California Wage-Hour Law

On October 14, 2017, California Governor Jerry Brown signed Assembly Bill 1701, which will make general contractors liable for their subcontractors’ employees’ unpaid wages if the subcontractor fails to pay wages due.  The new law will go into effect on January 1, 2018.

Specifically, section 218.7 has been added to the Labor Code. Subdivision (a)(1) provides the following:

For contracts entered into on or after January 1, 2018, a direct contractor making or taking a contract in the state for the erection, construction, alteration, or repair of a building, structure, or other private work, shall assume, and is liable for, any debt owed to a wage claimant or third party on the wage claimant’s behalf, incurred by a subcontractor at any tier acting under, by, or for the direct contractor for the wage claimant’s performance of labor included in the subject of the contract between the direct contractor and the owner.

Under section 218.7, the direct contractor’s liability will extend only to any unpaid wage, fringe benefit or other benefit payments or contributions – including interest – but will not extend to penalties or liquidated damages.

Section 218.7 makes clear that nothing in it “shall be construed to impose liability on a direct contractor for anything other than unpaid wages and fringe or other benefit payments or contributions including interest owed.”

Notably, employees will not have standing to enforce section 218.7 on their own. That is, AB 1701 gives the California Labor Commissioner, labor-management cooperation committees, and unions the right to bring an action against the direct contractor, but it does not provide any private right of action to potentially unpaid employees themselves to bring a claim against the direct contractor for unpaid wages.

For labor-management cooperation committees and unions who prevail in an action against a direct contractor for unpaid wages, they will be entitled to their reasonable attorney’s fees and costs, including expert witness fees.

For judgments rendered against direct contractors, their property may be attached to satisfy judgment.

Direct contractors will now be provided the right to request from their subcontractors their employees’ wage statements under Labor Code section 226(a) and payroll records that must be maintained under section 1174.  Such “records must contain information sufficient to apprise the requesting party of the subcontractor’s payment status in making fringe or other benefit payments or contributions to a third party on the employee’s behalf.”

Direct contractors and subcontractors also have the right to request from subcontractors below them “award information that includes the project name, name and address of the subcontractor, contractor with whom the subcontractor is under contract, anticipated start date, duration, and estimated journeymen and apprentice hours, and contact information for its subcontractors on the project.”

Significantly, a direct contractor may withhold as “disputed” all sums owed if a subcontractor fails to timely provide the payroll or project information referenced above, until that information is provided.

The new statute will make it more important than ever for contractors in California to ensure that they are doing business with reputable subcontractors. As part of those efforts, they will want to consider taking steps to ensure that their subcontractor agreements include adequate indemnification provisions and assurances that the subcontractors will comply with wage-hour laws, and perhaps even a term requiring subcontractors to provide periodic statements ensuring compliance with the law.  Of course, there will be a delicate balance to strike to avoid “joint employer” status.

Additionally, the Labor Commissioner, labor-management cooperation committees, and unions may argue that the term “wages” extends to meal and rest period premiums for missed, short, or non-compliant meal and rest periods. Accordingly, contractors in California may want to include specific assurances that subcontractors have compliant meal and rest period policies and practices, in addition to compliant wage and overtime policies and practices.

Because of concerns about employee theft, many employers have implemented practices whereby employees are screened before leaving work to ensure they are not taking merchandise with them.  While these practices are often implemented in retail stores, other employers use them as well when employees have access to items that could be slipped into a bag or a purse.

Over the last several years, the plaintiffs’ bar has brought a great many class actions and collective actions against employers across the country, alleging that hourly employees are entitled to be paid for the time they spend waiting to have their bags inspected when leaving work.  These lawsuits are often referred to as “bag check” cases.

While the Supreme Court’s decision in Integrity Staffing Solutions, Inc. v. Busk largely put an end to these cases under the Fair Labor Standards Act (“FLSA”), it did not do so under California law.  That is because of a critical difference between the FLSA and California law.  Unlike the FLSA, California law requires that employees be paid for all time when they are “subject to the control of the employer” or for all time that they are “suffered or permitted to work.”  And, not surprisingly, plaintiffs’ lawyers in California have argued that employees are “subject to the control of the employer” and “suffered” to work while they wait for and participate in security screenings.

In defending against these claims, not only do employers often argue that each employee’s experience differs such that class certification would be inappropriate, but they frequently argue that the time spent in “bag checks” is so small as to be de minimis – and, therefore, not compensable.

Courts throughout the country have recognized the principle that small increments of time are not compensable, including the United States Supreme Court.

In a class action in the Northern District of California where a class had been certified, Nike argued that the time its employees spent in “bag check” was de minimis.  And the Court agreed, awarding it summary judgment.

In Rodriguez v. Nike Retail Services, Inc., 2017 U.S. Dist. LEXIS 147762 (N.D. Cal. Sept. 12, 2017), the district court certified a class of all Nike non-exempt retail store employees since February 2010.  But in certifying the class, the Court specifically held that, “whether time spent undergoing exit inspections is de minimis is a common issue.  ‘That is, if the time is compensable at all, an across-the-board rule, such as sixty seconds, might wind up being the de minimis threshold.’”

Seizing on that holding, Nike commissioned a time and motion study.  That study revealed that an average inspection takes no more than 18.5 seconds.  Nike argued that such time was de minimis.  The Court agreed.

In reaching its conclusion, the Court found that the average inspection time was minimal, employees did not regularly engage in compensable activities during inspections, and it would have been administratively difficult for Nike to record the exit inspections.

The plaintiffs have already filed an appeal from the order granting summary judgment against them.

As courts continue to address whether and when employers can compel employees to arbitrate their wage-hour claims, the California Court of Appeal has issued a decision in Cortez v. Doty Bros. Equipment Company, No. B275255, ___ Cal. App. 5th ___ (2017), that should be of great help to many California employers with collective bargaining agreements (“CBAs”) that include arbitration provisions.

The United States Supreme Court and multiple California courts have held that a CBA may require arbitration of an employee’s statutory claims only if the CBA includes a “clear and unmistakable” waiver of the right to bring those statutory claims in a judicial forum. What constitutes a “clear and unmistakable” waiver has been a fact-based issue resolved on a case-by-case basis, often in favor of allowing employees to avoid arbitration of their wage-hour claims.

The Cortez Court reached a different, employer-friendly conclusion.

The CBA at issue in Cortez provided that “[a]ny dispute or grievance arising from … Wage Order 16[] shall be processed under and in accordance with” the arbitration procedure outlined in the CBA.  The plaintiff brought claims under not only Wage Order 16, but also under the California Labor Code.  For this reason, the plaintiff argued that the CBA did not apply to his Labor Code claims.  But there was no dispute that the agreement to arbitrate claims “arising under” Wage Order 16 was clear and unmistakable.  For this reason, the Court concluded, it could not “disregard the reality that an employee may enforce the protections of the wage order in court only by bringing a claim under the Labor Code,” and that “[t]o hold that wage and hour disputes arising under Wage Order 16 are arbitrable under the CBA only in theory, but not in practice because they are, by necessity, brought under the Labor Code, would result in the very absurdity courts are required to avoid.”  As a result, the Court concluded that those Labor Code claims that arise under Wage Order 16 must be arbitrated.

However, the Cortez Court did not compel arbitration of those Labor Code claims that did not arise under Wage Order 16 – in this case, claims that concerned the timely payment of all wages due upon termination – because there is no reference to such a requirement in Wage Order 16.  The Cortez Court concluded that the plaintiff’s claim for failure to pay all wages due upon termination “is based on a statute that is not informed by, referenced in, or even relevant to, the wage order disputes they clearly and unmistakably agreed to arbitrate.”

The plaintiff may well seek California Supreme Court review of Cortez.  Whether that happens or not, employers in California negotiating CBAs will want to keep the “clear and unmistakable” standard in mind if they want arbitration to be the sole and exclusive forum for employees to resolve any statutory claims they may have.

We have previously written in this space about the United States Supreme Court’s decision in Integrity Staffing Solutions, Inc. v. Busk, holding that time spent awaiting bag checks was not compensable time under the Fair Labor Standards Act (“FLSA”). But is such time compensable under California law, which differs from the FLSA in some regards? The critical difference between the FLSA and California laws is that California law requires that employees be paid for all time when they are “subject to the control of the employer” or for all time that they are “suffered or permitted to work.” And, not surprisingly, plaintiffs’ lawyers in California have argued that employees are “subject to the control of the employer” and “suffered” to work while they wait for and participate in bag checks or security screenings.

Faced with this issue, the Ninth Circuit Court of Appeals has turned to the California Supreme Court for guidance, as it has done on several other wage hour issues in recent years. The case before the Ninth Circuit is Frlekin v. Apple, Inc., a case about which we have written previously. In Frlekin, the district court entered summary judgment in favor of Apple with regard to the compensability of bag check time. Granting summary judgment to Apple, the Court concluded that the time was not “hours worked” because the searches were peripheral to the employees’ job duties and could be avoided if the employees chose not to bring bags to work.

On appeal, the U.S. Court of Appeals for the Ninth Circuit essentially threw up its hands, concluding that it did not have enough guidance on whether such time would be compensable under California law. Accordingly, it certified to the California Supreme Court the following question:

Is time spent on the employer’s premises waiting for, and undergoing, required exit searches of packages or bags voluntarily brought to work purely for personal convenience by employees compensable as “hours worked” within the meaning of California Industrial Welfare Commission Wage Order No. 7?

In doing so, the Court recognized that California law differs in some respects from federal law on whether such time is compensable. The Court opined that the case seems to fall somewhere between decisions focusing on whether an employee has the ability to avoid the time, which could apply here because the employees have the option of avoiding a search by not bringing a bag to work in the first place, and decisions focusing on the control the employer exerts over the employees, which could apply here because the employees are under the employer’s control in the workplace.

As the Court noted, “[o]nce an employee has crossed the threshold of a work site where valuable goods are stored, an employer’s significant interest in preventing theft arises.” In light of the benefit to the employer in avoiding shrinkage, “[i]t is unclear . . . whether, in the context of on-site time during which an employee’s actions and movements are compelled, the antecedent choice of the employee obviates the compensation requirement.”  The Court suggested that the answer may turn on whether “as a practical matter” employees do not truly have the option of not bringing a bag to work.

Time will tell how the California Supreme Court elects to answer this question. It will likely take at least a year, if not substantially longer, for the Court to issue a ruling. In the meantime, employers in California should review their security practices and consider whether options exist to devise practices that obviate these concerns or at least reduce the associated risk.

Not all new laws go into effect on the first of the year. On July 1, 2017, new minimum wage laws went into effect in several locales in California. Specifically:

  • Emeryville: $15.20/hour for businesses with 56 or more employees; $14/hour for businesses with 55 or fewer employees.
  • City of Los Angeles: $12/hour for employers with 26 or more employees; $10.50 an hour for employers with 25 or fewer employees.
  • Los Angeles County (unincorporated areas only): $12/hour for employers with 26 or more employees; $10.50 an hour for employers with 25 or fewer employees.
  • Malibu: $12/hour for employers with 26 or more employees; $10.50 an hour for employers with 25 or fewer employees.
  • Milpitas: $11 an hour.
  • Pasadena: $12/hour for employers with 26 or more employees; $10.50 an hour for employers with 25 or fewer employees.
  • San Francisco: $14 an hour.
  • San Jose: $12 an hour.
  • San Leandro: $12 an hour.
  • Santa Monica: $12/hour for employers with 26 or more employees; $10.50 an hour for employers with 25 or fewer employees.

Of course, employers with employees in these locales will want to ensure that they are complying with these new minimum wage laws.

Featured on Employment Law This Week: The California Supreme Court has clarified the state’s ambiguous “day of rest” provisions.

The provisions state that, with certain exceptions, employers will not cause “employees to work more than six days in seven.” The state’s high court addressed three questions about this law that had been certified by the U.S. Court of Appeals for the Ninth Circuit. The court determined that employees are entitled to one day of rest per workweek. So, every Sunday marks the beginning of a new seven-day period. Additionally, the court clarified that employees who work six hours or less during each day of the week are not entitled to a day of rest and that employees can choose not to take the day of rest if they are fully aware of the entitlement.

Watch the segment below, with commentary from our colleague Kevin Sullivan, and read our recent post.

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

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

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

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

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

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

  1. With regard to California Labor Code section 551, which  provides that “[e]very person employed in any occupation of labor is entitled to one day’s rest therefrom in seven,” is the required day of rest calculated by the workweek, or is it calculated on a rolling basis for any consecutive 7-day period?

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

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

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

  1. With regard to California Labor Code section 556, which exempts employers from providing such a day of rest when the total hours of employment do not exceed 30 hours in any week or six hours in “any” one day thereof, does the exemption apply when an employee works less than six hours in any one day of the applicable week, or does it apply only when an employee works less than six hours in each day of the week?

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

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

  1. With regard to California Labor Code section 552, which provides that an employer may not “cause” his employees to work more than six days in seven, what does the word “cause” mean? Does it mean “force, coerce, pressure, schedule, encourage, reward, permit, or something else?”

Again, the different interpretations of “cause” would lead to different liability determinations.

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

The California Supreme Court’s answers to these questions – particularly the first and third – will likely be greeted with much relief from employers in California, especially in the retail and hospitality industries where it is not uncommon to schedule employees to work 7 days or more in a row with shifts of varying lengths, and where employees may often swap shifts with each other such that they are working seven days or more in a row.

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

The same series of questions and answers often follow:

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

Yes.

Even if there are thousands of employees?

Yes.

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

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

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

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

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

Yes.

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

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

Why?

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

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

Generally, no.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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