California wage and hour

On July 11, 2018, the California Supreme Court accepted the Ninth Circuit’s request to answer several questions of California law relating to wage statements and payments of wages to certain classes of employees.

Arising out of two class actions against airlines – Vidrio v. United Airlines, Inc. and Oman v. Delta Air Lines, Inc. – the questions specifically concern employees who do not work primarily in California, and/or are covered by collective bargaining agreements, as well as certain classes of pay-averaging formulas. The California Supreme Court’s answers to these questions could have a great impact on employers doing business in California, particularly those who are based outside the state, and also those whose employees occasionally work in the state.

In United, the California Supreme Court will answer the following questions:

  1. Does California Labor Code section 226 apply to wage statements provided by an out-of-state employer to an employee who resides in California, receives pay in California, and pays California income tax on her wages, but who does not work principally in California or any other state?
  2. The Industrial Wage Commission Wage Order 9 exempts from its wage statement requirements an employee who has entered into a collective bargaining agreement (CBA) in accordance with the Railway Labor Act (RLA). . . . Does the RLA exemption in Wage Order 9 bar a wage statement claim brought under California Labor Code section 226 by an employee who is covered by a CBA?

The answer to the first question is especially important to transportation companies like airlines, where employees do not regularly work in any one state but instead have heavily variable schedules. As to the second question, should that exception apply to section 226, employers with workers subject to any CBA, and not only those under the RLA, could potentially avoid extraordinary penalties for alleged wage statement violations.

In Delta, the California Supreme Court will answer the following questions:

  1. Do California Labor Code sections 204 and 226 apply to wage payments and wage statements provided by an out-of-state employer to an employee who, in the relevant pay period, works in California only episodically and for less than a day at a time?
  2. Does California minimum wage law apply to all work performed in California for an out-of-state employer by an employee who works in California only episodically and for less than a day at a time?
  3. Does the [California Court of Appeal’s] bar on averaging wages apply to a pay formula that generally awards credit for all hours on duty, but which, in certain situations resulting in higher pay, does not award credit for all hours on duty?

The answers to the first two questions could have great consequences for out-of-state employers whose employees do not often work in California. As for the third, should the Court rule that such formulas are exceptions to the ban on wage averages, employers in industries where it is difficult to track and pay wages to an exact degree may wish to implement such a system. This would include employers whose workforces are not confined to a single office or retail area. This would provide greater flexibility to such employers when fashioning their payment policies.

On July 26, 2018, the California Supreme Court issued its long-awaited opinion in Troester v. Starbucks Corporation, ostensibly clarifying the application of the widely adopted de minimis doctrine to California’s wage-hour laws. But while the Court rejected the application of the de minimis rule under the facts presented to it, the Court did not reject the doctrine outright. Instead, it left many questions unanswered.

And even while it rejected the application of the rule under the facts presented, it did not address a much larger question – whether the highly individualized issues regarding small increments of time allegedly worked “off the clock” could justify certification of a class on those claims.

For more than 70 years, federal courts have regularly applied the de minimis doctrine in certain “circumstances to excuse the payment of wages for small amounts of otherwise compensable time upon a showing that the bits of time are administratively difficult to record.” Those courts have concluded that as much as 15 minutes per day could be considered de minimis and, therefore, noncompensable.

In Troester, the California Supreme Court concluded that most of California’s wage and hour laws have not in fact adopted the de minimis doctrine found in the federal Fair Labor Standards Act (“FLSA”). However, the Court did not go so far as to reject the application in all instances. Indeed, the Court specifically declined to “decide whether there are circumstances where compensable time is so minute or irregular that it is unreasonable to expect the time to be recorded.” (Emphasis added.)

The key words in that sentence appear to be “minute” and “irregular.”

The Court declined to do so “given the wide range of scenarios in which this issue arises,” proffering what appear to be examples where the de minimis rule could apply – e.g., “paperwork involving a minute or less of an employee’s time” or “an employee reading an e-mail notification of a shift change during off-work hours.”

Under the facts presented to it, where the employer allegedly required employees to “work ‘off the clock’ several minutes per shift,” the Court found that the relevant statute and regulations did not permit application of the de minimis rule.

Specifically, it apparently was undisputed that the plaintiff “had various duties related to closing the store after he clocked out, and the parties [had] agree[d] for purposes of [the California Supreme Court] resolving the issue . . . that the time spent on these duties is compensable.” It also apparently was undisputed that these tasks took the plaintiff as few as 4 minutes and as much as 10 minutes each shift that he worked. Given those specific facts, the Court found that the de minimis rule would not be applicable, holding that, under California law generally, an “employer that requires its employees to work minutes off the clock on a regular basis or as a regular feature of the job may not evade the obligation to compensate the employee for that time by invoking the de minimis doctrine.” (Emphasis added.)

Consistent with prior language in the opinion, the key words in that conclusion appear to be “minutes” and “regular.”

In other words, while significant, regular time would not be de minimis, insignificant and irregular time could be.

And how that issue could be addressed on a classwide basis seems questionable, at best, given that the very nature of “off the clock” work is that there are no records of it. Individualized inquiries apparently would need to be conducted person-by-person, day-by-day, to determine if an individual in fact worked “minutes” off-the-clock on a “regular” basis.

Not unimportantly, in addition to the Court’s majority opinion, Justices Mariano-Florentino Cuéllar and Leondra Kruger wrote separate concurring opinions, each offering some additional support for employers.

Justice Cuéllar noted that while the Court’s majority opinion “protects workers from being denied compensation for minutes they regularly spend on work-related tasks,” it “does not consign employers or their workers to measure every last morsel of employees’ time.”

Justice Kruger also offered some examples where she opined that the de minimis rule could apply:

  • An employer requires workers to turn on their computers and log in to an application in order to start their shifts. Ordinarily this process takes employees no more than a minute (and often far less, depending on the employee’s typing speed), but on rare and unpredictable occasions a software glitch delays workers’ log-ins for as long as two to three minutes.
  • An employer ordinarily distributes work schedules and schedule changes during working hours at the place of employment. But occasionally employees are notified of schedule changes by e-mail or text message during their off hours and are expected to read and acknowledge the messages.
  • After their shifts have ended, employees in a retail store sometimes remain in the store for several minutes waiting for transportation. On occasion, a customer will ask a waiting employee a question, not realizing the employee is off duty. The employee – with the employer’s knowledge – spends a minute or two helping the customer.

Justice Kruger wrote that “a requirement that the employer accurately account for every second spent on work tasks may well be impractical and unreasonable” in the situations above.

Following Troester, entities doing business in California will want to review their practices and their timekeeping systems.

And while Troester certainly suggests that employers in California will face an increased number of class actions alleging that certain insignificant amounts of time should have been compensated, plaintiffs’ difficulty in actually getting classes certified on such claims appears relatively unchanged.

On April 30, 2018, the California Supreme Court issued its long-awaited opinion in Dynamex Operations West, Inc. v. Superior Court, clarifying the standard for determining whether workers in California should be classified as employees or as independent contractors for purposes of the wage orders adopted by California’s Industrial Welfare Commission (“IWC”). In so doing, the Court held that there is a presumption that individuals are employees, and that an entity classifying an individual as an independent contractor bears the burden of establishing that such a classification is proper under the “ABC test” used in some other jurisdictions.

Depending on the applicable statute or regulation, California has a number of different definitions for whether an individual is considered an entity’s employee. In Dynamex, the Court concluded that one of these definitions – “suffer or permit to work” – may be relied upon in evaluating whether a worker is an employee for purposes of the obligations imposed by the wage order. But the Court held that the Court of Appeal had gone too far in providing a literal interpretation of “suffer or permit to work” that would encompass virtually anyone who provided services.

The Court held that it is the burden of the hiring entity to establish that a worker is an independent contractor who was not intended to be included within the applicable wage order’s coverage.

To meet this burden, the hiring entity must establish each of the following three factors, commonly known as the “ABC test”:

(A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and

(B) that the worker performs work that is outside the usual course of the hiring entity’s business; and

(C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

The Court concluded that the “suffer or permit to work definition is a term of art that cannot be interpreted literally in a manner that would encompass within the employee category the type of individual workers . . . who have traditionally been viewed as genuine independent contractors who are working only in their own independent business.”

Following Dynamex, entities doing business in California that treat some workers as independent contractors will want to review their relationship under the “ABC test” to determine whether any or all such workers should be reclassified.

In a case of first impression that may have a significant impact upon wage-hour class actions in California, the California Court of Appeal has held that “joint employers” are not vicariously liable for each other’s alleged meal period violations.

In reaching this conclusion, the Court of Appeal affirmed an award of summary judgment in favor of a temporary staffing company in a class action where the plaintiffs sought to hold the staffing company liable for alleged meal period violations they alleged they suffered while working for its client.

The decision provides something of a roadmap for what companies should consider doing if they wish to shield themselves from “joint employer” liability on wage-hour claims in California.  Among the steps employers may want to take are providing employees with written instructions to inform the employer if they are ever prevented from taking meal periods, and including provisions in contracts requiring the entities that they do business with to comply with federal, state and local laws in their interactions with those employees.

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 – 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.