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 July 18, 2018, the Ninth Circuit issued a published opinion in Rodriguez v. Taco Bell Corp., approving Taco Bell’s on-premises meal periods for employees who choose to purchase discounted food.

Like many food services employers, Taco Bell offers discounts on its food to its employees. And it requires that employees consume such food on premises.

In Rodriguez, employees contended that requiring employees to consume discounted meals on premises results in a meal period or unpaid wage violation, arguing that employees must be relieved of all duty and must be permitted to leave the premises during a statutory meal period. The Ninth Circuit rejected those arguments.

As the Court explained, Taco Bell employees were not required to purchase meals – “[t]he purchase of the meal is entirely voluntary.” And the “requirement that [a discounted] meal be eaten on the premises was to ensure that the benefit was utilized only by employees and that the food did not leave the premises to be given to friends and family.” That is, “employees had to consume the discounted food in the restaurant to prevent theft.” As the Court noted, Taco Bell “employees are free to purchase meals at full price and eat them wherever the employees wish.”

The Ninth Circuit concluded that Taco Bell satisfied its meal period and wage obligations by relieving employees of all duties during their meal periods and exercising no control over how or where they spent their meal periods. That is, “employees were free to use the meal break time as they wished, and that a requirement to remain on the premises was imposed only if an employee voluntarily chose to purchase a discounted meal.” And there was no evidence that Taco Bell “required or pressured [employees] to conduct work activities while on premises during the meal period.” The policy actually prohibited that, requiring employees who purchased discounted meals to eat them away from the food production and cash register area.

The Ninth Circuit’s Rodriguez opinion confirms that employers that relieve employees of all duty during meal periods do not violate California law merely by imposing certain requirements to benefits (e.g., discounted food) that an employee may voluntarily accept.

More than 7 months after hearing oral argument on an issue that will affect countless employers across the country – whether employers may implement arbitration agreements with class action waivers — the United States Supreme Court has issued what is bound to be considered a landmark decision in Epic Systems Corp. v. Lewis (a companion case to National Labor Relations Board v. Murphy Oil USA and Ernst & Young LLP v. Morris), approving the use of such agreements.

The decision will certainly have a tremendous impact upon pending wage-hour class and collective actions, many of which had been stayed while the courts and parties awaited the Supreme Court’s decision.  And it is likely to lead many more employers to implement arbitration agreements with class action waivers going forward, if only to avoid the in terrorem effect of those types actions.

In a 5-4 vote along the very lines that many commentators had predicted, with newest Supreme Court Justice Neil Gorsuch penning the majority opinion, the Supreme Court determined that the law is “clear” that class action waivers are enforceable under the Federal Arbitration Act (“FAA”) – and that they are not prohibited by the National Labor Relations Act (“NLRA”), as several Circuit Courts had concluded following the National Labor Relations Board’s (“NLRB”) DL Horton decision.

In reaching this decision, the Court took great pains to address – and reject – the various arguments presented by the former NLRB General Counsel, the related labor union and various amicus briefs submitted by the plaintiffs’ bar.  In so doing, the Court noted that for the first 77 years of the NLRA, the NLRB had never argued that class action waivers violated the Act; instead, the FAA and the NLRA had coexisted peacefully.  In fact, as the Court pointed out, as recently as 2010 the NLRB’s General Counsel had asserted that class action waivers did not violate the NLRA.

The decision is an unqualified victory for employers, particularly those who already have such arbitration agreements in place.  Given the prevalence of wage-hour class and collective actions, and the potential exposure in even the most baseless of suits, other employers would be wise to consider whether they, too, wish to implement such agreements.

Not unimportantly, the decision might give employers new grounds to argue that employees who sign such agreements are prohibited from pursuing representative claims under California’s Private Attorneys General Act (“PAGA”).  Even if those new arguments prove to be unavailing – to date, the California state courts have held that such claims cannot be compelled to arbitration because they belong to the state, not the employee –the Supreme Court’s decision could be used to require that an individual arbitrate his or her individual claims first such that he or she would not have standing to pursue the PAGA claims if the employer prevailed in arbitration.

And employers should be mindful that in some states (California again), an employer must pay virtually all of the costs of the arbitration process, a reality that has led more than a few plaintiffs’ lawyers to file multiple individual arbitrations in order to drive up employers’ costs to try to force them to the settlement table.

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 2012, we were proud to introduce our free wage and hour app.  Over the years, thousands of clients and potential clients have downloaded the app on their mobile phones and tablets.

For 2018, we are pleased to introduce a brand-new version of the app, available without charge for iPhoneiPad, and Android devices. See our press release here.

Importantly, the 2012 and 2014 versions of the app have been retired.  If you had downloaded them, you will need to download the new version.

The new version of the app includes wage-hour summaries for all 50 states, as well as D.C. and Puerto Rico.  And it includes updates for 2018, including new state minimum wages and tipped employee rates.

Now more than ever, we can say that the app truly makes nationwide wage-hour information available in seconds. At a time when wage-hour litigation and agency investigations are at an all-time high, we believe the app offers an invaluable resource for employers, human resources personnel, and in-house counsel.

Key features of the updated app include:

  • Summaries of wage and hour laws and regulations, including 53 jurisdictions (federal, all 50 states, the District of Columbia, and Puerto Rico)
  • Available without charge for iPhoneiPad, and Android devices
  • Quick access to, and a direct feed of, Epstein Becker Green’s award-winning Wage and Hour Defense Blog, which provides up-to-date commentary on wage and hour developments
  • Social media feeds from Twitter, Facebook, LinkedIn, and YouTube
  • Quick links to Epstein Becker Green’s attorneys and practices – and more!

If you haven’t done so already, we hope you will download the free app soon.  To do so, you can use these links for iPhoneiPad, and Android.

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.

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.

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.

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.