We have frequently written about California’s Private Attorneys General Act (“PAGA”), a unique statute that allows private individuals to file suit seeking “civil penalties” on behalf of themselves and other “aggrieved employees.”

The only remedy available to employees in actions brought under PAGA is a civil penalty.  That is significant because civil penalties are unlike the remedies available in conventional lawsuits that are not brought under PAGA; such non-PAGA remedies can include allegedly unpaid overtime, vacation pay, or meal and rest period premiums.

Less than two years ago in Lawson v. ZB, N.A., 18 Cal. App. 5th 705 (2017), the California Court of Appeal held that one of the sections under the California Labor Code – section 558(a) – would also allow the recovery of certain types of unpaid wages that could be recovered under PAGA.  That decision greatly expanded the scope of exposure that employers would face when defending lawsuits brought under PAGA.  Not incidentally, it increased the potential exposure in PAGA actions and, as a result, the settlement value of those cases.

Fortunately for employers, the defendant in Lawson petitioned the California Supreme Court to review that decision, and the Court agreed to do so.

On September 12, 2019, the California Supreme Court issued its opinion in Lawson, holding that the Court of Appeal was wrong.  The California Supreme Court held that a PAGA plaintiff may not recover the amount of allegedly unpaid wages.  Instead, the only remedy available is the civil penalty, the amount of which can vary based on the type of violation.  For purposes of section 558, that would be either a $50 or $100 penalty per employee for each pay period in which there was a certain type of violation.

The Lawson decision is a welcome development for all California employers.  The potential exposure in PAGA cases – and the pressure to settle given that exposure – has greatly decreased.

A number of years ago – 20 perhaps – someone shared with me a study that was conducted by a major university where participants were asked which professions they most distrust.

My recollection is that it was conducted at Duke University, but I could be wrong.  (I do remember distinctly that there were 998 participants in the survey, which still seems like a peculiar number to me.  They couldn’t find two more people?)

In any event, one spot from the top of the list of most distrusted professions (or the bottom, depending on your perspective) was used car salespersons.  Yes, I know, a cliché.

The top spot (or the bottom) was reserved for lawyers.

Not all lawyers, mind you, but a particular group – plaintiffs’ class action lawyers, who the study’s participants felt took too much money out of the pockets of the people they supposedly represented, making millions while class members often got pennies.

I was told of this survey before I really started focusing on class action defense myself, but I have never forgotten it.

And let me say this – as with many things in life, it is unfair to paint with too broad a brush.  I’ve had the pleasure of dealing with more than a few plaintiffs’ employment class action lawyers who are passionate believers in the positions they take on behalf of employees, who work hard for their clients, who appear to be driven by their commitment to their clients, etc., etc., etc.

But, like any employment class action defense lawyer, I have seen too many of these cases driven not by the facts of the case or by what is best for the employees, but by what is best for their attorneys.  And, in particular, I’ve seen how these cases are often driven by an effort to maximize their own attorneys’ fees recovery.

Settle a class action for $10 million, and the plaintiffs’ attorneys may get as much as $4 million for themselves, even if they did little more than file a lawsuit and attend a mediation.

And it’s not uncommon to hear a lawyer announce at a mediation of a wage-hour class action, “I need to get $2 million for myself out of any settlement.”

Then the parties and the mediator decide whether to work backwards to negotiate a settlement where that lawyer could get that $2 million.

Or $1 million.

Or $750,000.

Whatever the number that the plaintiff’s counsel is insisting on getting in fees, putting the focus on their fees before the merits of the case or the recovery to class members is the tail wagging the dog.

All of this leads me to share some unusual comments made by a highly respected federal judge in California several weeks ago.  Or, at least, a paraphrased summary of her comments.  (I do not want to embarrass the judge by mentioning her name, but she is a fine and thoughtful judge who has overseen some significant cases in the state and has issued some opinions that are favorable to employees.)

In a case in which the judge denied class certification of the plaintiffs’ wage-hour claims, the plaintiff still had similar claims pending under California’s unique Private Attorneys General Act (“PAGA”) – representative claims, but technically not “class claims.”  (PAGA claims, and the issues with them, are another subject for another day.)

Rather than go to trial over those small claims, the parties reached a very small resolution of them.  As part of it, plaintiff’s counsel sought fees for themselves that were significantly more than what the employees themselves would recover. (I won’t mention plaintiff’s counsel by name either as I have had a few cases against them and genuinely like them.)

While other judges might rubber-stamp such a small settlement just to get it off their docket, the judge in this case rejected the proposed settlement.

Here is roughly what she said (I’m relying on my notes):

I’m not doing this. I’m not going to approve this. I’m tired of it. These wage-hour class actions are the worst.  They’re all about attorneys’ fees.  They have nothing to do with the case or with the employees.  They have nothing to do with justice.  It’s just attorneys’ fees.  When I go on retired status, I’m going to tell them I won’t accept any of these wage-hour cases for that reason.  And I don’t think I’m the only judge who is getting tired of this.  I think you’re going to see more and more judges who aren’t going to put up with this.

Again, that’s based on my notes.  She said more that I didn’t jot down (or where I can’t decipher my own handwriting).

Maybe she was just expressing her own frustration. And maybe she is alone.

But maybe she’s right.

And maybe we will see some developments from the bench that will shift the focus of these cases away from the attorneys’ fees and back to the disputes themselves.

As part of its spring 2019 regulatory agenda, the U.S. Department of Labor’s Wage and Hour Division (“WHD”) will consider a proposed revision to the Fair Labor Standard Act’s (“FLSA”) regulations on calculating overtime pay for workers whose hours fluctuate from week to week.

Generally, non-exempt employees covered by the FLSA must receive overtime pay for hours worked in excess of 40 in a workweek at a rate at least time and one-half their regular rates of pay – the standard calculation of overtime.  However, the FLSA provides an alternative method of calculating overtime for employees with fluctuating work weeks (i.e., above and below 40 hours per week).

Under the fluctuating workweek method, an employer and non-exempt employee can agree that the non-exempt employee will be paid a fixed salary as straight-time compensation for any and all hours that are worked in a workweek, whether less or greater than 40, and that the non-exempt employee will also be paid an additional one-half the non-exempt employee’s regular rate of pay as overtime compensation for all hours over 40 in that workweek.  See 29 C.F.R. § 778.114.

As the regulations explain, half-time overtime satisfies the overtime pay requirement because all hours worked have already been compensated at the straight regular rate per the parties’ agreement.  The regulations provide that employees paid pursuant to the fluctuating workweek method of overtime payment must receive a salary sufficient to ensure that the employee’s average hourly wage meets the minimum hourly wage rate.

In 2011, the WHD issued an announcement advising that bonuses and premium pay “are incompatible with the [fluctuating workweek] method of computing overtime under Section 778.114.”  76 Fed. Reg. at 18850.  Notwithstanding this somewhat ambiguous statement, the WHD never issued an actual rule or regulation regarding its view.  Since then, most courts have deferred to the WHD’s position with respect to extra pay that is time-based but have ignored the DOL’s view with respect to performance-based commissions in conjunction with the fluctuating workweek method.

Perhaps as a response to comment and criticism that its position on bonuses and premium pay vis-à-vis the fluctuating work week was undeveloped and unclear, the WHD now proposes to revise the fluctuating workweek regulations to provide employers greater flexibility to include additional forms of compensation in the fluctuating workweek calculations.  See Office of Information and Regulatory Affairs, Office of Management and Budget Website, available at https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201904&RIN=1235-AA31 (last accessed Aug. 21, 2019).

Allowing additional incentive pay or bonuses in the fluctuating workweek calculation could be a benefit to employers, especially those whose methods of payment to non-exempt employees is not based in whole or part on a traditional time-based method.

In any event, until the statutory text of the proposed rule becomes available for public comment, it remains to be seen to what degree the WHD will retract its current view that bonuses and premium pay must be excluded.

We will continue to monitor developments regarding the proposed rule and share any notable developments.

As the result of a sweeping “Wage Theft” law (“Law”), which became effective upon enactment on August 6, 2019,  New Jersey employers will face toughened penalties and increased exposure for failure to pay wages, benefits and overtime (collectively “wages”) owed to workers. Employers should take immediate notice because any missteps or mistakes may prove extremely costly. In sum, the Law:

  • makes employees eligible to receive 200% liquidated damages for all unpaid wages and benefits and recovery of attorneys’ fees and costs;
  • permits employees to bring collective actions on behalf of “similarly situated” employees;
  • increases potential fines and provides for jail time for repeat offenders;
  • extends the statute of limitations to six years;
  • broadens protections against retaliation; and
  • lowers employees’ burdens of proof.

The liquidated damages and attorneys’ fees provisions, in particular, have “break the budget” potential.

Liquidated Damages & Attorneys’ Fees

After an employer’s first violation, the Law requires the assessment of liquidated damages of up to 200% for an employer’s “knowing” failure to pay an employee the full amount of wages “agreed to” or “required” by law. A showing of “willfulness” is not required.

The Law essentially encourages lawsuits and employers may expect plaintiffs in civil actions to argue that after a single violation however long ago, any future violation —regardless of whether it was inadvertent, made in good faith or based on reasonable grounds, and regardless of when it occurred or what it involved— entitles employees to triple their claimed unpaid wages.

In addition, the Law allows employees who prevail in civil actions to recover unpaid wages also to recover attorneys’ fees and costs.

Collective Actions by Similarly-Situated Employees

The Law provides that an employee can bring an action on behalf of similarly-situated employees for any form of unpaid wages.  Previously, New Jersey provided for such lawsuits only in the case of minimum wage violations.

Thus, as long as they are similarly situated, large groups of New Jersey employees will now be able to join in collective actions in New Jersey state court seeking lost wages and liquidated damages, and attorneys’ fees and costs, for unpaid wages going back six years.

Limitations Period

Previously, claims for unpaid minimum wages or unpaid overtime compensation had a two year statute of limitations. The Law establishes a six year statute of limitations for all wage claims, including for claims alleging retaliation under the Law.

Expanded Prohibition against Retaliation

The Law broadens protection to employees who complain about unpaid wages by prohibiting retaliatory action against an employee because the employee has complained about an alleged nonpayment of wages.

Presumptions Against the Employer

For wage claims investigated by the New Jersey Commissioner of Labor and Work-force Development (“NJDOL”), the law creates a presumption that a violation occurred if an employer fails to produce employee records it was required by law to keep.

The Law also establishes a presumption of retaliation if an employer has taken an adverse employment action against an employee within 90 days of the employee filing a complaint with the NJDOL or filing a lawsuit for unpaid wages.

Significantly, the Law applies not only to “traditional” wage and hour claims, i.e., failure to pay minimum wage and failure to pay overtime, but to virtually all other forms of compensation, including “benefits arising out of any employment agreement.” Thus, for example, private claims alleging failure to pay amounts due under commission plans, bonus plans, and other benefits included in an employment agreement, such as an automobile allowance or equity participation promised in an executive’s employment agreement — previously, breach of contract claims — now carry potential liability for triple damages and attorneys’ fees and costs.

Actions to take to reduce risk and exposure include:

  • confirming that employees and any independent contractors are all properly classified;
  • ensuring nonexempt employees record every minute of time worked and preserving time records for at least 6 years;
  • reviewing employment and compensation agreements, as well as non-ERISA benefits programs to eliminate any ambiguities with respect to how payments are calculated and when payments are earned and paid;
  • reserving, where possible, the right to modify or terminate an agreement or plan and to make payment discretionary; and
  • making sure that your handbook contract disclaimer is airtight.

At a time when many states and localities are increasing the minimum wage, New Hampshire’s Senate passed a bill that would increase the state’s minimum wage to $12 per hour by 2022.  The very next day, New Hampshire Governor Chris Sununu vetoed the bill. In doing so, Governor Sununu issued a veto message that said the bill would have a “detrimental effect” on the state’s residents and would lead to lost jobs, reduced hours, and less money in the pockets of employees.

Governor Sununu boasted that New Hampshire has the lowest poverty rate in the country, along with one of the lowest unemployment rates and some of the highest wages in the country. “In 2018, only 0.0015% of Granite Staters earned a minimum wage or less,” he said. “New Hampshire’s economy is booming, and I will do everything in my power to ensure we continue that trend, not hinder it.”

Governor Sununu’s veto message will likely provide New Hampshire’s employers with some peace of mind. The state is unlikely to see the minimum wage hikes that are currently trending throughout the rest of the country, at least through the end of this gubernatorial term.

The U.S. Department of Labor’s Wage and Hour Division (“WHD”) shows no signs of fatigue as it releases two new opinion letters on the Fair Labor Standards Act (“FLSA”) within the first week of August.  These opinion letters address the FLSA’s partial overtime exemption on a “work period basis” and the status of public agency volunteers.  As we have previously advised, employers should read the WHD’s opinion letters carefully and consult with experienced counsel with any questions about their practices vis-à-vis WHD interpretive guidance.

FLSA Section 7(k)

As background, Section 7(k) of the FLSA has alternative overtime standards for law enforcement and fire protection personnel.  In Opinion Letter FLSA 2019-11, the WHD addressed how to determine the applicable overtime hours threshold when an employee works for the fire department and police department of the same public agency.

The regulations specific to law enforcement and fire protection personnel require overtime if an employee exceeds a certain number of hours within tours of duty of 28 days (rather than the traditional 7-day workweek)—212 hours for fire protection personnel and 171 hours for law enforcement personnel—with proportional reductions for shorter tours of duty.  See 29 C.F.R. § 553.230.  An employer must aggregate work an employee performs in law enforcement and fire protection capacities for the same agency.  If the employee works in these differing capacities for separate agencies, then the hours worked in each role stand alone, unless the situation constitutes joint employment as elaborated in the regulations.  See 29 C.F.R. § 791.2.  The regulations further provide that when an employee performs both fire protection and law enforcement activities, the role in which the employee spends the greater number of hours during the tour of duty determines the applicable overtime threshold.  See 29 C.F.R. § 553.213(b).

The WHD then applied these rules to the two examples provided by the employer at issue.

Public Agency Volunteers

In Opinion Letter FLSA 2012-12, the WHD addressed whether volunteer Reserve Deputies at a county’s Sheriff’s Office who receive referrals for paid security work for third parties from the Sheriff’s Office (at the same hourly rate offered to paid full-time deputies) are volunteers or employees of the Sheriff’s Office under the FLSA.

As a starting point, the WHD emphasized that the FLSA aims not to discourage or impair volunteer activities but rather to prevent employers from coercing individuals to volunteer their services in order to sidestep the FLSA’s minimum wage and overtime requirements.  Under 29 U.S.C. § 203(e)(4)(A), a volunteer at a public agency is not an employee for FLSA purposes if: “(1) the individual receives no compensation or is paid expenses, reasonable benefits, or a nominal fee to perform the services for which the individual volunteered; and (2) such services are not the same type of services for which the individual is employed to perform for such public agency.”  Auxiliary police are among the examples of public agency volunteers listed in the WHD regulations.  See 29 C.F.R. § 553.104(b).

The WHD advised that performing extra work for third parties does not invalidate the Reserve Deputies’ volunteer status because (1) access to paid extra duty work for a third party is not “compensation” where such access was unrelated to the number or quality of volunteer hours, but rather depended on the needs of third parties; and (2) even if such access were, in fact, tantamount to compensation, it would be a “reasonable benefit” for volunteering in that it was offered to all officers on the same general terms, on a non-guaranteed basis and accounted for only about 6% of total extra duty hours.  The WHD noted that its conclusion is consistent with the federal district court’s holding in Todaro v. Township of Union, 27 F. Supp. 2d 517, 539 (D.N.J. 1998), an analogous case finding unpaid special law enforcement officers to be eligible for paid positions with private entities.

This Employment Law This Week® Monthly Rundown discusses the most important developments for employers in August 2019.

This episode includes:

  • Increased Employee Protections for Cannabis Users
  • First Opinion Letters Released Under New Wage and Hour Leadership
  • New Jersey and Illinois Enact Salary History Inquiry Bans
  • Deadline for New York State Anti-Harassment Training Approaches
  • Tip of the Week

See below to watch the full episode – click here for story details and video.

We invite you to view Employment Law This Week® – tracking the latest developments that could impact you and your workforce. The series features three components: Trending News, Deep Dives, and Monthly Rundowns. Follow us on LinkedInFacebookYouTubeInstagram, and Twitter and subscribe for email notifications.

Given the prevalence of wage-hour class actions filed against California employers, the Ninth Circuit Court of Appeals from time to time asks the California Supreme Court to clarify certain California wage-hour laws. Last week, the Ninth Circuit asked again in Cole v. CRST Van Expedited, Inc., seeking clarification on the following two questions:

  1. Does the absence of a formal policy on meal and rest breaks violate California law?
  2. Does an employer’s failure to keep records of meal and rest breaks taken by employees create a rebuttable presumption that the breaks were not provided?

As we reiterated last week in our Time Is Money: A Quick Wage-Hour Tip on … California Meal and Rest Period Requirements, more than seven years ago in Brinker Restaurant Corp. v. Superior Court, the California Supreme Court held that, generally, an employer’s duty is to “provide” meal periods; there is no duty to ensure they are taken. “The employer satisfies this obligation if it relieves its employees of all duty, relinquishes control over their activities and permits them a reasonable opportunity to take an uninterrupted 30-minute break, and does not impede or discourage them from doing so,” as the Court explained. The Court further opined that “the employer is not obligated to police meal breaks and ensure no work thereafter is performed.” Off-duty rest periods must also be “provided.”

The Ninth Circuit’s first certified question—whether a “formal policy” must be adopted—suggests tension between an employer’s duty to “provide,” and the absence of any duty to “ensure” the taking of, meal periods. A number of district courts, including the district court in Cole, have held that an employer satisfies its meal and rest period obligations by posting a copy of the applicable Industrial Welfare Commission wage order in a conspicuous location frequented by employees during working hours. That the Ninth Circuit has certified this issue for the California Supreme Court to decide suggests that the Ninth Circuit believes something more than posting the wage order may be required.

If the Court were to decide that a formal policy is necessary, it could result in somewhat absurd consequences. That is, if a “formal” policy must be set forth in writing, but an employer has had a longstanding practice where the meal and rest periods that employees have taken satisfy the nature, number, and timing requirements set forth in Brinker, would that result in a violation? Depending on how the Court rules, employees who have taken all required breaks may, in theory, still be able to pursue damages.

Attempting to answer the second certified question—whether an employer’s failure to keep records for meal and rest breaks taken by its employees create a rebuttable presumption that the meal and rest breaks were not provided—involves separate analyses for meal and rest periods. Regarding meal periods, the Ninth Circuit recognized Justice Werdegar’s concurrence, joined by Justice Liu, in Brinker, opining that “[i]f an employer’s records show no meal period for a given shift over five hours, a rebuttable presumption arises that the employee was not relieved of duty and no meal period was provided.” Because concurring opinions are not binding precedent, courts have treated Justice Werdegar’s concurrence differently, either following or disregarding it. With a slightly different makeup on the California Supreme Court today as compared to when Brinker was decided, it is safe to assume that Justices Werdegar and Liu will vote in favor of adopting this presumption. Such a presumption, however, would appear to be inconsistent with Brinker’s conclusion that an “employer is not obligated to police meal breaks.” That is, if an employee fails to take his or her meal periods despite an express policy providing for them, employers may inevitably be compelled to police meal periods or face a lawsuit where it would be the employer’s obligation to show how a meal period was, in fact, provided for each instance that an employee’s time records reflect no meal period.

Concerning the potential adoption of a presumption that no rest period was provided if one was not recorded, the Ninth Circuit appears to have overlooked how there is no California law obligating employers to keep records of rest periods. And the typical presumption analysis applies only when an employer fails to maintain records expressly required by law. Absent some legal gymnastics, there would appear to be little basis to hold that an absence of rest period records creates a rebuttable presumption that rest periods were not provided. Nevertheless, the Court has surprised employers in the past, and there seems to be at least some support among the justices for creating this presumption.

The California Supreme Court’s anticipated answers to these questions may have a huge impact upon employers in California, regardless of industry or occupation. Should the Court rule, for instance, that an employer may not rely on merely posting the applicable wage order to notify employees of their meal and rest period rights, certain employers will need to change their practices going forward and adopt a formal written policy, along with facing class action lawsuits for past practices where no formal policy was in place.

More than seven years ago in Brinker Restaurant Corp. v. Superior Court, the California Supreme Court clarified many of the general requirements for meal and rest periods under California law. Nothing the California Supreme Court said has slowed the filing of meal and rest period class actions against employers doing business in the state.

California wage-hour law is governed in large part by 18 different wage orders that apply to different industries and occupations. “The number of wage orders, and their internal variations, reflects the reality that differing aspects of work in differing industries may call for different kinds of regulation,” as the California Supreme Court explained in Mendiola v. CPS Security Solutions, Inc. Indeed, as the Court explained in Brinker, “[w]hat will suffice [for meal and rest breaks] may vary from industry to industry.”

With that in mind, this tip is not a one-size-fits-all guide but instead discusses California’s meal and rest period requirements generally.

The Nature of Meal and Rest Periods

An employer’s duty is to “provide” meal periods; there is no duty to ensure they are taken. “The employer satisfies this obligation if it relieves its employees of all duty, relinquishes control over their activities and permits them a reasonable opportunity to take an uninterrupted 30-minute break, and does not impede or discourage them from doing so,” as the Brinker Court explained. The Court further explained that “the employer is not obligated to police meal breaks and ensure no work thereafter is performed.”

Off-duty rest periods must also be “provided.”

Employers must relieve their hourly employees of all duties and relinquish all control over how they spend their meal and periods. Generally speaking, employees should not be interrupted during their breaks, nor should they be required or expected to keep communication devices with them or to monitor such devices if they voluntarily keep such devices on them.

While meal periods should be at least 30 minutes of uninterrupted time, rest periods should be at least 10 minutes of uninterrupted time. If an employer interrupts an employee’s meal or rest period, the employee should be provided another break so that the employee is then afforded a full, uninterrupted break.

Meal periods should be off the clock and unpaid; however, rest periods must be paid and on the clock. Additionally, employees must be permitted to leave the employer’s premises during meal periods. Whether they must also be allowed to leave the premises during rest periods remains a matter of dispute.

The Number and Timing of Meal and Rest Periods

An employer’s obligations to provide meal and rest periods are triggered when an employee works a certain number of hours. Below is a chart explaining the number of meal and rest periods that should be provided depending on the number of hours worked in a single workday.

Hours Worked 10-Minute Paid

Rest Periods

30-Minute Unpaid

Meal Periods

0:00:00 – 3:29:59 hours 0 0
3:30:00 – 5:00:00 hours 1 0
5:00:01 – 6:00:00 hours 1 1*
6:00:01 – 10:00:00 hours 2 1
10:00:01 – 12:00:00 hours 3 2**
12:00:01 – 14:00:00 hours 3 2
14:01 hours – 18:00 hours 4 2

* If an employee works more than five hours in one workday, the employee may voluntarily waive his or her meal period if the time worked will not exceed 6 hours in one workday.

** If an employee works more than 10 but not more than 12 hours in one workday, the employee may voluntarily waive his or her second meal period, so long as the first meal period was not waived.

It is a best practice to have these meal period waivers in writing, signed, and placed in the employee’s personnel file.

A first meal period should be provided within the first 5 hours of work, and a second meal period should be provided within the first 10 hours of work. Rest periods should be provided in the middle of work periods. An example of appropriate timing and sequence in an 8-hour shift is as follows:

  • 8:30 a.m. – the employee clocks in for work
  • 10:30 a.m. – the employee takes a paid, on-the-clock rest period
  • 10:40 a.m. – the employee ends the rest period and resumes work
  • 12:30 p.m. – the employee clocks out and takes an unpaid, off-the-clock meal period
  • 1:00 p.m. – the employee clocks back in from the meal period and resumes work
  • 3:00 p.m. – the employee takes a second paid, on-the-clock rest period
  • 3:10 p.m. – the employee ends the second rest period and resumes work
  • 5:00 p.m. – the employee clocks out and leaves work

The Penalty for Failing to Meet Meal or Rest Period Requirements

If an employer does not provide an employee with a meal or rest period in accordance with the above requirements, a penalty is owed. These penalties are usually referred to as meal or rest period premiums. They are calculated as one hour of pay at the employee’s base rate of pay. An employee may recover only one meal period premium and one rest period premium per day.

Putting It All Together

Having lawful written policies that accurately set forth employees’ entitlements to meal and rest periods, in addition to implementing practices that do not impede or discourage employees from taking those meal or rest periods, is an effective way of avoiding litigation in the first place. But when an employer finds itself facing a lawsuit alleging meal and rest period violations – one that would surely be brought as a proposed class action on behalf of dozens, hundreds or even thousands of employees – having these lawful policies and practices already in place increases the ability to successfully defending that lawsuit.