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.

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.

When California employees bring lawsuits alleging minimum wage, overtime, meal period or rest period violations, they typically bring additional claims that are purportedly “derivative” of these substantive claims.  One of these derivative claims is for wage statement (i.e., paystub) violations, alleging that because the employee was paid not all wages he or she allegedly earned, the wage statements he or she was provided were not accurate.

The maximum penalty for a wage statement violation under the California Labor Code is $4,000 per employee.  With such a significant potential penalty, it is no wonder that plaintiffs’ attorneys typically tack on these types of claims, especially in proposed class actions, driving up the potential value of a case.

On May 8, 2018, however, the California Court of Appeal published an employer-friendly decision that could operate to defeat these claims in many cases – if it is not reversed by the California Supreme Court.

In Maldonado v. Epsilon Plastics, Inc., ___ Cal.App.5th ___ (B278022, Apr. 18, 2018), the Court of Appeal confirmed that a wage statement claim fails as a matter of law when it is based on the alleged failure to show all wages purportedly “earned” but the wage statements accurately reflect the wages paid to the employee.  The Court agreed with the employer’s “commonsense position that the pay stubs were accurate in that they correctly reflected . . . the pay received” and held that a failure to pay wages “does not mandate that [employees] also receive penalties for the wage statements which accurately reflected the[] compensation” they were paid.

The Court of Appeal’s decision in Maldonado is a welcome one for employers that have had to face wage statement claims that are tacked on by plaintiffs’ lawyers for the purpose of increasing potential exposure.  Because this is the first published opinion directly deciding this issue, employers now have the tool necessary to seek to strike these claims.

Of course, it is possible that the California Supreme Court will review Maldonado.  If it were to do so, it would not be entirely surprising for the Court to reverse the decision, as the Supreme Court has done in other employment cases in recent years where the Court of Appeal had issued employer-friendly interpretations of the California Labor Code.

Recently, a number of proposed class and collective action lawsuits have been filed on behalf of so-called “gig economy” workers, alleging that such workers have been misclassified as independent contractors. How these workers are classified is critical not only for workers seeking wage, injury and discrimination protections only available to employees, but also to employers desiring to avoid legal risks and costs conferred by employee status.  While a number of cases have been tried regarding other types of independent contractor arrangements (e.g., taxi drivers, insurance agents, etc.), few, if any, of these types of cases have made it through a trial on the merits – until now.

In Lawson v. GrubHub, Inc., the plaintiff, Raef Lawson, a GrubHub restaurant delivery driver, alleged that GrubHub misclassified him as an independent contractor in violation of California’s minimum wage, overtime, and expense reimbursement laws.  In September and October 2017, Lawson tried his claims before a federal magistrate judge in San Francisco.  After considering the evidence and the relevant law, on February 8, 2018, the magistrate judge found that, while some factors weighed in favor of concluding that Lawson was an employee of GrubHub, the balance of factors weighed against an employment relationship, concluding that he was an independent contractor.

The court’s decision was guided by the California Supreme Court’s multi-factor test set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal.3d 341 (1989), which focuses on “whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.”  There are also a number of secondary factors.

Among other things, the court found that Grubhub did not control how Lawson made deliveries or what his appearance was during deliveries. GrubHub also did not require Lawson to undergo any training or control when or where Lawson worked – that is, Lawson had complete control of his schedule and territory.  And, Grubhub did not control how or when Lawson delivered the restaurant orders he chose to accept.  Whereas GrubHub controlled some aspects of Lawson’s work, such as determining the rates he would be paid, the court gave those minimal weight.  On balance, the court concluded that “the right to control factor weighs strongly in favor of finding that Mr. Lawson was an independent contractor.”

The court also considered the secondary factors under the Borello test.  Some secondary factors weighed in favor of an employment relationship – for example, Lawson’s delivery work was part of GrubHub’s regular business, the type of work did not require a significant amount of skill, and Lawson was not engaged in a distinct delivery business such that GrubHub was just one of his clients.  Yet, weighing all of the factors above, the court found that “Grubhub’s lack of all necessary control over [] Lawson’s work, including how he performed deliveries and even whether or for how long,” was paramount.

Lawson is certainly a welcome decision for companies hiring independent contractors to perform a part of their regular business.  Nevertheless, the court’s emphasis on the particulars of GrubHub’s relationship with Lawson, issues regarding Lawson’s credibility and the possibility that the California Supreme Court may moot this decision in Dynamex Operations West Inc. v. Superior Court (considering whether to replace Borello with a test that would make it easier for workers to show they are employees rather than independent contractors), argued just two days before the Lawson decision, mean that such companies should continue closely examining the manner in which they classify their workers.  Moreover, although Lawson should provide some support to relationships governed by California law, its impact in other jurisdictions may be negligible.  For now, employers should continue to keep in mind that there is no one deciding factor to determine whether someone performing work for a company is an employee or an independent contractor.  A number of factors must be considered.

Our colleagues Michael S. Kun, Jeffrey H. Ruzal, and Kevin Sullivan at Epstein Becker Green co-wrote a “Wage and Hour Self-Audits Checklist” for the Lexis Practice Advisor.

The checklist identifies the main risk categories for wage and hour self-audits. To avoid potentially significant liability for wage and hour violations, employers should consider wage and hour self-audits to identify and close compliance gaps.

Click here to download the Checklist in PDF format.  Learn more about the Lexis Practice Advisor.

This excerpt from Lexis Practice Advisor®, a comprehensive practical guidance resource providing insight from leading practitioners, is reproduced with the permission of LexisNexis. Reproduction of this material, in any form, is specifically prohibited without written consent from LexisNexis.

A year ago, employers across the country prepared for the implementation of a new overtime rule that would dramatically increase the salary threshold for white-collar exemptions, on the understanding that the new rule would soon go into effect “unless something dramatic happens,” a phrase we and others used repeatedly.

And, of course, something dramatic did happen—a preliminary injunction, followed by a lengthy appeal, which itself took more left turns following the U.S. presidential election than a driver in a NASCAR race. The effect was to put employers in a constant holding pattern as they were left to speculate whether and when the rule would ever go into effect.

The current status of the overtime rule is but one of several prominent issues to reckon with as wage and hour issues, investigations, and litigation remain as prevalent as they have ever been.

The articles in this edition of Take 5 include the following:

  1. The Status of the Department of Labor’s 2016 Overtime Rule
  2. Recent Developments Regarding Tip Pooling
  3. Mandatory Class Action Waivers in Employment Agreements: Is a Final Answer Forthcoming?
  4. “Time Rounding”: The Next Wave of Class and Collective Actions
  5. The Department of Labor, Congress, and the Courts Wrestle with the Definition of “Employee”

Read the full Take 5 online or download the PDF.

On November 30, 2016, the California Court of Appeal issued its opinion in Driscoll v. Granite Rock Company. The opinion provides guidance to California employers who enter into on-duty meal period agreements with their employees.

In Driscoll, the trial court had certified a class of approximately 200 concrete-mixer drivers who alleged they were not provided off-duty meal periods pursuant to California law. Those claims proceeded to a bench trial and the trial court found in favor of the employer. The employees then appealed.

The Court of Appeal upheld the employer’s on-duty meal period agreements, noting that the employer’s “policies regarding meal periods [we]re particularly appropriate in the context of the ready mix concrete industry.” The Court of Appeal cited the 2012 decision in Brinker, where the California Supreme Court held that “[w]hat [off-duty meal practices that] will suffice may vary from industry to industry, and we cannot in the context of this class certification proceeding delineate the full range of approaches that in each instance might be sufficient to satisfy the law.” Relying on Brinker, the Driscoll Court concluded that “the issue of different industry practices is a factual determination. Here, while on the job, mixer drivers manage a rolling drum of freshly batched concrete at any given time throughout their work day. When a driver is able to take a duty-free lunch period is dependent on the state of the concrete in his or her truck, and the nature of the construction job to which the driver is attending.”

The Court of Appeal also rejected the employees’ arguments that the employer required employees to enter into on-duty meal period agreements. The trial court had “found that when a concrete-mixer driver requested to have an off-duty meal period, Graniterock granted that request, and relinquished all control of the employee for the 30-minute off-duty period.” The Court of Appeal concluded that doing so satisfied the Brinker standard.

The Driscoll decision is a welcome one for employers – especially those facing class actions – that use on-duty meal period agreements as it reaffirms their validity.

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

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

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

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

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

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