with California’s meal and rest break laws will limit motor carriers to a smaller set of possible routes.  However, the Ninth Circuit was not persuaded.  Thus, motor carriers doing business in California which have relied on the FAAAA preemption, should carefully review their meal and rest break policies and practices to ensure that they comply with California law.

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 Michael Kun

If employers with operations in California believed that they could not possibly face more wage claims than they already do, they can think again.

The California Department of Labor Standards Enforcement (“DLSE”) – the state agency that addresses wage claims – has launched a new website designed to notify employees of their rights and explain how to file claims:

http://www.wagetheftisacrime.com/What-We-Do.html#laborCommissioner

The website provides detailed information about the various types of claims individuals may bring, and how to bring them. As the website explains, all an employee needs to do is fill out a form and mail it to the DLSE.

And the website includes links to those forms — and instructional guides — in English, Spanish, Chinese, Korean, Vietnamese, Tagalog, and Punjabi.

While only time will tell just how many more wage claims are filed as a result of this new website and the publicity surrounding it, one thing remains certain – state and federal agencies are more focused than ever on wage issues. And, as a result, employers must be, too.

By Michael Kun

We have written several times in this blog about California’s unusual – and unusually vague – “suitable seating” law, which requires some employers to provide some employees with suitable seating if the nature of their work reasonably permits it.  The previously obscure law has become the subject of numerous class actions in California.  And parties and the courts have struggled to interpret a vague law that has little legislative history and even less interpretive case law.

As we wrote most recently in January, the Ninth Circuit essentially threw up its hands and asked the California Supreme Court to clarify whether the term “nature of the work” refers to individual tasks that an employee performs during the day, or whether it should be read “holistically” to cover a full range of duties. It also asked the California Supreme Court to clarify whether an employer’s business judgment should be considered in determining whether the nature of the work “reasonably permits” the use of a seat, as well as the physical layout of the workplace and the employee’s physical characteristics.  Finally, it asked the California Supreme Court to clarify whether the employee must prove what would constitute a “suitable seat” to prevail.

After some speculation that the California Supreme Court might decline to answer these questions, it has now agreed to do so.

While the briefing and argument process will take time, employers in California should finally have much-needed guidance on this obscure law, allowing them to alter their practices as necessary and avoid these class actions.

As for those “suitable seating” class actions already pending, one would expect that many of them will be stayed until the California Supreme Court renders its decision.

by Michael Kun

We have written frequently in this blog about the great many wage-hour class actions filed against employers doing business in California.   Those lawsuits often allege that a class of employees performed work off-the-clock, and that the employees are not only entitled to compensation for that time, but to a slew of penalties that often dwarf the amount of alleged damages.

Depending on the nature of an employer’s business, a plaintiff might allege that employees were not paid for the couple minutes it might take to “boot up” a computer in the morning, or for waiting to punch in their time cards.  Or a plaintiff might contend that an employer has a time-rounding policy that somehow shortchanges employees by a minute or two of pay each day.

In defending these cases, employers often argue that not only must individualized inquiries be conducted to determine whether, when and how long an employee allegedly worked off-the-clock, but whether the employee was engaged in personal activities during some or all of that time.  Those are issues that go to whether a class should be certified.

On the merits, employers often argue that such time is non-compensable in any event as de minimis time – time that is so small that it need not be compensated.

The de minimis doctrine has been recognized by the United States Supreme Court for decades, and a variety of decisions have held that as much as 10 minutes per day is de minimis, non-compensable time.

In a decision that is likely to be cited by employers defending against off-the-clock class action claims in California, United States District Court Judge Gary Feess has granted summary judgment to Starbucks in a class action lawsuit alleging that employees were entitled to be compensated for the minute or two that they may have spent locking up or engaged in other activities after they punched out.  Relying upon the de minimis doctrine, Judge Feess held that such time is not compensable as a matter of law.

The decision is, of course, a positive development for employers who have been besieged by wage-hour class actions in California.  While one would hope that plaintiffs’ counsel would refrain in the future from filing suit seeking compensation for such small amounts of time, the decision should bolster employers’ efforts to obtain the same result that Starbucks obtained – a confirmation that they are not required to pay employees for every moment those employees are on their premises.

By Aaron Olsen and Michael Kun

In California, employers typically must pay overtime to non-exempt employees at a rate of one and one-half times their regular rates of pay not only when those employees work more than 40 hours in a week, but also when they work more than eight hours in a day.  That requirement is known as “daily overtime.”  (And employers must pay “double time” when non-exempt employees work more than 12 hours in a day.  But that is a different issue, for a different day.)

In a new decision issued on January 22, 2014, the California Court of Appeal has just confirmed an important exemption to “daily overtime” where employees are covered by collective bargaining agreements, awarding summary judgment to the employer and shutting down the plaintiffs’ attempt to read the exemption in a manner that would negate it.

A section of the California Labor Code – Labor Code 514 – provides an exemption from “daily overtime” for employees covered by a collective bargaining agreement whereby they receive at least 30% more than the state minimum wage and premium pay for “overtime.”  Not “daily overtime,” but “overtime.”  The plaintiffs nevertheless argued that employees covered by a qualified collective bargaining agreement must still receive some amount of premium compensation for “daily overtime.”

The California Court of Appeals summarily rejected this argument, explaining that employees covered by qualified collective bargaining agreements are not entitled to premium pay for “daily overtime,” but are only entitled to premium pay for “overtime,” as defined by the employer and union.  There, the employer and union had defined “overtime” as time worked beyond 40 hours in a week or 12 hours in a day.  And that, the Court concluded, was all the “overtime” the plaintiffs could get. 

The confirmation of this important exemption – and the ability of an employer and union to define “overtime” for the purposes of Labor Code section 514 — is a welcome development for employers who face claims like those brought by the plaintiffs.  Barring California Supreme Court review and reversal, it would seem to shut down the argument to negate the exemption in future cases, including class actions. 

by Shane Sagheb

For years, employers in California have been cautioned about deducting debts from employees’ final paychecks. On January 9, 2014, the Ninth Circuit Court of Appeals issued an unpublished opinion in Ward v. Costco Wholesale Corp., No. 11-56757 (9th Cir. Jan. 9, 2014), holding that under certain limited circumstances, such deductions do not run afoul of federal law or the California Labor Code. In light of the fact that this decision is not published and no state court opinion has adopted its holding, however, employers should remain cautious about making such deductions.

During their employment with Costco, the plaintiffs in Ward signed an agreement authorizing the company to deduct from their final paychecks, upon separation of employment, any balance due on their company-issued credit card. When Costco deducted unpaid credit card balances from the plaintiffs’ final paychecks, applying those balances against their accrued vacation and sick pay, the plaintiffs sued, alleging violations of the Fair Labor Standards Act (“FLSA”) and the California Labor Code.

The trial court rejected the plaintiffs’ claims following a bench trial, and the Ninth Circuit affirmed. With respect to the FLSA claims, the court observed that federal law did not require employers to pay accrued vacation and sick pay upon discharge and thus evaluated whether such deductions violated federal overtime and minimum wage requirements. It concluded that because the amount of the deductions exceeded the employees’ accrued vacation and sick pay, “the district court correctly found that the credit card deductions did not effect a violation of the overtime and minimum wage requirements.”

The court also concluded that the plaintiffs in Ward failed to prove a violation of California Labor Code Sections 201 or 203, which require the payment of all earned wages at termination. The Ninth Circuit relied on and analogized the decision in Schachter v. Citigroup, Inc., 47 Cal. 3d 610 (2009), in which the California Supreme Court enforced vesting and forfeiture provisions contained in an incentive plan. The incentive compensation plan in Schachter provided employees with shares of restricted company stock at a reduced price in lieu of a portion of their annual salaries. The plan included vesting requirements and provided that the employees would forfeit any such stock, as well as the cash compensation they directed to be paid in the form of stock, if their employment ended before the entitlement to the stock vested. The Court in Schachter held that the forfeiture provision was enforceable, at least as to employees who were discharged with cause or who resigned, because the rights under the incentive plan had not yet vested and, therefore, had not been earned.

Without analyzing the differences between the incentive plan in Schachter and the credit card expense agreement before it, the Ninth Circuit in Ward simply paraphrased Schachter as follows: “Having elected to receive some of [their] compensation in the form of [credit card balances], … [Plaintiffs] cannot now assert that [they] should have been paid in cash that portion of [their] compensation [that Plaintiffs] elected to receive [in the form of credit card balances].” Thus, the court equated the credit card balance agreement and incentive plan and concluded that “Costco did ‘not run afoul of the Labor Code because no earned, unpaid wages remain outstanding upon termination according to the terms of” Plaintiffs’ agreements with Costco” (quoting Schachter).

State courts in California are not obligated to abide by the conclusion reached by the Ninth Circuit in Ward. Moreover, it is unclear from the Ninth Circuit’s opinion in Ward why the court concluded that the credit card agreement signed by the plaintiff in that case was analogous to the vesting and forfeiture provisions in the incentive plan at issue in Schachter. Employers thus are well-advised to continue to proceed with caution when considering whether to make deductions from employees’ final paychecks.