Joining California and New York, New Jersey has become the third state with a phased-in $15 minimum wage requirement for most employees. On February 4, 2019, Governor Phil Murphy signed into law A15 (“Law”), which raises the state minimum wage rate for employers with six or more employees to $10.00 per hour on July 1, 2019, and then to $11.00 per hour on January 1, 2020. Thereafter, the minimum wage will increase annually on January 1 by $1.00 per hour until it reaches $15.00 per hour on January 1, 2024. The minimum wage hike will phase in at a slower rate for employers with five or fewer employees and for “seasonal employers” (defined below). Thus, the current minimum wage of $8.85 per hour will increase as follows: ­­

Date of Increase in Minimum Wage Rate

Minimum Wage Rate for Employers with 6 or More Employees

Minimum Wage Rate for “Small Employers” (those with 5 or fewer employees) and Seasonal Employers

July 1, 2019

$10.00 $8.85 (no change)

January 1, 2020

$11.00 $10.30

January 1, 2021

$12.00 $11.10

January 1, 2022

$13.00 $11.90
January 1, 2023 $14.00

$12.70

January 1, 2024 $15.00

$13.50

January 1, 2025 $15.00 + inflation adjusted*

$14.30

January 1, 2026 $15.00 + inflation adjusted*

$15.00**

*As a result of a state constitutional amendment passed in 2013, the minimum wage rate after 2024 will increase for this group based on the inflation rate at the time (and the federal minimum wage rate, if higher).

** The Law provides for further annual inflation adjustments to the minimum wage after 2026 for seasonal workers and employees of small employers so that by January 1, 2028, workers in those groups will receive the same minimum wage as employees of larger employers.  …         

Read the full Advisory online.

On February 4, 2019, a divided panel of the California Court of Appeal issued their majority and dissenting opinion in Ward v. Tilly’s, Inc.  It appears to be a precedent-setting decision in California, holding that an employee scheduled for an on-call shift may be entitled to certain wages for that shift despite never physically reporting to work.

Each of California’s Industrial Welfare Commission (“IWC”) wage orders requires employers to pay employees “reporting time pay” for each workday “an employee is required to report for work and does report, but is not put to work or is furnished less than half said employee’s usual or scheduled day’s work.”

In Ward, the plaintiff alleged that when on-call employees contact their employer two hours before on-call shifts, they are effectively “report[ing] for work” and thus are owed reporting time pay.  The employer disagreed, arguing that employees “report for work” only by physically appearing at the work site at the start of a scheduled shift.  That is, the Ward employer argued that employees who merely call in and are told not to come to work are not owed reporting time pay.

Two justices of the California Court of Appeal took a public policy-centric position and agreed with the employee’s view of the law, concluding “that the on-call scheduling alleged in th[at] case triggers Wage Order 7’s reporting time pay requirements” because “on-call shifts burden employees, who cannot take other jobs, go to school, or make social plans during on-call shifts – but who nonetheless receive no compensation from [the employer] unless they ultimately are called in to work.”

After concluding that it is not clear from the phrase “report for work,” whether that means a requirement that the employee be physically present at the work site or whether it may also mean “presenting himself or herself in whatever manner the employer has directed, including, as in th[at] case, by telephone, two hours before the scheduled start of an on-call shift,” the Ward majority considered other methods of statutory construction.  After considering other cases where statutes were enacted before developing technologies, the Ward majority concluded that “Wage Order 7 does not reference telephonic reporting, nor is there evidence that the IWC ever considered whether telephonic reporting should trigger the reporting time pay requirement.”

After rejecting the Ward employer’s interpretation of “report for work,” the Ward majority announced a new interpretation for the reporting time pay requirement of California’s IWC wage orders:

“If an employer directs employees to present themselves for work by physically appearing at the workplace at the shift’s start, then the reporting time requirement is triggered by the employee’s appearance at the job site.  But if the employer directs employees to present themselves for work by logging on to a computer remotely, or by appearing at a client’s job site, or by setting out on a trucking route, then the employee “reports for work” by doing those things.  And if . . . the employer directs employees to present themselves for work by telephoning the store two hours prior to the start of a shift, then the reporting time requirement is triggered by the telephonic contact.”

The Hon. Anne H. Egerton dissented in Ward, concluding that the “legislative history of the phrase ‘report for work’ reflects the drafters’ intent that – to qualify for reporting time pay – a retail salesperson must physically appear at the workplace: the store.”  Supporting that conclusion, Justice Egerton cited a federal district court decision made by the Hon. George Wu, where he concluded that a court’s “fundamental task in interpreting Wage Orders is ascertaining the drafters’ intent, not drawing up interpretations that promote the Court’s view of good policy,” and held that “call-in shifts do not trigger reporting-time penalties, even if the scheduling practice is inconvenient and employee-unfriendly.”

Given the well-reasoned dissent, this may be a case for the California Supreme Court to review.  In the interim, however, the Ward majority is arguably the precedent in California.

Following Ward, entities doing business in California will want to review their on-call scheduling and payment practices.

In Bernstein v. Virgin America, Inc., a district court in California has ordered Virgin America to pay more than $77,000,000 in damages, restitution, interest and penalties for a variety of violations of the California Labor Code. The award is the latest example of the tremendous amount of damages and penalties that can be awarded for non-compliance with California’s complex wage and hour laws.

In 2016, the Bernstein Court granted the plaintiffs’ motion for class certification, certifying a class of California-based flight attendants who had been employed since March 2011.

Then in June 2018, the Court granted the plaintiffs’ motion for summary judgment, finding that Virgin America was liable for failure to pay for all hours worked, failure to pay overtime, failure to provide meal and rest breaks, failure to provide accurate wage statements claims and failure to pay for all wages due upon termination, triggering waiting time penalties. Because it granted summary judgment on these claims, the Court also found that Virgin America was liable on the plaintiffs’ claims under California’s Unfair Competition Law (“UCL”) and Private Attorneys’ General Act (“PAGA”).

Having determined that Virgin America was liable, the only issue left to resolve was damages and penalties. Last week the Bernstein Court awarded a staggering amount of damages to the certified class. The Court awarded the plaintiffs $45,337,305.29 in damages and restitution as a result of Virgin America’s unpaid wage, overtime and meal and rest period violations. It also imposed wage statement and waiting time penalties in the amount of $6,704,810. The Court awarded the class $3,552.71 per day in interest, assessed since October 25, 2018. And the Court imposed $24,981,150 in civil penalties under PAGA – an amount that reflected a 25% reduction from the maximum available.

In total, the penalties imposed against Virgin America made up more than 40% of the amount awarded to the employees. Although the company intends to appeal a number of the Bernstein Court’s rulings, the enormous award serves to emphasize the need for employers to take steps to ensure compliance with state wage and hour laws. That is particularly so in California, where penalties alone often exceed the damages assessed.

On December 12, 2018, in Furry v. East Bay Publishing, LLC, the California Court of Appeal held that if an employer fails to keep accurate records of an employee’s work hours, even “imprecise evidence” by the employee “can provide a sufficient basis for damages.”

In the case, not only did the employer in Furry not keep accurate records of the employee’s time, but only the amount of damages, and not the fact of the underlying violation, was in dispute. Under those circumstances, the Court held that the employee’s “imprecise evidence” of the unpaid hours that he worked was permissible to establish the amount of unpaid overtime.

The Court found that the level of detail that the employee advanced regarding his uncompensated hours was sufficient to shift the burden of proof to the employer to either give specific evidence of the hours actually worked or disprove the employee’s recollection. The Court stated that the fact “[t]hat [the employee] had to draw his time estimates from memory was no basis to completely deny him relief,” overruling the trial court’s complete denial of damages for the employee’s overtime claim.

In reaching reversing the trial court’s ruling on this issue, the Court rejected the employer’s argument that the trial court’s ruling was merely a credibility determination that was entitled to deference. Instead, the Court held that the trial court had a duty to draw “reasonable inferences” from the employee’s evidence – and had failed to do so.

Notably, the Court expressly distinguished this case from one where the underlying violation was in dispute. Therefore, this decision should only apply to disputes regarding damages.

While it reversed the trial court’s finding on that issue, the Court of Appeal upheld the trial court’s denial of relief on the employee’s meal period claim. The employee argued that although he was provided the opportunity to take off-duty meal periods and chose to take them at his desk, he was still entitled to regular compensation for time and meal period premiums when he worked through his meal periods. The Court held that the employee failed to show that the employer “knew or reasonably should have known” that he was working through his meal periods. Therefore, he was not entitled to relief on his meal period claim.

This decision reinforces for employers the importance of keeping and maintaining accurate time and payroll records. Of course, this decision is not binding on other Courts of Appeal, and it is possible that the California Supreme Court would reach a different conclusion, should it hear this case.

Almost four 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.

Last year, we wrote about how the California Court of Appeal in Gerard II reversed its previous decision after the Legislature enacted SB 327 shortly after Gerard I. SB 327 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 Gerard II, the California Court of Appeal held that SB 327 is effective retroactively. As a result, the second meal period waivers that the plaintiffs had signed were valid and enforceable.

The Gerard plaintiffs appealed to the California Supreme Court. Last week, the California Supreme Court issued its decision affirming the lower court’s decision in full. Not only did the California Supreme Court confirm that second meal period waivers are valid for employees in the health care industry who work more than 12 hours in a shift, but it also confirmed that the SB 327 is effective retroactively.

The Gerard 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.

In April 2018, we wrote about the California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court, which had clarified 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 Dynamex, the Court adopted the “ABC” test that has been used in some other jurisdictions.  Because Dynamex had adopted the “ABC” test for claims arising under IWC wage orders, there was some uncertainty after Dynamex regarding whether the new test would apply to claims that are not brought under a wage order.  The Dynamex Court did not consider or express a view about non-wage-order claims.

On October 22, 2018, the California Court of Appeal addressed that issue in Garcia v. Border Transportation Group, LLC, holding that Dynamex’s “ABC” test does not apply to claims not arising under a wage order.  The Garcia Court held that the widely used Borello standard applies to non-wage-order claims for determining whether workers are employees or independent contractors.

Although many wage-hour claims do arise under an IWC wage order, a number do not.  For example, certain claims for expense reimbursement under Labor Code section 2802, claims for wage statement violations under section 226, and claims for waiting time penalties under section 203 for an alleged failure to pay all wages due at the end of employment arise under the Labor Code only; there are no equivalent claims under any IWC wage order.

Following Garcia, entities doing business in California that have had actions filed against them alleging independent contractor misclassification based on Dynamex now have authority to argue that a number of claims should be dismissed.

The question whether an individual may be held liable for alleged wage-hour violations is one that occasionally arises in class action litigation – and, for obvious reasons, it is one that is particularly important to individuals who own entities or who are responsible for overseeing wage-hour compliance.

In Atempa v. Pedrazzani, the California Court of Appeal held that persons responsible for overtime and/or minimum wage violations in fact can be held personally liable for civil penalties, regardless of whether they were the employer or the employer is a limited liability entity. And the Court concluded that private plaintiffs may pursue and collect these penalties for “aggrieved employees” on behalf of the state of California through the Private Attorneys’ General Act (“PAGA”).

Defendant Paolo Pedrazzani was the owner, president, director, and secretary of Pama, Inc.. Two former employees filed a variety of wage-hour claims against Pedrazzani and Pama in July 2013, including claims for civil penalties on the basis of unpaid minimum wages (Cal. Lab. Code 1197.1) and unpaid overtime (Cal. Lab. Code 558). Following a judgment in favor of the employees that Pedrazzani and Pama were jointly and severally liable for the civil penalties, Pedrazzani appealed and Pama filed for bankruptcy.

The Court of Appeal held that Pedrazzani was personally liable for the civil penalties because “the Legislature has decided that both the employer and any ‘other person’ who causes a violation of the overtime pay or minimum wage laws are subject to specified civil penalties.” (italics original). And because neither statute mentions corporate structure, corporate form, or suggests that the same has any bearing on liability, it concluded that “the business structure of the employer is irrelevant.”

The Court also held that personal liability can attach even if a person has no formal relationship with the corporate employer (e.g., employee, manager, officer). Rather, for overtime violations, it is sufficient that that the “other person” was “acting on behalf of the employer”; and for minimum wage violations, it is sufficient that the “other person” “pays or causes to be paid less than the prescribed minimum wage.” Summarizing, the Court held that the statutes at issue “provide for an award of civil penalties against the person who committed the underlying statutory violations.”

After establishing the basis for Pedrazzani’s personal liability, the Court went onto explain that the former employees had standing to seek and collect the penalties under PAGA, and that such penalties are subject to the standard division between the aggrieved employees and the State (25% to the former; 75% to the latter).

Unfortunately, the Court did not address the standard or evidentiary showing needed to establish that someone is an “other person” who can be held personally liable for the civil penalties.

On August 13, 2018, in Ehret v. WinCo Foods, the California Court of Appeal held that a provision in a collective bargaining agreement (“CBA”) regarding employees’ meal periods during shifts lasting between five and six hours effectively waived employees’ rights under California Labor Code section 512. In so holding, the Court held that the waiver in question passed the “clear and unmistakable” standard used to determine whether a provision in a CBA is intended to waive a statutorily protected right. Although WinCo argued that the “clear and unmistakable” standard only applies to waivers of “non-negotiable” rights, not “negotiable” rights like a meal break for shifts between five and six hours, the Court avoided that question and found that, even assuming that the standard applies to waivers of any statutory right, negotiable or non-negotiable, the waiver in the WinCo CBA was “clear and unmistakable.”

California Labor Code section 512(a) states, in part: “An employer may not employ an employee for a work period of more than five hours per day without providing the employee with a meal period of not less than 30 minutes, except that if the total work period per day of the employee is no more than six hours, the meal period may be waived by mutual consent of both the employer and employee.” (Emphasis added.)

The WinCo CBA in question provided: “Employees who work shifts of more than 5 hours will be provided a meal period of at least 30 minutes, except that when a work period of not more than 6 hours will complete a day[‘]s work, a meal period is not required…. It is WinCo Foods policy not to mutually agree with employees to waive their lunch period.” (Emphasis in original.)

The Court held that the agreement effectively waived employees’ meal periods because it explicitly stated that no meal period is required for shifts of under six hours. Because that provision was “flatly irreconcilable” with Labor Code section 512, the Court held that it was a “clear and unmistakable” waiver of that statutory provision. Importantly, the Court distinguished cases that concern arbitration clauses in CBAs, which have held that statutory rights must be clearly stated in the agreement before they can be waived. The Court also rejected the employees’ contention that, under Choate v. Celite Corporation, 215 Cal. App. 4th 1460 (2013), to be valid, the waiver must either cite to the applicable statute explicitly or “specify the content of the statutory right.” Rather, the Court interpreted Choate to hold that the waiver need only “mention” the statutory protection.

The Court found of no import that the CBA also stated: “It is WinCo Foods policy to not mutually agree with employees to waive their lunch periods.” The Court held that that section of the agreement referred to waivers by individual employees, and had no effect on the collective waiver in question. The Court also flatly rejected the employees’ argument that a waiver must explicitly use the words “waiver,” “waived” or “waiving.”

This decision is welcome news to employers that have similar provisions in their CBAs. However, it is not binding upon other Courts of Appeal, and should the California Supreme Court decide to review the issue, it may well reach a different conclusion.

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.