This also leads to the issue of why might an employer want to have all claims proceed directly to arbitration, and skip-over the Berman hearing. As the California Supreme Court stated in its initial review of the Sonic-Calabasas case in early 2011, the Berman hearing provides the employee a number of benefits:

These provisions include the Labor Commissioner's representation in the superior court of employees unable to afford counsel, the requirement that the employer post an undertaking in the amount of the award, and a one-way attorney fee provision that requires an employer that is unsuccessful in the appeal to pay the employee's attorney fees.

It is an interesting background on how the Sonic-Calabasas case proceeded through the Courts. The California Supreme Court has already ruled on the Sonic-Calabasas case in the early part of 2011. At that time, the Court held that a waiver of the Berman hearing process in the arbitration agreement was unconscionable and contrary to public policy, and was not preempted by the Federal Arbitration Act (FAA). Therefore, the California Supreme Court ruled that this waiver of the Berman hearing process was not an enforceable provision of the arbitration agreement. However, shortly after this ruling, the United States Supreme Court issued a ruling in AT&T Mobility v. Concepcion, a separate case out of California in which the US Supreme Court held that the FAA preempted California law and found that a class action waiver provision in arbitration agreements can be enforceable. For more information on AT&T Mobility you can listen to my podcast on the case here. The employer in Sonic-Calabasas A v. Moreno filed an appeal with the US Supreme Court to review the California Supreme Court’s ruling invalidating the Berman hearing waiver in the arbitration agreement. The US Supreme Court granted review, but recently sent the case back to the California Supreme Court to review the case again and to apply the standards set forth in AT&T Mobility v. Concepcion. So, we are waiting for the California Supreme Court to review the issue once again to have a definitive answer to the question.

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. 

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

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.

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.”
 

You may also subscribe to the California Employment Law Podcast through iTunes by clicking here. 

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.

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.
 

This case was filed by Daniel Lobo’s wife and minor child. Mr. Lobo was a deputy sheriff who was killed by the allegedly negligent driving of Luis Duay Del Rosario who had just left work and was driving home. The officer was on a motorcycle, and was apparently responding to a call with his lights and sirens on, when the two collided. The family members sued Mr. Rosario’s employer (most likely because Mr. Rosario does not have any assets). The employer argued that because Mr. Rosario was going home, there could be no liability on its part. The court disagreed.

The “going-and-coming” rule and its exception

The court explained that normally employers are not liable for employee’s acts when they are not in the “course and scope of employment”:

Under the theory of respondeat superior, employers are vicariously liable for tortious acts committed by employees during the course and scope of their employment. [citation] However, under the “going and coming” rule, employers are generally exempt from liability for tortious acts committed by employees while on their way to and from work because employees are said to be outside of the course and scope of employment during their daily commute. (Huntsinger v. Glass Containers Corp. (1972) 22 Cal.App.3d 803, 807 [Fourth Dist., Div. Two] (Huntsinger).)

The court, however, also explained that there is an exception to the general rule:

“A well-known exception to the going-and-coming rule arises where the use of the car gives some incidental benefit to the employer. Thus, the key inquiry is whether there is an incidental benefit derived by the employer. [Citation.]” (State Farm Mut. Auto. Ins. Co. v. Haight (1988) 205 Cal.App.3d 223, 241.) This exception to the going and coming rule, carved out by this court in Huntsinger, supra, 22 Cal.App.3d 803, has been referred to as the “required-vehicle” exception. (Tryer v. Ojai Valley School (1992) 9 Cal.App.4th 1476, 1481.) The exception can apply if the use of a personally owned vehicle is either an express or implied condition of employment (Hinojosa v. Workmen’s Comp. Appeals Bd. (1972) 8 Cal.3d 150, 152), or if the employee has agreed, expressly or implicitly, to make the vehicle available as an accommodation to the employer and the employer has “reasonably come to rely upon its use and [to] expect the employee to make the vehicle available on a regular basis while still not requiring it as a condition of employment.” (County of Tulare v. Workers’ Comp. Appeals Bd. (1985) 170 Cal.App.3d 1247, 1253.)

But what if the employee rarely uses their car for company business?

It does not matter how frequently or infrequently the employee uses their car for company purposes to establish the exception.  Here, the employer argued that the exemption to the going-and-coming rule did not apply because Mr. Rosario rarely used his care for company purposes. The evidence was that he only used his car 10 times or fewer during the 16 years he worked for Tamco. The court was not persuaded by this argument, and noted that there was not case law to support the argument. The fact that Mr. Rosario sometimes needed to use his car for company purposes was sufficient to establish the exception to the going-and-coming rule.

This case should be a call to employers to review if they require their employees to use their personal cars for work, and if this could create potential liability for the employer even though the employee is driving to or from work. 

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).

The arbitration agreement at issue in the case provided:

I hereby agree to submit to binding arbitration all disputes and claims arising out of the submission of this application. I further agree, in the event that I am hired by the company, that all disputes that cannot be resolved by informal internal resolution which might arise out of my employment with the company, whether during or after that employment, will be submitted to binding arbitration. I agree that such arbitration shall be conducted under the rules of the American Arbitration Association. This application contains the entire agreement between the parties with regard to dispute resolution, and there are no other agreements as to dispute resolution, either oral or written.

Id. at 1467 (citation omitted). The agreement was contained in an employment application and clearly provided: “Please Read Carefully, Initial Each Paragraph and Sign Below.” Plaintiff also initialed next to the paragraph that contained the arbitration agreement. The court found that simply because the agreement in that case was an adhesion contract (or on a “take-it-or-leave-it” basis), it still did not render the agreement unenforceable because the agreement was fair. Even though the agreement contained the words “I agree”, this did not render the arbitration agreement to only bind the employee and not the employer to the arbitration agreement.

The Roman court also noted that even if the agreement “were somehow ambiguous on this point, given the public policy favoring arbitration [citation] and the requirement we interpret the provision in a manner that renders it legal rather than void [citation], we would necessarily construe the arbitration agreement as imposing a valid, mutual obligation to arbitrate.” Roman, supra, 172 Cal.App.4th at p. 1473.  Employers should consider the pros and cons of having employees enter into arbitration agreements, and as this case illustrates, courts are likely to enforce the agreement if it is properly drafted. 

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.

denied review of a lower appellate court decision in the class action of Chau v. Starbucks

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.

The employer, citing its mission to protect abused children and to protect itself from any legal liability, installed a video camera in Plaintiffs’ office to identify the perpetrator. Because the websites were only being access at night, the video camera did not record any of Plaintiffs’ activities during the day, and was only turned on at night. The perpetrator was not caught.  But Plaintiffs’ discovered the video camera in the office, and filed this lawsuit for violation of their privacy rights.

The California Supreme Court noted that to succeed on their privacy claims, Plaintiffs would need to prove that:

1. The plaintiff must possess a legally protected privacy interest,
2. The plaintiff’s expectations of privacy must be reasonable, and
3. The plaintiff must show that the intrusion is so serious in nature, scope, and actual or potential impact as to constitute an egregious breach of social norms.

The Court noted that Plaintiffs were able to establish violation of the first two elements in this case– that the employer intentionally intruded into the Plaintiffs’ office in which they had a reasonable expectation of privacy.

Offensiveness of the employer’s action

However, the Court held that Plaintiffs did not meet their burden of proof for the third element. First, the Court held that the degree and setting of the intrusion into Plaintiffs’ privacy was not very high. The Court noted that the “place, time, and scope” of defendant’s surveillance was not highly offensive. Second, the Court looked at the employers motive and justifications for conducting the surveillance – which had no element of being improper in this case. Given nature Hillsides’ business of helping abused children, it was taking proper action to prevent any possible harm to them. Given these factors, the Court found that the Plaintiffs could not, as a matter of law, prove that a reasonable person would find the intrusion into their privacy offensive.

Take away for employers

• Do not assume that you have the right to monitor employees during working hours. As the case establishes, employees still have reasonable expectations of privacy at work.
• Do not assume a computer monitoring policy applies to video and audio surveillance. The employer in this case tried to argue that the computer monitoring policy diminished Plaintiffs’ expectation of privacy at work, but the Court disagreed because the policy never mentioned the possibility that employees could be videotaped at work.

The case, Hernandez v. Hillsides, Inc. can be read here (PDF).
 

California courts have clearly established that noncompetition agreements are very difficult to enforce under California law, as explained further below. Therefore, once Donatelli left employment with EMC, the company raced to file a lawsuit against the former employee to prevent him from working with HP in Massachusetts. HP also raced to file a lawsuit in California barring EMC from enforcing the noncompetition agreement.

The Massachusetts court ruled first, finding that the agreement was enforceable under Massachusetts law, and that California law does cannot affect the court’s ruling. The court allowed Donatelli to present evidence establishing that his duties and job at HP did not directly compete with his former position at EMC. The court allowed Donatelli to work for HP in California given the fact that he proved there is minimal overlap between his new HP position and his former position at EMC.

Noncompetition Agreements In California

In California, noncompetition agreements are governed by Business & Professions Code section 16600, which states: “Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” The statute permits noncompetition agreements in the context of sale or dissolution of corporations (§ 16601), partnerships (§ 16602), and limited liability corporations (§ 16602.5).

Under the common law, as still recognized by many states today, contractual restraints on the practice of a profession, business, or trade, were considered valid, as long as they were reasonably imposed.

In 2008, the California Supreme Court ruled on the enforceability of noncompetition agreements under California in Edwards v. Arthur Andersen LLP. Arthur Andersen argued that California courts have held that section 16600 embrace the rule of reasonableness in evaluating competitive restraints.

The Court disagreed with Arthur Andersen, and noted:

We conclude that Andersen’s noncompetition agreement was invalid. As the Court of Appeal observed, “The first challenged clause prohibited Edwards, for an 18-month period, from performing professional services of the type he had provided while at Andersen, for any client on whose account he had worked during 18 months prior to his termination. The second challenged clause prohibited Edwards, for a year after termination, from ‘soliciting,’ defined by the agreement as providing professional services to any client of Andersen’s Los Angeles office.” The agreement restricted Edwards from performing work for Andersen’s Los Angeles clients and therefore restricted his ability to practice his accounting profession.

The Court found that this agreement was invalid because it restrained Edwards’ ability to practice his profession.

However, Arthur Andersen argued that section 16600 has a “narrow-restraint” exception and that its agreement with Edwards survives under this exception. Andersen pointed out that a federal court in International Business Machines Corp. v. Bajorek (9th Cir. 1999) upheld an agreement mandating that an employee forfeits stock options if employed by a competitor within six months of leaving employment. Andersen also noted that a Ninth Circuit federal court in General Commercial Packaging v. TPS Package (9th Cir. 1997) held that a contractual provision barring one party from courting a specific customer was not an illegal restraint of trade prohibited by section 16600, because it did not “entirely preclude[]” the party from pursuing its trade or business.

In refusing to accept the “narrow-restraint” exception for noncompetition agreements in California, the Court stated:

Contrary to Andersen’s belief, however, California courts have not embraced the Ninth Circuit’s narrow-restraint exception. Indeed, no reported California state court decision has endorsed the Ninth Circuit’s reasoning, and we are of the view that California courts “have been clear in their expression that section 16600 represents a strong public policy of the state which should not be diluted by judicial fiat.” [citation] Section 16600 is unambiguous, and if the Legislature intended the statute to apply only to restraints that were unreasonable or overbroad, it could have included language to that effect. We reject Andersen’s contention that we should adopt a narrow-restraint exception to section 16600 and leave it to the Legislature, if it chooses, either to relax the statutory restrictions or adopt additional exceptions to the prohibition-against-restraint rule under section 16600.

The Court’s ruling basically eliminated the validity of non-competition agreements under California that are not expressly provided for in Section 16600.

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.

However, the defendants signed an “Associate Membership Agreement” with World Financial that prohibited them from recruiting customers, employees, and sharing trade secrets of World Financial for a limited time after they left employment with World Financial. World Financial Group, filed the lawsuit for breach of contract, breach of the implied covenant of good faith and fair dealing, conversion, violation of the Uniform Trade Secrets Act and the Unfair Competition Law, intentional and negligent interference with prospective economic advantage, and unjust enrichment. 

The defendants took an offensive step and filed an anti-SLAPP motion to dismiss plaintiff's lawsuit in arguing that their actions were protected speech. The court explained that an anti-SLAPP motion:

…provides that "[a] cause of action against a person arising from any act of that person in furtherance of the person's right of petition or free speech under the United States or California Constitution in connection with a public issue shall be subject to a special motion to strike, unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim." 

The issue in this case was whether defendants’ speech is afforded protection under the anti-SLAPP statue. The anti-SLAPP law applies to claims "arising from" speech or conduct "in furtherance of the exercise of the constitutional right of . . . free speech in connection with a public issue or an issue of public interest." (Code of Civil Procedure § 425.16, subd. (e)(4).)

The court held that the type of speech at issue here was not protected. The court explained:

While employee mobility and competition are undoubtedly issues of public interest when considered in the abstract, one could arguably identify a strong public interest in the vindication of any right for which there is a legal remedy. "The fact that 'a broad and amorphous public interest' can be connected to a specific dispute is not sufficient to meet the statutory requirements" of the anti-SLAPP statute. [citation] By focusing on society's general interest in the subject matter of the dispute instead of the specific speech or conduct upon which the complaint is based, defendants resort to the oft-rejected, so-called "synecdoche theory of public issue in the anti-SLAPP statute," where "[t]he part [is considered] synonymous with the greater whole." [citation] In evaluating the first prong of the anti-SLAPP statute, we must focus on "the specific nature of the speech rather than the generalities that might be abstracted from it. [citation.]" 

The court found that the defendants' attempt to frame their speech as involving "the pursuit of lawful employment pursuant to Bus. & Prof. § 16600" and "workforce mobility and free competition" as “infirm.” The court held that the defendants’ speech did not rise to this protected level because it was merely soliciting a competitor’s employees and customers.  There was no public  The court stated that if it applied the anti-SLAPP statute as defendants requested, it “would effectively ‘eviscerate the unfair business practices laws,’ a result the Legislature plainly did not intend.” To bring the point home, the court quoted The Godfather: “As Salvatore Tessio said to Tom Hagen, ‘Tell Mike it was only business.’ So it is here.”

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.

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.

… whether an author who posts an article on myspace.com can state a cause of action for invasion of privacy and/or intentional infliction of emotional distress against a person who submits that article to a newspaper for republication.

The case arose out of a college student, Cynthia Moreno’s, return to her hometown of Coalinga, California (which is somewhere between Sacramento and Los Angeles). She wrote “An ode to Coalinga” and posted it on her site on MySpace.com. The ode badmouthed her hometown. Six days after publishing it on MySpace, she took the writing off of the site, but the town’s high school principal submitted the writing to the local newspaper for publication. The newspaper republished the ode in the letters to the editor section and listed Cynthia’s full name (she only used her first name on MySpace). 

This must have been some ode, as the town became furious:

The community reacted violently to the publication of the Ode. Appellants received death threats and a shot was fired at the family home, forcing the family to move out of Coalinga. Due to severe losses, David closed the 20-year-old family business.

Because the information was published on MySpace.com, there could not be a cause of action for invasion of privacy.

The court held that publishing the ode on MySpace.com defeated any theory that the newspaper’s republication of the ode was an invasion of privacy. The court explained:

Cynthia’s affirmative act made her article available to any person with a computer and thus opened it to the public eye. Under these circumstances, no reasonable person would have had an expectation of privacy regarding the published material. As pointed out by appellants, to be a private fact, the expectation of privacy need not be absolute. (Sanders v. American Broadcasting Companies (1999) 20 Cal.4th 907, 915.) Private is not equivalent to secret. (M.G. v. Time Warner, Inc. (2001) 89 Cal.App.4th 623, 632.) “[T]he claim of a right of privacy is not ‘“so much one of total secrecy as it is of the right to define one’s circle of intimacy -- to choose who shall see beneath the quotidian mask.”’ Information disclosed to a few people may remain private.” (Ibid., fns. omitted.) Nevertheless, the fact that Cynthia expected a limited audience does not change the above analysis. By posting the article on myspace.com, Cynthia opened the article to the public at large. Her potential audience was vast.

The court also held that the fact Cynthia removed the Ode from her online journal in six days does not change its analysis. “The publication was not so obscure or transient that it was not accessed by others.” The court also held that because Cynthia published the ode under only her first name on MySpace, but then the newspaper republished it under her first and last name is irrelevant. The court said her identity was readily ascertainable from the MySpace page – primarily because she posted her picture on the site.

While not directly an employment law case, the holding definitely has ramifications for employees who post information on the Internet. As discussed previously here and here, employers can view and possibly act upon information employees list on the Internet. This holding provides further support that employees (as everyone) should be very careful in what they post on the Internet.