Happy Friday.  Through my defense of wage claims this year, I found that employers need to establish and periodically review issues pertaining to employees’ timekeeping.  This Friday’s Five is a list of the top five timekeeping issues that employers should routinely audit:

1. Establish and communicate a time keeping policy

Employers should establish and regularly communicate a time keeping policy to employees.  The policy should set forth that employees always have an open door to complain to their supervisors and other managers or human resources about missed meal and rest breaks, unpaid wages, or unpaid overtime.  If employees routinely acknowledge that they understand the time keeping policy and are agreeing to record their time through the employer’s system, this can go a long way in defending any off-the-clock claims.

2. Rounding

Employers need to review whether their time keeping system or payroll company is rounding employees’ time.  While rounding can be legal under California law, employers must still meet certain requirements to have a compliant rounding practice.  In See’s Candy Shops Inc. v. Superior Court, a California court held that the employer’s rounding policy that rounded both up and down from the midpoint of every six minutes was permitted under California law.  The employers’ policy did not result in a loss to the employees overtime.  Therefore, the court found it to be lawful.  Employers need to review:

(1) Do they have a rounding policy?

(2) If they do round, is the policy compliant with the law?

(3) Is a rounding policy necessary or is it easier to pay the exact time the employee clocks in and out?

3. De minimis time

Employers need to review if they are compensating employee for all time worked.  The de minimis doctrine may permit employers a defense for claims by employees that they were not compensated for very small amounts of time that are difficult to track.  The de minimis doctrine holds that “alleged working time need not be paid if it is trivially small: ‘[A] few seconds or minutes of work beyond the scheduled working hours … may be disregarded.’” Troester v. Starbucks Corporation (this decision is currently under appellate review).   More information about the de minimis doctrine can be read here.  While this defense may be available to California employers, employers should not rely upon the defense when it is known the employee is working time that is not compensated.

4. Record meal breaks

In addition to recording the start and stop times for employee’s work, employers are required to record when employees take meal breaks.  The Wage Orders require that California employers keep “[t]ime records showing when the employee begins and ends each work period. Meal periods, split shift intervals and total daily hours worked shall also be recorded. Meal periods during which operations cease and authorized rest periods need not be recorded.”  IWC Wage Order 5-2001(7)(a)(3).

5. Time records

Under Labor Code section 1174, employers are required to keep time records showing the hours worked daily and the wages paid, number of piece-rate units earned by and applicable piece rate paid.  These records must be maintained in the state or at the “plants or establishments at which employees are employed.”  The records must be kept for at least three years.  Labor Code section 1174(d).  The statute of limitations for wage claims can extend back to four years, so employers generally keep the records for four years.

With the end of summer quickly approaching, this Friday’s Five (and next week’s post as well) covers broad topics employers should review periodically.  Today’s post covers five questions a company operating in California should be asking on a routine basis:

1. Has the company reviewed and updated the employee handbook and related policies?

As discussed in last weeks Friday’s Five about the new court decision on vacation pay in Minnick v. Automotive Creations, an employer’s policies are critical in defending claims.  Vague or out dated policies can create huge amounts of liability for employers. California’s requirements change throughout the year, and it is important that employers have a good relationship with employment counsel so that they are routinely communicating and reviewing the need to update policies based on new case law and legislation.

2. Does your company train supervisors and employees on its handbook and other policies, and does the company standby what it tells employees in these policies?

Legally drafted policies only get your company half of the way there.  Companies need to train managers and supervisors about what the policies mean and how they need to be implemented day-to-day.  Furthermore, the company needs to follow-through with what it tells supervisors, managers, and employees.  For examples, if the company maintains an open door policy, but none of the employees are utilizing the open door policy there could be a problem.  One solution is for the company to start pro-actively having open door sessions with employees to discuss their experience at the company (my post next week will discuss what should be asked during these open door sessions).

3. Has the company conducted a review of a local county and city laws that apply?

State, county and city laws regulating minimum wage and paid sick leave are numerous and California employers need to ensure they have closely reviewed they are complying with these requirements.  As Carl’s Jr. is finding out, noncompliance can have steep penalties.

4. When was the last time the company conducted an internal wage and hour audit internally? When was the last time an external lawyer or other professional reviewed wage and hour practices?

Many companies establish policies or simply continuing using policies from the past that have never been reviewed internally or externally by a lawyer or other professional.  I’ve published an HR audit list that covers a few of the essential areas that must be reviewed to lower a company’s legal exposure in California.

5. Is there an open line of communication with the employer’s payroll company and have specific wage and hour compliance issues been discussed?

The information that must be listed on employee’s pay stub is detailed, but easy to comply with.  A model pay stub published by the State Division of Labor Standards Enforcement can be found here (but note this only lists the state requirements – any other local county or city requirement will also apply).  The model pay stubs does not list paid sick leave, which employers must also remember to list on the employee’s pay stub or other writing provided to employees when they are paid.

Many payroll companies do not review the accuracy of the information listed on the pay stubs they generate, and this burden falls on the employer.  In addition to the California Labor Code requirements of the information that must be listed on pay stubs, the local requirements for reporting the amount of paid sick time available to employees must also be provided.  Employers need to proactively review and discuss these requirements with their payroll companies.

In this Friday’s Five I discuss:

  • new case decision on vacation pay and policies (Minnick v. Automotive Creations)
  • PAGA decision allowing contact information for other employees (Williams v. Superior Court),
  • new Form I-9 released and employers must start using by September 17, 2017 (download here)
  • new Notice of Rights for Victims of Domestic Violence/sexual assault/stalking required to be provided to California employees effective July 1, 2017 (download here), and
  • new law signed by Governor Brown prohibiting inquiries into litigant’s immigration status.

Expense reimbursement may seem like a small issue in comparison with the other areas of liability facing California employers, but the Old Carexposure for not appropriately reimbursing employees can be substantial. In Gattuso v. Harte-Hanks Shoppers, Inc., the California Supreme Court clarified the parameters of mileage reimbursement under California law, as well as the three different methods available for employers to reimburse employees for their mileage reimbursement.  This Friday’s Five post discusses five issues employers need to know about automobile and mileage reimbursement under California law.

1. Mileage reimbursement based on IRS mileage rate is presumed to reimburse employee for all actual expenses

The IRS publishes standard mileage rates each year (and sometimes adjusts these rates during the year). The 2017 IRS mileage rate is as follows:

  • 53.5 cents per mile for business miles driven, down from 54 cents for 2016
  • 17 cents per mile driven for medical or moving purposes, down from 19 cents for 2016
  • 14 cents per mile driven in service of charitable organizations

If the employee challenges the amount reimbursed, the employee bears the burden to show how the “amount that the employer has paid is less than the actual expenses that the employee has necessarily incurred for work-required automobile use (as calculated using the actual expense method), the employer must make up the difference.” Gattuso, at 479.

The California Supreme Court also held that the reimbursement rate can be negotiated by parties as long as it fully reimburses the employee, and the amount does not have to be set at the IRS mileage rate. The Court also warned that employee cannot waive the right to be fully reimbursed for their actual expenses:

We agree that, as with other terms and conditions of employment, a mileage rate for automobile expense reimbursement may be a subject of negotiation and agreement between employer and employee. Under section 2804, however, any agreement made by the employee is null and void insofar as it waives the employee’s rights to full expense reimbursement under [Labor Code] section 2802.

Gattuso, at 479.

2. Actual expense method of reimbursement

In examining the different methods of reimbursement, the Supreme Court held that the actual expense method is the most accurate, but it is also the most burdensome for both the employer and the employee. Gattuso, at 478. Under the actual expense method, the parties calculate the automobile expenses that the employee actually and necessarily incurred and then the employer separately pays the employee that amount. The actual expenses of using an employee’s personal automobile for business purposes include: fuel, maintenance, repairs, insurance, registration, and depreciation.

3. Mileage reimbursement method

The Court recognized that employers may simplify calculating the amount owed to an employee by paying an amount based on a “total mileage driven.” Gattuso, at 479.

Under the mileage reimbursement method, the employee only needs to keep a record of the number of miles driven for job duties. The employer then multiplies the miles driven by a predetermined amount that approximates the per-mile cost of owning and operating an automobile. The Court recognized that the mileage rate agreed to between the employer and employee is “merely an approximation of actual expenses” and is less accurate than the actual expense method. It is important to note that while this amount can be negotiated, the employee still is unable to waive their right to reimbursement of their actual costs as mentioned above.

4. Lump sum payment method

Under the lump sum method, the employee need not submit any information to the employer about work-required miles driven or automobile expenses incurred. The employer merely pays an agreed fixed amount for automobile expense reimbursement. Gattuso, at 480. This type of lump sum payment is often labeled as a per diem, car allowance, or gas stipend.

In Gattuso, the Court made it clear that employers paying a lump sum amount have the extra burden of separately identifying and documenting the amounts that represent payment for labor performed and the amounts that represent reimbursement for business expenses.

5. Don’t forget about other expenses incurred in the “course and scope” of working

In addition to mileage, employers may also have to reimburse employees for other costs they incurred in driving their personal cars for business. In making the determination about whether an employee’s actions are in the “course and scope” of their job, courts examine whether the expense being sought by the employee is “not so unusual or startling that it would seem unfair to include loss or expense among other costs of the employer’s business.” Employers need to be mindful about reimbursing employees for cell phone use, printing and office supplies (if employee is required to maintain a home office or use personal printer for work), and other work related expenses.

Happy Friday!  This Friday’s Five covers five areas that employers can start with in conducting an employment practices Checklistsaudit.  Coming up on the mid-point of the year, it is a good time to conduct an employment law practices audit to ensure that policies are compliant, managers are properly trained, and the company is maintaining the required records for the necessary length of time.  Here are five areas to start with in conducting an audit and a few recommended questions for each topic:

1. Hiring Practices

  • Are applications seeking appropriate information?
    • For example: Be careful about local ban the box regulations.
  • Are new hires provided with required policies and notices?
  • Are new hires provided and acknowledge recommended policies?
    • For example: meal period waivers for shifts less than six hours
  • Are hiring managers trained about the correct questions to ask during the interview?
  • Does the company provide new hires (and existing employees) with arbitration agreements with class action waivers?

 2. Records

  • Are employee files maintained confidentially and for at least four years?
  • Are employee time records maintained for at least four years?
  • Are employee schedules maintained for at least four years?
  • Do the managers have set forms for the following:
    • Employee discipline and write-ups
    • Documenting employee tardiness
  • How is the employee documentation provided to Human Resources or the appropriate manager?
  • Who is involved in reviewing disability accommodation requests?
  • How are employee absences documented?

3. Wage and Hour Issues

  • Does the company have its workweeks and paydays established?
  • Are paydays within the applicable time limits after the pay period as required under the law?
  • Are employees provided with compliant itemized wage statements?
  • Are employees provided a writing setting out their accrued paid sick leave each pay period?
  • Are employees properly classified as exempt or nonexempt?
    • For exempt employees, review their duties and salary to ensure they meet the legal requirements to be an exempt employee.
  • Any workers classified as independent contractors, and if so, could they be considered employees?
  • Are nonexempt employees properly compensated for all overtime worked?
  • Is off-the-clock work prohibited?
    • Policy in place?
    • Are managers trained about how to recognize it and what disciplinary actions to take if find employees working off-the-clock?
  • Does the company’s time keeping system round employee’s time?
    • If so, is the rounding policy compliant with the law?
  • Are meal and rest period polices set out in handbook and employees routinely reminded of policies?
    • Does the company pay “premium pay” for missed meal and rest breaks? If so, how is this documented on the employee pay stub?
    • Do employees record meal breaks?
    • Are managers trained on how to administer breaks and what actions to take if employees miss meal or rest breaks?
  • Is vacation properly documented and tracked?
  • Are all deductions from the employee’s pay check legally permitted? (use caution, very few deductions are permitted under CA law)
  • Are employees reimbursed for all business expenses, such as uniforms, work equipment and miles driven for work?

 4.End of Employment Issues

  • Are employees leaving the company provided their final wages, including payment for all accrued and unused vacation time?
  • Does the employer deduct any items from an employee’s final paycheck?
    • If so, are the deductions legally permitted?

5. Anti-harassment, discrimination and retaliation

  • Are supervisors provided with sexual harassment training every two years? (If employer has 50 or more employees, supervisors are legally required to have a two-hour harassment prevention training that complies with AB 1825 and amendments to this law).
  • Are supervisors and managers mentioning the open-door policy of the company to employees at routine meetings with employees? Is this being documented?

Please let me know if you have any other items your company considers during review of employment policies – it would be great to update this list to share with readers.  Have a great weekend.

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).

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.

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.

Joint employer liability can arise in many different contexts, such as when using staffing agencies, management companies, or in even in the franchise context.  Companies must understand the factors a court could apply in determining if a potential joint employer relationship exists between the two entities to avoid being potentially liable for employment lawsuits filed because of the actions of another employer.

The California Supreme Court set out the factors that can create a joint employer relationship in Martinez v. Combs.  Under this test, to “employ” means (1) “to exercise control over… wages, hours or working conditions,” (2) “to suffer or permit to work,” or (3) “to engage, thereby creating a common law employment relationship.”  The court in Ochoa v. McDonald’s Corp. explained that “[a]ny of the three is sufficient to create an employment relationship.”  In addition to the factors that California courts apply, employers must understand the federal framework that could also apply to employees by the Department of Labor in enforcing the FLSA and other federal laws.  This Friday’s Five discusses five issues that could create joint employer liability under California and Federal law.

1. An entity can be held a joint employer if it exercises control over wages, hours, or working conditions.

Under California law, an entity can be held liable under the joint employer theory if it “directly or indirectly, or through an agent or any other person, employs or exercises control” over their wages, hours, or working conditions.  While this standard is potentially broad in scope, courts have limited its reach in holding that entities that may be able to influence treatment of employees but that do not have any actual “authority to directly control their wages, hours or conditions” are not joint employers.  Ochoa v. McDonald’s Corp.  The court in Ochoa explained that the California Court of Appeal in Futrell v. Payday California, Inc. held that “control over wages means that a person or entity has the power or authority to negotiate and set an employee’s rate of pay, and that an entity that does not control the hiring, firing, and day-to-day supervision of workers is not an employer.”

2. An entity can be liable for “suffering or permitting” the work.

The California Supreme Court held in Martinez v. Combs that the “basis of liability is the defendant’s knowledge of and failure to prevent the work from occurring.”  The analysis is whether the entity had power to cause the employee to work or the power to prevent the employee from working.

3. Joint employer liability exists if the employee is “engaged.”

The Court in Martinez held that “to engage” means to create a common law employment relationship.  In terms of the franchisor and franchisee context, the California Supreme Court explained the test is whether the alleged employer “has retained or assumed a general right of control over factors such as hiring, direction, supervision, discipline, discharge, and relevant day-to-day aspects of the workplace behavior of the franchisee’s employees.”  Patterson v. Domino’s Pizza.

4. “Ostensible” agency.

Ostensible agency holds a principal liable for acts of the “ostensible agent.”  This liability is created when: (1) the person dealing with the agent must do so with belief in the agent’s authority and this belief must be a reasonable one; (2) such belief must be generated by some act or neglect of the principal sought to be charged; and (3) the third person in relying on the agent’s apparent authority must not be guilty of negligence.  Put another way, “A principal is bound by acts of his agent, under a merely ostensible authority, to those persons only who have in good faith, and without want of ordinary care, incurred a liability or parted with value, upon the faith thereof.”  Cal. Civil Code section 2334.

5. Department of Labor’s Administrative Interpretation issued in 2016.

In January 2016, the DOL issued an Administrative Interpretation regarding how the agency views joint employment liability.  The DOL explains that under the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA), “an employee can have two or more employers for the work that he or she is performing. When two or more employers jointly employ an employee, the employee’s hours worked for all of the joint employers during the workweek are aggregated and considered as one employment, including for purposes of calculating whether overtime pay is due. Additionally, when joint employment exists, all of the joint employers are jointly and severally liable for compliance with the FLSA and MSPA.”  While not necessarily binding on courts, the DOL’s interpretation is instructive of how broadly it views the joint employer test.

In Augustus v. ABM Security Services, Inc., the California Supreme Court issued a ruling on employer’s obligations to permit employees to take “off-duty” rest periods.  The Court’s ruling ends 2016 with a major ruling on issues surrounding rest periods under California law.

The plaintiffs worked as security guards for defendant ABM.  The employer required to the guards to keep their pagers and radio phones on at all times, even during rest periods, and to potentially respond to calls when needed.   The guards’ duties included when a building tenant wished to be escorted to the parking lot, a building manager had to be notified of a mechanical problem, or the occurrence of emergency situations.

The trial court “reasoned that a rest period subject to such control was indistinguishable from the rest of a workday; in other words, an on-duty or on-call break is no break at all,” and granted Plaintiff’s motion for summary judgment.  The trial court awarded approximately $90 million in statutory damages, interest, and penalties.    ABM appealed the trial court’s ruling, and was successful in having the trial court overturned, but the California Supreme Court granted review of the case.

The company argued that it provided the required rest breaks under California law because it only required that the guards keep their radios and pagers on in case they were needed to respond to a call.  For the last Friday’s Five article of 2016, here are five key lessons for California employers from the Supreme Court’s decision:

1. Generally, what are employer’s obligations to provide rest breaks under California law?

Employer’s obligations to provide rest breaks is found in Labor Code section 226.7, enacted in 2000.  As enacted, subdivision (a) provided:  “No employer shall require any employee to work during any meal or rest period mandated by an applicable order of the Industrial Welfare Commission.”  The Wage Orders generally require that employers must provide a 10-minute rest period per every four hours worked and the break should, whenever practicable, fall in the middle of the work period. (See Wage Order 4, subd. 12(A).  The rest period must also be paid, and the law does not require that employers record when the employee takes the rest period (unlike an employer’s obligation to record when 30-minute meal breaks are taken).

2. Does California law require employers to authorize off-duty rest periods? 

Yes.  The Supreme Court held that employers must provide employees with a paid rest break in which the employee is relieved from all work-related duties and free from employer control.  The Court examined the wage order at issue in the case, Wage Order 4, which provides, “Every employer shall authorize and permit all employees to take rest periods…. Authorized rest period time shall be counted, as hours worked for which there shall be no deduction from wages.”

The Court ruled that:

The most reasonable inference we can draw from the wage order and its context is instead that we should give the term its most common understanding – a reading consistent with requiring that employers authorize off-duty rest periods…. So, ordinarily, a reasonable reader would understand ‘rest period’ to mean an interval of time free from labor, work, or any other employment-related duties.

We accordingly conclude that the construction of Wage Order 4, subdivision 12(A) that best effectuates the order’s purpose and remains true to its provisions is one that obligates employers to permit –– and authorizes employees to take –– off-duty rest periods.  That is, during rest periods employers must relieve employees of all duties and relinquish control over how employees spend their time.

3. Can employers satisfy the obligation to relieve employees from duties and control during rest periods if the employer requires the employee to remain on call? 

No.  The Court ruled that “one cannot square the practice of compelling employees to remain at the ready, tethered by time and policy to particular locations or communications devices, with the requirement to relieve employees of all work duties and employer control during 10-minute rest periods.”  The Court made clear that the employee must be “free from labor, work, or any other employment-related duties.  And employees must not only be relieved of work duties, but also freed from employer control over how they spend their time.”

4. If employees are required to carry a pager or phone during a rest break and must monitor the device during the rest break, is the employee provided a compliant rest break? 

No.  If an employee “must fulfill certain duties [such as] carrying a device or otherwise making arrangements so the employer can reach the employee during a break, responding when the employer seeks contact with the employee, and performing other work if the employer so requests,” the employee does not have the freedom to use the rest period for their own purpose.  The court used examples that employees should be permitted to take “a brief walk – five minutes out, five minutes back,” take care of personal matters like “pumping breast milk… or completing a phone call to arrange child care.”

5. Is there some flexibility for employers to reschedule rest breaks when needed?

Yes.  The Court provided, “[n]othing in our holding circumscribes an employer’s ability to reasonably reschedule a rest period when the need arises.”  However, the Court failed to provide any other clarification of what is reasonable in rescheduling a rest period.  The Court did explain, however, that employers have “several options” when employers find it burdensome to relieve their employees of all duties during rest periods.  As examples of these options, the Court stated that employers can provide employees with another rest period to replace the one that was interrupted, or pay the premium pay of one hour at the employee’s regular rate of pay for missing the rest period.

Looking for more information about California employers obligations to provide rest and meal periods?  See my prior post on five reminders about rest breaks here, and the timing of meal and rest breaks under California law here.