As defenses, RHI argued that Plaintiffs’ claims were barred because they all entered into agreements that shortened their statute of limitations down from four years to six months. RHI also argued that the Plaintiffs were exempt from wage and hour laws because the employees qualified for the administrative exemption. The appellate court, in agreeing with the lower trial court, dismissed RHI’s defense that the Plaintiffs’ agreed to a shorter statute of limitation on the grounds that this agreement violated public policy and is unenforceable.

The Administrative Exemption

Employers bear the burden to prove that the employee does not qualify for overtime of one and a half times the employee’s regular hourly rate for all work performed over eight hours in one day and/or all hours over 40 in one week. Employees can qualify for a number of different exemptions, and in this case RHI argued that the Plaintiffs were administrative employees.

In order to qualify for the administrative exemption, the court noted that the employer must prove that the employee must:

(1) perform office or non manual work directly related to management policies or general business operations’ of the employer or its customers,

(2) customarily and regularly exercise discretion and independent judgment,

(3) perform under only general supervision work along specialized or technical lines requiring special training or execute under only general supervision special assignments and tasks,

(4) be engaged in the activities meeting the test for the exemption at least 50 percent of the time, and

(5) earn twice the state’s minimum wage.

The employee must meet all five elements in order to be an exempt administrative employee.

The court explained, by quoting the applicable regulations, that:

“The phrase ‘directly related to management policies or general business operations of his employer or his employer’s customers’ describes those types of activities relating to the administrative operations of a business as distinguished from ‘production’ or, in a retail or service establishment, ‘sales’ work. In addition to describing the types of activities, the phrase limits the exemption to persons who perform work of substantial importance to the management or operation of the business of his employer or his employer’s customers.”

The court found that the evidence did not support RHI’s argument that the Plaintiffs were administrative employees. The court explained that the account executives were trained in sales and evaluated on how well they met sales production numbers – which are not exempt duties. The account executives were also primarily responsible for selling the services of RHI’s temporary employees to its clients. And when they were not selling, they were recruiting more candidates for RHI’s “inventory.” The account executives also followed a “recipe” established by the company which required the employees to rotate their duties ever week between a “sales week,” “desk week,” and recruiting week.” The employees did not develop any policy, but simply followed the company’s system of performing their job. The court finally noted that the Division of Labor Standards Enforcement (DLSE) previously opined that recruiters who worked in a recruiting company did not qualify for the administrative exemption (which can be read at the DLSE’s website here (PDF)). All of these facts supported the trial court’s finding that the employer failed to meet its burden that the account executives were administrative employees.

This case is a good reminder to employers that they must be careful about how employees are classified. Simply because the employee has a high-level title, or every employer in the particular industry has always treated this type of employee as an exempt employee does not mean that the employees are properly classified. Courts will strictly apply the applicable exemption element-by-element to determine whether or not the employer must pay the employee overtime and provide meal and rest breaks. Finally, employers must remember that they will bear the burden of proof when asserting in court that the employee is properly classified as an exempt employee.

The case, Pellegrino v. Robert Half International, Inc. can be downloaded here (PDF).

1. Assuming everyone can be paid a salary, and not paying overtime for hours over 8 in one day or 40 in one week. For a company to not pay overtime, it has the burden of proof to establish that the employee meets an exemption to California’s overtime laws. The exemptions are based on the amount of pay the employee receives and the duties the employee performs.
2. Not researching particular laws that apply to the industry or city. For example, businesses in San Francisco have to provide for paid sick leave.
3. Not having a meal and rest break policy. It goes without saying, every company in California needs a meal and rest break policy – and evidence that this policy is regularly communicated to employees.
4. Not recording meal breaks. Employers are required to not only provide meal breaks, but also keep records of when the employee started and stopped the meal break.
5. Not paying accrued vacation when employment is severed. Accrued and unused vacation is considered wages under California law, and needs to be paid out at the end of employment regardless of whether the employee is fired or quits.
6. Overestimating the enforceability of covenants not to compete. Nine times out of ten, covenants not to compete are unenforceable in California.
7. Underestimating the importance of an employee handbook.
8. Assuming any worker can be classified as an independent contractor. Just like exempt employees, employers will bear the burden of proof when it comes to classifying independent contractors. Generally, the test is how much control the employer has over the worker.
9. Withholding the money necessary to hire an HR manager knowledgeable with California law.
10. Not reimbursing employees for business related expenses, such as travel expenses. Under Labor Code section 2802, employers are required to repay employees who pay for business related items out of their own pocket.

Plaintiffs sought compensation for the on call time spent resolving customer questions by phone, and for all the time they were on call, even when not responding to customer calls. Plaintiffs also claimed they were entitled to a premium rate of compensation, rather than their regular rate of compensation, for all hours worked in excess of eight hours per day or 40 hours per week.

Background Facts

Plaintiffs worked eight hour shifts Monday through Friday. When plaintiffs worked more than eight hours in one day as part of their regular hours, they were paid overtime rates.

Plaintiffs were also required to carry a pager or cell phone after their regular work hours and respond to patient phone calls at night or on the weekend. Lincare’s on call policy required plaintiffs to respond telephonically to pages within 30 minutes, and to be available to respond to patient calls, in person, within two hours. Plaintiffs were prohibited from consuming alcohol while on call, but were otherwise free to engage in any activities desired.

When plaintiffs made service visits after hours, they were compensated by Lincare at the regular rate of pay. If plaintiffs were able to resolve the customer’s problem by telephone without making a service visit, they were instructed not to record that time, and they were not compensated for it.

Drivers' Overtime Claim

Lincare argued that because plaintiffs transported hazardous materials as part of their jobs, they were exempt from California’s statutory overtime rules.

As set out by the court, California Code of Regulations, title 8, section 11020, subdivision 3(J)(2) exempts from the rules regarding overtime compensation those employees whose hours of service are regulated by California Code of Regulations, title 13. Title 13, section 1212.5, subdivision (b) limits the driving time of employees who transport hazardous materials, such as liquid oxygen.

Lincare argued that because plaintiffs transport hazardous materials, they were exempt from overtime pay requirements of Labor Code section 510. The appellate court, in overruling the trial court, disagreed with Lincare’s argument. The appellate court held that in order to succeed, Lincare would have to establish that the drivers drove a vehicle containing hazardous materials for some period of time each and every workday:

As relevant to this appeal, the 2002 Update of the DLSE (Division of Labor Standards Enforcement) Enforcement Policies and Interpretations Manual (Revised) (Enforcement Manual) provides: “The IWC exemption only applies to employees whose regular duty is that of a driver, not any other category of worker. The policy would cover employees regularly employed as relief drivers or as assistant drivers. However, any driver who does not drive or operate a truck for any period of time during an entire workday is entitled to overtime premium compensation for all overtime hours worked performing duties other than driving during that day. [Citation.]” (Id., § 50.9.2.1, p. 50 11, italics added, <http://www.dir.ca.gov/dlse/DLSEManual/dlse_enfcmanual.pdf> [as of April 3, 2009].)

The court held that Lincare did not meet this burden, as there was evidence that the drivers often times did not drive a truck for the entire day.

The opinion, Gomez v. Lincare, Inc., also provided good analysis of other wage and hour issues, such as when on-call time needs to be compensated. The opinion is definite worth the read for wage and hour litigators.

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.
 

Pay During Jury Duty:

Unless a union agreement or contract provides otherwise, you are not required to pay non-exempt employees for time not worked due to jury service. However, due to the prohibition against discrimination against employees who are subpoenaed or called for jury service, employers should have a jury duty policy that is consistent with other policies for taking time off due to non-personal, non-voluntary reasons. In the case of an exempt employee, the employer must continue to pay the full weekly salary unless the jury service prevents the exempt employee from performing any work for a full week.

Many employers voluntarily pay full or half wages for a specified period of time, such as a maximum of two weeks, to employees who are selected to sit on a jury in an effort to raise the quality of juries by expanding the pool of people who are able to serve. As with all policies, whether employers choose to provide paid or unpaid leave, it is important to have a clear policy that is uniformly enforced.