California Employment Law Report

California Employment Law Report

The latest litigation trends, court decisions, & issues on California Employment Law

Top five things to know about tips, gratuities and service charges under California law

The basics of tipsWelcome to another Friday’s Five. This week is a discussion about issues facing restaurants, hotels, and other industries where tipping and gratuities are left for employees.  This simple concept is surprisingly complex for employers.  Here are five issues employers should understand about tips in California.

1) Who owns a tip?

California law is clear that voluntary tips left for an employee for goods sold or services performed belong to the employee, not the employer. Labor Code section 351 provides, “No Employer or agent shall collect, take or receive any gratuity or a part thereof that is paid, given to, or left for an employee by a patron…. Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for.”

2) Is employer mandated tip pooling legal?

Yes. In the seminal 1990 case on tip-pooling, Leighton v. Old Heidelberg, Ltd., the court held that an employer’s practice of tip pooling among employees was not prohibited by section 351 because the employer did not “collect, take, or receive” any part of a gratuity left by a patron, and did not credit tips or deduct tip income from employee wages. The court relied upon the “industry practice” that 15% of the gratuity is tipped out to the busboy and 5% to the bartender, which was “a house rule and is with nearly all Restaurants.” However, owners, managers, or supervisors of the business cannot share in the tip pool.  Employers need to be careful to exclude any employees who direct the work of other employees from tip pools, as lead shift supervisors, floor managers, and others who do not have the authority to hire or fire may still be considered a supervisor for tip pooling purposes.

There must be a reasonable relationship between tip pooling arrangements.  The following examples of mandatory tip pooling percentages have been approved by a court, the DLSE or DOL:

  • A policy in which 80 percent of tips were allocated to waiters, 15 percent to busboys and five percent to bartenders
  • A policy in which cocktail service must give one percent of tips to bartender
  • The Department of Labor responsible for enforcing Federal law has stated that a policy that requires servers to share 15 percent of their tips with other employees is presumptively reasonable
  • A policy in which a server contributes 15 percent to a tip pool, and other employees in the chain of service receive a portion of these tips based on the amount of hours they worked

The following examples were tip pooling policies disapproved by courts or the DLSE and therefore employers cannot legally establish them:

  • A policy providing 90 percent of tips to hostesses who spend only a small amount of time seating customers
  • A policy requiring food server to share 10 percent of tips with floor managers

3) When do tip tips left on credit cards have to be paid, and can a deduction made for processing the credit card transaction?

If a patron leaves a tip on their credit card, the employer may not deduct any credit card processing fees from the tip left for the employee. Moreover, tips left using a credit card must be paid to employees no later than the next regular payday following the date the credit card payment was authorized. See Labor Code § 351.

4) Can California employers have back of the house employees share in a tip pool?

No (as of April 2017), but this could change.  The Court in Oregon Restaurant and Lodging Association v. Perez, the Ninth Circuit Court of Appeals, which covers California, held in February 2016 that the Department of Labor’s regulations about who can participate in tip pools applies to states like California which do not permit tip credits.  The DOL has issued regulations that under the FLSA a tip pool is only valid if it includes employees who “customarily and regularly” receive tips, such as waiters, waitresses, bellhops, counter personnel who service customers, bussers and service bartenders.  According to the DOL, a valid tip pool “may not include employees who do not customarily and regularly receive[] tips, such as dishwashers, cooks, chefs, and janitors.”  The Plaintiffs in Oregon Restaurant filed a petition for review to the United State Supreme Court.  The Supreme Court will likely decide whether to hear the case in 2017.  Therefore, until any further clarification from the Supreme Court, it is best that restaurants use caution and not include back of the house employees who are not customarily and regularly tipped in tip pools.

While some states provide the employer with a “tip credit”, California law does not allow this. However, with the recent passage of the increase in California’s minimum wage, there is more discussion of examining whether a tip credit should be considered in California. However, current law does not allow employers to “credit” an employee’s tips towards the minimum wage requirement for each hour worked.

A service charge added to a customer’s bill is not a tip or gratuity and remains the property of the employer.  Therefore, the employer may distribute the service charge to its employees, including back of the house employees as it wishes.  However, if a service charge is distributed to employees, it is considered wages and effects the employee’s regular rate of pay for overtime purposes as discussed below.

5) Do tips change an employee’s regular rate of pay for overtime calculations?

No. Because tips are voluntarily left by customers to employees, tips do not increase an employee’s regular rate of pay used to calculate overtime rates.

However, if an employer implements mandatory service charges and shares these service charges with employees, the service charges must be considered wages for overtime and tax purposes.  Therefore, the employee’s regular rate of pay for overtime purposes will be higher when mandatory service charges are distributed to the employees.  To calculate an employee’s regular rate of pay, the employer must divide all compensation for the week by the total number of hours worked by the employee.

**Additional issue: Pay attention to other requirements under local ordinances regulating service charges.

For example, Santa Monica’s minimum wage ordinance requires employers to “distribute all Service Charges in their entirety to the Employee(s) who performed services for the customers from whom the Service Charges are collected.”  Santa Monica Municipal Code § 4.62.040.  “Service Charge” is defined as “any separately-designated amount charged and collected by an Employer from customers, that is for service by Employees, or is described in such a way that customers might reasonably believe that the amount is for those services or is otherwise to be paid or payable directly to Employees…under the term ‘service charge,’ ‘table charge,’ porterage charge,’ ‘automatic gratuity charge,’ ‘healthcare surcharge,’ ‘benefits surcharge,’ or similar language.”  Santa Monica Municipal Code § 4.62.010(g).

Five common questions about California’s paid sick leave requirements

Almost two years after California’s requirement to provide employees with paid sick leave, there are still many outstanding questions about California’s Healthy Workplace Healthy Family Act of 2014.  These issues still exist even after Governor Jerry Brown signed Senate Bill 3 on April 2016 amending the Act attempting to clarify a few provisions of the law.

In this Friday’s Five video I discuss a few of the common questions employers still have about the law, such as:

  • When can attendance policies violate the law?
  • Can employers require doctor’s notes from employees who take paid sick leave?
  • Can employers discipline employees to taking leave and not providing advance notice after they exhausted their paid sick leave?

For more information, visit the Department of Industrial Relations frequently asked questions page here.

Also, don’t forget to subscribe to the Employment Law Report’s YouTube channel to receive notification about new videos.

Sorry for the late post, but there were some server upgrades for my blog on Friday.  Have a great week.

Friday’s Five: Meal and rest break update

Welcome to another Friday’s Five video.  In this video I discuss five things every California employer needs to know about meal and rest breaks.  The items consists of a some reminders, but also new court decisions issued in December 2016 and the first quarter of 2017.  This is always a topic employers need to continually pay attention to in California.

Here are links to articles I’ve published as referenced in the video:
Timing requirements for meal and rest breaks

Rest break requirements when employees still subject to recall by employer

Commissioned and piece rate employees must be compensated separately for rest breaks

Happy Friday.  As always, please let me know if you have any suggestions for topics for future posts.

Five steps to prepare for July 2017 local minimum wage increases in California

Many cities and counties across California are set to increase their minimum wages in July 2017, and employers need to start preparing now.  For example, Los Angeles City and County are increasing the minimum wage for employers with 26 or more employees to $12 per hour on July 1, 2017 (currently at $10.50 per hour). This Friday’s Five video covers five issues that employers should start to review in order to comply with these increases in the minimum wage.

For more information about the local minimum wages in place throughout California:

San Diego: http://www.californiaemploymentlawrep…

Los Angeles: http://www.californiaemploymentlawrep… and http://www.californiaemploymentlawrep…

Southern California overview of various minimum wage requirements: http://www.californiaemploymentlawrep…

Sample model pay stub: https://www.dir.ca.gov/dlse/PayStub.pdf

 

Five reminders about exempt employees working in the restaurant industry

In a recent decision, Ramirez v. ISB Mehta Corp., a restaurant successfully defended a lawsuit filed by a former manager claiming that he was misclassified as an exempt employee.  While the case is not officially published, it provides a few good lessons for restaurant operators’ classification of their employees.  This Friday’s Five focuses on the lessons illustrated by this case:

1. Employers must approach classifying employees as exempt carefully

In Ramirez v. ISB Mehta, the plaintiff worked for Erik’s DeliCafe, a franchised restaurant in the Bay Area.  The plaintiff filed a class action alleging that he was misclassified as an exempt employee and was entitled to overtime compensation because his duties as a manager primarily involved nonexempt work.

The plaintiff testified that his daily duties including counting cash, entering daily sales information, making daily bank deposits, writing checks, placing food orders, buying produce, marketing, preparing and delivering catering orders, and working the register (taking walk-in customer orders). Defendant provided plaintiff with a cell phone, but paid plaintiff $100 a month for the service.

The trial court rejected plaintiff’s overtime compensation and minimum wage claims, finding that he was an exempt employee under both the executive and administrative exemptions defined in Industrial Welfare Commission Wage Order No. 5-2001.  The court found that plaintiff was primarily engaged in activities falling within those exemptions, such as:

  • directing the work of others;
  • authorized to hire and fire;
  • customarily and regularly exercising independent judgment; and
  • regularly and directly assisting the owner of the business

The evidence established that the employee’s duties and responsibilities also involved performance of non-manual work directly related to management policies or general business operations, and Employee was paid a salary more than twice the minimum wage.

Click here for common exempt classifications.

2. To meet the executive exemption, the employer must meet six requirements

The court explained to meet the executive exemption, the following must be met:

The executive exemption has six components: (1) the employee’s “duties and responsibilities involve the management of the enterprise in which he/she is employed,” (2) the employee “customarily and regularly directs the work of two or more other employees,” (3) the employee “has the authority to hire or fire other employees …,” (4) the employee “customarily and regularly exercises discretion and independent judgment,” and (5) the employee earns a monthly salary “no less than two (2) times the state minimum wage for full time [40 hour per week] employment.” (Cal. Code Regs, tit. 8, § 11050, subd. 1(B)(1)(a)-(d), (f).)

The remaining component, at issue here, requires the employee to be “primarily engaged in duties which meet the test of the exemption.” (Cal. Code Regs, tit. 8, § 11050, subd. 1(B)(1)(e).)

3. Factors to review when employee is performing both exempt and nonexempt duties to determine if the employee spends more than 50% of their time on exempt duties

The court set out the factors used in determining if the employee spends more than 50% of their time on managerial duties when the employee performs both managerial and non-managerial work:

Work performed by a nonexempt employee is generally nonexempt work when performed by the supervisor; (2) the regulations do not recognize hybrid activities (activities having both exempt and nonexempt aspects); (3) identical tasks may be exempt or nonexempt depending on the manager’s purpose in engaging in the task or the task’s role in the work of the organization; and (4) in large retail establishments when certain tasks are customarily assigned to nonexempt employees, the performance of that work by a manager is nonexempt. (Heyen, supra, 216 Cal.App.4th at pp. 822-823.)

The court found that in this case bookkeeping tasks, maintaining inventory and ordering supplies and marketing the restaurant were exempt duties.

Click here for my prior article for examples of duties that usually are exempt duties.

4. Employers bear the burden to prove that an employee is exempt

California courts have made clear that the employer bears the burden of proof when asserting that an employee is an exempt employee.  “[T]he assertion of an exemption from the overtime laws is considered to be an affirmative defense, and therefore the employer bears the burden of proving the employee’s exemption.”  Ramirez v. Yosemite Water Co. (1999).

5. Even though the employer prevailed in this lawsuit, it can be risky to classify restaurant managers classified as exempt

While the employer prevailed in this case, the case illustrates the close factual analysis required in determining whether an employee meets an exempt classification.  Especially in the restaurant context, it is likely that managers will be performing both nonexempt and exempt duties.  It is very easy for disgruntled employees to contend after the fact that their duties primarily consisted of nonexempt, non-managerial tasks.

California proposed immigration bill imposes steep fines for employers who cooperate with federal immigration requests

Assemblymember David Chiu (D-San Francisco) introduced a bill – AB 450 – that would put employers between the federal government and the state of California in the immigration debate.  Basically, the bill imposes penalties on employers who cooperate or do not notify the state of federal immigration actions taking place at their locations.  As set out in a statement issued by Assemblymember Chiu, the bill does the following:

  • Protecting workers from being wrongfully detained in their workplace by requiring employers to ask for a judicial warrant before granting ICE access to a worksite.
  • Preventing employers from sharing confidential employee information, such as a social security number, without a subpoena.
  • Requiring employers to notify the Labor Commissioner and employee representative of a worksite raid. Employers must also notify the Labor Commissioner, employees, and employee representatives of an I-9 audit.
  • Preventing employers from retaliating against employees who report labor claims by enabling workers crucial to a labor claim investigation to receive certification from the Labor Commissioner. This certification would both protect the worker and aid in successfully adjudicating labor violations.

The current version of the bill creates the following obligations for employers:

  • prohibit an employer from providing a federal immigration enforcement agent access to a place of labor without a properly executed warrant and would prohibit an employer, or a person acting on behalf of the employer, from providing voluntary access to a federal government immigration enforcement agent to the employer’s employee records without a subpoena
  • require an employer to provide an employee, and the employee’s representative, a written notice containing specified information, in the language the employer normally uses to communicate employment information, of an immigration worksite enforcement action to be conducted by a federal immigration agency at the employer’s worksite, unless prohibited by federal law
  • require an employer to provide to an affected employee, and to the employee’s representative, a copy of the written federal immigration agency notice describing the results of an immigration worksite enforcement audit or inspection and written notice of the obligations of the employer and the affected employee arising from the action
  • require an employer to notify the Labor Commissioner of a federal government immigration agency immigration worksite enforcement action within 24 hours of receiving notice of the action and, if the employer does not receive advance notice, to immediately notify the Labor Commission upon learning of the action, unless prohibited by federal law
  • require an employer to notify the Labor Commissioner before conducting a self-audit or inspection of specified employment eligibility verification forms, and before checking the employee work authorization documents of a current employee, unless prohibited by federal law

Failure to meet any of the obligations would create liability for employers of not less than $10,000 and not more than $25,000 for each violation.  This creates a potential legal conundrum for employers who have a responsibility to comply with federal immigration laws.  Under this proposed bill employers could face fines under state law for not following these requirements, but on the other hand employers face penalties for not complying with federal immigration laws.  The bill makes employers responsible for these difficult legal determinations in interpreting state and federal obligations, in addition to requiring them to become legal experts in determining if the federal government has a “properly executed search warrant” for example.

Friday’s Five: When hugs can constitute harassment

Plaintiff Victoria Ztwick worked as a correctional office for the County of Yolo. See Zetwick v. County of Yolo.  She sued thekids hugging County and her supervisor, Sheriff Edward Prieto alleging that the supervisor’s conduct over a 12-year period created a hostile work environment.  She alleged the harassment consisted of Prieto hugging her on more than one hundred occasions and kissed her at least once.

Ztwick alleged Prieto created a sexually hostile work environment, in violation of Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq., and the California Fair Employment and Housing Act (FEHA), CAL. GOV’T CODE § 12900 et seq.  Defendants argued that that such conduct was not objectively severe or pervasive enough to establish a hostile work environment under the law.  Defendants maintained that the activity was innocuous, socially acceptable conduct.  The lower trial court agreed with defendants’ arguments and granted their motion for summary judgment.  However, the Ninth Circuit court of Appeals overturned the trial’s court’s order and remanded the case to the lower court for trial.  This Friday’s Five focuses on five lessons employers should take away from the Zetwick v. County of Yolo case.

1. Hugging can create a hostile work environment

Defendants maintained that most of the hugs were during parties involving sheriff’s office employees, award banquets, GED graduations for prisoners, and some training sessions or meetings, but never when Prieto and the plaintiff were alone.  Plaintiff admitted that there was only one incident that Prieto kissed her at an awards ceremony.  He kissed plaintiff to congratulate her on her recent marriage, and plaintiff alleged that the kiss was partially on the lips because she turned her head.  She alleges she complained to her supervising lieutenants, but they did not forward the complaint for any investigation or resolution.

Plaintiff alleges that she also saw Prieto hug and kiss other female employees, but never saw him hug male employees.  Defendants argued that even Plaintiff herself described the hugs as ones that friends or relatives give each other.  In addition, defendants contended that plaintiff simply never saw when Prieto would hug male co-workers and that the hugs were not only directed towards plaintiff or females.

To succeed in proving hostile work environment harassment, a plaintiff must prove “(1) that he was subjected to verbal or physical conduct of a harassing nature, (2) that this conduct was unwelcome, and (3) that the conduct was sufficiently severe or pervasive to alter the conditions of the victim’s employment and create an abusive working environment.”

The appellate court held that there was enough evidence presented by plaintiff to at least have a trial:

We hold that, giving the record proper consideration, a reasonable juror could conclude that the differences in hugging of men and women were not, as the defendants argue, just “genuine but innocuous differences in the ways men and women routinely interact with members of the same sex and of the opposite sex.”

2. To be illegal, harassment must be both objectively offensive to a reasonable person and subjectively offensive in that the victim felt it was offensive

The appellate court set forth the standard required for a victim to allege harassment:

To be actionable under Title VII, a sexually objectionable environment must be both objectively and subjectively offensive, one that a reasonable person would find hostile or abusive, and one that the victim in fact did perceive to be so.” Geo Grp., Inc., 816 F.3d at 1206 (internal quotation marks omitted).

The appellate court found that given the testimony that Prieto hugged plaintiff more than one hundred times over a 12-year period, hugged female employees more often than male employees, and as plaintiff observed Prieto only hugging females, that plaintiff met the subjective and objective showing requirement.  This evidence was sufficient to establish the possibility that a reasonable jury could find in plaintiff’s favor.

3. Hugging could be outside of the “ordinary workplace socializing”

In rejecting defendants’ argument that the hugs in this case were “ordinary workplace socializing” that could not be the basis of a sexual harassment lawsuit, the court explained:

[W]hile it may appear that Prieto’s hugs were “common” in the workplace, and that some other crossgender hugging occurred, neither of those things demonstrates beyond dispute that Prieto’s hugging was within the scope of “ordinary workplace socializing.” A reasonable juror could find, for example, from the frequency of the hugs, that Prieto’s conduct was out of proportion to “ordinary workplace socializing” and had, instead, become abusive. See Geo Grp., Inc., 816 F.3d at 1206 (citing factors relevant to the determination of whether the environment was sufficiently hostile or abusive, including the “frequency of the discriminatory conduct; its severity; whether it is physically threatening or humiliating, or a mere offensive utterance; and whether it unreasonably interferes with an employee’s work performance” (internal quotation marks omitted)).

4. There is no set number of harassing incidents that results in liability

The court was clear in the case that there is no “magic number of harassing incidents’ that would give rise to liability.”  The totality of the circumstances are taken into account in determining whether a reasonable juror would find the types of hugs and the number of hugs created a hostile environment.  This is why it is so important for employers to continually counsel employees who do not act professionally in the workplace.

5. Alleged supervisory harassment is taken more seriously

The appellate court also held the trial court erred by “completely overlook[ing] legal recognition of the potentially greater impact of harassment from a supervisor and, indeed, the highest ranking officer in the department. The Supreme Court has recognized that ‘acts of supervisors have greater power to alter the environment than acts of co-employees generally.’”  Like it or not, the appellate court looked at the fact that the accused harasser was a supervisor in this case as one of the circumstances it considered in holding that the plaintiff presented enough evidence that a reasonable jury could agree with.

Five action items to conduct an appropriate harassment investigation

A couple of weeks ago I wrote about an employer’s obligations to conduct effective investigations into harassment claims.  I was typing at computerside tracked since that post, and promised to write about how employers should conduct the investigations.  This Friday’s Five lists five action items employers should utilize when conducting harassment investigations:

1. Selecting the investigator

Employers should take time to train an in-house person who can conduct harassment investigations.  This person, usually someone from Human Resources (but it does not need to be) should have additional experience and training about how to investigate these claims.  First, the person needs to be able to conduct appropriate investigations to limit the liability to the company.  Second, the person’s experience and training will likely be closely examined, if not challenged by opposing counsel if the case develops into litigation.  Therefore, someone with experience and who is well credentialed is preferred.

2. Investigation must be free of any appearance of influence or bias

The investigator must not have any personal involvement with any of the parties who are a part of the investigation.  To avoid any appearance of undue influence, the investigator must not be subject to any control or supervisory control from the alleged harasser.  This means that for smaller companies, or in cases where the owner or president of the company is alleged to have harassed someone, it is recommended that an outside third-party that is independent from the company be hired to conduct the investigation.

3. Ask the right questions

The EEOC provides the following examples of questions to ask during a sexual harassment investigation:

Questions to Ask the Complainant:

  • Who, what, when, where, and how: Who committed the alleged harassment? What exactly occurred or was said? When did it occur and is it still ongoing? Where did it occur? How often did it occur? How did it affect you?
  • How did you react? What response did you make when the incident(s) occurred or afterwards?
  • How did the harassment affect you? Has your job been affected in any way?
  • Are there any persons who have relevant information? Was anyone present when the alleged harassment occurred? Did you tell anyone about it? Did anyone see you immediately after episodes of alleged harassment?
  • Did the person who harassed you harass anyone else? Do you know whether anyone complained about harassment by that person?
  • Are there any notes, physical evidence, or other documentation regarding the incident(s)?
  • How would you like to see the situation resolved?
  • Do you know of any other relevant information?

Questions to Ask the Alleged Harasser:

  • What is your response to the allegations?
  • If the harasser claims that the allegations are false, ask why the complainant might lie.
  • Are there any persons who have relevant information?
  • Are there any notes, physical evidence, or other documentation regarding the incident(s)?
  • Do you know of any other relevant information?

Questions to Ask Third Parties:

  • What did you see or hear?
  • When did this occur? Describe the alleged harasser’s behavior toward the complainant and toward others in the workplace.
  • What did the complainant tell you?
  • When did s/he tell you this?
  • Do you know of any other relevant information?
  • Are there other persons who have relevant information?

4. Make credibility assessments

The EEOC again provides some guidance on the factors to use when determining which witnesses are more credible:

  • Inherent plausibility: Is the testimony believable on its face? Does it make sense?
  • Demeanor: Did the person seem to be telling the truth or lying?
  • Motive to falsify: Did the person have a reason to lie?
  • Corroboration: Is there witness testimony (such as testimony by eye-witnesses, people who saw the person soon after the alleged incidents, or people who discussed the incidents with him or her at around the time that they occurred) or physical evidence (such as written documentation) that corroborates the party’s testimony?
  • Past record: Did the alleged harasser have a history of similar behavior in the past?

None of the above factors are determinative as to credibility. For example, the fact that there are no eye-witnesses to the alleged harassment by no means necessarily defeats the complainant’s credibility, since harassment often occurs behind closed doors. Furthermore, the fact that the alleged harasser engaged in similar behavior in the past does not necessarily mean that he or she did so again.

5. Make a final determination

After making credibility determinations and evaluating the facts, management of the company must make a determination about whether or not the harassment occurred.  The parties should be informed of the determination.  Even if the employer determines that harassment did not occur, the EEOC takes the position that the employer should take steps such as preventative training and continued monitoring.  For example, even though the underlying harassment may not have occurred, a supervisor could still be held liable for retaliating against the employee who filed the harassment complaint.  Therefore, it is important for employers to inform the parties involved of the outcome, unacceptable behavior as a result of the determination, and to ensure ongoing compliance with the company’s findings and legal obligations.

 

Friday’s Five: I’m now legally “old”

The law has to define certain terms and categories of people in order to make legal concepts predictable so people and happy birthdaycompanies can adjust their actions accordingly.  However, after turning 40 years old this month, the definition of “old” hits home with me.  According to the law, I’m old.  Moving on quickly, this Friday’s Five focuses on age related issues:

1. People 40 years old and older are in a protected category

Both Federal law, Age Discrimination Employment Act (ADEA) 29 USC section 621, et sec. and California state law, Cal. Gov. Code Section 12926(b), protect employees who are 40 years old or older.

2. Even if worker over 40 is terminated and replaced by another worker who is over 40, there could still be an age claim if the difference in age is “substantial”

The United States Supreme Court held in O’Connor v. Consolidated Coin Caterers Corp. that the ADEA prohibits discrimination because of an employee’s age, not class membership.  Therefore, if one employee who is over 40 is terminated and replaced by another employee who is also over 40, the terminated employee may still assert an age claim if they can prove that the determining factor was age.  However, if the person was replaced by another who is close in age, this would cut against any argument that the reason for the termination was based on age.

3. When employers can use age as a factor in an employment decision: the bona fide occupational qualification (BFOQ)

To establish a BFOQ, the employer must prove

First, the employer must demonstrate that the occupational qualification is ‘reasonably necessary to the normal operation of [the] particular business.’ Secondly, the employer must show that the categorical exclusion based on [the] protected class characteristic is justified, i.e., that ‘all or substantially all’ of the persons with the subject class characteristic fail to satisfy the occupational qualification.

Johnson Controls, Inc. v. Fair Employment & Housing Com., See 2 Cal. Code Regs section 7286.7(f).  This is a narrow defense for employers, and they still also must prove that the nature of the operation of the business could not be rearranged in order to reduce the BFOQ impact.

4. Layoffs based on high salary could possibly constitute age discrimination

If salary is used as the basis for conducting terminations or layoffs, this could constitute age discrimination if older employees as a group are adversely impacted because of this factor.  Cal. Gov. Code section 12941.

5. Release of age claims require additional steps – approach with caution

The Older Workers Benefit Protection Act (OWBPA) provides additional rights to workers.  The OWBPA prohibits any waiver of a right under the ADEA, unless certain requirements are met.  Some of these requirements include that the employee is advised to consult with an attorney, the waiver is easily understood, the individual is given at least 21 days to consider the agreement; and the individual is given at least 7 days following the execution of the agreement to revoke the agreement. The 21 day consideration period can be waived by the employee, but the seven day revocation period after the agreement is signed cannot be waived by the employee. Therefore, it is important to consider potentially not paying any money until after the seven day revocation period expires. If the employer is offering the release to a group or class of employees a longer consideration period and other requirements apply. It is highly recommended that employers receive the assistance of counsel to ensure that employees 40 years old or older effectively waive any rights under the OWBPA. For more information, the EEOCs’ website provides a good explanation and some examples.

Happy Friday.

Commissioned sales employees must be compensated separately for rest breaks – Vaquero v. Stoneledge Furniture

This week, in Vaquero v. Stoneledge Furniture LLC, a California appellate court issued a decision explaining employer’s obigations to separately compensate employees paid on a commission basis for rest breaks.

Plaintiffs worked as sales associates for Stoneledge Furniture, LLC, a retail furniture company doing business in California as Ashley Furniture HomeStores.  Stoneledge paid the sales associates on a commission basis.  The compensation agreement set out that if a sales associate failed to earn “Minimum Pay” of at least $12.01 per hour in commissions in any pay period, Stoneledge paid the associate a “draw” against “future Advanced Commissions.”  The commission agreement required that “[t]he 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.”

The issue addressed by the court was employees paid on a commission basis entitled to separate compensation for rest periods as required by California law, and if so, did Stoneledge’s draw-based compensation system pay for rest breaks?  This Friday’s Five addresses five takeaways from the court’s holding for California employers.

1. IWC wage orders

The appellate court explained that the legislature authorized the Industrial Welfare Commission (IWC) to regulate “the wages, hours, and working condition of various classes of workers to protect their health and welfare.”  The IWC has promulgated wage orders that set out regulations based on industries, and there are currently 18 wage orders.  The court explained: “As a consequence, ‘wage and hour claims are today governed by two complementary and occasionally overlapping sources of authority: the provisions of the Labor Code, enacted by the Legislature, and a series of 18 wage orders, adopted by the IWC.’”  Even though the IWC was defunded in 2004, the wage order are still in effect.  A list of the  Wage Orders for the various industries can be found here.

2. Rest periods

With respect to rest periods, Wage Order No. 7 provides:  “Every employer shall authorize and permit all employees to take rest periods, which insofar as practicable shall be in the middle of each work period. The authorized rest period time shall be based on the total hours worked daily at the rate of ten (10) minutes net rest time per four (4) hours or major fraction thereof.  However, a rest period need not be authorized for employees whose total daily work time is less than three and one-half (3 1/2) hours.  Authorized rest period time shall be counted as hours worked for which there shall be no deduction from wages.

Wage Order No. 7 requires employers to count “rest period time” as “hours worked for which there shall be no deduction from wages.”  (Cal. Code Regs. tit. 8, § 11070, subd. 12(A), italics added.)  In Bluford v. Safeway Stores, Inc. (2013) 216 Cal.App.4th 864 the court interpreted this language to require employers to “separately compensate[ ]” employees for rest periods where the employer uses an “activity based compensation system” that does not directly compensate for rest periods.  (Id. at p. 872.)

3. Piece-rate workers must be paid for rest periods and non-productive time under Labor Code Section 226.2

Piece-rate workers are paid “according to the number of units turned out.”  For example, piece-rate workers are paid for the amount of produce harvested, the number of miles driven, or the yard of carpet installed.  Employers cannot deduct wages for rest periods from piece-rate workers, and therefore employers must separately compensate employees for rest periods.

Employers who paid employees on a piece rate basis must comply with Labor Code section 226.2.  Under Labor Code section 226.2, piece-rate workers must be paid for “rest and recovery periods and other nonproductive time separate from any piece-rate compensation.”  The law requires employers to calculate the regular rate of pay for each workweek, and then pay the piece-rate employees the higher of this regular rate of pay or the applicable minimum wage for rest break time.  The law also requires employers to pay piece-rate employees for “nonproductive time” which is defined as “time under the employer’s control, exclusive of rest and recovery periods, that is not directly related to the activity being compensated on a piece-rate basis.”  The nonproductive time is required to be paid at a rate no less than the applicable minimum wage rate.  In addition, employers who pay employees on a piece-rate basis need to report the pay for rest breaks, recovery periods, and nonproductive time separately on the employees’ pay stubs.

The court explained that piece-rate compensation plans do not directly account for and pay for rest periods because the employee is not working during the rest period and therefore is not being paid.  The Wage Order 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.

4. The court in Stoneledge held that the requirement to separately pay for rest periods applies to employees paid on commission as well

The primary holding Stoneledge is that Wage Order No. 7 applies “equally to commissioned employees, employees paid by piece rate, or any other compensation system that does not separately account for rest breaks and other nonproductive time.”

The court found that the commission agreement used by Stoneledge was “analytically indistinguishable from a piece-rate system in that neither allows employees to earn wages during rest periods.”  The court explained that “[w]hen an employer pays its employees by the piece… those employees cannot add to their wage during rest breaks; a break is not for rest if piece-rate work continues.” The court held that Labor Code Section 226.2, which requires piece-rate workers to be compensated for rest, recovery, and other nonproductive time, applies to commissioned employees as well.

5. Commission arrangements that advance wages that are offset against future commission earnings do not compensate employees for rest breaks

The court held that Stoneledge’s commission agreement did not properly compensate for rest periods taken by sales associates who earned a commission instead of the guaranteed minimum payment.

Stoneledge argued that under the compensation plan “all time during rest periods was recorded and paid as time worked identically with all other work time. . . .  Thus, Sales Associates are paid at least $12 per hour even if they make no sales at all.”  Even though Stoneledge deducted previous draws on commissions paid to the sales associates, Stoneledge argued that the “repayment [was] never taken if it would result in payment of less than the [Minimum Pay of $12.01 per hour] for . . . all time worked in any week.” Therefore, Stoneledge contended that the rest breaks were paid.

However, the court did not agree:

For sales associates whose commissions did not exceed the minimum rate in a given week, the company clawed back (by deducting from future paychecks) wages advanced to compensate employees for hours worked, including rest periods.  The advances or draws against future commissions were not compensation for rest periods because they were not compensation at all.  At best they were interest-free loans.

Piece-rate and commissioned based compensation structures must comply with very strict rules in California.  Employers are wise to have assistance from experienced counsel in drafting the compensation plans to ensure compliance.

.