Friday's Five: Five items employers need to understand about automobile and mileage reimbursement under California law

Expense reimbursement may seem like a small issue in comparison with the other areas of liability facing California employers, but the exposure 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 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 2014 mileage rate is published on the IRS mileage rate here.

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 section 2802.

Gattuso, at 479.


2. Reimbursement Method: Actual Expense Method

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. Reimbursement Method: 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. Reimbursement Method: Lump Sum Payment

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 upon 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. All expenses incurred in an employee’s course and scope of their job must be reimbursed by the employer.

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.” This is a very fact specific determination that employers need to approach with caution.

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Friday's Five: Five areas of liability facing California employers

1. Meal and rest breaks.
If you did not know of this exposure already existed in California, can I recommend some reading here, here and here?

2. Exempt vs. non-exempt classification of employees.
The default under California law is that every employee is entitled to overtime pay at a rate of time and a half or double of the employee’s hourly rate of pay. An employee is not entitled to overtime if the employer meets its burden in establishing that the employees qualifies under one of legally proscribed exempt positions (the positions are called exempt because the employee is exempt from the overtime requirements). Some exempt positions are:

  • Executive
  • Administrative
  • Professional
  • Outside sales
  • Computer professional
  • Commissioned sales

Exempt positions have very nuanced requirements that must be met in order for the employee to properly be considered exempt from the overtime pay requirement. For a company to make a determination of whether an employee is exempt, it must approach this determination carefully, and ensure the employee is pay enough in a salary and performs duties required by the exemption. The company should also consider documenting the specific exemption the employee qualifies for. For a list of the possible exempt positions under California law, the DLSE published one here.

3. Off the clock work.
Employees must be paid for all hours that the employee is subject to the employer’s control. Generally, if the employer knows or has reason to believe that an employee is working, that work must be paid for. To prevent off the clock claims, employers should develop clear policies on time keeping and prohibiting off the clock work, as well as having a well thought out complaint mechanism for employees to utilize. A complaint procedure is a good defense for claims of off the clock work made after the fact.

4. Proper calculation of overtime.
Generally, employers must pay one and one-half times the employee's regular rate of pay for all hours worked in excess of eight hours up to and including 12 hours in any workday, and for the first eight hours worked on the seventh consecutive day of work in a workweek. In addition, employer must pay double the employee's regular rate of pay for all hours worked in excess of 12 hours in any workday and for all hours worked in excess of eight on the seventh consecutive day of work in a workweek.

In addition, the “regular rate of pay” include not only the employee’s hourly rate, but also the amount of piecework earnings and commissions earned by the employee. These additional earning must be calculated into employee’s regular rate of pay. The employee’s time and a half or double time overtime must be calculated on this higher regular rate.

5. Independent contractor misclassification.
As I’ve written about previously, the classification of whether a worker is an independent contractor or an employee is a multifactor test. Failure to conduct this analysis properly can expose employer to substantial civil penalties.
 

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Friday's Five: Five California Labor Code provisions employees cannot waive

Here is a list of five rights provided to employees under the California Labor Code that the employee may not waive by agreement with an employer.

1. Minimum wage
Labor Code Section 1194 provides a private right of action to enforce violations of minimum wage and overtime laws. That statute clearly voids any agreement between an employer and employee to work for less than minimum wage or not to receive overtime.

2. Overtime
In Gentry v. Superior Court, the Supreme Court explained:

[Labor Code] Section 510 provides that nonexempt employees will be paid one and one-half their wages for hours worked in excess of eight per day and 40 per week and twice their wages for work in excess of 12 hours a day or eight hours on the seventh day of work. Section 1194 provides a private right of action to enforce violations of minimum wage and overtime laws.

By its terms, the rights to the legal minimum wage and legal overtime compensation conferred by the statute are unwaivable. “Labor Code section 1194 confirms ‘a clear public policy . . . that is specifically directed at the enforcement of California’s minimum wage and overtime laws for the benefit of workers.’"

3. Expense reimbursement
Labor Code section 2802 requires employers to reimburse its employees for “necessary expenditures or losses incurred by the employee” while performing his or her job duties. Labor Code section 2804, clearly provides that an employee cannot waive this right to be reimbursed for or liable for the cost of doing business. Section 2804 provides, “Any contract or agreement, express or implied, made by any employee to waive the benefits of this article or any part thereof, is null and void….”

4. Right to participate in PAGA representative actions
The California Supreme Court recently clarified that employees may not waive their right to bring a representative action under the Private Attorney General Act (PAGA) (even though the Court held that class action waivers in arbitration agreements are enforceable). The Court held in Iskanian v. CLS Transportation that, “we conclude that an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy.”

5. Right to receive undisputed wages
Under Labor Code section 206.5 employers and employees may not enter into agreements that waive the employee’s right to receive wages that are undisputed. Labor Code section 206.5 also provides that an employer may not require “as a condition of being paid, to execute a statement of the hours he or she worked during a pay period which the employer knows to be false.”

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Friday's Five: Five rules every California employer should know about providing final wages to employees

This Friday's Five is coming out a little late in the day, but as they say, better late....  I've been fielding a lot of questions about final wage payment requirements.  So here are five rules every employer should know about providing final wages to employees:

  1. An employee who is discharged must be paid all of his or her wages, including accrued vacation, immediately at the time of termination.
  2. An employee who gives at least 72 hours prior notice of quitting, and quits on the day given in the notice, must be paid all earned wages, including accrued vacation, at the time of quitting.
  3. An employee who quits without giving 72 hours prior notice must be paid all wages, including accrued vacation, within 72 hours of quitting.
  4. An employee who quits without giving 72-hours’ notice can request their final wage payment be mailed to them. The date of mailing is considered the date of payment for purposes of the requirement to provide payment within 72 hours of the notice of quitting.
  5. Final wage payments for employees who are terminated (or laid off) must be made at the place of termination. For employees who quit without giving 72 hours’ notice and do not request their final wages be mailed to them, is at the office of the employer within the county in which the work was performed.

For any employer who willfully fails to pay any wages due a terminated employee subject the employer to waiting time penalties under Labor Code section 203. Waiting time penalties accrue at an amount equal to the employee's daily rate of pay for each day the wages are not paid, up to a maximum of thirty calendar days.

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Complying With California's Minimum Wage Increase

Here is a short video regarding some items California employers should consider about the minimum wage increase taking effect July 1, 2014.

 For more information about the minimum wage increase:

Five issues California employers should review before the minimum wage increases July 1, 2014

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Five Things You Need To Know About Arbitration Agreements After The California's Supreme Court's Ruling In Iskanian v. CLS Transportation Los Angeles, LLC

1. Arbitration Agreements: What Are They?
Employers can agree that they and any employees who enter into an arbitration agreement will resolve their differences before a private arbitrator instead of civil court. There are many different arbitration companies to choose from, but the American Arbitration Association and JAMS are two of the larger ones that are routinely appointed in arbitration agreements. Arbitrators are private companies that usually hire retired judges to resolve disputes in a private setting as opposed to civil court.

2. Are Arbitration Agreements Enforceable in California?
Generally speaking, if the agreement is drafted and implemented properly, it is enforceable. However, arbitration agreements are routinely struck down by courts if they are not properly drafted. For example, recently a California court held in Ajamian v. CantorCO2e, that an arbitration agreement was not enforceable because it required the employee to waive statutory damages and remedies.  In addition, the agreement in that case only allowed the employer to recover its attorney’s fees if successful, not the employee.  The Court held these terms caused

3. Why Would an Employer Implement an Arbitration Agreement?
There are a number of reasons. The arbitration process can proceed more quickly than civil litigation, saving a lot of time and attorney’s fees in the process. For example, often times the discovery process moves more quickly, and if there are any disputes, the parties can raise them with the arbitrator telephonically, instead of the lengthy motion process required to resolve disputes in civil court. The arbitration process is also confidential, so if there are private issues that must be litigated, these issues are not filed in the public records of the courts. The parties also have a say in deciding which arbitrator to use in deciding the case, whereas in civil court the parties are simply assigned a judge without any input into the decision. This is very helpful in employment cases, which often times involve more complex issues, and it is beneficial to the parties to select an arbitrator that has experience in resolving employment cases.

4. Are Class Action Waivers Enforceable In Arbitration Agreements?
Yes. The California Supreme Court ruled in Iskanian v. CLS Transportation Los Angeles, LLC that class action waivers can be enforceable, following the standards set forth by the U.S. Supreme Court in AT&T Mobility v. Concepcion.  However, Plaintiffs continually challenge class action waivers on numerous grounds, and it is critical employers’ agreements are properly drafted and up-to-date. In addition, while courts will uphold class action waivers, the California Supreme Court held that employee may still bring representative actions under the Private Attorneys General Act (PAGA). PAGA claims are limited to specific penalties under the law, and have a much shorter one year statute of limitations compared to potentially a four year statute of limitations for most class actions.

5. Based On the Holding in Iskanian, Should Every Employer Enter Into Arbitration Agreements With Its Employees?
No. The decision to implement an arbitration agreement should be reviewed with an employment lawyer to discuss the positives as well as the negatives of arbitration agreements. As discussed above, there are a lot of benefits of having an arbitration agreement in place, but it does not come without a few drawbacks. The primary drawback is that in California, the employer must pay all of the arbitrator’s fees in employment cases. Arbitration fees can easily be tens of thousands of dollars – a cost that employers do not need to pay in civil cases. In addition, while a class action waiver may be enforceable, employers still face substantial liability under PAGA representative actions, and a strategy in implementing a class action waiver should be thought through with the help of informed counsel.

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California Supreme Court Upholds Class Action Waivers: Iskanian v. CLS Transportation Los Angeles, LLC

Today, the California Supreme Court issued a ruling in Iskanian v. CLS Transportation Los Angeles, LLC regarding the enforceability of class action waivers in arbitration agreements. In upholding class action waivers in arbitration agreements, the Supreme Court explained in the introduction of the opinion:

The question is whether a state’s refusal to enforce such a waiver on grounds of public policy or unconscionability is preempted by the FAA. We conclude that it is and that our holding to the contrary in Gentry v. Superior Court (2007) 42 Cal.4th 443 (Gentry) has been abrogated by recent United States Supreme Court precedent. We further reject the arguments that the class action waiver at issue here is unlawful under the National Labor Relations Act and that the employer in this case waived its right to arbitrate by withdrawing its motion to compel arbitration after Gentry.

When asserting a Labor Code claim in connection with an Unfair Competition Law claim (Business and Professions Code section 17200), the statute of limitations extends back four years. Today’s holding upholds arbitration agreements entered into between employers and employees barring employees from brining any claims on a class wide basis as long as the underlying arbitration agreement is enforceable under California law.

In addition, the Supreme Court reviewed whether an employer could have an employee waive his ability to bring a representative action under the Private Attorneys General Act (PAGA). PAGA is a Labor Code provision that permits aggrieved employees to recover civil penalties that are only recoverable by the California Labor and Workforce Development Agency (LWDA) and the Labor Commissioner. PAGA expands the scope of penalties available through wage and hour lawsuits. In holding that arbitration agreements could not limit an employee's right from bringing a representative PAGA claim, the Court explained:

The employee also sought to bring a representative action under the Labor Code Private Attorneys General Act of 2004 (PAGA) (Lab. Code, § 2698 et seq.). This statute authorizes an employee to bring an action for civil penalties on behalf of the state against his or her employer for Labor Code violations committed against the employee and fellow employees, with most of the proceeds of that litigation going to the state. As explained below, we conclude that an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy. In addition, we conclude that the FAA’s goal of promoting arbitration as a means of private dispute resolution does not preclude our Legislature from deputizing employees to prosecute Labor Code violations on the state’s behalf. Therefore, the FAA does not preempt a state law that prohibits waiver of PAGA representative actions in an employment contract.

Because PAGA claims seek to recover penalties, a one year statute of limitations applies. Therefore, even if employers have a class action waiver in an arbitration agreement entered into with an employee, the employee may still assert a representative PAGA action to recover appropriate penalties with a one year statute of limitations on behalf of all aggrieved employees. PAGA is sometimes referred to as the “bounty-hunter law” because it allows a plaintiff to recover these civil penalties that were only recoverable by the Labor Commissioner, but it requires that the plaintiff provide 75% of the civil penalties recovered to the LWDA and the remaining 25% to the aggrieved employees. In a previous post, I’ve written about PAGA claims and what to do in response to receiving a PAGA notice. The California Supreme Court's ruling in Iskanian v. CLS Transportation Los Angeles, LLC can be downloaded here (Word).  This is an initial summary of the holding, and I'll write more about the case as I've had more time to review the opinion in more detail. 

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Are you ready for the increase in minimum wage? Join us for a mid-year update on employment and corporate issues.

My firm is conducting a webinar on Thursday June 19, 2014 at 10:00 a.m. for a mid-year update on emerging employment law issues and the newly enacted LLC statute effecting most California Limited Liability Companies. 

For more information and to register, please complete the form below:

 

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Five issues California employers should review before the minimum wage increases July 1, 2014

Come July 1, 2014, California’s minimum wage will increase from $8 per hour to $9 per hour for all workers. The minimum wage will increase again to $10 per hour on July 1, 2016. Other than starting to work with their payroll provider to ensure that all hours worked as of July 1 will be paid at the higher rate, here is a list of five other issues California employers should also review in preparation for the wage increase:

1. Review base salary for all exempt employees.
In order to qualify as an exempt employee, which is an employee who is not entitled to receive overtime for work performed over eight hours in one day or 40 hours in one week, the employee must be paid an equivalent of two times minimum wage. Before the minimum wage increase in July 2014, this amount is $33,280 annual salary. When the minimum wage increases to $9 per hour, this amount will increase to $37,440 annual salary, and when the minimum wage increases to $10 per hour, an exempt employee will need to be paid $41,600 annually.  I've discussed this issue in a short video previously, which can be viewed here.  

2. Review compliance with the Wage Theft Protection Act Notice.
Since 2012 every California employer has been required to provide written notices to employees regarding certain information about their jobs, including their wage rate. The good news is that employers will not have to re-issue new wage notices to employees as a result of the increase of minimum wage as long as the new minimum wage rate is shown on the pay stub (itemized wage statement) with the next payment of wages.

3. Review timekeeping system and policies.
With the higher minimum wage rate, there is more potential exposure from wage and hour lawsuits alleging off the clock work or unpaid minimum wage. Companies should remind employees of policies that prohibit off the clock work and about complaint procedures available should anyone ask the employee to work off the clock or the employee not receive all minimum wages.

4. Review classification of independent contractors.
A company that has independent contractors should review the classification to ensure that it can withstand scrutiny from a court, Department of Labor, Labor Commissioner, or the EDD. As employers already face large penalties for misclassifying independent contractors, the potential exposure for unpaid minimum wages as a result of a misclassification will also increase as discussed above.

5. Review wage agreements with employees.
Ensure that all agreements with the employees comply with the law. Under California law, employees cannot agree to work for less than the state minimum wage. This waiver cannot be done through a collective bargaining agreement. All agreements to do so are void under the law.

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Five legally required items often overlooked by California employers

Welcome to Friday's 5, a series of posts each Friday of lists of five items in various aspect of California employment law. I hope to keep it informative and interesting, and provide a checklist of sorts for California employers to review various practices and policies. Starting off, here is a list of five items not to be overlooked by California employers:

1. Wage Theft Protection Act Notices To Employees.
California’s Wage Theft Protection Act of 2011 has required every employer in California to provide written notices to employees beginning in January 1, 2012. The law is set forth in Labor Code section 2810.5, and requires private employers to provide all new non-exempt employees with a written notice that contains certain basic information about their employment. The law also requires employers to notify employees in writing of any changes to the information in the notice within seven calendar days of any changes, unless the changes are reflected on a timely wage statement that complies with Labor code Section 226. Employers do not need to notify employees of any changes if the change is provided in another writing required by law within seven days of the changes. The California Labor Commissioner has published a sample notice template that complies with the requirements of the law, which can be viewed here [PDF]. This is an easy form to complete for non-exempt employees, and should be a mandatory document in every employer’s new hire packet.

2. Written commission statements signed by both the employee and employer.
As of January 1, 2013, when an employee is paid commissions, the employer must provide a written contract setting forth the method the commissions will be computed and paid. The written agreement must be signed by both the employer and employee. Commission wages are “compensation paid to any person for services rendered in the sale of such employer’s property or services and based proportionately upon the amount or value thereof.” Commissions do not include (1) short-term productivity bonuses, (2) temporary, variable incentive payment that increase, but do not decrease, payment under the written contract, and (3) bonus and profit-sharing plans, unless there has been an offer by the employer to pay a fixed percentage of sales or profits as compensation for work to be performed.

3. Pregnancy disability leave policy in employee handbook.
For employers with five or more employees, it is mandatory that they have a pregnancy disability leave (PDL) policy. Moreover, if the employer has an employee handbook, it is required to include information about pregnancy leave in the handbook. For more information about PDL under California law, the Department of Fair Employment and Housing provides a summary of basic requirements here.

4. Harassment prevention training for supervisors every two years.
Since 2005, California employers with more than 50 employees must provide two hours of sexual harassment prevention training to supervisors and managers within six months of hire or promotion, and every two years after that. Completion of the training should be documented in the supervisor’s personnel file.

5. California employers must pay visiting out-of-state workers according to California overtime rules.
In Sullivan v. Oracle the California Supreme Court has clarified that California's overtime rules apply to anyone performing work within the state, regardless of their state of residency or how long they may be working in California.

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Introducing Friday's 5 Best Practices for California Employers

I know, I’m the first one to admit things have been pretty dormant here at the California Employment Law Report. It is actually a good sign of my growing practice, but with the increasing list of employers I’ve been advising, the less time I’ve had to write articles and conduct webinars. This will be changing however.

I’m introducing Friday’s 5 Best Practices. Starting this Friday, I will post an article every Friday with lists of five items that are best practices for California employers that I routinely see in defending employment lawsuits. [I have to admit, I stole this idea from Steven Pressfield. He is the author of the War of Art, and the newly released The Lion's Gate and writes Writing Wednesdays blog post every week documenting how a writer can overcome writer’s block, or as he calls it, the Resistance.]

This Friday’s article will discuss the 5 legally required items often overlooked by California employers. Should you have any suggestions for any future articles or areas of review for the Friday’s 5, please don’t hesitate to drop me a note.   

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Are on-duty meal periods valid in California?

As many California employers know, ignoring or failing to comply with the requirements of providing meal and rest breaks in California can create huge liability for companies. California law does allow for “on-duty” meal periods, whereby the employee takes a meal break, but while still working. Employers sometimes view this exception as an easy alternative to having employees clock out and leave the company’s premises for meal breaks. However, the on-duty meal break exception has been interpreted to apply only in a very limited set of circumstances, and needs to be carefully examined before implementing in a workplace.

Pursuant to Labor Code section 226.7 and the Wage Orders (for example Wage Order 4-2001, section 11(b)), each failure to provide the specified meal period entitles the employee to receive an additional compensation premium equal to one hour of pay.

The Wage Order provides for an “on duty” meal period that is an exception to the required meal break if the following requirements are met:

An "on duty" meal period shall be permitted only when the nature of the work prevents an employee from being relieved of all duty and when by written agreement between the parties an on-the-job paid meal period is agreed to. The written agreement shall state that the employee may, in writing, revoke the agreement at any time.

Wage Order No. 4-2001(a)(emphasis added). Unfortunately, the definition of the “nature of the work” is not clear, and the only real guidance California employers have on this issue is a Department of Labor Standards Enforcement (“DLSE”) opinion letter. Click here to download the opinion letter.

In the opinion letter, the DLSE addressed the issue of whether a shift manager in a fast food restaurant working the night shift would be allowed to take a “on duty” meal period. The DLSE began its analysis in stating that the off duty meal period is the default requirement, and any exceptions to this requirement should be narrowly construed.

The DLSE set forth factors it considered in determining whether the nature of the work prevents the employee from taking an off-duty meal period. The factors included:

  • the type of work
  • the availability of other employees to relieve the employee during a meal period
  • the potential consequences to the employer if the employee is relieved of all duty
  • the ability of the employer to anticipate and minimize these staffing issues such as by scheduling employees in a manner that would allow the employee to take an off-duty meal break and
  • whether the “work product or process” would be destroyed or damaged if the employee were given an off-duty meal period.

The DLSE concluded that based on the facts presented in the situation of the fast food restaurant, the nature of the work in the restaurant should not prevent the shift manager from being relieved of all duties for 30 minutes, and therefore the on-duty meal period would not be valid in this context.
In the class action setting, the issue of on-duty meal breaks has resulted in varying opinions. For example, the Ninth Circuit appellate court in Abdullah v. U.S. Security Associates, Inc. upheld the lower court’s granting of class certification on whether a security guard company’s use of on-duty meal period agreements was valid. Alternatively, a California appellate court, in Faulkinbury v. Boyd & Associates, Inc., upheld the denial of class certification for a case also involving on-duty meal period agreements for security guards. Implementing an on-duty meal period agreement in California needs to be approached with caution, and should only be done with assistance from knowledgeable counsel.

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Now Tougher For Employers To Recover Attorney's Fees In Wage Cases

Yesterday, Governor Brown signed into law SB 462 which amends Labor Code section 218.5 to only allow employers to recover their attorney’s fees and costs upon a finding by the court that the employee brought the claim in bad faith. This Labor Code section applies to actions for nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions.

Prior to this amendment, Labor Code section 218.5 permitted the employee or the employer to recover their attorney’s fees and costs if they prevailed in the underlying action – and there was no need for the employer to make this harder showing that the employee brought the case in bad faith in order to recover its fees and costs. This amendment now makes it harder for employers to recover attorney’s fees and costs upon prevailing in a case involving unpaid wages.

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Court upholds company's classification of worker as an independent contractor in Beaumont-Jacques v. Farmers Group

The new decision in Beaumont-Jacques v. Farmers Group examines the test in determining a worker’s independent contractor status. In applying the “economic realities” test set forth by the California Supreme Court in S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations, the Court focused on whether the worker had “meaningful discretion with reference to her efforts” in making the determination about whether her classification as an independent contractor was proper.

Case Facts
In this case, Plaintiff had an agreement with the company that set forth both parties understood and agreed Plaintiff would be working as an independent contractor. The agreement required Plaintiff to conform to the company’s regulations, operations, and certain standards. The agreement provided that either party could terminate the relationship at-will. Moreover, Plaintiff had “meaningful discretion” by recruiting agents and training them to work for the company. She would determine her own hours, vacation schedule, supervising her own staff, remitting payroll taxes for her own staff, paying her own expenses such as office lease, marketing costs and telephones. She also deducted these costs as a business expense in her personal tax returns and identified herself as self-employed in the returns.

Court’s Analysis
The court stated that the “pivotal inquiry looks at the ‘control of details’ – i.e., whether the [company] has ‘the right to control the manner and means of accomplishing the result desired.” As the court noted, however, this does not mean that once the company requires certain standards from the worker that this would automatically make the worker an employee:

The California Supreme Court has declared that “the owner may retain a broad general power of supervision and control as to the results of the work so as to insure satisfactory performance of the independent contract—including the right to inspect [citation], the right to make suggestions or recommendations as to details of the work [citation], the right to prescribe alterations or deviations in the work [citation]—without changing the relationship from that of owner and independent contractor . . . .” (McDonald v. Shell Oil Co. (1955) 44 Cal.2d 785, 790 (McDonald).)

The court explained that the key issue is that the company has the right to “oversee the results, but not the mean, of the work in question” in order for the independent contractor status to be upheld.

Applying this test in this case, the court held that Plaintiff was properly classified as an independent contractor because the Defendant did not control “to any meaningful degree the means by which [Plaintiff] performed and accomplished her duties” even though Plaintiff had to attend meeting with the company and was held accountable to reach very specific objectives. Finally, the court held that the fact that the agreement at issue here which allowed both parties to terminate the relationship upon 30-days’ notice did not support Plaintiff’s assertion she was an employee. Because the relationship could be terminated by either Plaintiff or the company, the court did not provide this issue any weight.

However, even though the court found that the Plaintiff in this case was properly classified as an independent contractor, employers should be careful in making independent contractor classifications. The relatively new Labor Code provisions adopted in 2012 added new penalties for “willful misclassification” of employees as independent contractors which cannot be treated lightly.

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What To Do In Response To Receiving Private Attorneys Generals Act Notice Sent To The Labor and Workforce Development Agency (LWDA)

The Private Attorneys General Act (PAGA) is a Labor Code provision that permits aggrieved employees to recover civil penalties that are only recoverable by the California Labor and Workforce Development Agency (LWDA) and the Labor Commissioner. PAGA expands the scope of penalties available through wage and hour lawsuits.  PAGA is sometimes referred to as the “bounty-hunter law” because it allows a plaintiff to recover these civil penalties that were only recoverable by the Labor Commissioner, but it requires that the plaintiff provide 75% of the civil penalties recovered to the LWDA and the remaining 25% to the aggrieved employees.

However, as a result of frivolous lawsuits under PAGA, the legislature amended the law in 2004 to require plaintiffs to exhaust administrative remedies prior to commencement of a civil action under PAGA. Therefore, in order to exhaust the administrative remedies, a plaintiff must send a letter via certified mail to the LWDA and the employer listing the specific Labor Code violations, including the facts and theories to support the alleged violations. Then the LWDA may then send a letter back to the plaintiff informing them that it will or will not be pursuing the case. If the LWDA responds that it will not pursue the case, or simply does not respond within 30 days, the plaintiff may then proceed with a civil lawsuit to collect PAGA penalties.

Because the plaintiff must send this notice to the LWDA and the employer, the employer receives some advance notice about a potential lawsuit. And if the notice is properly drafted by the plaintiff, the employer should be able to understand the plaintiff’s legal theories and alleged violations. It is also important the employer contact employment counsel as soon as receiving a PAGA letter to the LWDA. This is because the employer has a short time period (33 days) to “cure” any alleged violations. The employer can correct any alleged violations, and provide written notice to the plaintiff and the LWDA describing the actions taken and that the plaintiff cannot recover PAGA penalties. It is critical that the employer review whether or not it should utilize this safe harbor cure provision to prevent plaintiff from recovering PAGA penalties with counsel. Quick action by the employer could preclude plaintiffs from being able to recover PAGA penalties before the lawsuit even begins.

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7 Items A Company Needs To Do After Being Sued In A Wage And Hour Class Action

Being named as a defendant in a class action lawsuit can be overwhelming, especially for a quickly growing company. However, with planning, a company can minimize the impact of the litigation on its existing operations and put forth the best defense. Here are seven items a company can do as part of this planning process when it is first notified of an existing lawsuit.

1. Contact employment counsel.
A lawyer who has experience in employment law and class actions should be contacted as soon as possible. There are certain deadlines that begin to run when a lawsuit is filed, and any delay could adversely affect the company’s defense. If the company does not know of an employment lawyer, a good start is to reach out to trusted advisors for recommendations, such as the company’s corporate lawyer or accountant. Wage and hour litigation, especially in California, is very unique and it is recommended that the company utilize a lawyer that has experience in this area.

2. Review allegations with counsel to see if the safe harbor provision of the Private Attorney General Act (PAGA) could apply.
With the advice of counsel, there should be a review of the allegations in the complaint, and if the Plaintiff is seeking damages under PAGA, the PAGA notice sent to the Labor Workforce & Development Agency (“LWDA”). PAGA provides the employer a short window of time (33 days from receiving the PAGA notice) to “cure” any alleged violations. If the employer cures the problems within the time period, the Plaintiff cannot recover penalties under PAGA. Whether or not any items need to be cured, and the process for utilizing this safe harbor should be reviewed closely with counsel.

3. Gather time records and personnel files for the Plaintiff.
The personnel file for the named Plaintiff will have to be produced early in the case. In addition, the information in the personnel file will (hopefully) document any performance issues or other possible defenses the company has to the Plaintiff’s allegations. Also, if the company has implemented an arbitration agreement, it will be important to determine if the Plaintiff has signed it and whether or not there is an argument that in signing the agreement the Plaintiff cannot bring a class action.

4. Begin constructing a list of all employees who have worked in similar positions as the Plaintiff during the last four years (which is likely the statute of limitations).
In California, the statute of limitations for most wage and hour class actions is four years from the date the complaint is filed. Therefore, the employees who have worked in the same or similar positions as the Plaintiff will likely be the group of employees the Plaintiff is seeking to represent in the class action. It is important to know how many of these employees there are. For example, if there are too few this could be a defense to class certification.

5. Gather employee handbooks and policies that were in effect during the last four years.
The litigation will likely revolve around what policies the company had in place, and whether the policies were legally compliant. The company’s counsel will have to review these policies and handbooks. It is also likely that the company will have to produce these early in the litigation as well.

6. Review any applicable insurance policies.
The company should review all insurance policies it has to see if any of them could potentially cover the litigation. Most employment practices liability insurance (“EPLI”) policies exclude class action lawsuits from coverage, but there may be coverage for defense costs, or there may be something unique about the litigation facing the company that triggers coverage. It is also important to assess whether the lawsuit needs to be tendered to the insurance company.

7. Develop a plan about how to communicate the existence of the class action with current employees.
Word usually starts to spread quickly among the employees about the existence of the lawsuit. The company, with advice from counsel, should determine whether it wants to be proactive about communicating with the employees about the lawsuit, as well as what can and cannot be said to employees. At the minimum, a person within the company should be designated to handle any questions about the lawsuit. This will ensure a consistent message is used.

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Reporting Time Pay - Aleman v. AirTouch

Employees of AirTouch who worked for the cellular provider filed a putative class action alleging that the AirTouch employees were entitled to additional wages under California’s “reporting time pay” requirements. The plaintiffs alleged that they were owed reporting time pay for days on which they were required to attend store meetings, which lasted only a short period of time, but were not scheduled to work after the meetings.

California law requires an employer to pay “reporting time pay” under the applicable Wage Order, which states:

Each workday an employee is required to report for work and does report, but is not put to work or is furnished less than half said employee's usual or scheduled day's work, the employee shall be paid for half the usual or scheduled day's work, but in no event for less than two (2) hours nor more than four (4) hours, at the employee's regular rate of pay, which shall not be less than the minimum wage.

AirTouch would schedule store meetings that all employees were required to attend.  The meetings were scheduled at least four days in advance and were usually held on a Saturday or Sunday before the stores opened.  The meetings lasted from one hour to an hour and a half. Plaintiffs argued because the employees were required to report for the work meetings, which only lasted one to one and a half hours, and then did not work after the meetings, the employees were entitled to two hours of pay under the reporting time pay requirement. 

In rejecting plaintiffs’ argument that the Wage Orders required employers to always pay employees two hours of work when required to report to work, the court stated the following:

To simplify, the issue may be framed by the following question: If an employee's only scheduled work for the day is a mandatory meeting of one and a half hours, and the employee works a total of one hour because the meeting ends a half hour early, is the employer required to pay reporting time pay pursuant to subdivision 5(A) of Wage Order 4 in addition to the one hour of wages?

The answer to this question is no, because the employee was furnished work for more than half the scheduled time. The employee would be entitled to receive one hour of wages for the actual time worked, but would not be entitled to receive additional compensation as reporting time pay. Although somewhat lengthy and cumbersome, Wage Order 4's reporting time pay provision is not ambiguous. There is only one reasonable interpretation of subdivision 5(A) as it pertains to scheduled work—when an employee is scheduled to work, the minimum two-hour pay requirement applies only if the employee is furnished work for less than half the scheduled time.

It is important to note a few critical facts of this case. The employer scheduled the meeting times and provided employees with at least four days’ notice of the scheduled meetings. Also, the employees always worked at least half the duration of each scheduled period for the meetings. The case, Aleman v. AirTouch Cellular can be read here.

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New Laws Facing California Employers In 2013

There are some significant changes regarding California employers’ duties in 2013. This list is an overview of the major changes that employers should consider and be aware of at the beginning of 2013.  

Employers Cannot Ask Applicants Or Employees For Social Media Passwords – AB 1844
This law created Labor Code section 980, which is effective 1/1/2013. The law prohibits employers from asking employees or applicants for passwords to their social media accounts, accessing their accounts in the presence of the employer, or divulging any personal social media. There are two exceptions to this: (1) if the request is made to a current employee as part of an investigation of allegations of employee misconduct or violation of law, and the request is based upon a reasonable belief that the information is relevant, and (2) to devices issued by the employer.

Commission Agreements Must Be In Writing – AB 1396 and 2675
Beginning 1/1/2013, when an employee is paid commissions, the employer must provide a written contract setting forth the method the commissions will be computed and paid. The written agreement must be signed by both the employer and employee. Commission wages are “compensation paid to any person for services rendered in the sale of such employer’s property or services and based proportionately upon the amount or value thereof.” Commissions do not include (1) short-term productivity bonuses, (2) temporary, variable incentive payment that increase, but do not decrease, payment under the written contract, and (3) bonus and profit-sharing plans, unless there has been an offer by the employer to pay a fixed percentage of sales or profits as compensation for work to be performed.

Breastfeeding is added to definition of “sex” under the Fair Employment and Housing Act - AB 2386
The new law clarifies that the definition of sex under the FEHA includes breastfeeding and any medical conditions relating to breastfeeding. This amendment makes breastfeeding and the related medical conditions, a protected activity and therefore employers cannot discriminate or retaliate against employees on this basis under California law. While the amendment is effective 1/1/13, the law states that the amendment simply is a statement of existing law, and therefore employers should treat this amendment as existing law immediately.

New Religious and Dress Standards – AB 1964
The new law clarifies that religious dress and grooming practices are protected under FEHA. The law explains that “religious dress practice” is “shall be construed broadly to include the wearing or carrying of religious clothing, head or face coverings, jewelry, artifacts, and any other item that is part of the observance by an individual of his or her religious creed.” The law continues in defining religious grooming as: “Religious grooming practice shall be construed broadly to include all forms of head, facial, and body hair that are part of the observance by an individual of his or her religious creed.” The law also states that it is not a reasonable accommodation it the action requires segregation of the individual from the public or other employees.

Changes in Calculating Employees’ Regular Rate of Pay – AB 2103
The new law revises Labor Code 515(d) to clarify that “payment of a fixed salary to a nonexempt employee shall be deemed to provide compensation only for the employee's regular, nonovertime hours, notwithstanding any private agreement to the contrary.” Therefore, overtime must be paid above any nonexempt employee’s agreed upon salary. This law was in response to the court opinion in Arechiga v. Dolores Press. The legislature history described the opinion in Arechiga as follows:

In the Arechiga case, a janitor and his employer agreed that payment of a fixed salary of $880 a week would provide compensation for 66 hours of work each week. The Court of Appeal held that this method of payment comported with California overtime law, and that no additional overtime compensation was owed. The Court rejected the employee's contention that existing Labor Code Section 515(d) prohibits any sort of agreement that would allow a fixed salary to serve as a non-exempt employee’s compensation for anything more than a 40 hour workweek.

New Penalties For Violations On Itemized Wages Statements – SB 1255
The new law provides that employees are deemed to have suffered injury for purposes of assessing penalties pursuant to Labor Code 226(a), if the employer fails to provide accurate and complete information. Furthermore, a violation occurs if the employee cannot easily determine from the wage statement alone the amount of the gross or net wages earned, the deductions the employer made from the gross wages to determine the net wages paid, the name and address of the employer or legal entity employing the employee, and the name and only the last 4 digits of the employee.

New Requirements On Retention And Inspection of Itemized Wage Statements and Personnel Files– AB 2674
Under Labor Code 226, employers must keep copies of employees’ itemized pay statements for at least three years, at the site of employment or at a central location within the state of California. The new law, effective 1/1/13, clarifies that the term “copy” means either a duplicate of the statements provided to employees, or a computer generated record that shows all information required under Labor Code 226. In addition, the law sets a new deadline for employers to either provide a copy or permit the employee to inspect the personnel file within 30 days after the employer receives the request. The employer and employee may only agree to extend this time period out to 35 days. The employer may also redact the names of any non-supervisory employees in the file. It is important to note, this requirement does not change the 21 day time period to produce or make available for inspection an employee’s itemized wage statements under Labor Code 226(c).

Itemized Wage Statements And Wage Theft Notices For Temporary Service Employers – AB 1744
This new law requires temporary service employers to provide wage statements that list the rate of pay and total hours worked for each temporary assignment. A “temporary service employer” is defined in Labor Code 201.3(a)(1) as a company that contracts with customers to supply workers to perform services for the customer. This is effective 7/1/2013. Furthermore, the law requires temporary services employer to provide Wage Theft Notices required under 2810.5 and include additional information regarding the name, the physical address of the main office, the mailing address if different from the physical address of the main office, and the telephone number of the legal entity for whom the employee will perform work, and any other information the Labor Commissioner deems material and necessary. This requirement is effective on 1/1/2013.

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Can California Labor Code Provisions Apply To Non-resident Employees Working in California?

Given the increasing mobility of the workforce, the issue of which state’s laws apply to a traveling employee is becoming more and more common. In Sullivan v. Oracle Corp., the California Supreme Court held that California-based employers must pay non-resident employees working in California according to the California’s overtime laws. That means that a California employer who has employees travel to California to work must pay the employees according to California’s wage and hour laws – not pursuant to the laws from the state that the employee is from. The Court emphasized California’s strong public policies in place to protect the employees.

This holding was again recognized in See’s Candy Shops, Inc. v. Superior Court. The Court in See’s Candy stated, “We agree with [the Plaintiff] that under Sullivan a California employer generally must pay all employees, including nonresident employees working in California, state overtime wages unless the employee is exempt.” While the issue in See’s Candy was whether an employer’s time-keeping rounding policy complied with California law, the case is a good reminder that the analysis of which state’s employment laws apply to employees is simply more than looking up where the employee live.

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Court Upholds Timekeeping Rounding Policies: See's Candy Shops Inc. v. Superior Court

In See’s Candy Shops, Inc. v. Superior Court the court addressed whether an employer’s policy of rounding  employee’s time clock entries to the nearest tenth of an hour.  See’s Candy’s policy rounded employees’ time entries either up or down to the nearest tenth of an hour in its Kronos time keeping system. For example, if an employee clocked in at 7:58 a.m., the system rounds the time to 8:00 a.m., and if the employee clocked in at 8:02 a.m., the system rounds down the entry to 8:00 a.m.

Plaintiffs challenged this rounding policy by arguing that this policy prevented employees from receiving all of their wages twice a month as required by California law. The court noted that even though California employers “have long engaged in employee time-rounding, there is no California statue or case law specifically authorizing or prohibiting this practice.” See’s Candy argued that given this lack of clear authority on the issue, courts should adopt the federal standard, which is also used by California’s Division Labor Standards Enforcement (“DLSE”), which allows rounding.

The court agreed that time entry rounding is permissible under California law:

Relying on the DOL rounding standard, we have concluded that the rule in California is that an employer is entitled to use the nearest-tenth rounding policy if the rounding policy is fair and neutral on its face and ‘it is used in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.’ (29 C.F.R. § 785.48; see DLSE Manual, supra, §§ 47.1, 47.2.)

See’s Candy presented evidence that across all of its employees the rounding policy actually resulted in a total gain of 2,749 hours for the class of employees involved in the litigation. Therefore, the court held that the rounding policy that rounded both up and down from the midpoint of every six minutes did not result in a loss to the employees.

It is important to note the limitation of this holding. This case involved clear evidence, presented in the form of an expert witness, establishing the effect on the total time paid to the employees did not result in a loss to the employees. Also, the rounding policy would round both up and down. Had the policy only rounded in favor of the employer, that would have violating the rule established in this case. Employers utilizing rounding for payroll must still do so with caution. For example, there should be periodic audits to ensure the effect of rounding does not favor the employer over a period of time. The opinion can be read here: See's Candy Shops, Inc. v. Superior Court.

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Post-Brinker Decision Upholds Denial Of Class Certification: Muldrow v. Surrex Solutions Corp.

In Muldrow v. Surrex Solutions Corp., the California Court of Appeal upheld a trial court’s determination that the plaintiffs could not maintain a class action for proposed meal period class given the holding by the California Supreme Court in Brinker v. Superior Court (click here for additional information on the Brinker ruling). The appellate court had previously upheld the trial court’s denial of class certification, but the California Supreme Court granted review of the case pending its decision in Brinker. Once Brinker was decided, the Supreme Court transferred the case back to the appellate court for a decision applying the new analysis set forth in Brinker.

In Muldrow, the appellate court found that the trial court properly denied class certification for the meal break class.  It stated, “In Brinker, the Supreme Court held that an employer need only provide for meal periods, and need not ensure that employees take such breaks.”

In support of its conclusion that the trial court properly denied class certification as to the meal break claims, the court quoted the following language from the Brinker decision:

An employer’s duty with respect to meal breaks…is an obligation to provide a meal period to its employees. The employer satisfies this obligation if it relieves its employees of all duty, relinquishes control over their activities and permits them a reasonable opportunity to take an uninterrupted 30-minute break, and does not impede or discourage them from doing so.

Plaintiffs argued that they should now be able to present evidence that the employees were “discouraged” from taking meal breaks given the Brinker decision. The appellate court rejected this request as this was the first time plaintiffs raised the issue, and there were a number of cases that plaintiffs could have relied upon for this theory prior to the Brinker decision.

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Court Holds Employers May Chargeback Sales Representatives For Returns

In sales, it is usually the case when the sale is made, but the customer has a set period of time to return the product. This presents an issue for an employer who pays the sales representative a commission. The employer does not want to pay a commission on an item sold that may be returned. On the other hand, the sales representative would like use of the money while waiting to the period of time the customer has to cancel the purchase. Add to the mix California’s very stringent requirements prohibiting chargebacks and protection of employee wages, and the issue becomes very complex. The decision in Deleon v. Verizon Wireless clarified the issue about whether employers may chargeback commissions that have not yet been earned by the sales representative.

The plaintiff, Deleon, worked as a sales representative for Verizon Wireless. He sued Verizon on the basis that its commission plan violated Labor Code section 223 by “secretly pay[ing] a lower wage while purporting to pay the wage designated by statue or by contract.” Verizon contended its chargeback policy did not violate section 223 because: (1) Deleon’s commission payments were advances, not wages; (2) the chargeback policy was set forth in the compensation plans and was not a “secret” underpayment of a lower than agreed-upon wage; and (3) the chargeback provision did not result in a payment of a lower wage than the wage designated in the compensation plans.

In agreeing with Verizon, the court held that while sales commissions are wages, the right to commissions is determined by the “terms of the contract for compensation.” Here, the agreement Verizon had with plaintiff clearly set forth the conditions necessary before a commission was earned. The plan was clear that commissions were only earned if the customer did not discontinue the cell phone service during the applicable chargeback period. The court held that until this chargeback period expired, plaintiff had not made a commission and the amounts provided to plaintiff were only advances. Because Verizon provided plaintiff an advance on the commissions, and if the customer cancelled the service before the chargeback period expired, it was permissible for Verizon to reduce the representative’s next advance as an offset of the cancelled sale.

The take away for employers: commission plans and agreements must be clearly drafted and set forth the conditions that must be met before the commission is earned. It must also set forth that any payments to the sales representative are only advances, not wages, until the sale is final. If the plan is clear, a chargeback against the advances are permissible should the sale not become final with the customer.
 

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What is a Split Shift?

 A split shift is defined in the California IWC Wage Orders as:

…a work schedule, which is interrupted by non-paid non-working periods established by the employer, other than bona fide rest or meal periods.

See Cal. Code Regs., tit. 8, § 11040, subd. 2(Q). If the employee works two shifts separated by more than a rest or meal period, they are entitled to receive one hour’s of pay at the minimum wage rate in addition to the minimum wage for that work day. See Cal. Code Regs., tit. 8, §11040, subd. 4(C). Any additional amounts over minimum wage paid to the employee can be used to offset the split shift pay due to an employee. For example, say an employee earns $10 per hour. She works 10:00 a.m. to 1:00 p.m., and then again from 3:00 p.m. to 8:00 p.m. This is a total of eight hours worked for the day, and she is entitled to a split shift payment of one hour at $8 (minimum wage). However, because she earned $16 over minimum wage ($2 above minimum wage x 8 hours = $16) for the eight hours of work, this amount can be used to offset the amount owed for the split shift pay. Therefore there is nothing owed to the employee in this example.  

A court clarified some aspects of split shift pay last year in the case Securitas Security Services USA, Inc. v. Superior Court. In that case, the plaintiffs were security guards that worked the graveyard shift. Securitas designated its workday as beginning at midnight and ending the following midnight. This resulted in the guards working shifts that started on one day, and then ended on the next working day. Plaintiffs argued that they were entitled to split shift pay because their shift ended in the morning, and then they were required to start a new shift several hours later in that same day. The Court ruled against the Plaintiffs and held that employees are not entitled to split shift pay when they work uninterrupted overnight shifts. In this case, there was no “split” in the shift. The court explained:

A "split shift" occurs only when an employee's designated working hours are interrupted by one or more unpaid, nonworking periods established by the employer that are not bona fide rest or meal periods. The fact that a single continuous shift happens to begin during one "workday" and end in another does not result in a "split shift."

However, the case left open the question of how long between shifts would constitute a split shift. For example, can an employee take a two hour lunch period without obligating the employer to pay the split shift pay? Until courts clarify this issue, conservative employers limit the meal periods to one hour.

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Three Legal Steps Employers Can Take To Ensure Employees Comply With Company Policy

The scenario is common: employers have policies in place to protect the employees and the company, but getting employees to comply with the policies is difficult. For example, a company has a policy that employees have to be on-the-clock for during all of the time they are working, but there is one or two employees who habitually forget to clock-out at the end of the day. In addition to the administrative hassles this creates, there are legal issues of how much time the employer should pay the employee for.

Generally, employers are required to pay for all time that the company knows or should have known the employee was working. But legally what can employers do to ensure that employees are complying with company policy?

Starting with what employers cannot do: withhold wages from the employee. The employer cannot use withholding or deductions from wages as a disciplinary measure. This is well settled under California law.

Three Steps Employers Should Take To Have Employees Comply With Policies

1. Have well written policies.

It goes without saying, the policies need to be legal and clearly written so that employees and managers can easily understand the policies.

2. Train managers so that they understand the policies and know how what to enforce.

Managers who do not understand what they should be requiring of employees, or worse, misinterpret a company policy when enforcing it, can create a lot of legal liability for the company. Routine training for managers on common issues that arise in the workplace can do a lot to prevent litigation.

3. Discipline employees for failure to comply with the policies.

While employers cannot withhold wages as a form of discipline, employers may still write up employees who violate company policies. For example, if an employee is either intentionally or otherwise not properly recording their time, they should be counseled and written up for the violations. They also need to be warned that if the problem continues, they could be terminated. There is another benefit to having this documentation. If the company is sued in a wage and hour class action for off-the-clock work, the plaintiffs need to prove that there is a company-wide policy that permits or encourages off-the-clock work. If the company has the records of disciplining employees who were abusing the time clock system, it will be strong evidence that the company actively prohibited off-the-clock work from occurring.

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Plaintiff Cannot Bring Class Action In Arbitration Even When Arbitration Agreement Is Silent On Issue

In Kinecta Alternative Financial Solutions v. Superior Court (wrd) held that a trial could improperly ordered a wage and hour class action to proceed in arbitration as a class action. The appellate court held that even though the arbitration agreement was silent on whether the parties agreed to arbitrate class claims, the fact that the agreement only referenced plaintiff’s claims against the employer (not other employees’ claims as well) the plaintiff could only bring her individual claims in arbitration. 

The plaintiff signed an arbitration agreement that provided to arbitrate all disputes arising out of her employment. The arbitration agreement was silent on the issue of class arbitration. Plaintiff filed a class action complaint alleging various wage and hour violations including failure to pay overtime and failure to provide meal and rest breaks. The employer filed a motion to compel arbitration and a motion to dismiss plaintiff’s class claims. The issue the court addressed was whether the employer in this case could be compelled to arbitrate a class action when the arbitration agreement does not expressly provide for a class arbitration.

In agreeing with the employer, the Court held that even though the arbitration agreement was silent on class arbitration, it cannot be assumed that the parties agreed to arbitration class claims. Relying upon the recent United States Supreme Court rulings, the court held:

This petition is governed by Stolt-Nielsen v. Animalfeeds International Corp. (2010) 559 U.S. __ [130 S.Ct. 1758], which holds that under the [Federal Arbitration Act], a party may not be compelled to submit to class arbitration unless the arbitration contract provides a basis for concluding that the party agreed to do so. The arbitration provision in this case expressly limited arbitration to the arbitration of disputes between Malone and Kinecta. The arbitration agreement made no reference to, and did not authorize, class arbitration of disputes. Thus the parties did not agree to authorize class arbitration in their arbitration agreement, and the order denying Kinecta’s motion to dismiss class claims must be reversed.

The arbitration agreement in this case only made reference to the plaintiff, by referencing “I”, “me,” and “my.” The agreement never made reference to other employees or groups of employees. Under the Federal Arbitration Act a party cannot not be compelled to submit to class arbitration unless there is a contractual basis for concluding that they agreed to do so. The mere silence on the issue of class arbitration in an arbitration agreement cannot be interpreted to mean that a party agreed to class arbitration. Therefore, the court held that plaintiff’s lawsuit could only proceed on her own individual claims in arbitration.

Employers should carefully examine whether or not arbitration agreements are appropriate for their company. There are some negative aspects of entering into arbitration agreements, but the ruling in Kinecta is a good example of the enforceability of class action waivers in arbitration agreements.

For more information about arbitration agreements, and the enforceability of their terms, please see my previous post, Things You Wanted To Know About Arbitration Agreements In California, But Were Afraid To Ask.

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When Do Employers Have To Offer Meal And Rest Breaks? Analysis Of Brinker Corp. v. Superior Court

 

It has been a week now since the California Supreme Court issued its decision in Brinker Restaurant Corp. v. Superior Court. I’ve been getting a lot of questions, and have spoken on the topic a few times, and thought a couple of charts illustrating the Court’s holding would assist in understanding the decision. For a more general discussion of the Brinker decision, please see my previous article. 

 

Meal Periods

The California Supreme Court made clear in Brinker that employers need to give an employee their first meal break “no later than the end of an employee’s fifth hour of work, and a second meal period no later than the end of an employee’s 10th hour of work.” The Court said that contrary to Plaintiff’s argument, there are no additional timing requirements for the meal breaks. 

I’ve created this chart to help illustrate this point:

If an employee begins work at 8:00 a.m., the employee must start his break by 12:59, which is before the end of the 5th hour of work. 

Another issue in the case was Brinker’s policy of “early lunching.” Early lunching is when employers allow the employees to take their meal break within the first hour or two of arriving for work. Once the employee is given this first meal period, then they would continue to work for six, seven, eight, or more hours without an additional meal break. The Court rejected Plaintiff’s argument that this policy violated the law. The Plaintiff argued that the law required employers had a duty to provide meal breaks on a “rolling five” hour basis, or every five hours. 

Here is a chart that provides an example of an early lunching practice:

Before employers begin to employ an early lunching policy, they should do so with caution and some guidance. As Court cautioned employers that: “in the context of an eight-hour shift, ‘[a]s

a general matter,’ one rest break should fall on either side of the meal break. Shorter or longer shifts and other factors that render such scheduling impracticable may alter this general rule.”

Rest Breaks

As for of rest breaks, the Court set forth that, “[e]mployees are entitled to 10 minutes’ rest for shifts from three and one-half to six hours in length, 20 minutes for shifts of more than six hours up to 10 hours, 30 minutes for shifts of more than 10 hours up to 14 hours, and so on.” The Court’s holding can be summarized as follows:

In regards to when during the shift rest breaks should be taken, the Court held that “the only constraint of timing is that rest breaks must fall in the middle of work periods ‘insofar as practicable.’” The Court stopped short of explaining what qualifies as “insofar as practicable”, and employers should closely analyze whether they may deviate from this general principle. 

 

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Brinker: California Supreme Court Clarifies Meal And Rest Break Requirements

Brinker Restaurant Corp. v. Superior Court (Hohnbaum) was finally decided by the California Supreme Court. The decision was anxiously awaited by many due to its clarifications of California employment laws regarding the duties employers have regarding offering meal and rest breaks, and when the breaks need to be taken.  The primary holding of the case is that employers do not need to ensure that no work is performed during meal breaks.  The Court, however, cautioned employers that they cannot undermine formal policies by pressuring employees to work during breaks.  Also of interest, as explained below, the Court provided a clarification of the rate that employees accrue rest breaks, which varies from how most employers interpreted the rest break requirement. 

Meal Periods
Employers Have No Duty To Ensure Meal Breaks Are Taken

The Plaintiff in the case argued that Brinker had to “ensure that work stops for a the required thirty minute[]” meal period. Alternatively, Brinker argued that under California law employers only had to provide meal periods and would not incur any liability if the employee did not take the break. The Court explained:

[Plaintiff] Hohnbaum contends an employer is obligated to “ensure that work stops for the required thirty minutes.” Brinker, in a position adopted by the Court of Appeal, contends an employer is obligated only to “make available” meal periods, with no responsibility for whether they are taken. We conclude that under Wage Order No. 5 and Labor Code section 512, subdivision (a), an employer must relieve the employee of all duty for the designated period, but need not ensure that the employee does no work.

The Court clarified that employers do not need to ensure that employees do not perform any work during their break:

The difficulty with the view that an employer must ensure no work is done—i.e., prohibit work—is that it lacks any textual basis in the wage order or statute. While at one time the IWC’s wage orders contained language clearly imposing on employers a duty to prevent their employees from working during meal periods, we have found no order in the last half-century continuing that obligation. Indeed, the obligation to ensure employees do no work may in some instances be inconsistent with the fundamental employer obligations associated with a meal break: to relieve the employee of all duty and relinquish any employer control over the employee and how he or she spends the time.

The Court also provided further clarification as to what meal period obligations employers have:

[T]he wage order’s meal period requirement is satisfied if the employee (1) has at least 30 minutes uninterrupted, (2) is free to leave the premises, and (3) is relieved of all duty for the entire period.

Therefore, the Court held:

To summarize: An employer’s duty with respect to meal breaks under both section 512, subdivision (a) and Wage Order No. 5 is an obligation to provide a meal period to its employees. The employer satisfies this obligation if it relieves its employees of all duty, relinquishes control over their activities and permits them a reasonable opportunity to take an uninterrupted 30-minute break, and does not impede or discourage them from doing so. What will suffice may vary from industry to industry, and we cannot in the context of this class certification proceeding delineate the full range of approaches that in each instance might be sufficient to satisfy the law.
On the other hand, the employer is not obligated to police meal breaks and ensure no work thereafter is performed. Bona fide relief from duty and the relinquishing of control satisfies the employer’s obligations, and work by a relieved employee during a meal break does not thereby place the employer in violation of its obligations and create liability for premium pay under Wage Order No. 5, subdivision 11(B) and Labor Code section 226.7, subdivision (b).

However, the Court also provided a warning to employers that, “On the other hand, an employer may not undermine a formal policy of providing meal breaks by pressuring employees to perform their duties in ways that omit breaks.”

Meal Period Timing Requirements

The Court also clarified when meal periods must be provided. The Court rejected Plaintiff’s argument that Brinker’s policy of “early lunching” violated the Labor Code. Early lunching is which is when employers allow employees to take their meal break within the first hour or two of arriving to work, and then have the employees continue to work to the end of their shift without taking another meal period. The Plaintiff argued that the Labor Code requires that employees take a meal period every five consecutive hours of work. In rejecting the Plaintiff’s argument, the Court stated:

Hohnbaum contends section 512 should be read as requiring as well a second meal period no later than five hours after the end of a first meal period if a shift is to continue. The text does not permit such a reading.

The Court explained the timing requirements of meal periods as follows:

We conclude that, absent waiver, section 512 requires a first meal period no later than the end of an employee’s fifth hour of work, and a second meal period no later than the end of an employee’s 10th hour of work.

 

Rest Periods
Rate Rest Periods Accrue To Employees

The Court began its explanation of the rate at which rest breaks must be given to employees by examining Wage Order No. 5. The Court focused in on subdivision 12(A) of the wage order, which 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 (3½) hours.

The Court explained that “major fraction thereof” as applied to the four hour period referenced in the Wage Order means “any amount of time in excess of two hours – i.e., any fraction greater than half.” Therefore, by applying this calculation under the wage order, the Court held:

Employees are entitled to 10 minutes’ rest for shifts from three and one-half to six hours in length, 20 minutes for shifts of more than six hours up to 10 hours, 30 minutes for shifts of more than 10 hours up to 14 hours, and so on.

Timing Of Rest Breaks

The Court disagreed with the Plaintiff’s argument that rest breaks had to occur before meal breaks under the law. The Court held that the only “constraint on timing is that rest breaks must fall in the middle of work periods ‘insofar as practicable.’” The Court explained:

Hohnbaum asserts employers have a legal duty to permit their employees a rest period before any meal period. Construing the plain language of the operative wage order, we find no such requirement and agree with the Court of Appeal, which likewise rejected this contention.

 

...

Either the rest period must fall before the meal period or it must fall after. Neither text nor logic dictates an order for these, nor does anything in the policies underlying the wage and hour laws compel the conclusion that a rest break at the two-hour mark and a meal break at the four-hour mark of such a shift is lawful, while the reverse, a meal break at the two-hour mark and a rest break at the four-hour mark, is per se illegal.

 

The entire decision can be read from the Supreme Court's website here (PDF) (WRD).  I will definitely have more thoughts on this decision in the near term, and will be reviewing it in further detail over the weekend in preparation for the webinar my partner, Dan Turner and I will be conducting next Wednesday addressing the full impact the Brinker decision will have on employers.

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Brinker v. Superior Court Decision To Be Published Tomorrow

The California Supreme Court announced today that the opinion in Brinker v. Superior Court (Hohnbaum) will be published tomorrow at 10:00 a.m. The opinion will address many issues surrounding meal and rest break requirements under the California Labor Code, such as whether employers need to ensure or simply provide meal breaks, and when breaks should be taken during a shift.

For more information on the decision we will be holding a webinar next Wednesday at 10:00 a.m. PST. Registration information is here.

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Webinar - The Impact of Brinker: Understanding The Supreme Court's Decision On Meal & Rest Breaks

Be among the first in California to understand the complete impact the monumental decision in Brinker v. Superior Court will have on employers. The Court’s decision is expected on April 12, and Anthony Zaller and Daniel Turner will analyze and discuss the impact of the decision. The webinar will explain the decision and what it means for employers and wage and hour class actions, discussing among other items:

  • Can meal periods be offered to employees, or do they need to be ensured?
  • When during the shift can meal and rest periods be taken?
  • What does the Court’s ruling mean for the status of meal and rest break class actions and class certification issues?
  • What is the impact for cases currently being litigated?

The cost is $150 per connection. 

Date: Wednesday, April 18
Time: 10:00 a.m. PST

Click here to register.  Existing clients can email us here to have the fee waived. 

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The Enforceability of Class Action Waivers In The Employment Context

The National Labor Relations Board (NLRB) recently held in D.R. Horton, 357 NLRB No. 184, that a class action waiver in an arbitration agreement was unenforceable as it violates employees’ rights under the National Labor Relations Act (NLRA). Specifically, it held that employees have “the right ‘to engage in…concerted activities for the purpose of collective bargaining or other mutual aid or protection…” under section 7 of the NLRA and therefore any waiver to participate in class actions violates this right.

However, since the D.R. Horton decision courts have upheld class action waivers in the employment context and have rejected the NLRB’s reasoning in D.R. Horton as inconsistent with the United States Supreme Court’s holding in AT&T Mobility v. Concepcion, which permitted class action waivers in arbitration agreements. For example, in LaVoice v. UBS Financial Services, Inc. (S.D.N.Y.), the plaintiff brought a putative class action alleging various wage and hour violations of the Fair Labor Standards Act and New York labor laws. In rejecting the reasoning of D.R. Horton, the court held that:

Given that the Supreme Court held in AT&T Mobility that ‘[r]equiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA,’ this Court must read AT&T Mobility as standing against any argument that an absolute right to collective action is consistent with the FAA’s ‘overarching purpose’ of ‘ensur[ing] the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings. To the extent that [plaintiff] relies…on the recent decision of the National Labor Relations Board (‘NLRB’) in D.R. Horton, Inc. and Michael Cuda, Case 12-CA-25764, January 2, 2012, as authority to support a conflicting reading of AT&T Mobility, this Court declines to follow [that] decision[].

As I’ve written about previously, this area of the law is quickly changing. There is no doubt that new decisions this year will continue to add to the development of this area of the law.

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Things You Wanted To Know About Arbitration Agreements In California, But Were Afraid To Ask

 

What is an arbitration agreement?

            Employers can agree that they and any employees who enter into an arbitration agreement will resolve their differences before a private arbitrator instead of civil court. There are many different arbitration companies to choose from, but the American Arbitration Association and JAMS are two of the larger ones that are routinely appointed in arbitration agreements. 

Are they enforceable in California?

            Generally speaking, if the agreement is drafted and implemented properly, they are. However, arbitration agreements are routinely struck down by courts if they are not properly drafted. For example, recently a California court held in Ajamian v. CantorCO2e, that an arbitration agreement was not enforceable because it required the employee to waive statutory damages and remedies and only allowed the employer to recover its attorney’s fees if successful, not the employee. 

Why would an employer want to implement arbitration agreements?

            There are a number of reasons. The arbitration process can proceed more quickly than civil litigation, saving a lot of time and attorney’s fees in the process.  For example, often times the discovery process moves more quickly, and if there are any disputes, the parties can raise them with the arbitrator telephonically, instead of the lengthy motion process required to resolve disputes in civil court. The arbitration process is also confidential, so if there are private issues that must be litigated, these issues are not filed in the public records of the courts. The parties also have a say in deciding which arbitrator to use in deciding the case, whereas in civil court the parties are simply assigned a judge without any input into the decision. This is very helpful in employment cases, which often times involve more complex issues, and it is beneficial to the parties to select an arbitrator that has experience in resolving employment cases.   

Are class action waivers enforceable in arbitration agreements?

            Yes. Two recent U.S. Supreme Court cases, AT&T Mobility v. Concepcion and Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp. have established that class action waivers in arbitration agreements are enforceable. However, Plaintiffs continually challenge class action waivers on numerous grounds, and it is critical employers’ agreements are properly drafted and up-to-date. 

Should every employer implement arbitration agreements?

            No. The decision to implement an arbitration agreement should be reviewed with an employment lawyer to discuss the positives as well as the negatives of arbitration agreements. As discussed above, there are a lot of benefits of having an arbitration agreement in place, but it does not come without a few drawbacks. The primary drawback is that in California, the employer must pay all of the arbitrator’s fees in employment cases. Arbitration fees can easily be tens of thousands of dollars – a cost that employers do not need to pay in civil cases. However, if the company values the confidentiality and speed of process provided in arbitration, this extra cost may well be worth it.

 

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Webinar: New Laws Facing California Employers In 2012

 

Governor Brown signed a number of new employment laws that take effect in January 2012.  During this webinar, we will cover the new obligations facing employers under these recently enacted employment laws as well as the proper steps employers should take to comply with them.  The discussion will also cover the recent oral argument in Brinker Restaurant Corp. v. Superior Court and what steps employers should take while waiting for the Supreme Court’s ruling.

Other topics will include:

  • New laws effective January 2012, including:
    • Statute increasing the penalties for employers who misclassify independent contractors
    • What the Wage Theft Protection Act of 2011 means for employers
    • Gender identity and expression
    • Prohibiting e-verify requirements under the Employment Acceleration Act of 2011.
    • New requirement to provide health benefits during pregnancy disability leave
  • Review of new developments that took place in 2011:
    • Development of case law upholding class action waivers in arbitration agreements
    • Payment requirements for non-resident employees working in California

The cost is $150 per connection (no fee for existing clients).  Click here for more information and to register. 

 

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Oral Arguments In Brinker Restaurant Corp. v. Superior Court

What can I say, technology is awesome.  The oral arguments in Brinker v. Superior Court that took place on November 8 are already on Youtube:

The Supreme Court has 90 days from oral argument to issue its decision.

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New Law Imposes Large Penalties For Misclassification Of Independent Contractors

Over the weekend, Governor Brown signed S.B. 459 into law (among other employment bills) which makes employers liable for civil penalties of $5,000 to $15,000 for each violation of “willful misclassification” of employees as independent contractors. In addition, if it is found that the employer has a pattern and practice of misclassifying independent contractors, the penalties can increase to a minimum of $10,000 to $25,000 per violation. The new law adds Sections 226.8 and 2753 to the Labor Code. 

The new law imposes the penalties for a “willful misclassification,” which is defined as:

"Willful misclassification" means avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.

Click here to read more information about the factors considered in determining whether a worker qualifies as an independent contractor and other areas of liability employers face in addition to this new law. 

Internet Posting

In addition to the substantial civil penalties, employers who violate the law are also required to post a notice on their website, or if the employer does not have a website they must post it in an area available to employees and the general public, for one year about the violation. The notice must contain the following information:

(1) That the Labor and Workforce Development Agency or a court, as applicable, has found that the person or employer has committed a serious violation of the law by engaging in the willful misclassification of employees.
(2) That the person or employer has changed its business practices in order to avoid committing further violations of this section.
(3) That any employee who believes that he or she is being misclassified as an independent contractor may contact the Labor and Workforce Development Agency. The notice shall include the mailing address, e-mail address, and telephone number of the agency.
(4) That the notice is being posted pursuant to a state order.

The law gives the Labor Commissioner the power the collect the civil penalties. There is also an argument that individual litigants may recover a portion of the civil penalties by bringing a Private Attorneys General Act (PAGA) claim. However, PAGA was not amended to specifically deal with the new labor code sections created by the new law, so there will undoubtedly be litigation over the extent the new law is actionable under PAGA, or the legislature may amend PAGA to clarify this issue.

The intent of the legislature is clear by passing this law - it does not want independent contractors to be used in California.  Employers must therefore be very careful in conducting the analysis of whether employees are properly classified as independent contractors.

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California Supreme Court Likely to Issue Ruling in Brinker Restaurant v. Superior Court Soon

Today, the California Supreme Court set oral argument in Brinker Restaurant v. Superior Court (Hohnbaum) to take place on November 8, 2011. The Court typically provides a ruling on cases within 90 days of oral argument, so I expect a ruling very early in 2012.

This case is the much anticipated ruling on whether employers need to “ensure” meal breaks or merely make the breaks available to employees.  The Supreme Court explains, "This case presents issues concerning the proper interpretation of California's statutes and regulations governing an employer's duty to provide meal and rest breaks to hourly workers."   Click here for a detailed analysis of the lower court’s ruling and the different issues that the Supreme Court may address.

The Supreme Court has issued "grant and hold" order pending the ruling in Brinker for the following cases and the Brinker decision will likely determine the issues in these cases as well:

S168806 BRINKLEY v. PUBLIC STORAGE
S184995 FAULKINBURY v. BOYD & ASSOCIATES
S186357 BROOKLER v. RADIOSHACK CORPORATION
S188755 HERNANDEZ v. CHIPOTLE MEXICAN GRILL
S191756 TIEN v. TENET HEALTHCARE
S194064 LAMPS PLUS OVERTIME CASES
S195866 SANTOS v. VITAS HEALTHCARE

I will continue to provide case updates routinely as the decision nears.

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California Supreme Court Holds Nonresident Employees Entitled to California Overtime - Sullivan, et. al. v. Oracle Corporation.

In Sullivan, et. al. v. Oracle Corporation, the California Supreme Court ruled on whether California's overtime laws apply to out-of-state residents who perform work in California. The Court held that California’s interests in protecting all workers who perform work within the state are sufficient enough to require that California based employers must pay all out-of-state workers who perform work in California according to California’s overtime requirements.

The Plaintiffs were employed by Oracle as instructors who train Oracle’s customers in the use of the company’s products. Two Plaintiffs reside in Colorado, and another plaintiff resides in Arizona. The Plaintiffs primarily worked in their home states but also performed work in California and other states. During the relevant time period for this case (2001-2004), Plaintiff Sullivan worked 74 days in California, Plaintiff Evich worked 110 days, and Plaintiff Burkow worked 20 days.

The case came to the California Supreme Court as a request by the Ninth Circuit to decide unresolved questions of California law. The issues presented to the Court were:

  1. Does the California Labor Code apply to overtime work performed in California for a California-based employer by out-of-state plaintiffs in the circumstances of this case, such that overtime pay is required for work in excess of eight hours per day or in excess of forty hours per week?
  2. Does Business and Professions Code section 17200 apply to the overtime work described in question one?
  3. Does Section 17200 apply to overtime work performed outside California for a California-based employer by out-of-state plaintiffs in the circumstances of this case if the employer failed to comply with the overtime provisions of the FLSA?

Does California Overtime Apply to Out-Of-State Plaintiffs Working In California?

The Supreme Court held that the Plaintiffs were owed California overtime. It explained:

California’s overtime laws apply by their terms to all employment in the state, without reference to the employee’s place of residence. The overtime statute declares simply that “[a]ny work in excess of eight hours in one workday and . . . 40 hours in any one workweek . . . shall be compensated at the rate of no less than one and one-half times the regular rate of pay . . . .” (Lab. Code, § 510, subd. (a), italics added.) The civil enforcement provision provides that “any employee receiving less than . . . the legal overtime compensation applicable to the employee is entitled to recover in a civil action the unpaid balance . . . .” (Id., § 1194, subd. (a), italics added.) Moreover, a preambular section of the wage law (Lab. Code, div. 2, pt. 4, ch. 1, §1171 et seq.) confirms that our employment laws apply to “all individuals” employed in this state (id., § 1171.5, subd. (a), italics added).

The Court explained that states have broad authority under their police powers to regulate employment matters within their boundaries (such as child labor laws, minimum and other wage laws, and workers compensation laws). “To exclude nonresidents from the overtime laws’ protection would tend to defeat their purpose by encouraging employers to import unprotected workers from other states.”

The Court was clear that the holding in this case is limited to the facts presented to it. The court stated, “[t]hus, we are not prepared, without more thorough briefing of the issues, to hold that IWC wage orders apply to all employment in California, and never to employment outside of California.” (emphasis in original).

Does B&P Code Section 17200 (“Unfair Competition Law” or “UCL”) Apply to The Unpaid Overtime?

The Supreme Court held it does, stating:

We have already decided that the failure to pay legally required overtime compensation falls within the UCL’s definition of an “unlawful . . . business act or practice”

Does the UCL Apply When To Claims Under the FLSA for Overtime Worked By Nonresidents In Other States?

The Court concluded that the UCL does not apply to claims under the FLSA for alleged violations that occurred in other states. It explained that in holding so would extend the UCL to apply outside of California’s boarders, in violation of the “presumption against extraterritorial application.”
 

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California Employment Law Podcast - AT&T Mobility v. Concepcion Decision On Class Action Waivers And Arbitration Agreements

Employees Entitled Up To Two Hours Of Premium Pay For Missed Meal and Rest Breaks Per Day - UPS v. Superior Court

California Labor Code section 226.7 provides that employees are entitled to receive premium payment in the form of one additional hour of pay at the employee’s regular rate of pay for a missed meal or rest break. As the appellate court admitted in UPS v. Superior Court, this Labor Code provision is amenable to the two different interpretations offered by Plaintiff and Defendant.

Labor Code section 226.7 provides:

(a) No employer shall require an employee to work during any meal or rest period mandated by an applicable order of the Industrial Welfare Commission. [¶] (b) If an employer fails to provide an employee a meal period or rest period in accordance with an applicable order of the Industrial Welfare Commission, the employer shall pay the employee one additional hour of pay at the employee’s regular rate of compensation for each work day that the meal or rest period is not provided.

Plaintiff argued that section 226.7 allowed the recovery of two hours of premium wages if a meal and a rest break were not provided. Defendant argued that the language of section 226.7 only allowed Plaintiff to recover one hour premium wage, regardless if the Plaintiff did not receive both a rest and a meal break. The appellate court reviewed the legislative history and administrative history of the applicable Industrial Welfare Commission wage orders, and concluded that the employer is liable up to two hours of premium wages – one hour for a missed meal break and one hour for a missed rest break – per day.

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Court Affirms Denial Of Class Certification In Security Guard Meal and Rest Break Case

In Faulkinbury v. Boyd & Associates, Inc., Plaintiffs brought a case on behalf of about 4,000 current and former security guards of Boyd & Associates, Inc. Plaintiffs asserted that all guards had to sign an agreement to take on-duty meal periods and that they never took an uninterrupted, off-duty meal break. They also asserted that, while employed by Boyd, they were instructed not to leave their posts and never took any off duty rest breaks.

Meal Break Claim

Defendant Boyd argued that the on-duty meal periods at issue in this case created individualized issues that were not suitable for class-wide treatment by the court. In reviewing defendant’s argument, the court explained that on-duty meal periods are permissible if it meets the “nature of the work exception”:

Under the nature of the work exception, an employer is not required to provide off duty meal breaks “when the nature of the work prevents an employee from being relieved of all duty and when by written agreement between the parties an on the job paid meal period is agreed to.” (Cal. Code Regs., tit. 8, § 11040, subd. 11(A).) On duty meal period agreements are permitted under Wage Order No. 4 2001, California Code of Regulations, title 8, section 11040, subdivision 11(A). Based on the nature of the work exception, Boyd argues its liability to the Meal Break Class depends on individual issues regarding the nature of the work at each post and whether each employee did in fact take on duty meal breaks.

The court noted that Boyd did have a company-wide uniform policy of requiring security guard employees to take on duty meal breaks and required them to sign on duty meal break agreements. However, the court also recognized that individualized issues still existed. For example, Boyd submitted evidence that guards were able to take meal break “during periods of inactivity” and other guards stated that they are relieved of all duty in order to take a meal break. Boyd also submitted evidence showing that some of its guards were able to take off-duty meal breaks, it depended on the employees’ post they were assigned to, and other factors could make it possible for employees to take an off-duty break. Some employees submitted declarations saying that Boyd’s clients’ in-house security would relieve a Boyd security guard for a meal and rest break and on other occasions a second Boyd security guard would cover the other’s post to enable one of them to take a break.

The court also noted:

The ability of a Boyd security guard employee to take an off-duty meal break sometimes depended on whether the employee was training another employee (“When I am training another security officer we will relieve each other of all duty during meal and rest periods”). Some guards put out a sign saying “on a break” and took an off duty break.
The trial court held, and the appellate court agreed, that these issues were enough to create individual issues of liability predominate over common issues.

Rest Break Claim

The court held that to determine Boyd’s liability for failing to authorize and permit off duty rest breaks, individual determinations would have to be made for each security guard employee for each shift worked.

In at least one declaration, the employee stated he determined, based on the circumstances, when to take a rest break, and “[w]hen these periods occur I place a sign out to inform visitors that I am on break and will be back shortly.” Another employee declared she frequently took rest breaks at her post, but was able to “watch television, read magazines or books, or engage in other non security related activities.”

The court concluded that the evidence established that there was no common proof regarding a finding of Boyd’s liability for rest breaks. Boyd had no formal policy denying off-duty rest breaks, Boyd did not require employees to waive them, and whether a guard took a rest break depended on a number of individual circumstances.

Therefore, the court held that the trial court was correct in holding that the meal and rest break claims were not suitable for class-wide treatment. The opinion, Faulkinbury v. Boyd & Associates, Inc., can be read in full here.
 

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What Labor Code requirements can employees waive?

It may come as a surprise to many employers that employees cannot waive, or enter into contracts contrary to many of California’s Labor Code requirements. The rationale for this is pretty basic: if employees could waive the rights given to them under the Labor Code, every employer would simply require the employee to waive the rights on the first day of work, rendering the Labor Code meaningless.

A general rule for Courts is found in Civil Code section 3513, which provides: “Any one may waive the advantage of a law intended solely for his benefit. But a law established for a public reason cannot be contravened by a private agreement.” California courts have found that many of the Labor Code provisions are for the public good, and therefore cannot be waived by an employee.  

Labor Code Provisions An Employee Cannot Waive:

  • Minimum Wage & Overtime

Labor Code Section 1194 provides a private right of action to enforce violations of minimum wage and overtime laws. That statute clearly voids any agreement between an employer and employee to work for less than minimum wage or not to receive overtime:

Notwithstanding any agreement to work for a lesser wage, any employee receiving less than the legal minimum wage or the legal overtime compensation applicable to the employee is entitled to recover in a civil action the unpaid balance of the full amount of this minimum wage or overtime compensation, including interest thereon, reasonable attorney’s fees, and costs of suit.

In Gentry v. Superior Court, the Supreme Court further explained:

[Labor Code] Section 510 provides that nonexempt employees will be paid one and one-half their wages for hours worked in excess of eight per day and 40 per week and twice their wages for work in excess of 12 hours a day or eight hours on the seventh day of work. Section 1194 provides a private right of action to enforce violations of minimum wage and overtime laws.

By its terms, the rights to the legal minimum wage and legal overtime compensation conferred by the statute are unwaivable. “Labor Code section 1194 confirms ‘a clear public policy . . . that is specifically directed at the enforcement of California’s minimum wage and overtime laws for the benefit of workers.’”

  • Expense Reimbursement

Labor Code section 2802 requires employers to reimburse its employees for “necessary expenditures or losses incurred by the employee” while performing his or her job duties. Labor Code section 2804, clearly provides that an employee cannot waive this right to be reimbursed for or liable for the cost of doing business. Section 2804 provides, “Any contract or agreement, express or implied, made by any employee to waive the benefits of this article or any part thereof, is null and void….”

Labor Code Provisions An Employee May Be Able To Waive:

While it is unclear, the following items could possibly be waived by an employee. However, these areas are very unsettled, and employers should approach with caution when seeking waivers from employees on these issues.

  • Meal Breaks

The California Supreme Court is currently reviewing the case Brinker v. Superior Court, that should address, among other issues, the standard regarding how employers need to provide meals breaks. At issue is whether employers need to simply “provide” employees with meal breaks, or on the other hand, “ensure” that employees take meal breaks. If the Supreme Court rules that employers only need to provide meal breaks, then if the employee chooses not to take the meal break, then arguably there would be no violation. The Supreme Court will hopefully issue a ruling on this case in 2010.

  • Waiver To Participate In A Class Action

Given the increase in wage and hour class actions, employers began seeking agreements from their employees that if a dispute would arise about any wage and hour issue, the employee would agree to only seek remedies on an individual basis, not through a class action. The California Supreme Court reviewed the issue if an employee could enter into such an agreement and found that, “at least in some cases, the prohibition of classwide relief would undermine the vindication of the employees’ unwaivable statutory rights and would pose a serious obstacle to the enforcement of the state’s overtime laws.” The Court therefore set out a number of factors that a trial court must look at to determine whether the class action waiver is enforceable or not. As of February 2010, there has not been a class action waiver that has been upheld by an appellate court in California. So while there is the possibility of enforcing such waivers, this possibility is very slight.
 

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No Break In Worker Suits

I was quoted in this month's California Lawyer magazine regarding the steady persistence of wage and hour lawsuits here in California - even during these difficult economic times.  The article, No Break In Worker Suits, can be read here

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Lower Court's Ruling In Brinker v. Hohnbaum

The Fourth Appellate District, Division One, Appellate Court's opinion in Brinker Restaurant Corporation, et al. v. Hohnbaum, et al. (July 22, 2008) is the opinion that was appealed to the California Supreme Court. The case is one of the first California state appellate court to rule on the parameters of employers’ duties under the California Labor Code requiring rest and meal breaks for hourly employees.  As discussed below, the court’s opinion was across the board in favor for California employers.  The primarily holding by the appellate court was that an employer does not have to “ensure” that meal and rest breaks are taken, therefore making these types of cases very difficult to certify as a class action. 

Due to the monumental impact this case will have on the vast wage and hour litigation in California, this post is longer than we typically like to write.

Case Background

In November 2005 Brinker filed its first petition for writ of mandate (D047509) in this matter. In the petition, Brinker challenged the court's July 2005 meal period order. Specifically, Brinker requested a writ directing the trial court to "vacate its earlier order holding that: (1) a non-exempt employee is entitled to a meal period for each five-hour block of time worked[; and] (2) the premium pay owed for a violation of [section 226.7] is a wage."

In support of its petition, Brinker argued the trial court erred by interpreting section 512 to mean that an hourly employee's entitlement to a meal period is "rolling," such that "a separate meal period must be provided for each five-hour block of time worked . . . regardless of the total hours worked in the day. In other words, the [court] interpreted the law to be that . . . [o]nce a meal period concludes, the proverbial clock starts ticking again, and if the employee works five hours more, a second meal period must be provided." 

Brinker also argued that although an employee working more than five hours and less than 10 hours is entitled under section 512 to a 30-minute meal period at some point during the workday, "nothing in [s]ection 512 . . . requires a second meal period be provided solely because [the] employee works five hours after the end of the first meal period, where the total time worked is less than [10] hours." Brinker further asserted that IWC Wage Order No. 5 also "does not dictate the anomalous result that meal periods must be provided every five hours" because, like section 512, it requires only that an employee working more than five hours "gets a meal period at some point during the workday." Brinker complained that the court's meal period ruling "requires servers to sit down, unpaid, during the most lucrative part of their working day."

Plaintiff’s Motion For Class Certification

Plaintiffs moved to certify a class of "[a]ll present and former employees of [Brinker] who worked at a Brinker[-]owned restaurant in California, holding a non-exempt position, from and after August 16, 2000 ('Class Members')." In their moving papers, plaintiffs alternatively defined the class as "all hourly employees of restaurants owned by [Brinker] in California who have not been provided with meal and rest breaks in accordance with California law and who have not been compensated for those missed meal and rest breaks." 

Plaintiffs' motion also sought certification of six subclasses, three of which are pertinent to the appeal: (1) a "Rest Period Subclass," consisting of "Class Members who worked one or more work periods in excess of three and a half (3.5) hours without receiving a paid 10 minute break during which the Class Member was relieved of all duties, from and after October 1, 2000"; (2) a "Meal Period Subclass," consisting of "Class Members who worked one or more work periods in excess of five (5) consecutive hours, without receiving a thirty (30) minute meal period during which the Class Member was relieved of all duties, from and after October 1, 2000"; and (3) an "Off-The-Clock Subclass," consisting of "Class Members who worked 'off-the-clock' or without pay from and after August 16, 2000."

The class in question is estimated to consist of more than 59,000 Brinker employees.

Plaintiffs Rest Break Claims

Plaintiffs allege Brinker willfully violated section 226.7 and IWC Wage Orders Nos. 5-1998, 5-2000 and 5-2001 by "fail[ing] to provide rest periods for every four hours or major fraction thereof worked per day to non-exempt employees, and failing to provide compensation for such unprovided rest periods." Section 226.7, subdivision (a) provides: "No employer shall require any employee to work during any meal or rest period mandated by an applicable order of the [IWC]." (Italics added.) 

The pertinent provisions of IWC Wage Order No. 5-2001 are codified in California Code of Regulations, title 8, section 11050, subdivision 12(A), which 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. (Italics added.)

The court held that the phrase "per four (4) hours or major fraction thereof" does not mean that a rest period must be given every three and one-half hours:

Regulation 11050(12)(A) states that calculation of the appropriate number of rest breaks must "be based on the total hours worked daily." Thus, for example, if one has a work period of seven hours, the employee is entitled to a rest period after four hours of work because he or she has worked a full four hours, not a "major fraction thereof." It is only when an employee is scheduled for a shift that is more than three and one-half hours, but less than four hours, that he or she is entitled to a rest break before the four hour mark. 

Moreover, because the sentence following the "four (4) hours or major fraction thereof" limits required rest breaks to employees who work at least three and one-half hours in one work day, the term "major fraction thereof" can only be interpreted as meaning the time period between three and one-half hours and four hours. Apparently this portion of the wage order was intended to prevent employers from avoiding rest breaks by scheduling work periods slightly less that [sic] four hours, but at the same time made three and one-half hours the cut-off period for work periods below which no rest period need be provided. 

The court also held that the DLSE’s opinion that the term "major fraction thereof" means any time over 50 percent of a four-hour work period is wrong because it renders the current version of Regulation 11050(12)(A) internally inconsistent. As an employee cannot be entitled to a 10-minute break if she or she "works more than 2 . . . hours in a day," if the employee is not entitled to a 10-minute break if he or she works "less than three and one-half" hours in a day. The court also noted that it is not required to follow the DLSE opinion on the matter, citing Murphy v. Kenneth Cole, 40 Cal.4th at p. 1105, fn. 7.

The court also held that the law does not required employers to provide rest breaks before meal breaks:

Furthermore, contrary to plaintiffs' assertion, the provisions of Regulation 11050(12)(A)do not require employers to authorize and permit a first rest break before the first scheduled meal period. Rather, the applicable language of Regulation 11050(12)(A)states only that rest breaks "insofar as practicable shall be in the middle of each work period." (Italics added.) Regulation 11050(12)(A)is silent on the question of whether an employer must permit an hourly employee to take a 10-minute rest break before the first meal period is provided. As Brinker points out, an employee who takes a meal period one hour into an eight-hour shift could still take a post-meal period rest break "in the middle" of the first four-hour work period, in full compliance with the applicable provisions of IWC Wage Order No. 5-2001.

The court explained that Regulation 11050(12)(A) allows employers some “discretion to not have rest periods in the middle of a work period if, because of the nature of the work or the circumstances of a particular employee, it is not ‘practicable.’” In explaining what “practicable” means, the court specifically mentioned that:

…this discretion is of particular importance for jobs, such as in the restaurant industry, that require flexibility in scheduling breaks because the middle of a work period is often during a mealtime rush, when an employee might not want to take a rest break in order to maximize tips and provide optimum service to restaurant patrons. As long as employers make rest breaks available to employees, and strive, where practicable, to schedule them in the middle of the first four-hour work period, employers are in compliance with that portion of Regulation 11050(12)(A). 

Ultimately, the court held that a determination about whether it is practicable to permit rest breaks near the end of a four hour work period is not an issue that can be litigated on a class-wide basis. In overruling the trial court’s granting of class certification the Appellate Court stated:

Had the court properly determined that (1) employees need be afforded only one 10-minute rest break every four hours "or major fraction thereof" (Reg. 11050(12)(A)), (2) rest breaks need be afforded in the middle of that four-hour period only when "practicable," and (3) employers are not required to ensure that employees take the rest breaks properly provided to them in accordance with the provisions of IWC Wage Order No. 5, only individual questions would have remained, and the court in the proper exercise of its legal discretion would have denied class certification with respect to plaintiffs' rest break claims because the trier of fact cannot determine on a class-wide basis whether members of the proposed class of Brinker employees missed rest breaks as a result of a supervisor's coercion or the employee's uncoerced choice to waive such breaks and continue working. Individual questions would also predominate as to whether employees received a full 10-minute rest period, or whether the period was interrupted. The issue of whether rest periods are prohibited or voluntarily declined is by its nature an individual inquiry.

Plaintiffs argued that even if the trial court erred in failing to define the elements of plaintiffs' rest period claims prior to certifying the class the appellate court should remand the case to the trial court to permit the trial court to rule on if plaintiffs' "expert statistical and survey evidence" makes their rest break claims amenable to class treatment. The appellate court refused to remand the case, stating that while courts may use such evidence in determining if a claim is amenable to class treatment, here, that evidence does not change the individualized inquiry in determining if Brinker allowed or forbade rest periods. The court stated:

The question of whether employees were forced to forgo rest breaks or voluntarily chose not to take them is a highly individualized inquiry that would result in thousands of mini-trials to determine as to each employee if a particular manager prohibited a full, timely break or if the employee waived it or voluntarily cut it short. (Brown v. Federal Express Corp. (C.D.Cal. 2008) ___ F.R.D. ___ [2008 WL 906517 at *8] (Brown) [meal period violations claim not amenable to class treatment as court would be "mired in over 5000 mini-trials" to determine if such breaks were provided].)

For these reasons, the appellate court vacated the order granting class certification for the rest break subclass. 

Plaintiffs’ Meal Break Claims

In their second cause of action, plaintiffs allege Brinker violated sections 226.7 and 512, and IWC Wage Order No. 5, by failing to "provide meal periods for days on which non-exempt employees work(ed) in excess of five hours, or by failing to provide meal periods [altogether], or to provide second meal periods for days employees worked in excess of [10] hours, and failing to provide compensation for such unprovided or improperly provided meal periods." Plaintiffs claim that Brinker’s “early lunching” policy that required its employees to take their meal periods soon after they arrive for their shifts, usually within the first hour, and then requiring them to work in excess of five hours, and sometimes more than nine hours straight, without an additional meal period violated California law. 

Plaintiffs asserted that common issues predominate on their rest break claims because they "presented corporate policy evidence of a pattern and practice by Brinker of failing to provide a rest period prior to employees' meal period as a result of its practice of scheduling meals early." Specifically, plaintiffs argued that "Brinker maintains company-wide policies discouraging rest periods, including requiring servers to give up tables and tips if they want a break and failing to provide rest periods prior to scheduled early meals."

1. Rolling five-hour meal period claim

The lower trial court in this case, found that a meal period "must be given before [an] employee's work period exceeds five hours." The lower court also stated that "the DLSE wants employers to provide employees with break periods and meal periods toward the middle of an employee[']s work period in order to break up that employee's 'shift.'" The court further stated that Brinker "appears to be in violation of [section] 512 by not providing a 'meal period' per every five hours of work."

In overruling the lower court, the appellate court ruled that this interpretation of the law was incorrect and that the trial court’s class certification order rests on improper criteria with respect to the plaintiffs' rolling five-hour meal period claim.

The appellate court began its analysis with Labor Code Section 512, subdivision (a), which provides:

An employer may not employ an employee for a work period of more than five hours per day without providing the employee with a meal period of not less than 30 minutes, except that if the total work period per day of the employee is no more than six hours, the meal period may be waived by mutual consent of both the employer and employee. An employer may not employ an employee for a work period of more than 10 hours per day without providing the employee with a second meal period of not less than 30 minutes, except that if the total hours worked is no more than 12 hours, the second meal period may be waived by mutual consent of the employer and the employee only if the first meal period was not waived.

The appellate court held that Section 512(a) thus provides that an employer in California has a statutory duty to make a first 30-minute meal period available to an hourly employee who is permitted to work more than five hours per day, unless (1) the employee is permitted to work a "total work period per day" that is six hours or less, and (2) both the employee and the employer agree by "mutual consent" to waive the meal period.

The appellate court also held that this interpretation of section 512(a), regarding an employer's duty to provide a first meal period, is consistent with the plain language set forth in IWC Wage Order No. 5-2001, which provides in part: "No employer shall employ any person for a work period of more than five (5) hours without a meal period of not less than 30 minutes, except that when a work period of not more than six (6) hours will complete the day's work the meal period may be waived by mutual consent of the employer and the employee."

On the issue regarding when an meal break must be provided the court stated:

With respect to the issue of when an employer must make a first 30-minute meal period available to an hourly employee, Brinker's uniform meal period policy (titled "Break and Meal Period Policy for Employees in the State of California") comports with the foregoing interpretation of section 512(a) and IWC Wage Order No. 5-2001. It provides that employees are "entitled to a 30-minute meal period" when they "work a shift that is over five hours." 

The court continued in holding that Section 512(a) also provides that an employer has a duty to make a second 30-minute meal period available to an hourly employee who has a "work period of more than 10 hours per day" unless (1) the "total hours" the employee is permitted to work per day is 12 hours or less, (2) both the employee and the employer agree by "mutual consent" to waive the second meal period, and (3) the first meal period "was not waived."

Plaintiffs argue that Brinker's written meal policy violates section 512(a) and IWC Wage Order No. 5 (specifically, Cal. Code Regs., tit. 8, § 11050, subd. 11(A)) because it allows the practice of “early lunching” and fails to make a 30-minute meal period available to an hourly employee for every five consecutive hours of work. Plaintiffs maintained that every hourly employee should receive a second meal break five hours after they return from the first meal break. The court found this argument unpersuasive:

Under this interpretation, however, the term "per day" in the first sentence of section 512(a) would be rendered surplusage, as would the phrase "[a]n employer may not employ an employee for a work period of more than 10 hours per day without providing the employee with a second meal period of not less than 30 minutes" in the second sentence of that subdivision.

The appellate court held that without a proper interpretation of section 512(a), the lower court could not correctly ascertain the legal elements that members of the proposed class would have to prove in order to establish their meal period claims, and therefore could not properly determine whether common issues predominate over issues that affect individual members of the class.

2. Brinker's failure to ensure employees take meal periods

Plaintiffs also claim that Brinker's uniform meal period policy violates sections 512 and 226.7, as well as IWC Wage Order No. 5, by failing to ensure that its hourly employees take their meal periods. In the primary holding of the case, the appellate court stated:

We conclude that California law provides that Brinker need only provide meal periods, and, as a result, as with the rest period claims, plaintiffs' meal period claims are not amenable to class treatment.

The appellate court disagreed with Plaintiffs’ contention that an employer’s duty was to ensure a meal break. The court stated:

If this were the case, employers would be forced to police their employees and force them to take meal breaks. With thousands of employees working multiple shifts, this would be an impossible task. If they were unable to do so, employers would have to pay an extra hour of pay any time an employee voluntarily chose not to take a meal period, or to take a shortened one. 

3. Amenability of plaintiffs' meal break claims to class treatment

The appellate court held that because meal breaks need only be made available, not ensured, individual issues predominate in this case and the meal break claim is not amenable class treatment. The court explained:

The reason meal breaks were not taken can only be decided on a case-by-case basis. It would need to be determined as to each employee whether a missed or shortened meal period was the result of an employee's personal choice, a manager's coercion, or, as plaintiffs argue, because the restaurants were so inadequately staffed that employees could not actually take permitted meal breaks. As we discussed, ante, with regard to rest breaks, plaintiffs' computer and statistical evidence submitted in support of their class certification motion was not only based upon faulty legal assumptions, it also could only show the fact that meal breaks were not taken, or were shortened, not why. It will require an individual inquiry as to all Brinker employees to determine if this was because Brinker failed to make them available, or employees chose not to take them.

The appellate court also found that the evidence does not show that Brinker had a class-wide policy that prohibited meal breaks. Instead, the evidence in this case indicated that some employees took meal breaks and others did not, and it requires the court to perform an individualized inquiring into the reasons why an employee did not take the break. The court also held that the plaintiffs’ statistical and survey evidence does not render the meal break claims one in which common issues predominate because while the time cards might show when meal breaks were taken and when there were not, they cannot show why they were or were not taken.

Plaintiffs’ Off-the clock claim

Plaintiffs also allege Brinker unlawfully required its employees to work off the clock during meal periods. This claim was comprised of two theories: (1) time worked during a meal period when an individual was clocked out; and (2) time “shaving,” which is defined as an unlawful alteration of an employee's time record to reduce the time logged so as to not accurately reflect time worked.

The court held, and the Plaintiffs did not dispute, that employers can only be held liable for off-the-clock claims if the employer knows or should have known the employee was working off the clock. (citing Morillion v. Royal Packing Co., 22 Cal.4th at p. 585.) The evidence also established that Brinker has a written corporate policy prohibiting off-the-clock work. Because of these facts, the court found that plaintiffs' off-the-clock claims are not amenable to class treatment. As the court stated:

Thus, resolution of these claims would require individual inquiries in to whether any employee actually worked off the clock, whether managers had actual or constructive knowledge of such work and whether managers coerced or encouraged such work. Indeed, not all the employee declarations alleged they were forced to work off the clock, demonstrating there was no class-wide policy forcing employees to do so.

 

 

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CA Supreme Court denies review in Starbucks tip pooling case

The California Supreme Court denied review of a lower appellate court decision in the class action of Chau v. Starbucks. The issue in the case is whether store managers, who as part of their duties also served customers, could share in the tips which were left for all servers. The trial court took the technical line that Labor Code section 351 prohibits any "agent" of the employer from sharing in tips. At the trial court level, plaintiffs won a $105 million award for restitution over the disputed tips for a four year period.

However, on appeal, this award was reversed. In a favorable ruling for employers, the appellate court took a more common sense reading of Labor Code section 351, explaining:

There is no decisional or statutory authority prohibiting an employer from allowing a service employee to keep a portion of the collective tip, in proportion to the amount of hours worked, merely because the employee also has limited supervisory duties. Accordingly, we reverse the judgment and order the trial court to enter judgment in Starbucks's favor.

The Supreme Court’s decision not to review the appellate court’s decision establishes that decision as precedent and binding in California. Click here for a more detailed analysis of the appellate court's decision. 

However, employers are cautioned to review the appellate decision (and obtain legal advice) before allowing managers to share in tip sharing arrangements. For example, the Starbucks ruling involved the situation where there was a "collective tip box" that "a customer would necessarily understand the tip will be shared among the employees who provide the service” and that the managerial employee is part of the team that provided the service.

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$86 Million Verdict Against Starbucks Overturned: Court Holds That Shift Supervisors May Share In "Tip Apportionment" Arrangements

The $86 million trial award against Starbucks for violation of California Labor Code provisions on tips was overturned by a California appellate court (Chau v. Starbucks). The case was initiated by Jou Chau who was a former Starbucks barista. He brought a class action against Starbucks alleging that the company’s policy permitting shift supervisors to share in tips that customers place in a collective tip box violated Labor Code section 351 and California Unfair Competition Law. The trial court certified a class action of current and former baristas and held a bench trial, in which it held Starbucks was liable for $86 million.

The appellate court, in overturning the trial court’s award, succinctly summarized the error it found the trial court made:

The applicable statutes do not prohibit Starbucks from permitting shift supervisors to share in the proceeds placed in collective tip boxes. The court's ruling was improperly based on a line of decisions that concerns an employer's authority to mandate that a tip given to an individual service employee must be shared with other employees. The policy challenged here presents the flip side of this mandatory tip-pooling practice. It concerns an employer's authority to require equitable allocation of tips placed in a collective tip box for those employees providing service to the customer. There is no decisional or statutory authority prohibiting an employer from allowing a service employee to keep a portion of the collective tip, in proportion to the amount of hours worked, merely because the employee also has limited supervisory duties.

At issue in this case is the interpretation of Labor Code section 351, which states: "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." Plaintiff here argued that the shift supervisors who participated in sharing the tips left in the tip jar were “agents” of Starbucks, and therefore are prohibited from sharing in the tips.

The court explained the manner in which Starbucks collects and shares the tips left in the tip jars:

Because of the team-service approach, a collective tip box is provided for those customers who choose to tip the group of employees, rather than an individual. Collective tipping is the norm with occasional instances of individual tipping. Starbucks has a highly detailed written policy for collecting, storing, and distributing these collective tips. This policy requires each store to have a "standard 4" x 4" plexi cube container for tips." The container must be placed near each cash register, and should not have any signs on it. At the end of each day, an employee must store the tips under numerous rules that ensure the security of the tip funds.
Starbucks mandates that the only employees eligible to share in the weekly collective tips are "all baristas and shift supervisors who worked that week." Store managers and assistant managers are prohibited from receiving any portion of these tips. Additionally, only baristas and shift supervisors are eligible to count and distribute the tips. To calculate the weekly tip distribution, the selected counting employee must: (1) determine the total monetary amount from the tip container; (2) calculate the total number of hours worked by all baristas and shift supervisors in the particular store; (3) divide the total amount of hours by the store's total earned tips for the week to obtain the tip hourly rate; (4) multiply each of the barista and shift supervisor hours by the tip hourly rate to determine each employee's tip income; and (5) place each employee's tip income in a sealed envelope, label the envelope with the employee's name, and store the envelope in the safe until the employee is available to take possession of it.

The court recognized that if a customer left a tip for a particular employee, then the employee was entitled to keep that tip and was not required to place the tip in the collective tip jar.

Plaintiff argued that because the shift supervisors were considered Starbucks’ agent under Labor Code section 350, they cannot participate in the sharing of the tips even if they serviced customers who left tips in the communal tip jar.

The court found that even if the shift supervisors meet the definition of agent under section 350, Labor code section 351 does not prohibit Starbucks from allowing shift supervisors from sharing in tips that were left for baristas and for the shift supervisors. The court explained:

Because—as plaintiffs concede—section 351 does not prohibit a shift supervisor from keeping gratuities given to him or her for his or her customer services, there is no logical basis for concluding that section 351 prohibits an employer from allowing the shift supervisor to retain his or her portion of a collective tip that was intended for the entire team of service employees, including the shift supervisor. In this situation, the shift supervisor keeps only his or her earned portion of the gratuity and does not "take" any portion of the tip intended for services by the barista or baristas. If—as is undisputed here—the tips were left in the collective tip boxes for the baristas and shift supervisors, and it was permissible for Starbucks to require an equitable division of the tips according to the number of hours worked by each employee, it is not a violation of section 351 for the employer to maintain a policy ensuring those service employees benefit from a portion of those tips. Because a shift supervisor performs virtually the same service work as a barista and the employees work as a "team," Starbucks did not violate section 351 by requiring an equitable distribution of tips specifically left in a collective tip box for all of these employees.

Mandatory Tip Pooling vs. Tip Apportionment

The court explained there is a difference between mandatory tip pooling and tip apportionment:

[T[he legal principles prohibiting an employer from requiring an employee to share his or her personal tip with the employer's agent ("mandatory tip pooling") do not logically apply to an employer policy requiring equitable apportionment of the proceeds in a collective tip box ("tip apportionment").

The court explained that under previous case law “an employer violates section 351 if it requires an employee to give up any part of his or her tip for the benefit of the employer's agent.” However, the court set forth that the case here does not involve tip pooling, but rather tip apportionment. Starbucks did not require its baristas to give their tips to the shift supervisors. The policy at issue in this case was how employees divide tips left for them in a collective tip jar. The court held that Starbucks’ policy appropriately distributes the tips as close as possible to the intent of the customers who leave a tip in the jar, which does not violate the Labor Code.

Employers concerned about this issue should approach with caution. The court made it very clear that the case was decided on facts specific to Starbucks the policies specific to this case.

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"Direct Table Service" Is Not Required For Employees Participating In Tip Pools: Budrow v. Dave & Buster's

California restaurateurs received a huge victory from the Second District appellate court's ruling in Budrow v. Dave & Buster’s Of California, Inc. The lawsuit against Dave & Buster’s alleged that its tip pool policy violated California law in that it required employees to tip out bartenders who did not provide "direct table service." The court rejected Plaintiff’s argument that an employee had to have “direct table service” in order to validly participate in the tip pool.  As previously written, this is the second appellate court decision that reached the same result.

The court first explained that Labor Code section 351 does not impose a “direct table service” requirement on tip pools. The court explained that are two parts of Labor Code section 351 that are relevant to the “direct” and “indirect” table service issue. First, section 351 provides that “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.” Second, section 351 also provides that “[e]very gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for.” Based on a plain reading of the Labor Code, the court rejected Plaintiff’s argument that there had to be direct table service for all employees who were a part of the tip pool.

Plaintiffs also argued that the “direct table service” requirement was established by prior case law in Leighton v. Old Heidelberg, Ltd. (1990) 219 Cal.App.3d 1062. The court rejected Plaintiff’s argument on four grounds:

  1. The Old Heidelberg case does not define “direct” as opposed to “indirect” service. The court noted that a bartender pouring a drink at the bar could be considered as providing direct table service. The court also noted that Old Heidelberg relied upon “industry practice” of tipping 15% to busboys and 5% to bartenders. Therefore the court could not agree that Old Heidelberg even defined “direct table service” for use as a requirement in this analysis.
  2. The “references to direct table service are made in Old Heidelberg without any attempt to fashion a rule that would limit tip pools to servers and busboys.”
  3. Old Heidelberg did not establish who which employees, if any, are to be excluded from the tip pools.
  4. Old Heidelberg did not decide which limitations on the types of employees are allowed to participate in tip pools, nor did it set forth “criteria or standards” to establish these limitations.

Therefore, the court held that there was no standard that only employees who provided direct table service are those who could participate in tip pools.

The court explained that “[t]ip pools exist to minimize friction between employees and to enable the employer to manage the potential confusion about gratuities in a way that is fair to the employees.” And the artificial distinction between “indirect” and “direct” table service is of no help.

The opinion can be downloaded from the court's website for a short period of time in PDF or Word.

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Etheridge v. Reins International: Employees Who Do Not Provide Direct Table Service May Still Participate In Tip-Pools

 Another California Court of appeal ruled on the issue of tip-pooling in California. In Etheridge v. Reins International California, Inc., the court held that employees who do not provide “direct table service” may participate in tip-pools mandated by employers. (This holding confirms another recent appellate court's ruling in Budrow v. Dave & Buster’s Of California, Inc. on the same issue.)

The court set forth the issue in the case:

Tip-pooling, a practice by which tips left by patrons at restaurants and other establishments are shared among employees, is a common practice throughout California and the nation. No California statutes expressly address the practice. In this case, restaurant servers challenge the legality of a mandatory tip-pooling arrangement, whereby, as a condition of their employment, the servers must share tips with certain other employees at the restaurant. While the servers do not contest the requirement that bussers share in the tip pool, they challenge the inclusion of employees who do not provide “direct table service.”

The complaint alleged that Reins has a mandatory tip pooling policy by which its servers are required to “tip out” certain categories of Reins’s employees who do not provide direct table service. Specifically, it is alleged that servers are required to pay a share of their tips to the kitchen staff, bartender, and dishwashers.

Plaintiff alleged that because the tip-pooling policy at issue mandated that employees who do not provide direct table service (such as the kitchen staff) participate in the mandatory tip-pool violates Labor Code section 351, which governs gratuities.  

Tip Credits vs. Tip Pools

The Court clearly explained that tip credits and tip-pools are two different items and should not be confused. Tip credits, where the employer applies a portion of the employees’ tips against the employer’s obligation to pay minimum wage (which were not an issue in this case), are not valid in California:

The first is a practice known as a “tip credit,” by which an employer credits a certain amount of the tips received by an employee against the employee’s wages. In other words, when using a tip credit, the employer pays the employee less than minimum wage, with the understanding that the employee’s tips will make up the difference. As will be discussed at length, tip credits against minimum wage are permissible under the federal Fair Labor Standards Act (29 U.S.C. § 203(m)); tip credits against minimum wage were once permitted under California law, but were subsequently prohibited by statute. (Henning v. Industrial Welfare Com. (1988) 46 Cal.3d 1262, 1270-1275.)

Under tip pooling, employees who receive tips share the tips with other employees in the restaurant. As the court explained, there are different types of tip pooling arrangements:

This case raises the issue of precisely which other employees may participate in a tip pool. In one type of tip pool, the pool is designed to spread the risk of low tipping patrons among all tipped employees; thus, only tipped employees may participate in tip pools. In another type of tip pool; the pools are designed to share tips with non-tipped employees who are considered deserving of tips, but who, for some reason (perhaps tradition, or location) are generally not tipped by patrons.

Labor Code Section 351 - Gratuities

The primary issue of the case is the interpretation of Labor Code section 351.  The court examined the first California court opinion that addressed the validity of tip pools, Leighton v. Old Heidelberg, Ltd. (1990) 219 Cal.App.3d 1062. The court noted that while the Leighton court was primarily resolving the issue of requiring servers to "tip-out" bussers, that ruling also held that bartenders could participate in tip pools.  The Leighton court also stated that tips belong “to the employee[s] who contributed to the service of that patron.” Therefore, the court held that Leighton’s holding and rational extended to all employees who contribute to the service of customers, not just those who provide direct table service. 

The court also held that common sense dictates all employees should be able to participate in a tip-pool:

But a “direct table service” limitation would allow a busser to participate in a tip pool if the busser clears the plates while the patron is still seated at the table, but not to participate if the busser waits until after the patron has departed. The work is the same; the next patron still starts his dining experience with an equally clean table, but the busser who cleans between patrons would be barred from participating in the tip pool because he does not personally interact with any patrons. This illogical result casts doubt on any “direct table service” requirement.

Is this the last word on tip-pools in California? 

Probably not. Judge Croskey, who provided a concurring opinion, and Judge Klein, who provided a dissenting opinion on the "direct table service" issue, both called for the California Supreme Court to review this issue to provide further guidance.

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Court Holds Arbitration Agreement With Class Action Waiver And PAGA Waiver Is Unenforceable

Plaintiff, who was a trash truck driver for Athens Disposal Company, Inc., filed a class action against the company alleging violations of the Labor Code.  Plaintiff asserted the following causes of action against Athens:

  1. Failing to pay overtime.
  2. Failing to provide meal periods and to pay an additional hour of compensation per workday to employees who missed a meal period.
  3. Failing to provide rest periods and to pay an additional hour of compensation per workday to employees who missed a rest period.
  4. Failing to provide necessary payroll information to employees and failing to maintain records on each employee showing all hours worked and all meal periods taken.
  5. Civil penalties authorized by the Private Attorneys General Act of 2004 (PAGA) for violating the Labor Code.
  6. Violation of the California Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.).

Immediately after the lawsuit was filed, Athens filed a petition to compel arbitration based on a written agreement with plaintiff. The arbitration agreement contained a provision waiving class arbitrations and also precluded an employee from acting in “a private attorney general capacity,” which would bar plaintiff’s enforcement of the Labor Code on behalf of other employees.

The court held that the entire arbitration agreement was not enforceable:

We conclude that the class arbitration waiver is unconscionable with respect to the alleged violations of the meal and rest period laws given “the modest size of the potential individual recovery, the potential for retaliation against members of the class, [and] the fact that absent members of the class may be ill informed about their rights.” (Gentry v. Superior Court (2007) 42 Cal.4th 443, 463 (Gentry).) In addition, because the arbitration agreement prevents plaintiff from acting as a private attorney general, it conflicts with the Labor Code Private Attorneys General Act of 2004 (PAGA) (§§ 2698–2699.5) — an act that furthers Gentry’s goal of comprehensively enforcing state labor laws through statutory sanctions (see Gentry, supra, 42 Cal.4th at pp. 462–463).

The court noted that the class action waiver in the arbitration agreement by itself was unenforceable, which may have been severed from the arbitration agreement. However, when coupled with the employee’s waiver of action as a private attorney general, the entire agreement was unenforceable.

The case, Franco v. Athens Disposal Company, Inc., can be downloaded for a short period of time from the court’s website in PDF or Word.
 

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Court Holds Employer's Settlement Agreement With Individual Class Members Is Valid

In Chindarah v. Pick Up Stix, Inc. (February 26, 2009) the court of appeal held that employers may enter into settlement agreements with current and former employees over disputed wage claims. At issue in the case was whether the employer’s settlement and release agreements entered into with individual employees settling disputed overtime wages were valid and enforceable under California law. Thankfully for the thousands of employers in California who have entered into settlement agreements regarding wage and hour claims, the appellate court held the agreements are enforceable.

Two former employees of Pick Up Stix sued for claims for unpaid overtime, penalties and interest due to the misclassification of their jobs as exempt from overtime pay. The employer participated in a mediation, but to no success. Stix then decided to approach the putative class members on its own in an attempt to settlement with them individually. Stix offered the putative class members an amount that the employees would have received under the amount offered by Stix during the mediation. More than two hundred current and former employees accepted the settlement amount and signed a general release. The release acknowledged that the employees had spent more than 50% of their time performing managerial duties and agreed “not to participate in any class action that may include …any of the released Claims….” The release also provided:

In exchange for the release from Employee set forth below, the Company will pay Employee by check the gross amount of [varied amounts] less payroll deductions, in full and complete satisfaction of all issues and claims by Employee for unpaid overtime, penalties, interest and other Labor Code violations for the time period of February 28, 1999 through September 2003.

Plaintiffs challenged the settlement agreements arguing that the agreements were void under Labor Code sections 206 and 206.5.

Labor Code section 206.5 provides:

An employer shall not require the execution of a release of a claim or right on account of wages due, or to become due, or made as an advance on wages to be earned, unless payment of those wages has been made. A release required or executed in violation of the provisions of this section shall be null and void as between the employer and the employee. Violation of the provisions of this section by the employer is be a misdemeanor.

In regards to the waivability of overtime rights, Labor Code section 1194, subdivision (a) provides:

Notwithstanding any agreement to work for a lesser wage, any employee receiving less than the legal minimum wage or the legal overtime compensation applicable to the employee is entitled to recover in a civil action the unpaid balance of the full amount of this minimum wage or overtime compensation, including interest thereon, reasonable attorney’s fees, and costs of suit.

Plaintiffs argued that the release in this case was void as a matter of law to the extent it releases claims for any wages actually due and unpaid and because it constitutes an agreement to work for less than the overtime compensation actually due and unpaid. The court rejected Plaintiffs’ argument:

The Plaintiffs claim “wages actually due and unpaid” means wages that are disputed, if they are ultimately found to be owing. In other words, the Plaintiffs claim any settlement of a dispute over overtime compensation runs afoul of sections 206.5 and 1194.

The court also noted various federal court cases that have also reached the same conclusion. In Reynov v. ADP Claims Services Group, Inc. (N.D. Cal., Apr.30, 2007), after plaintiff quit his job, he signed an agreement releasing the employer “from ‘all claims, actions, and causes of action, of every kind, nature, and description, which exist as of the date you sign the Letter Agreement, arising out of or related to your employment.’” As consideration for the release, the plaintiff received “substantial compensation to which he was not otherwise entitled, including a severance payment in excess of $29,000.” The plaintiff argued the release was unenforceable under section 206.5. Relying on other state court cases, the Reynov court found that section 206.5 prohibited a release of wages due unless paid in full, and “wages are not due if there is a good faith dispute as to whether they are owed. Because [the employer’s] defense that [the plaintiff] was an exempt employee under California law would, if successful, preclude any recovery for [the plaintiff], a bona fide dispute exists and the overtime pay cannot be considered ‘concededly due.’” (citations omitted)

The court also rejected Plaintiffs’ argument that the newly decided case of Edwards v. Arthur Andersen (2008) supports their position. The Plaintiffs contended that because the Supreme Court found in Edwards that an employee’s statutorily unwaivable indemnity rights under Labor Code section 2802 could not be waived as part of a general release, a dispute over past overtime wages cannot be settled. The court recognized that an employee cannot waive his or her right to overtime pay under Labor Code section 1194 (as well as other statutorily provided rights), but the court also reasoned that there was not statute prohibiting employees from releasing their claims to past overtime as settlement “of a bona fide dispute over those wages.”

In conclusion, the court reasoned the public policy underlying section 1194 to protect worker from employer coercion to forgo overtime is not violated by its holding. The releases here were to settle disputes about whether the employees were properly paid in the past and the agreements did not bar employees from suing over future violations.

The opinion can be downloaded from the court's website here in Word or PDF.
 

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Punitive Damages Are Not Recoverable For Alleged Labor Code Violations

As a matter of law, Plaintiffs’ cannot recovery punitive damages for Labor Code violations. Brewer v. Premier Golf Properties (2008) 168 Cal.App.4th 1243, 1252. In Brewer, the court stated:

We are convinced, both by application of the “new right-exclusive remedy” doctrine and under more general principles that bar punitive damages awards absent breach of an obligation not arising from con-tract, punitive damages are not recoverable when liability is premised solely on the employer's violation of the Labor Code statutes that regulate meal and rest breaks, pay stubs, and minimum wage laws.

Ibid. In Brewer, the plaintiff sought damages for pay stub violations, unpaid minimum wages, unpaid overtime, and meal and rest break wages. The court explained that Brewer’s claims for Labor Code violations arose from rights based on her employment contract, and therefore she was not entitled to recover punitive damages. Despite the clear holding in Brewer, I still routinely see punitive damages asked for in wage and hour cases.
 

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Less Discrimination Lawsuits Equals More Wage And Hour Lawsuits?

The WSJ recently reported, there is a trend that discrimination based lawsuits fair a lot worse than most other cases filed in federal court. A study found that discrimination cases lose at a higher rate and are more likely to be dismissed at early stages in the lawsuit. The article reports:

The odds against winning discrimination cases have some employee lawyers reluctant even to try. "We will no longer take individual employment-discrimination cases, because there's such a high likelihood of losing," New York plaintiffs' attorney Joe Whatley Jr. says. Job-discrimination case filings declined by 40% from 199Source: WSJ.com9 to 2007, federal court records show.

The article also points out that discrimination cases are dismissed more often at the summary judgment stage:

Even the federal courts have detected the pattern of more dismissals in discrimination cases, though they surmise different reasons for it than do plaintiffs' lawyers. A report last year by the Federal Judicial Center, the research arm of the federal courts, found that judges nationwide terminated 12.5% of employment-discrimination cases through summary judgments, before the suits reached trial. In 90% of those cases, it was the employers who requested the summary judgment. In contrast, the study found, 3% of contract cases and 1.7% of personal-injury and property-damage suits were dismissed via summary judgments.

There can be a number of reasons for this as the article points out: employers settle bad cases before litigation and employers have implementing better policies and maintain better documentation to defend themselves against discrimination claims.

It is interesting to note that during this same time period that discrimination class are declining, there is a noticeable increased amount of wage and hour litigation. In fact, wage and hour lawsuits more than doubled in federal courts from 2001 to 2006.  No matter what the cause, discrimination cases are harder to bring, and harder to win. What replaced discrimination claims during this same time period? Wage and hour claims for violations of overtime pay, non-payment of wages, and not providing meal and rest breaks. 
 

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How To Approach Meal & Rest Breaks While Waiting For The California Supreme Court's Decision in Brinker v. Superior Court (Hohnbaum)

While California employers anxiously wait for the California Supreme Court’s opinion in Brinker v. Superior Court (Hohnbaum) (and also Brinkley v. Public Storage, Inc.), what steps should they in regards to meal and rest break policies?

Record meal breaks.

This is already an obligation of California employers, and the Brinker decision does not change this obligation. Failure to do so creates a negative inference against the employer during litigation.

Employers should continue to have a strict written policy on providing meal and rest breaks.

Brinker’s policies, which were found to be valid by the appellate court, are a good example of policies California employers should have in place. For example, Brinker had a written policy titled “Break and Meal Period Policy for Employees in the State of California.” Brinker also required its employees to sign a form stating “I am entitled to a 30-minute meal period when I work a shift that is over five hours” and that “If I work over 3.5 hours during my shift, I understand that I am eligible for one [10-]minute rest break for each four hours that I work.” Brinker’s policy also stated that an employee’s failure to abide by the policy could result in termination. The court held that this ultimately was sufficient under California law to “provide” meal and rest breaks, only if the defendant has taken steps to establish and communicate the policy. Then if an employee fails to take a meal or rest break voluntarily, the employer is not liable for damages.

Continue to monitor that employees are actually taking meal breaks.

A good example of what not to do was shown by the defendant in Cicairos v. Summit Logistics, Inc. (2005) 133 Cal.App.4th 949. There, the defendant, a trucking company, had computerized systems on each truck that allowed it to track the driver’s location, speed, starts and stops, and time. The drivers had to input factors that the computers could not monitor independently, such as road conditions and traffic. The court held that by requiring its drivers to keep track of these factors, the defendant trucking company regulated the drivers’ activity, but failed to schedule meal breaks, did not include an activity code for meal breaks that would be an acceptable delay for deliveries. The company also did not monitor compliance. The court also noted that:

[W]here the employer has failed to keep records required by statute, the consequences for such failure should fall on the employer, not the employee. In such a situation, imprecise evidence by the employee can provide a sufficient basis for damages.

(citing Hernandez v. Mendoza (1988) 199 Cal.App.3d 721, 727). As a result of Cicairos’ failures, “most drivers at their meals while driving or skipped a meal nearly every working day” and the pressure from management made drivers feel that they should not stop for lunch. The court held that these facts negated defendant’s argument that the meal breaks were provided.

Make sure management knows about and enforces these rules.

Employers should have discussions with their front-line managers about meal and rest breaks to ensure that the policy is being effectively administrated.

Policies should require employees to come forward to report if they have been forced to work through a meal break.

This would help to some degree when the employees claim that they were forced to work through their meal and rest breaks.
 

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Politicians Closer To CA Budget Deal - No Changes To Meal & Rest Break Laws

It appears that the California state politicians are close to finalizing a budget deal in Sacramento by this Friday. The Governor placed everything on the table during these negotiations, including attempting to bring some relief to businesses in regards to the meal and rest break laws and even revising California’s requirements that overtime is owed for all work performed over 8 hours in a day. However, by many reports it appears that there will be no change to the current meal and rest break laws, or the overtime requirements.

Many California businesses have been sued in wage and hour class actions alleging that they have not properly administered meal and rest breaks. Employers face large amounts of liability in these class actions in the form of premium pay of one hour of pay at the employee’s regular rate of pay for each violation for a period of four years.

The Press Democrat also reports that the deal will increase taxes:

Vehicle license fees would nearly double, going from the current rate of 0.65 percent to 1.15 percent of the value of a car or truck.
The sales tax would increase by 1 cent. Gas taxes would increase by 12 cents a gallon.
Californians would pay a new surcharge on their personal income taxes, amounting to 2.5 percent of their total tax bills. The state's dependent credit would be cut in half, raising taxes for parents and those who take care of elders.
The new and increased taxes would remain in effect for at least two years.
 

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Basic Law On Tip Pools

California law treats “tips” (defined as any discretionary gratuity left by a customer for a server) as a strange kind of compensation -- which may belong to the employee who initially received the tip, other employees involved or, for certain purposes, even the employer itself. Given the confused property rights involved, businesses are often unsure how tips should be handled.

The Legal Status of Tips.
The Labor Code states unequivocally that “Every gratuity is hereby declared to be the sole property of the employee or employees for whom it was paid, given or left for.” (Lab. Code § 350). Yet, California courts have also reached the seemingly contradictory conclusion that employers may lawfully require that this “sole property” of the employee must be shared with other employees. Moreover, the federal Fair Labor Standards Act (“FLSA”) and state and federal tax withholding rules treat tips not as direct payments from customers to servers, but rather as a form of “wages” paid by the employer.

California restaurateurs are currently experiencing a wave of class action lawsuits seeking damages for illegal “tip pooling.” These lawsuits usually allege that the employer has violated the law by permitting ineligible employees to participate in the tip pool. According to these lawsuits, employees are ineligible for tip pooling where they were either not directly involved in providing any service to the customer who left the tip or they are “agents” of the employer.

Labor Commissioner’s Position On Tip Pooling.
According to the most recent non-binding opinion letter issued by the California Labor Commissioner on the subject, a tip pooling arrangement is permissible so long as it is a “fair and equitable” system that has “a correlation with prevailing industry practice.” (September 8, 2005 Op. Letter of Donna M. Dell). But the Labor Commissioner further opines that any tip-pooling policy must also comply with the following requirements:

  1. The tip pool should include only “those employees who contribute in the chain of the service bargained by the patron;” and
  2. The tip pool should exclude any supervisory employee “with the authority to hire or discharge any employee or supervise, direct, or control the acts of employees.”

Although not legally controlling authority, the Labor Commissioner opinion constitutes good advice for any employer seeking to avoid lawsuits. For the California’s Division of Labor Standards Enforcement position on tip pooling, visit their website here.

Avoiding Liability From Tip Pooling Lawsuits.
Employers can take steps to prevent and/or minimize liability for tip pooling claims. Here are a few items that employers can consider in order to minimize the liability regarding tip pooling.

  • Employers should consider implementing a policy stating that all tips are the sole property of the waiters, and employees are free to enter into any voluntary tip pooling arrangements with co-workers on their own.
  • Employers should consider notifying patrons on the menu or on the receipt that any tip left may be distributed according to a tip pooling arrangement, unless the patron affirmatively indicates that his or her tip should only go to one person.
  • Regardless of the employer’s policy on tip pooling, the employer should implement and enforce a policy that the employer’s supervisory employees are always prohibited from sharing in tip pools. For purposes of this policy the operative definition of a supervisor is any “person other than the employer having the authority to hire or discharge any employee or supervise, direct, or control the acts of the employee.”

As a general caveat, however, each case has unique facts and may present issues not addressed in this article. As a result, employers should seek competent legal advice before implementing a new policy regarding tip pooling policies.

 

 

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California Supreme Court Grants Review Of Another Meal And Rest Break Case: Brinkley v. Public Storage Inc.

Today, the California Supreme Court granted reivew of Brinkley v. Public Storage, Inc.:

BRINKLEY v. PUBLIC STORAGE INC.
Case: S168806, Supreme Court of California

Date (YYYY-MM-DD): 2009-01-14
Event Description: Review granted/briefing deferred (8.512(d)(2) civil case)
Notes:
The petition for review is GRANTED. Further action in this matter is deferred pending consideration and disposition of a related issue in Brinker Restaurant Corp. v. Superior Court, S166350 (see Cal. Rules of Court, rule 8.512(d)(2)), or pending further order of the court. Submission of additional briefing, pursuant to California Rules of Court, rule 8.520, is deferred pending further order of the court.

The lower appellate court in Brinkley basically had the same holding as the lower court in Brinker Restaurant Corp. v. Superior Court, that employers need to only provide, not ensure, employees with their 30-minute meal break under California law.  The California Supreme Court granted review of Brinker, which meant that employers could not rely upon the very helpful ruling.  Then Brinkley was decided shoretly thereafter by another appellate court, which still allowed employers to argue that they only need to provide meal breaks.  But because of this recent action by the Court, the standard will finally be clarified by the California Supreme Court. 

It is likely to take at least one year for the Suprme Court to provide a ruling in Brinker.

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Appellate Court Allows Class Action Certified For Limousine Driver Case

In Ghazaryan v. Diva Limousine, LTD, the appellate court reversed the trial court's denial of plaintiff's class certification motion and remanded the case with instructions that the trial court certify the class action.  The case was brought by a limousine driver who filed a wage and hour class action against Diva Limousine, LTD. The main issue in the case was Diva’s policy of paying its drivers an hourly rate for assigned trips but failing to pay for on-call time between assignments. This on-call time is referred to as “gap time.”

Background Facts Of Limousine Drivers Time Working

The drivers were notified about their first few driving assignments before their shifted started. The court noticed that about 75% of the drivers were allowed to take Diva cars home and use the cars to drive to their first assignment. After these first few assignments were completed, the drivers received additional assignments from dispatch given the drivers’ location, availability and fairness among the drivers. The drivers could not predict the amount of gap time during any given day.

Diva established policies in its “Chauffeur’s Handbook.” Among the policies, Diva did not allow drivers to use the cars for personal use, drivers were required to stay near the vehicle, and to remain in uniform. The drivers were required to use the gap time to take their meal and rest breaks. However, the breaks could be interrupted dispatched to an assignment. Diva tracked the vehicles using GPS systems.

The plaintiff, Ghazaryan filed his lawsuit alleging Diva by its practice of paying drivers by the job, not by the hour, had failed to pay earned wages and overtime or to provide required rest breaks and meal periods in violation of multiple provisions of the Labor Code and regulations.

Class Certification Issues

Diva opposed class certification arguing that the difficulties in identifying eligible members of the class and assessing the validity of Diva’s compensation policy for different classification of drivers.  Diva also argued that the drivers may or may not have used their gap time for personal pursuits, adding to the individualized inquiry necessary in this case.  

Diva had several different categories of drivers assigned different driving responsibilities (including organ transplant drivers). Diva that some drivers were paid for gap-time, and some were not paid for this time.

The trial court denied plaintiff’s motion for class certification. In explaining the lower court’s error, the appellate court explained:

The trial court is, of course, correct, under well-established Supreme Court authority, “The certification question is ‘essentially a procedural one that does not ask whether an action is legally or factually meritorious.’” (Sav-On Drug Stores, supra, 34 Cal.4th at p. 326.) But the trial court fundamentally misconceived the import of the rule against evaluating the merits of the plaintiff’s claims in deciding whether class treatment is appropriate. Rather than denying certification because it cannot reach the merits, as the court did here, the trial court must evaluate whether the theory of recovery advanced by the plaintiff is likely to prove amenable to class treatment: “As the focus in a certification dispute is on what type of questions common or individual are likely to arise in the action, rather than on the merits of the case [citations], in determining whether there is substantial evidence to support a trial court’s certification order, [the reviewing court] consider[s] whether the theory of recovery advanced by the proponents of certification is, as an analytical matter, likely to prove amenable to class treatment.”

Ascertainability and Numerosity

The appellate court held that the Plaintiff’s proposed class was ascertainable and numerous enough to be certified as a class action. The court explained that the class could be identified by Diva’s employment records and that class members “are ‘ascertainable’ where they may be readily identified without unreasonable expense or time by reference to official records.” Diva argued that differences in how the drivers were paid makes the class unascertainable. The court disagreed:

Yet the existence of these separate assignments in no way renders Ghazaryan’s proposed class unascertainable. If some drivers worked exclusively in one of these categories, they can simply be excluded from recovery if liability is ultimately found. Alternatively, the class can be modified to specify only those drivers who were not paid for their on-call or gap time. This modification may not even be necessary if, as we suspect, few Diva drivers fall exclusively into a single category.

Based on this, and the fact that there were approximately 170 current and former drivers who worked for Diva, the appellate court held that the class is ascertainable and numerous enough to proceed as a class action.

Community of Interest

The court found Diva’s policies about how drivers could use the gap-time applied to the drivers uniformly. The requirements, for example, that drivers remain with the vehicles, must take new dispatch assignment, not use the vehicle for personal purposes, and remain in uniform applied to all drivers equally. The court noted that "the common legal question remains the overall impact of Diva’s policies on its drivers, not whether any one driver, through the incidental convenience of having a home or gym nearby to spend his or her gap time, successfully finds a way to utilize that time for his or her own purposes."

Superiority

The court also held that it did not see any advantage to not allowing the case to proceed as a class action and voiced concerns that employees may not be able to find adequate representation if required to pursue their own individual claims.  Therefore, plaintiff met the superiority requirement to proceed as a class action. 

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Who Can Communicate With Employees In A Wage & Hour Class Action?

Parties have an absolute right - even a constitutional right - to communicate freely with putative class member employees prior to a class action being certified. Two of the leading cases in California on this topic are Parris v. Superior Court (2003) 109 Cal.App.4th 285 and Atari, Inc. v. Superior Court (1985) 166 Cal.App.3d 867.

In Parris v. Superior Court, the court held that a blanket requirement of prior judicial approval for parties’ communication with potential class members in a wage and hour class action before certification of the class action is a prior restraint of free speech. In Parris, the plaintiff sought to mail a notice to potential class members, and the court held that it did not have to approve the communications between plaintiff and the class members.  The court stated:

In concluding that, absent specific evidence of abuse, an order prohibiting or limiting precertification communication with potential class members by the parties to a putative class action is an invalid prior restraint, we find persuasive the reasoning of the United States Court of Appeals for the Fifth Circuit, which has held an order "restricting communications by named plaintiffs and their counsel with actual and potential class members not formal parties to the suit ... violated the First Amendment to the Constitution."

The court noted that it could only intervene in exceptional cases, not merely because “fear of potential abuse” could occur from the communications.

Likewise, in Atari, Inc. v. Superior Court the court held that the trial court erred when it permitted plaintiffs to communicate with other potential class members, but at the same time, restricted the employer from communicating with the same employees. The Atari court stated:

We conclude that the evidence of record does not justify denying any party equal access to persons who potentially have an interest in or relevant knowledge of the subject of the action, but who are not yet parties.

The court said that absent the showing of threatened or potential abuse, both sides should be allowed to investigate the case fully, which necessarily entails speaking with witness-employees.

Underlying this issue is usually the Plaintiff's law firm motivation to spread their contact information to potential class members.  They will usually raise the objection that the employer is spreading false information about the lawsuit, and therefore a "neutral" notice should be mailed out to employees.  They always propose that this notice contain their firm's phone number.
 

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Wal-Mart Settles Wage & Hour Class Action for $54 Million

Wal-Mart settled another wage and hour class action in Minnesota for $54 million. The class includes as many as 100,000 employees who worked from September1998 to November 2008. The judge found that Wal-Mart had violated Minnesota's Fair Labor Standards Act more than 2 million times. This settlement is similar to a 2005 verdict in California for $172 million for violations of California’s meal and rest break requirements and another case in Pennsylvania where Wal-Mart workers received $78.5 million.

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Update on Brinker v. Superior Court and other California Wage and Hour Issues

Top Ten Stupidest Things California Employers Could Say

Your company may be in trouble if you (or the president/owner you work for) have had one of the following thoughts:

1. My company is too small to be sued in a wage and hour class action.

2. I’m too busy to think about employment law issues – I’ll get to it next week.

3. I cannot afford an attorney to review my policies and give me some advice on what policies I should have. (Hint – you are probably talking to the wrong lawyers if you cannot get some quick answers without having to pay each time you pick up the phone to call your lawyer.)

4. I don’t need a meal and rest break policy – my employees know they can take a break whenever they want.

5. My current handbook is fine, [insert one of the following]:

a. I found it on the Internet.

b. the previous company I worked for used it.

c. I had my lawyer review it when I founded the company in the 1980’s.

d. my friend who owns a business in the same industry gave me a copy of her handbook.

6. My payroll company [insert one of the following]:

a. Watches out for my company.

b. Knows California’s wage and hour laws.

c. Calculates and pays proper overtime for my employees.

7. All of my employees are exempt employees – I find its simpler than having to figure out overtime and track employee’s hours each week.

8. What? California employers with more than 50 employees are required to send their supervisors to sexual harassment training?

9. Vacation pay policies, timing of final pay checks, and the information on the employee’s itemized wage statements are very trivial and any violations cannot create that much liability for the company.

10. I protect my company by having employees sign a statement each pay period stating that they have been paid all of their wages in full – therefore extinguishing any potential liability.
 

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