Friday's Five: Five new laws for 2015 that employers should review

Below are five new laws going into effect in 2015 that California employers should know about before the start of 2015. Employers should also take time and review their current policies to ensure compliance for the new year.

1. Mandatory paid sick leave.
You’ve probably been beaten over the head from emails from your employment lawyer already about this new law, so I won’t rehash the particulars. If you need more information, see my prior post.

2. Must revise sexual harassment training to include anti-abusive conduct training.
This is a simple revision to sexual harassment training should be implemented into any sexual harassment training. For more information, see my prior post here.

3. Undocumented workers’ driver’s licenses: immigration and confidentiality issues.
Last year, California passed AB 60 that allows undocumented immigrants to apply for a driver’s license. This year, AB 1660 was passed to clarify some issues left unresolved by AB 60, and to provide greater rights to immigrants who present a driver’s license to employers that was obtained without establishing citizenship. The California DMV will begin issuing driver’s licenses under the new law on January 1, 2015. These licenses will be marked with the term “federal limits apply” on the front of the license. Therefore, employers must be aware that these licenses cannot be used to establish eligibility to work when completing the Form I-9. Once the new licenses are issued, employers should train the individuals regarding the different licenses and which licenses can be used to verify eligibility to work in the U.S. when completing the I-9. In addition, the new law makes it illegal to discriminate against employees who present these licenses for employment purposes.
Finally, employers must be aware that the new law also makes driver license information obtained by the employer “private and confidential.” Therefore, employers should take steps to ensure that this information is treated with the same safeguards as other confidential information.

4. Joint liability for employers who contract with outside companies for workers.
AB 1897 automatically makes an employer jointly liable with a labor contractor, such as an employment agency, for wage and workers’ compensation violations. The law exempts some companies from this joint liability, such as companies with fewer than 25 employees, or businesses with five or fewer workers supplied by a labor contractor. With this new potential liability, employers need to carefully review the contractors who provide workers for their companies. While companies cannot contract around the provisions of the new law, companies can enter into indemnification agreements with the staffing agencies to mitigate some of the risk. Companies should audit the staffing agencies they work with to insure they are compliant with the law, and should consider asking for indemnification from the staffing agency should there be any wage and hour violations.

5. Employers may utilize email to report serious injuries.
Under existing law, employers are required to file a report with the Division of Occupational Safety and Health (DOSH), every occupational injury or illness which results in lost time beyond the date of injury or illness, or which requires medical treatment beyond first aid. Employers are required to immediately report a serious injury or illness, or death at the workplace to DOSH. The prior law permitted employers to make these reports by telephone or telegraph. AB 326 updates the law to allow employers to make the reports by telephone or email. This is not a major change in the law, and one to make it easier for employers, but a good reminder for employers to review injury protocols in the workplace and ensure that these reports are being made to DOSH when required. Failure to do so could result in a $5,000 fine.

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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 answers to common questions about severance pay and severance agreements

Severance pay is not required under California law. However, employers who have potential disputes with employees that are leaving employment should consider whether offering severance pay in exchange for a signed severance agreement containing a release of claims against the company may be useful in avoiding costly litigation. Here are answers to five common questions about severance:

1. Are employees entitled to severance pay?
No. If an employee is an at-will employee, and either the employer or the employee decides to end the employment relationship, the employer is not required to provide any type of severance to the employee.

2. If severance pay is not required, why would employers offer it?
There are a number of reasons that employers offer severance pay. If the employer’s business has slowed down and it needs to layoff employees, but the employer wants to cushion the effect of the layoff, severance can be offered. Also, if the employer believes that there is a potential dispute between it and an employee, the employer may choose to pay some severance in exchange of a release of claims by the employee in order to avoid any potential litigation.  If done properly, an employee's acceptance of a severance agreement would effectively waive any and all claims that he or she may have against the company.  If there is any potential for a dispute about any issues that arose during employment, entering into a severance agreement could be an effective way to avoid costly and time consuming litigation. 

3. Does the employer have to pay the employee for a release of claims?
If the employer asks the employee to release all claims the employee may have against the company, generally there needs to be some consideration provided to the employee for the release of his or her rights. Consideration is a legal term, and very generally means something of value that each side agrees to exchange (this is a very oversimplified definition). In severance agreements, the consideration is usually, but is not required to be, some form of payment by the employer that is not already legally obligated to be made in exchange for the release of claims (i.e., an agreement not to sue) by the employee.

4. What terms are generally included in a severance agreement?
Here is a list of common terms included in severance agreements:

  • A general release with a Civil Code section 1542 waiver releasing all known and unknown claims.
  • Confidentiality
  • No admission of liability
  • No present or future employment
  • Non-disparagement clause which can also set forth what job reference, if any, will be given to any prospective employers
  • Return of company property and non-solicitation of customers clause

5. Are there any special considerations for employees 40 years old or older that need to be included in a release?
Yes. The Older Workers Benefit Protection Act (OWBPA) protects individuals 40 years old or older. The OWBPA provides that in order to release a claim for age discrimination must meet certain requirements. Some of these requirements include that the employee is advised to consult with an attorney, the waiver is easily understood, the individual is given at least 21 days to consider the agreement; and the individual is given at least 7 days following the execution of the agreement to revoke the agreement. The 21 day consideration period can be waived by the employee, but the seven day revocation period after the agreement is signed cannot be waived by the employee. Therefore, it is important to consider potentially not paying any money until after the seven day revocation period expires. If the employer is offering the release to a group or class of employees a longer consideration period and other requirements apply. It is highly recommended that employers receive the assistance of counsel to ensure that employees 40 years old or older effectively waive any rights under the OWBPA. For more information, the EEOCs’ website provides a good explanation and some examples.

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Five tips about tips under California law

Today's Friday's Five provides a few points for employers to consider who have employees that receive gratuities. California law is very specific regarding gratuities left for employees, and since tips are property of the employee, employers must approach this area with caution. Here are five “tips” about tips in California.

1. Tips are employee’s property.
The Labor Code section 350 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.” In addition, Labor Code section 351 clearly states that “[n]o 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, or deduct any amount from wages due an employee on account of a gratuity, or require an employee to credit the amount, or any part thereof, of a gratuity against and as a part of the wages due the employee from the employer.”

2. Timing requirements of payment of tips left on credit cards.
Payment of a gratuity made by a patron using a credit card must be paid to the employee not later than the next regular payday following the date the patron authorized the credit card payment.

3. Mandatory tip pools are permissible under California law.
Labor Code section 351 clearly sets forth that tips are the sole property of the employee, yet California courts have also reached the seemingly contradictory conclusion that employers may lawfully require that employees must share this “sole property” with other employees through tip pools. In Leighton v. Old Heidelberg, Ltd., the court authorized mandatory tip pooling policies. Generally, mandatory tip pools are permissible as long as (1) only employees who provide direct table service participate in the tip pool and (2) the tip pool distribution is consistent with industry standards.

4. There is a difference between a mandatory service charge and a tip.
Mandatory service charges are not tips and are not governed by Labor Code section 351. Mandatory service charges are charges imposed by an establishment for specific reason, such as for parties larger than eight people. Unlike tips, these charges may be received by the employer and distributed, if at all, as the employer sees fit.

5. There is no tip credit allowed for under California law.
Tips earned by an employee cannot be counted towards the minimum wage requirement under California law. In addition, employers may not deduct the costs of any credit card processing fees or any other charges form the employee’s tips or wages.

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Friday's Five: Five ways employers can receive requests for employees' personnel and wage records

Employers can receive requests for employment records of current and former employees though different ways. It is important for employers to first carefully review the request to understand what is being requested. It is important to understand who is making the request? Is the request only seeking a personnel file? Is the request only seeking payroll records? It is possible that a third party, such as a governmental agency or a party in litigation is seeking employment records for an employee. In this case, it is important for the employer to understand its obligations in protecting the privacy interest of the employee in connection with the rights of third parties to obtain these records.

The following are five ways that employers may have to provide copies of employment records or make employment records available for inspection.

1. Request under Labor Code Section 432, which provides employees with a right to receive a copy of any signed document upon request by the employee.

2. Request under Labor Code section 1198.5, which provides for the right of current and former employees to inspect and receive a copy of personnel records.

A few guidelines regarding requests under section 1198.5:

  • Employers must comply no later than 30 days from when the request is received.
  • If employee asks for copy of file, employer may charge actual costs of coping to employee.
  • Employers may take reasonable steps to ensure identity of the current or former employee.
  • Employers may redact the names of any nonsupervisory employees contained in the personnel file.
  • Employees have no right to inspection under this section if lawsuit has already been initiated.
  • Failure to comply with this section can result in a $750 penalty.

3. Request under Labor Code section 226(b), which allows current and former employees to inspect or copy records pertaining to their employment.

A few guidelines regarding requests under section 226(b):

  • Employers can take reasonable steps to ensure the identity of a current or former employees, and that they are actually making the request.
  • Actual costs of reproduction may be charged by the employer.
  • Employers must comply within 21 days of request.
  • Failure to comply with this section can result in a $750 penalty.

4. Public agencies, such as the Department of Labor or California Labor Commissioner, have the right to inspect records and workplaces under limited circumstances.

For example, under the Federal Labor Standards Act (FLSA), the Department of Labor (DOL) has certain permissions to investigate and gather date about wages, hours worked, and other working conditions at workplaces. The FLSA also provides the DOL limited permission to enter employers’ premises, review records, and even potentially question employees about employment practices. Upon receiving a request from any public agency, such as the DOL or the California Labor Commissioner, an employer should immediately review what obligations and rights it has in responding to the request.

5. Requests for records through subpoenas.

Employers can also receive subpoenas from third parties seeking employment records. The “custodian of records” is responsible for responding to the requests and producing employment records in certain circumstances. California law requires that a request for a personnel file include a “Notice to Consumer” notifying the employee that such records are being sought, and providing the individual an opportunity to object to the disclosure of the information. If the employee or former employee has not been notified, or objects to the production of the requested records, the employer should not produce the information requested unless and until a court orders otherwise, or the affected employee agrees to the production. If the subpoena seeks the disclosure of confidential or proprietary information, you should contact an attorney to see if the company has an obligation to move to quash the subpoena or seek an appropriate protective order to preserve the confidentiality of the information sought.

Employers should not produce requested documents before they are due and without being satisfied that the proper subpoena procedures and notice requirements, if applicable, have been met. Employers do have a duty to maintain the privacy rights of current and former employees.

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Friday's Five: Five things every California employer needs to know about the newly enacted paid sick leave law

On September 10, 2014, the Governor signed into law a bill that requires a minimum of three paid sick days per year for employees. The new law applies to all employers, regardless of size. Here are five essential points employers must understand to begin the process of meeting their obligations under the new law.

1. How much paid sick time must employers provide employees?

Starting on July 1, 2015, any employee who works in California for 30 or more days within a year is entitled to paid sick days. Employees accrue paid sick days at the rate of one hour for every 30 hours worked, beginning at the start of their employment. Employees can use accrued paid sick days beginning on the 90th day of employment.

2. Does this apply to all employers, and when do employers need to comply with this new sick leave requirement?

The law applies to all California employers, regardless of size. It also covers all employees, part-time, full-time, exempt, and non-exempt. Leave may be taken by employees for diagnosis, care, or treatment or preventative care for an employee or an employee’s family member, and victims of domestic violence and sexual assault.

The law takes effect on July 1, 2015. However, it is advisable for employers to start taking action and revising handbooks and leave policies in the beginning of 2015.

Accrued paid sick days carry over to the following year of employment. Employers may limit an employee’s use of paid sick days to 24 hours or three days in each year of employment.

Employers do not have to provide additional accrual or carry over if the full amount of leave is received by the employee under the employer’s leave policy which at least provides for the minimum requirements under the law.

3. Can employers limit the use of paid sick leave or cap the amount of accrual?

Limits on amount of leave used in one year: Employers may limit the use of sick leave at 24 hours or three days of paid sick leave, or equivalent paid leave or paid time off, for each 12 month period based on the employee’s year of employment, a calendar year, or rolling 12-month basis.

Limits on amount used in one day: An employee may determine how much paid sick leave he or she needs to use, but the employer can set a reasonable minimum increment not to exceed two hours that the employee must use each time.

Cap of accrual of total paid leave: In addition, employers can cap the accrual of paid sick leave to 48 hours or 6 days.

Employers may not require that employees obtain a replacement worker to fill their position in order to take the leave. Employees are required to provide reasonable advance notice if the time off is foreseeable, otherwise employees must provide notice of the need for leave as soon as practicable.

4. Does accrued but unused sick leave have to be paid out to an employee upon separation from employment?

No, an employer is not required to provide compensation to an employee for accrued, unused paid sick days upon leaving employment. However, if an employee leaves employment and is rehired by the employer within one year, previously accrued and unused paid sick days must be reinstated. The employee is entitled to the previously accrued and unused paid sick days and to accrue additional paid sick days upon rehiring.

5. What documentation and written requirements does the new law impose on employers?

The law requires that employers provide an employee with written notice setting forth the amount of paid leave available. This information must be included on the employee’s pay stub, or may be provided to the employee in a separate writing given to the employee on the employee’s pay date. In addition, the law amends Section 2810.5 of the Labor Code and adds the following language that must be provided on the employee’s wage notice: “That an employee: may accrue and use sick leave; has a right to request and use accrued paid sick leave; may not be terminated or retaliated against for using or requesting the use of accrued paid sick leave; and has the right to file a complaint against an employer who retaliates.”

In addition, the law requires employers to document and keep records of the hours worked and paid sick days accrued and used by an employee for at least three years. Employees (as well as the Labor Commissioner) have the right to access these records. Failure to keep the required records creates a presumption against the employer that the employee is entitled to the maximum number of hours provided for under the law.

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Friday's Five: Five items to understand about employee personnel files under California law

1. Current and former employees have the right to inspect or copy personnel files.
Under Labor Code section 1198.5 employees have the right to inspect or receive copies of personnel files and records relating to the employee’s performance or grievance concerning the employee. Employers are legally required to maintain personnel files for at least three years after the employee stops working for the employer. However, since the statute of limitations for wage and hour claims can extend back four years, many employers keep the files at least four years.

2. The terms “personnel file” or “personnel records” are not defined in the Labor Code.
Without the terms “personnel records” or “personnel file” ever being defined, there is considerable ambiguity about what documents should be keep in an employee’s personnel file.
While not legally binding on employers, there is some guidance from the Division of Labor Standards Enforcement(“DLSE”) expressing the following view:

Categories of records that are generally considered to be "personnel records" are those that are used or have been used to determine an employee’s qualifications for promotion, additional compensation, or disciplinary action, including termination. The following are some examples of "personnel records" (this list is not all inclusive):

  1. Application for employment
  2. Payroll authorization form
  3. Notices of commendation, warning, discipline, and/or termination
  4. Notices of layoff, leave of absence, and vacation
  5. Notices of wage attachment or garnishment
  6. Education and training notices and records
  7. Performance appraisals/reviews
  8. Attendance records

Employers should also consider placing the following documents in personnel files:

  • Signed arbitration agreements
  • Sexual harassment compliance records for supervisors
  • Sign acknowledgements of policy by employee (for example, confidentiality/proprietary information agreements, meal and rest break acknowledgments, handbook acknowledgments)
  • Wage Theft Protection Act notice
  • If commissioned employee, written commission agreement signed by both the employer and employee beginning January 1, 2013.
  • Warnings and disciplinary action documents.
  • Performance reviews
  • Documents of any grievance concerning the employee
  • Documents pertaining to when the employee was hired
  • Records pertaining to last day of work and documenting reason for departure from employment

3. Personnel records must be made available not less than 30 days from date employer receives a written request to view the file.
The employer may charge the employee for the costs of copying the file, but the charge cannot exceed actual cost of reproduction.

4. Employers have the right to redact the names of any other nonsupervisory employee that are listed in the employee’s personnel file before making it available to the employee.

5. Employers may be subject to a $750 penalty for not making requested records available.
The penalty can be assessed by the Labor Commissioner, and the employee could also bring an action to compel production of his or her file and recover attorney’s fees.

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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: More than five required items that should be included in a new hire packet

Here is a list of some of the required notices employers must provide to new employees in California. Sometimes I have a hard time coming up with five rules or items for the Friday’s Five list, but not this time – I blew through five items (it is California after all): 

Document Title

Link to Document

Notice to Employee (Wage Theft Prevention Act) (for non-exempt employees)

Download here

I-9 – Employment Eligibility Verification

Download here

Right to Workers’ Compensation Benefits pamphlet

Download here

State Disability Insurance Provisions pamphlet - DE 2515

Download here

Paid Family Leave pamphlet - DE 2511

Download here

Sexual Harassment pamphlet

Download here

New Health Insurance Marketplace Coverage Options Form

Form for employers with health insurance plans - download here

Form for employer without health insurance plans - download here

Other documents I often recommend that employers have in their new hire packets are:

·   Commission Agreement (if applicable)

·   Meal and Rest Break Acknowledgment of employer’s policy

·   Employee Handbook and Acknowledgment

 

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San Diego City Council moves closer to raising minimum wage and mandating paid sick leave for San Diego employers

The San Diego City Council approved an ordinance that increases the minimum wage required to be paid to workers within the city to $11.50 per hour by 2017. In addition the ordinance calls for the minimum wage to automatically increase every year after 2018 by indexing the minimum wage to inflation. Currently California's minimum wage is set at $9.00 per hour, which increased from $8.00 per hour in July 2014

San Diego Proposed Minimum Wage Increases

Current Minimum Wage

$9.00 per hour

January 1, 2015

$9.75 per hour

January 1, 2016

$10.50 per hour

January 1, 2017

$11.50 per hour

January 1, 2018

Minimum wage will increase each year measured in the increase of the Consumer Price Index.

The ordinance also requires employers to provide up to five days of paid sick leave. If enacted, the sick leave requirement will begin in April 1, 2015 and provides employees with one hour of paid sick leave for every 30 hours worked. Leave must be carried over from year to year, but employers may cap the use of the sick leave to 40 hours of paid leave within a benefit year. The ordinance also provides that:

-          For employees that are not covered by the overtime requirements of California law, it will be presumed that they work 40 hours a week. If an employee works less than 40 hours they will only accrue sick leave based on their actual hours worked.

-          Employers may set a reasonable minimum increment for use of sick leave, but this minimum may not exceed two hours.

-          If an employee separates employment, but returns to work within six months, all previously unused sick leave will be reinstated to the employee. 

-          If an employee uses sick leave for more than three consecutive work days, the employer may require “reasonable” documentation from a licensed heath care provider justifying the leave. 

Currently the ordinance is before San Diego’s Mayor, Kevin Faulconer, who has stated he will veto the measure. However, the ordinance was passed by a super-majority that can override the Mayor’s veto, possibly forcing the issue to a referendum. If this occurs, the City Council will have the option to either rescind the legislation, or submit the matter to the voters of San Diego.

 

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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 legal pitfalls startup companies cannot make

1. Classifying all employees as independent contractors
To qualify as an independent contractor, the employer has the burden of proof to establish that the worker is actually an independent contractor and not an employee. I’ve discussed the parameter of this “economic realities” test here.  In addition to owing unpaid minimum wages and potential unpaid overtime, the employer also faces steep penalties for misclassifying independent contractors.

2. Treating all employees as exempt employees and not paying overtime.
An employee cannot agree to work without being paid overtime unless they qualify as an exempt employee. To qualify as an exempt employee, generally, the employee must perform certain duties, and must be paid a certain threshold in wages (usually at least two times the equivalent pay of minimum wage based on a 40 hour week).  

3. Not having a handbook and written policies.
Even if startup companies have no money, the Labor Code still applies. They still have to pay more than minimum wage, provide and record meal and rest breaks, issue wage notices to new employees, and otherwise comply with California law. A handbook, new hire packet, and standardized set of written policies is a good place to start.

4. Not providing clear offer letter with at-will provisions and clear understanding of who owns social media accounts and passwords.
Companies should providing a writing setting forth the employee’s compensation, stock option rights, at-will status, as well as who owns the rights to social media accounts and the passwords to access the accounts. Much better to have this set out early in order to avoid costly litigation and disruption in your business later.

5. Not having the right employment law counsel.
Startup owners should have a relationship with an attorney that actually practices California employment law. Have an agreement with them that for basic quick questions there will be little if no charge. I often tell my clients that if it takes a quick phone call to review a decision about an employment issue, there will be no charge. Of course this has to be within reason, as your lawyer sells his or her time to make a living.  So to make this easier on your lawyer, do the work before you call, and just double check that the decision you have made, or the letter you drafted is good-to-go. Otherwise, calling your lawyer and asking him to draft the letter will take him time (usually more time that the client could have done it in) and will increase the cost of legal services.

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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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Friday's Five: The World Cup and makeup time under California law. Five requirements for use of makeup time.

The World Cup is upon us. I have to admit I had yesterday’s opening game between Brazil and Croatia on in the background while I was working. Given that this year’s World Cup is being held in Brazil, there is not much of a difference in time zones for those of us on the west coast, but many games are during work hours. So what are California employers’ options to provide employees with time off during the work day to watch their favorite team play? One is the use of makeup time. This option is a rare occurrence under California law in which employers and employees flexibility to adjust their work schedule to accommodate for important life events that come up from time to time, such as, ahem, the World Cup. Makeup time allows employees to take time off and then make it up later in the same workweek, without triggering the obligation for the employer to pay overtime. Here are five things employers should keep in mind about makeup time:

  1. An employee may work no more than 11 hours on another workday, and not more than 40 hours in the workweek to make up for the time off;
  2. The time missed must be made up within the same workweek;
  3. The employee needs to provide a signed written request to the employer for each occasion that they want to makeup time (and if employers permit makeup time, they should have a carefully drafted policy on makeup time and a system to document employee requests);
  4. Employers cannot solicit or encourage employees to request makeup time, but employers may inform employees of this option; and
  5. Remember, if these requirements are not met, time and a half overtime is due for (1) time over eight hours in one day or (2) over 40 hours in one week or (3) the first eight hours worked on the seventh consecutive day worked in a single workweek; and double time is due for (1) time over 12 hours in one day and (2) hours worked beyond eight on the seventh consecutive day in a single workweek.

The DLSE provides a good overview of the overtime requirements and calculating overtime payments here.

Just a reminder, USA’s first match is against Ghana, on Monday, June 16 at 3:00 p.m. Pacific Time.

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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 steps companies can take to reduce employment lawsuits

Employers often ask me the question of what steps can they take to stop employment litigation. My response usually begins with a warning that there is nothing an employer can do that will prevent a frivolous lawsuit. Employers can only control their actions and decisions, and by thinking about and reviewing a few simple items at least once a quarter, it can greatly reduce a company’s liability. Here are five steps employer can start with:

1. Implement accurate and easy to use timekeeping system.
California law requires employers to track start and stop times for hourly, non-exempt employees. The law also requires employer to track the start and stop times for the employee’s thirty minute meal periods. The time system needs to be accurate, and the employer needs to be involved in the installation and setup of the system. Do not simply use the default settings for the hardware and software. Understand what the system is tracking and how it is recording the data. Since the statute of limitations for California wage and hour violations can extent back four years, it is recommended that employers take steps to keep these records at least four years.

2. Keep handbook and related policies up to date.
Employers should periodically have their handbooks, operating policies and new hire packets reviewed to ensure they are current. Employers need to remember that a review of policies should extend beyond the handbook, but should also incorporate a review of all other policies, pay practices, and documents that are given to employees when they are hired, during employment, and at termination.

3. Document everything.
I cannot overemphasis the need to document what occurs in the workplace. Most importantly, employers need to document employee performance. It is all too often that a problem employee’s personnel file does not contain any type of documentation about his poor performance. Then, when the employee challenges the employer’s termination decision, it is much harder to prove the business reason behind the decision.

4. Get to know an employment attorney you can run issues by on a day-to-day basis.
You knew this was coming, but regardless of the unashamed self-promotion, employers should have counsel that is well versed in California employment law. California’s employment laws are very nuanced, and an attorney that has experience in this area will save the company not only in legal fees, but also in potential exposure. I have a client that says that when you have a problem with your eyes, you don’t go to you general practitioner. The same applies for advice on California employment issues. It is very unique. In addition, working with an employment lawyer on a routine basis is also a great way to see how he or she works and if the lawyer is compatible with your operations. This is much better to find out early on, instead of discovering that you don’t get along with your counsel in the middle of defending a class action lawsuit.

5. Consider hiring a knowledgeable HR professional.
An experienced HR professional will allow the president or other executives in the company to focus their time and energy in their core roles. In addition, it is helpful from a structural and managerial perspective for the employees in an organization to know exactly who to go to for HR information or complaints. A human resources professional with experience in handling workplace investigations and dealing with employee complaints is very valuable to a company – let’s face it, no matter how well you run your company, there will be complaints. Having a proactive, knowledgeable professional assisting in the process of investigating and resolving the issues is instrumental to a successful company.

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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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Top Five Items California Employers Need To Know About Tips

1) Who owns a tip?

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

2) Is employer mandated tip pooling legal?

Yes. In the seminal 1990 case on tip-pooling, Leighton v. Old Heidelberg, Ltd., the court held that an employer’s practice of tip pooling among employees was not prohibited by section 351 because the employer did not “collect, take, or receive” any part of a gratuity left by a patron, and did not credit tips or deduct tip income from employee wages. The court relied upon the “industry practice” that 15% of the gratuity is tipped out to the busboy and 5% to the bartender, which was “a house rule and is with nearly all Restaurants.” However, owners, managers, or supervisors of the business cannot share in the tip pool.

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

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

4) Does California allow an employer to credit a portion of the employee’s tips towards minimum wage?

No. While some states provide the employer with a “tip credit”, California law does not allow this. However, with the recent passage of the increase in California’s minimum wage from $8 per hour to $9 per hour on July 1, 2014, and then to $10 per hour on January 1, 2016, there is more discussion of examining whether a tip credit should be considered in California. However, current law does not allow employers to “credit” an employee’s tips towards the minimum wage requirement for each hour worked.

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

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

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What other legal issues arise from an increase in California's minimum wage?

With Governor Brown's signing of the bill raising California's minimum wage to $10.00 per hour by January 2016, there are a few new considerations this triggers for California employers.  This quick video discusses the increase in guaranteed salary employers must pay in order to for employees to qualify as exempt. 

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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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5 compliance issues California employers need to audit at least once a year

Your company has updated its employee handbook, but the work is not over in California. Here are a few reminders of additional steps employers should review after conducting a handbook update and on a periodic basis. Of course this list is not comprehensive, but it comprises of a few items that sometimes take a backseat to the employee handbook update.

1. Ensure wage notice statements are issued and are correct.

Labor Code section 2810.5 requires employers to provide written notice to employees about specific employment items. For example, the law requires that employers provide notice to employees of their rate(s) of pay, designated pay day, the employer’s intent to claim allowances (meal or lodging allowances) as part of the minimum wage, and the basis of wage payment (whether paying by hour, shift, day, week, piece, etc.), including any applicable rates for overtime. The notice must also contain the employer's "doing business as" names, and that it be provided at the time of hiring and within 7 days of a change if the change is not listed on the employee’s pay stub for the following pay period.  The recommended notice published by the Division of Labor Standards Enforcement can be downloaded here.  Also the DLSE publishes frequently asked questions that address many issues regarding the notice here

2. Start Using New Form I-9 By May 7, 2013.

By May 7, 2013, employers will be required to use the new I-9 Form. The new Form I-9 can be downloaded from the U.S. Citizenship and Immigration Services website here. It would be a good time to review the “Handbook for Employers, Guidance for Completing Form I-9” published by the USCIS.

3. Place all commission agreements in writing.

Beginning 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.

4. Conduct pay stub audit.

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 law was amended, and as January 1, 2013 it 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.

5. Ensure all personnel records are maintained properly.

When reviewing which records should be maintained in an employee’s personnel file, it is important to keep in mind why an employer would ever have to produce a personnel file – to support its employment based decisions. Therefore, employers should typically maintain personnel files with the following documents: signed arbitration agreements, sexual harassment compliance records for supervisors, sign acknowledgements of policy by employee (for example, confidentiality/proprietary information agreements, meal and rest break acknowledgments, handbook acknowledgments), Wage Theft Protection Act notice, commission agreements signed by both the employer and employee, warnings and disciplinary action documents, performance reviews, documents of any grievance concerning the employee, documents pertaining to when the employee was hired, records pertaining to last day of work and documenting reason for departure from employment.

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Surprise - Employers Face New Employee Personnel Records Obligations in 2013, But The Term "Personnel Records" Is Not Defined

California employers face a law (AB 2674) taking effect on January 1, 2013 (click here for a list of other new employment laws effective in 2013), which changes their duties to maintain and provide personnel records to current and former employees.  The law amends Labor Code section 1198.5 pertaining to "personnel records".  When discussing this new law, I am getting the question of what documents should be included in an employee’s personnel file, and what exactly are "personnel records" under this Labor Code provision. To many employers' surprise, although the term “personnel file” or “personnel records” is used throughout the Labor Code, the term is never explicitly defined.

The Labor Code provides some guidance for employers by setting for what employees are not entitled to inspect. Labor Code section 1198.5, which provides the employee with certain rights regarding inspection of “personnel records”, does exclude certain records from this right to inspection. Under this section, employees do not have the right to inspect (1) records relating to the investigation of a possible criminal offense; (2) letters of reference; (3) ratings, reports, or records that were: obtained prior to the employee’s employment, prepared by identifiable examination committee members, or obtained in connection with a promotional examination.

Without the terms “personnel records” or “personnel file” ever being defined, there is considerable ambiguity about what documents should be keep in an employee’s personnel file.

While not legally binding on employers, there is some guidance from the Division of Labor Standards Enforcement’s (“DLSE”) website (caution: at the time of this writing, the DLSE has not updated its website to reflect the new changes in the law):

Categories of records that are generally considered to be "personnel records" are those that are used or have been used to determine an employee’s qualifications for promotion, additional compensation, or disciplinary action, including termination. The following are some examples of "personnel records" (this list is not all inclusive):

  1. Application for employment
  2. Payroll authorization form
  3. Notices of commendation, warning, discipline, and/or termination
  4. Notices of layoff, leave of absence, and vacation
  5. Notices of wage attachment or garnishment
  6. Education and training notices and records
  7. Performance appraisals/reviews
  8. Attendance records

It is important to keep in mind why an employer would ever have to produce a personnel file – to support its employment based decisions. Therefore, employers should typically maintain personnel files with the following documents:

  • Signed arbitration agreements
  • Sexual harassment compliance records for supervisors
  • Sign acknowledgements of policy by employee (for example, confidentiality/proprietary information agreements, meal and rest break acknowledgments, handbook acknowledgments)
  • Wage Theft Protection Act notice
  • If commissioned employee, written commission agreement signed by both the employer and employee beginning January 1, 2013.
  • Warnings and disciplinary action documents.
  • Performance reviews
  • Documents of any grievance concerning the employee
  • Documents pertaining to when the employee was hired
  • Records pertaining to last day of work and documenting reason for departure from employment

Employers typically should not keep the following information in an employee’s personal file:

  • Form I-9s
  • EEOC and DFEH charges of discrimination
  • Workers’ compensation information
  • Private medical information
  • Any information obtained prior to offering the employee a position

Given the ambiguity about the definition of personnel file, employers should take time to consider their operations and industry to develop a system ensures the same documents for each employee are maintained in their personnel files, and what other files need to be established for employees. Also, employers need to design and implement a personnel file retention policy that will maintain the critical documents that would be relevant should the need to defend an employment claim arise. It is important that this process be established in order to survive any potential change in management and/or the human resource functions in the company.

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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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When Does An Employer Have To Pay Wages?

I remember working odd summer jobs during college to pay the rent so that I did not have to move home. I was just thinking about one employer I worked for that always seemed to have payroll issues. Now, I do not think the mistakes were intentional, but they did cause me to have a few hard times coming up with rent when I had to complain and get my correct pay. With the closing few weeks of summer upon us, I thought it would be a good time to review a few requirements under California law when employers must pay wages.

Normal Payroll Deadlines

California law requires that employers pay employees at least twice during each calendar month. Paydays must be designated by the employer and posted at the worksite, as required under Labor Code 207. Labor Code section 204 requires the following:

  • Wages earned between the 1st and 15th of the month must be paid no later than the 26th day of the month work was done.
  • Wages earned between the 16th and last day of the month must be paid by the 10th of the following month.

If the employer pays on a different basis, such as weekly, every two weeks, or twice a month, when the pay period is something other than the 1st to the 15th and the 16th to the end of the month, then the employee must be paid within seven calendar days of the end of the of the payroll period. See Labor Code section 204(b).

Pay Due Upon Termination or Resignation

An employee who is terminated must be paid all wages and accrued vacation at the time of termination. Labor Code section 201. An employee who quits without giving more than 72 hours of notice, must be paid all wages and accrued vacation within 72 hours of quitting. Labor Code section 202. An employee who quits, but gives 72 hours of notice before quitting, must be paid at the time of quitting.

The penalty for non-compliance with Labor Code sections 201 and 202 provides that the employee is entitled to the amount of wages he or she would have continued to earn at their normal rate for each day that the employer does not pay the wages. These penalties accrue up to 30 days’ worth of wages. Labor Code section 203.

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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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Meal and Rest Break Compliance After Brinker v. Superior Court

Have you attended webinars and read new legal updates on the new Brinker decision and still uncertain on how this applies to your company? Realizing that employers need to take a more active step in ensuring they are in compliance with the new decision, I've developed a package that actually assists employers in drafting and implementing a meal and rest break policy tailored to their business:

  • A draft of meal and rest break policy to comply with the standards set forth in Brinker.
  • Video presentation covering overview of Brinker (1 hour) and presentation materials.
  • 1/2 hour consultation for implementing meal and rest break policy tailored to your company.

The California Supreme Court made it clear in its decision that different industries and facts will either prohibit or permit employers from requiring different standards regarding the timing and offering of meal and rest breaks under California law.  General advice from webinars and articles are not sufficient to ensure companies are in compliance with the clarifications set forth in the decision.    The cost of the package is a flat fee of $450. 

More information about the compliance package is listed here

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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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Statistical Analysis of Labor Commissioner Rulings Shows Inconsistencies

When faced with a hearing before the California Labor Commissioner in a Berman hearing, employers and employees alike expect to get a fair, consistent hearing to settle wage disputes. However, as Brian Sumers of the Daily Journal points out this is not always the case. His article (subscription required) provides an analysis of the inconsistencies that arise in holdings of cases heard by the Labor Commissioner’s office. It found that on average the deputy labor commissioners favor employees in about 80% of the cases they hear. In addition, the article analyzes how often specific deputy labor commissioners rule for employers or employees, and notes that the outcome varies drastically on the office and the deputy labor commissioner hearing the case. I’m quoted in the article as saying my experience has been consistent with this statistical analysis. The Labor Commissioner’s office states that it is focusing on additional training for the deputy labor commissioners to ensure a consistent enforcement of the wage laws.

Employers facing labor commissioner hearings need to ensure they are well prepared for the Berman hearings. Even though the same rules of evidence do not apply in Berman hearings as in civil court, the hearings are recorded and the parties testify under oath. Therefore, even if the deputy labor commissioner’s findings are against the employer, it is important to develop a record at this stage of litigation in order to establish the positions on appeal before a judge in superior court. For more information about hearings before the Labor Commissioner and how to prepare for them, see my previous posts here and here.
 

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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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2012 Wage and Reimbursement Rates For California Employers

 

2012 Requirement

Source

 

California Minimum Wage

 

 

$8.00 per hour (unchanged from previous years)

 

California’s Industrial Welfare Commission

 

San Francisco Minimum Wage

 

 

$10.24 per hour

 

City of San Francisco

Computer Professional Exempt Salary Rate

 

 

 

$38.89 or annual salary of not less than $81,026.25 for full-time employment, and paid not less than $6,752.19 per month

 

 

Division of Labor Statistics and Research

 

Hourly Physicians Exempt Hourly Rate

 

 

$70.86 per hour

 

Division of Labor Statistics and Research

 

IRS Mileage Rate

 

 

 

55.5 cents per mile for business miles driven

 

 

Internal Revenue Service

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Template To Comply With Wage Theft Protection Act of 2011 Notice Requirement To All Hires Beginning in 2012 Published By Labor Commissioner

Today the Division of Labor Standards Enforcement (“DLSE”) published a template that employers can use in order to comply with the new notice requirements set forth in Labor Code section 2810.5. A Word version can be downloaded here and a PDF version can be downloaded here.

All California employers are required to provide a notice to all employees hired beginning on January 1, 2012 that complies with the requirements of section 2810.5. The new law required the Labor Commissioner to publish a template for employers to use in order to comply with the new law. For more information regarding the notice, and the new law, see my previous post.

I’ve only had a chance to do a quick review of the template, but one area of new information that the DLSE is apparently requiring on the notice is whether the “employment agreement” is oral or written in the wage information section of the template. The new Labor Code section 2810.5 did not require this to be on the notice to the employee, but the law does provide that there may be “[o]ther information added by the Labor Commissioner as material and necessary.” I am wondering if the fact that all employers are required to provide this information on the form necessary means that the “employment agreement” is therefore always going to be written.

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Can Employees Agree To Waive Berman Hearings In Arbitration Agreements?

I’ve recently written a series of posts regarding the Berman hearing process available for employees to resolve wage disputes before the Labor Commissioner. See previous posts: Overview Of Berman Hearings Before The Labor Commissioner and How To Prepare For a Berman Hearing. But can an employer have an employee sign an arbitration agreement in which the employee agrees to waive any rights to a Berman hearing, and all claims against the employer must proceed directly to arbitration? A good question, to which there is not currently an answer. The issue is currently under review by the California Supreme Court in the case Sonic-Calabasas A, Inc. v. Moreno

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.

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All California Employers Have New Employee Notice Requirements Beginning January 1, 2012

The new law affecting every employer in California is the Wage Theft Protection Act of 2011. It takes effect on January 1, 2012 and adds additional notice and record keeping requirements that employers must comply with. The new law added Labor Code section 2810.5, which requires private employers to provide all new employees with a written notice that contains certain information.

The new law requires private employers to provide all newly-hired, non-overtime-exempt employees with a disclosure containing the following information:

(a) The job rate or rates of pay and whether it pays by the hour, shift, day, week, salary, piece, commission, or otherwise, including any rates for overtime.
(b) Any allowances claimed as part of the minimum wage, such as for uniforms, meals, and lodging.
(c) The employer's regular payday, subject to the Labor Code.
(d) The employer's name, including any “doing business as” names used.
(e) The address of the employer's main office or principal place of business, and its mailing address, if different.
(f) The employer's telephone number.
(g) The name, address, and telephone number of the employer’s workers’ compensation insurance carrier.
(h) Other information added by the Labor Commissioner as material and necessary.

The new 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 also 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 new law requires the Labor Commissioner to publish a template for employers to follow in order to comply with the law. The Labor Commissioner’s website states it is “anticipated” and the template will be published in mid-December. However, as of the publishing of this post, the Labor Commissioner has not yet published the template.

There is no prescribed requirement in the law about how long this notice should be retained, but as wage and hour violations contain a four year statute of limitations, these notices should be retained in the employee’s personnel file for four years. It is also important to note that the new law does not apply to exempt employees. However, if there is ever a challenge to the employee’s classification as exempt and they are found to be non-exempt, this provision could result in increased penalties. Therefore, it may be wise to complete this form for exempt employees just as a safety precaution.

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How To Prepare For a Berman Hearing

My last post provided an overview of the Berman hearing process when an employee begins a claim for unpaid wages with the Labor Commissioner. If the parties do not settle the claim at the settlement hearing, then the matter will be set for a Berman hearing pursuant to Labor Code 98(a). The Berman hearing was designed to provide both parties a quick and easy way to resolve wage disputes. I like to think of it as very similar to a small claims proceeding. However, unlike small claims court which can only hear cases were the amount in dispute is $7,500 or less, the Labor Commissioner can hear and rule upon wage claims of any size. 

The formality of the Berman hearing varies dramatically from the Deputy Labor Commissioner who presides over the hearing. Some of the Deputy Labor Commissioners like the hearings to proceed in a very formal manner, much like a civil trial, while others are very hands off. Generally, each side will present their case, and will have the ability to cross-examine the other parties and witnesses. There are no set rules on how the hearings are supposed to be conducted, such as which party must present evidence first. I’ve even had a Deputy Labor Commissioner take a witness out of logical order of testifying in order to accommodate the witness’s schedule. The rules of evidence do not apply, so the process can take many different forms. Also, as I mentioned in my post describing an overview of the Berman hearing process, parties may have a lawyer represent them in front of the Labor Commissioner, but it is not required.

Unlike a civil trial, parties preparing for a Berman hearing generally are not allowed to conduct discovery to get a preview of the facts and witnesses the other side will present. So preparation for a Berman hearing may be a bit of guesswork, it is usually possible for the employer to get a good idea of the employee’s claims from the face of the complaint and the facts and issues that were discussed during the settlement conference. There are, however, a few items employers should do when preparing to defend a claim at a Berman hearing:

  • Prepare an opening statement setting forth what the evidence will show during the course of the hearing. Again, while some Deputy Labor Commissioners may simply start the proceeding without an opening statement, it is a good practice to have a short 5 minute summary of what your evidence will show.
  • Prepare an outline of the issues each witness will testify to. This helps streamline the testimony, and ensures that all of the items necessary areas are covered.
  • Prepare an outline for points to make during a cross-examination of the employee (as well as any potential witnesses).
  • Bring relevant witnesses to the hearing.
  • Bring the appropriate documents to use as exhibits.

Before the hearing beings, all of the witnesses are sworn in and the testimony given during the hearing is recorded by an audio recorder. This is why it is important to be prepared, know the law, and to know which admissions are important to obtain. If the employer appeals the Labor Commissioner’s ruling, both parties may obtain a copy of the audio recording of the Berman hearing. It is very critical to know the issues, and the use the Berman hearing as a way to get testimony in order to assist your case if there is an appeal of the Labor Commissioner’s ruling.

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Overview Of Berman Hearings Before The Labor Commissioner

I’ve had a lot of interest from clients lately about the details of the administrative hearing process that employees can pursue before the California Labor Commissioner. With this interest, and just having represented a client at a Berman hearing this week, I wanted to explain the process in a series of posts. 

An employee seeking recovery of unpaid wages has two options to pursue recovery: (1) file a civil lawsuit or (2) file a wage claim with the California Labor Commissioner under Labor Code section 98 et. seq. If the employee pursues her rights through the Labor Commissioner, the Commissioner will send notice to the employer regarding a settlement conference. This settlement conference is an informal conference during which a Deputy Labor Commissioner attempts to settle the case. Both parties may present their arguments, but the Deputy Labor Commissioner does not issue a ruling or decide any issues at this settlement conference.

If the settlement conference does not result in a settlement, the case will be set for an administrative hearing, known as a Berman hearing, pursuant to Labor Code section 98(a). During the Berman hearing, both parties can present their cases through testimony, witnesses, and documents. The hearings are basically mini-trials, but the formal rules of evidence do not apply. Moreover, parties do not need to be represented by a lawyer, but lawyers are regularly present to assist in presenting the evidence. The parties’ and witnesses’ testimony is under the penalty of perjury and the deputy labor commissioner records the hearing, and this audio recording can be obtained by the parties at a later date. The Deputy Labor Commissioner is supposed to issue an order, decision, or award setting forth the rational for his or her decision within 15 days of the Berman hearing. However, it has been my experience that the order, decision, or award is not usually issued in this time period given the drastic cuts in budgets and the huge workload facing the Labor Commissioner.

The Labor Commissioner’s award is binding on both parties, and is an enforceable judgment in Superior Court. The award, however, may be appealed to Superior Court by either party. 

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Employees Forfeit $34.3 Billion In Unused Vacation Time - Except In California

All too common is the assumption that because a company’s policies comply with Federal law, and perhaps other states’ laws, the policy should be fine under California law. This wrong assumption is clearly illustrated by a recent study by Expedia that estimates employees forfeit $34.3 billion in unused vacation time across the U.S. From what I’ve read, I do not see any adjustment in the study for the fact that such use-it-or-lose-it vacation policies are illegal under California law.

California law is clear that while paid vacations are not required, if a California employer provides for paid vacations, these benefits are considered wages and are earned by the employee on a pro rata basis for each day of work. Moreover, because vacation is a form of deferred wages and vests as it is earned, vacation wages cannot be forfeited – so no "use-it-or-lose-it" policies. An employer can place a reasonable cap on vacation benefits that prevents an employee from earning vacation over a certain amount of hours, and the Division of Labor Standards Enforcement has opined that a cap that allows at least nine months for the employee to use the vacation after the vacation was earned is a reasonable cap. See DSLE Enforcement Policies and Interpretations Manual section 15.1.4.1. Moreover, Labor Code section 227.3 requires that when an employment relationship ends all vacation earned but not yet taken by the employee must be paid at the time of termination.

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Use of Ships To Skirt California Laws?

The Wall Street Journal is reporting about the plans of Silicon Valley entrepreneurs who would like to anchor a ship 12 miles off the San Francisco coast in order to skirt U.S. Immigration laws. They project that the ships could hold 1,000 people at a cost for a room roughly equivalent (if not cheaper) to an apartment in San Francisco. The entrepreneurs view this as a viable option for tech start-ups to have access to skilled workers, who are having a difficult time obtaining H1-B visas to live and work in the U.S. Since it is simpler to obtain a B-1 visa that permits the worker to travel to the U.S. for meetings, seminars, and training, the ship would act as a staging area for the workers outside of the U.S., but still allow them to work in close proximity to the start-up company. The article mentions that the legal ramifications of immigration law may not permit this, but it made me wonder if the employer would effectively not have to comply with the California Labor Code as well. 

I believe it would be hard for the California Courts to establish that the Labor Code would apply to the workers stationed in a ship outside of the U.S. boarders for work completed outside of the state. Recently, the California Supreme Court held in Sullivan v. Oracle Corporation that California Corporations that employ non-resident workers in the state of California are subject to California’s Labor Code provisions, such as requirements for overtime pay which are vastly different than other states’ law and federal law (click here for a more detailed analysis of the Oracle decision). The Court in Oracle 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). The Court stated, “To exclude nonresidents from the overtime laws’ protection would tend to defeat their purpose by encouraging employers to import unprotected workers from other states.”

However, that case was limited to work performed in California. The scenario proposed by the Silicon Valley entrepreneurs is vastly different, where non-citizens perform work outside of the U.S. and California boarders, and only travel into the State for meetings. It is analogous to the situation where employees living in China, but working for a California corporation, routinely travel to California for work.  Under Oracle, the argument could be made that the employees may have to be paid according to California law for the work done while in California, but it is unlikely this requirement would extend to the work done outside the state while on the ship.  These types of issues will be more and more common given how technology is changing the traditional concepts that workers have to be in a certain building, or even country, while performing work. 

 

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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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DOL Proposal May Require Employers To Provide More Wage Information To Employees

The DOL is pushing for regulations to require employers to provide more information about how employee’s paychecks are calculated. This week, the Labor Secretary Hilda Solis said that the Department of Labor is backing a proposal that would require employers to provide more information to employees in order help stop wage and hour violations. Bloomberg reported that the proposal “would require companies to give employees a report explaining how their pay and hours are set and is aimed at ensuring companies compensate workers for overtime.”

Many states already require certain information to be provided to the employees on their paystubs. For example, California Labor Code section 226(a) has specific requirements of the type of information that must be provided on employee wage statements. That section provides:

Every employer shall semimonthly, or at the time of each payment of wages, furnish each of his or her employees either as a detachable part of the check, draft, or voucher paying the employee's wages, or separately when wages are paid by personal check or cash, an itemized statement in writing showing: (1) gross wages earned; (2) total hours worked by each employee whose compensation is based on an hourly wage; (3) all deductions; provided, that all deductions made on written orders of the employee may be aggregated and shown as one item; (4) net wages earned; (5) the inclusive dates of the period for which the employee is paid; (6) the name of the employee and his or her social security number; and (7) the name and address of the legal entity which is the employer.

Many California employers, as well as out-of-state employers, often are unaware of this requirement, which can expose them to substantial penalties, even for minor, technical violations of this section.

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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

Can a California employee agree to accept a portion of their tips to count towards minimum wage?

A reader of the California Employment Law Report asks if it is possible to have employees enter into an agreement that would allow the employer to count a portion of the employees’ tips towards the minimum wage requirement. “Tip credit” is recognized by many states and it allows employers to count a portion of the employees’ tips towards a portion of the minimum wage requirement. Whether this is allowed and to what extent employers can offset their duty to pay minimum wage varies from state to state. Unfortunately, California does not allow tip credit. But the question raises another issue of whether it is possible to have employees agree to a tip credit even though the Labor Code does not provide for any credit.

As I’ve written about before, there are a few rights under the California Labor Code that employees cannot waive for public policy reasons. Labor Code Section 1194 provides a private right of action to enforce violations of minimum wage and overtime laws, and the statute voids any agreement between an employer and employee to work for less than minimum wage or not to receive overtime. It 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.

Therefore, any agreement entered into with employees permitting a tip credit would not be permitted under California law, as the employee would be waiving his or her right to minimum wage, which is not allowed under Labor Code Section 1194.

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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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When Must Employers Pay For On-Call or Standby Time?

The DLSE takes the view that, on-call or standby time at the work site is considered hours worked for which the employee must be compensated even if the employee does nothing but wait for something to happen. “[A]n employer, if he chooses, may hire a man to do nothing or to do nothing but wait for something to happen. Refraining from other activities often is a factor of instant readiness to serve, and idleness plays a part in all employment in a stand-by capacity”. (Armour & Co. v. Wantock (1944) 323 U.S. 126) Examples of compensable work time include, but are not limited to, meal periods and sleep periods during which times the employees are subject to the employer’s control. (See Bono Enterprises v. Labor Commissioner (1995) 32 Cal.App.4th 968 and Aguilar v. Association For Retarded Citizens (1991) 234 Cal.App.3d 21)

Whether on-call or standby time off the work site is considered compensable must be determined by looking at the restrictions placed on the employee. A variety of factors are considered in determining whether the employer-imposed restrictions turn the on-call time into compensable “hours worked.” These factors, set out in a federal case, Berry v. County of Sonoma (1994) 30 F.3d 1174, include whether there are excessive geographic restrictions on the employee’s movements; whether the frequency of calls is unduly restrictive; whether a fixed time limit for response is unduly restrictive; whether the on-call employee can easily trade his or her on-call responsibilities with another employee; and whether and to what extent the employee engages in personal activities during on-call periods.
 

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Governor Vetoes Bill Giving Farmworkers Greater Overtime

Last week, Governor Schwarzenegger vetoed SB1121, a bill that would have given farm workers overtime when they work over eight hours in one day or over forty hours in one week. Currently, California farm workers earn overtime for all hours over 10 hours in one day and 60 hours in one week. Federal law, by contrast, does not require employers to pay farm workers any overtime at all.

 

The Governor explained:

In order to remain competitive against other states that do not have such wage requirements, businesses will simply avoid paying overtime.

The bill would have also applied California’s meal and rest break requirements to farm workers. The Governor also cited this as a reason why he vetoed the law:

Finally, it should be noted that Senate Bill 1121 would not just change the rules governing overtime pay for agricultural workers, but would also apply California's confusing and burdensome rest and meal requirements. Unfortunately, while there have been several attempts to clean up this section of law, efforts at comprehensive reform continue to fail. There is no reason to exacerbate this continuing problem by adding agricultural workers to it. For these reasons, I am unable to sign this bill.

The Governor’s statement is referring to the issues that the California Supreme Court is currently reviewing in Brinker Restaurant Corp. v. Superior Court. One of the many issues being reviewed in Brinker, is whether California employers need to only provide, not ensure, employees with their 30-minute meal break under California law. Click here for more analysis on the Brinker case
 

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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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Proposed Bill Targets Employers' Classification of Independent Contractors

The US House of Representatives introduced a bill (H.R. 5107), Employee Misclassification Prevention Act, that if passed would amend the FLSA to required employers who employ “non-employees” to keep records of classification of the non-employees. The bill refers to non-employees, which is targeting employers’ classification of independent contractors.

Should the employer fail to maintain the records required under the proposed bill, a presumption would be created that the worker is an employee – not an independent contractor. The employer could only then overturn this presumption by presenting “clear and convincing evidence” that the worker is properly classified.

The bill would also require employers to provide written notice to any non-employees about their classification. Among other items, the notice would need to state:

Your rights to wage, hour, and other labor protections depend upon your proper classification as an employee or non-employee. If you have any questions or concerns about how you have been classified or suspect that you may have been misclassified, contact the U.S. Department of Labor.

The notice would also need to include additional information that Department of Labor deems necessary by regulation at a later date.

Violation of the proposed bill’s requirements carries a civil fine of $1,100 per worker, which could increase to $5,000 for willful repeat violations.

The bill (H.R. 5107) can be read here. From what I could gather, it appears that the bill has a strong chance of becoming law. This is definitely one I will be keeping my eye on in coming months.

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Does the California Labor Code Apply to Summer Interns?

With the summer shortly upon us, employers will no doubt be faced with students looking for internship opportunities.  Employers need to be very careful in characterizing students as interns, and not paying them minimum wage and following California's other numerous Labor Code provisions that protect employees.  

In April 2010, the Department of Labor Standards Enforcement (DLSE) issued an opinion letter setting for the analysis it would conduct in making a determination regarding whether an intern is properly classified.  In its opinion letter, the DLSE set forth that it would examine the following factors:

  1. The training, even though it includes actual operation o the employer’s facilities, is similar to that which would be given in a vocational school;
  2. The training is for the benefit of the trainees or students;
  3. The trainees or students do not displace regular employees, but work under their close observations;
  4. The employer derives no immediate advantage from the activities of trainees or students, and on occasion the employer’s operations may be actually impeded;
  5. The trainees or students are not necessarily entitled to a job at the conclusion of the training period; and
  6. The employer and the trainees or students understand that the trainees or students are not entitled to wages for the time spent in training.

While these factors are a fairly loose test, an intern attempting to challenge the classification as an intern would probably have at least a few good facts to support their position. This is why California employers need to approach the intern classification with caution.

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Dept of Labor: Mortgage Loan Officers Do Not Meet Administrative Exemption

The Department of Labor issued its first “interpretation” letter (a change in policy by the DOL that replaces its opinion letters previously issued) by examining whether or not mortgage loan officers meet the administrative exemption of the Fair Labor Standards Act (FLSA). The DOL concluded that mortgage loan officer do not meet the exemption, and therefore are owed overtime wages. 

The DOL notes:

The financial services industry assigns a variety of job titles to employees who perform the typical job duties of a mortgage loan officer. Those job titles include mortgage loan representative, mortgage loan consultant, and mortgage loan originator.

The interpretation letter found that the typical mortgage loan officer’s duties begin with obtaining clients, collecting information about the clients (such as income, employment history, investments, and so forth), and then inputting this information into a computer program. The program sets forth appropriate loan products for the clients. The officer would then discuss the different pros and cons for each product with the client in order to match the client’s needs with one of the offered products.

The DOL noted that for the loan officer to qualify as exempt, their primary duty must be “the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers.” Work directly related to management or general business operations consists of work in areas such as accounting, budgeting, quality control, and human resources – not actually producing the product sold by the company or selling the product made by the company.

The DOL interpretation concluded:

Thus, a careful examination of the law as applied to the mortgage loan officers' duties demonstrates that their primary duty is making sales and, therefore, mortgage loan officers perform the production work of their employers. Work such as collecting financial information from customers, entering it into the computer program to determine what particular loan products might be available to that customer, and explaining the terms of the available options and the pros and cons of each option, so that a sale can be made, constitutes the production work of an employer engaged in selling or brokering mortgage loan products.

This new guidance from the DOL establishes that employers in the financial industry with employees – in particular loan officers – must review this new interpretation and evaluate whether certain employees can simply be paid a salary, or if the employees must be reclassified as non-exempt and receive overtime. The DOL letter can be read here (PDF).

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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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Recruiters for temporary staffing company must be paid overtime

The case Pellegrino v. Robert Half International, Inc. (RHI) was brought by recruiters alleging that RHI failed to comply with Labor Code provisions pertaining to overtime compensation, commissions, meal periods, itemized wage statements, and unfair competition (under Business and Professions Code section 17200). 

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).

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Arbitration Agreement Upheld Despite Employee's Argument It Was Not Mutual And Adhesive

In Roman v. Superior Court, the Court of Appeals upheld an arbitration agreement where the employee challenged the agreement by arguing that the agreement was unenforceable because it only obligated the employee to arbitrate his claims. The court disagreed with plaintiff’s argument and explained that the mere inclusion of the words “I understand” or “I agree” does not destroy the mutuality of an arbitration agreement. Roman v. Superior Court, 172 Cal.App.4th 1462, 1473 (2009).

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. 

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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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HR professionals note to employment lawyers: stop working off of fear

The HR blog Fistfull of Talent raises a concern I think a lot of HR professionals feel. See article “Hey Employment Law ‘Experts’, You’re Killing My Profession.” Kris Dunn expresses the all too common sentiment that employment lawyers are not advising their clients – but are rather scaring them into inaction. Kris uses the example of advice some lawyers are providing about whether or not companies should use social networking sites and Google to conduct background checks on job applicants. Taking the conservative approach, many lawyers, as Kris notes, advise against using these new technologies out of concern that it could create potential discrimination claims. (Side note to Kris – I warned awhile ago that companies should be using the Internet to conduct background checks.)

Kris’ analysis is right on for a number of reasons. First, lawyers are trained to point out the risks of any situation to properly advise their clients. Second, lawyers are notoriously behind the technology curve. Most do not know what “new” technologies are being used or how to use them, and this creates concern as anyone is scared about what they do not know about.

Employment lawyers need to take heed of this critique. HR professionals have jobs to perform and companies to run. They need legal advice that helps them perform their jobs better – not scare them into failing to change and keeping up with the times.

Employment lawyers need to recognize that change entails risk. However, companies always have to change, and lawyers need to help companies navigate this risk, not prevent them from doing anything new.

Note to HR professionals

As you know, the HR profession is changing a lot given today’s new technologies. New issues are creating a lot of uncertainty. Issues such as how to use social networking sites to conduct background checks, monitoring employee’s internet use, and determining "hours worked" when employees always have a smart device on them.

When looking for legal advice about these issues, you need to be certain that your lawyer is familiar and up-to-date with the technology available. Does the lawyer who you are seeking legal advice from have a Twitter, Facebook, or LinkedIn account? Do they use an iPhone or Blackberry? If the answer to these questions are ‘no’ – don't be surprised if their advice is to avoid these “new” technologies.

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10 common California employment law mistakes by start-up companies

Start-up companies are usually saving every penny and operating on small margins. Simply the cost of defending an employment lawsuit could bring the entire venture into jeopardy. Here is a list of ten common California employment law mistakes made by start-ups:

  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.
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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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Federal minimum wage increases, but does not affect California employers

The Federal minimum wage increased to $7.25 per hour on July 24, 2009. However, because California’s minimum wage is $8.00 per hour, the increase in the Federal minimum wage does not affect California employers, as employers need to pay the higher of the two minimum wages.  Here is an interesting table of the history of California's minimum wage amounts

Other notes about California minimum wage:

  • There is no tip credit allowed in California for tipped employees. Employers still must pay $8.00 per hour even for employees who receive tips while working.  Click here for a list of states that do recognize a tip credit
  • Employees cannot not waive their right to receive minimum wage (see Labor Code section 1194(a)).
  • There are a very limited number of employees who are exempt from minimum wages, such as outside salespersons or family members of the employer.
  • If an employee prevails in a lawsuit for unpaid minimum wages, he or she is also entitled to attorney’s fees as costs of the suit under Labor Code section 1194(a) (which, often times are larger than the minimum wage amounts not paid in the first place). 
     
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When Do Employers Have To Pay For On-call Time?

The line between when employees are on or off the clock have become more and more grey with the advent of Blackberries, iPhones, and providing employees with remote login access from their homes. On-call time is considered compensable work time if it is spent primarily for the benefit of the employer and its business. In making this determination, the on call waiting time is spent predominantly for the employer’s benefit depends on two considerations: (1) the parties’ agreement, and (2) the degree to which the employee is free to engage in personal activities.

The Ninth Circuit Court of Appeals in Owens v. Local No. 169, Association of Western Pulp and Paper Workers (9th Cir. 1992) 971 F.2d 347, 350-355, provided a nonexclusive list of factors courts would examining in determining whether the employee was free to engage in personal activities (note that none of the factors is determinative by itself):

  1. whether there was an on premises living requirement;
  2. whether there were excessive geographical restrictions on employee’s movements;
  3. whether the frequency of calls was unduly restrictive;
  4. whether a fixed time limit for response was unduly restrictive;
  5. whether the on-call employee could easily trade on-call responsibilities;
  6. whether use of a pager could ease restrictions; and
  7. whether the employee had actually engaged in personal activities during call-in time.

In addition, the California Division of Labor Standards Enforcement published this guideline on call back time and stand by time. Employers need to conduct a review of each case when on-call time may be an issue in order to determine whether pay is owed.
 

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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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Department Of Labor To Step Up Field Audits For Wage and Hour Violations

The newly appointed Secretary of Labor, Hilda Solis, issued a statement on March 24, 2009 that the Department of Labor is renewing its efforts to enforce labor laws across the country. With the addition of 250 field investigators provided to the DOL under the American Recovery and Reinvestment Act, businesses can be assured of increased audits.

As the Ohio’s Employer’s Blog points out, a DOL audit can feel like an unpleasant medical exam and employers need to be proactive about compliance. Except, I must add, one difference between the medical exam and DOL audit is that you can buy insurance to cover the costs of the medical exam.

In California, employers should review their pay practices, including that employees are paid on time and receive at least the minimum wage for California. For example, employers should insure they are complying with meal and rest break requirements, properly recording meal breaks and the employees’ time worked, properly paying overtime, and reimbursing employees for all business related expenses. Employers employing minors should also carefully examine the child-labor laws applicable to their business, as these requirements are extremely detailed and many well-intentioned employers may still be in violation.

Businesses should also audit whether they have properly classified their exempt employees and independent contractors. A misclassified employee can create a huge amount of liability for a business, as the misclassified employee is entitled to damages for overtime pay, penalties, interest, and their attorney’s fees.

Employers need to be proactive about complying with these complex wage and hour laws. If cost is a concern, complete an in-house audit and then have an attorney double check the policies and practices. It will cost a lot more to contact an attorney after the DOL is in your workplace or the lawsuit has already been filed.

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Severance Agreements In California - Items To Consider

What does the agreement have to be titled?

I was recently asked if the severance agreement needs to have a specific title in order to be valid. The title does not have to contain specific words, and are usually titled "general release" or "severance agreement." The title, unless it is clearly erroneous or confusing, does not change the type of agreement or the rights the parties are agreement to release. The key here is what the parties are actually releasing in the terms of the document. 

What claims can the parties agree to release?

Release of Unknown Claims

The idea of the severance agreement is to buy some certainty that there will be no litigation following the employee’s separation from the company. The employee (and employer for that matter) can waive all known claims. However, in California, for any party to release unknown claims, the agreement needs to be clear and advise the party that they are releasing unknown claims. Ideally, the agreement should set forth section 1542 of the Civil Code, which states:

A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.

Release of Age Claims For Older Workers (over 40 years old)

The Older Workers Benefit Protection Act of 1990 (OWBPA) provides workers over 40 years old with additional rights. The OWBPA places additional requirements on employers asking “old” employees to waive their potential claims the Age Discrimination in Employment Act of 1967 (ADEA). Here is a summary of the requirements employers need to meet:

  • The agreement must be written in a manner that the employee can understand.
  • The waiver specifically refers to the employee’s claims or rights under the ADEA.
  • The employee cannot waive claims that have not yet arisen
  • There must be consideration (the employer must give value to the employee which was not already owed to the employee - this has to be present in every severance agreement, not just those releasing age claims)
  • The employee is advised to consult with an attorney
  • The employee is given at least 21 days to consider the agreement (the employer may have to offer up to 45 days – the employer should check with counsel to see if this is necessary); and
  • The agreement may be revoked up to 7 days after it is executed.

Other Provisions To Consider For Severance Agreements

An employer should also consider if the agreement needs to address other issues, such as:

  • Is the release mutual (i.e., the employer and employee are both releasing all claims against each other)?
  • Should there be a non-competition/trade secrets provision?
  • Is the agreement confidential? If so, is there a liquidated damages provision where the parties agree to a certain monetary amount the breaching party will pay?
  • Will the employer provide a reference statement? If so, the language of the statement should be set forth in the agreement.
  • Should there be an arbitration provision to deal with any issues that arise from the severance agreement?
  • Should the employer include a choice of law clause in the agreement that determines which state law will be controlling in the case of a dispute?


 

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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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Individual Corporate Officers Cannot Be Personally Liable For the Alleged Labor Code Violations of the Corporation

California law has held that “employer” does not include an entity’s agents, and therefore there is no personal liability for Labor Code violations. Reynolds v. Bement (2005) 36 Cal.4th 1075, 1087-88; Jones v. Gregory (2006) 137 Cal.App.4th 798, 805. The California Supreme Court explained in Reynolds that under common law, corporate agents are not personally liable, and that the Labor Code does not provide a definition of employer that would warrant imposing personal liability on corporate officers for non-payment of wages.

The key quotes from the Reynolds court:

“This is true regardless of whether a corporation's failure to pay such wages, in particular circumstances, breaches only its employment contract or also breaches a tort duty of care.”

“It is ‘well established that corporate agents and employees acting for and on behalf of a corporation cannot be held liable for inducing a breach of the corporation's contract.’ ”

“And ‘[d]irectors or officers of a corporation do not incur personal liability for torts of the corporation merely by reason of their official position...’ ”
 

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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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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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Employers Beware: Costs Related To Employee Uniforms

Question: May I require my employees to wear a particular uniform?

California law allows employers to require employees to wear particular types of clothing or uniforms to work. If an employer requires non-exempt employees to wear a uniform, the employer must pay for and maintain it for the employee. What constitutes a "uniform" is not always clear.

According to the California Labor Commissioner, the term "uniform" includes any apparel and/or accessories of distinctive design or color. An employer may prescribe the weight, color, quality, texture, style, form, and make of a "uniform" required to be worn by employees. When an employer simply requires employees to wear "basic wardrobe items which are usual and generally usable in the occupation," the clothing is not a uniform. For example, specifying that employees wear white shirts, dark pants, and black shoes and belts, all of unspecified design, does not constitute a "uniform." The employer is not required to pay for that clothing or its maintenance. If the required clothing can double as street clothes, it is probably not a "uniform."

Some safety equipment or protective apparel must be worn by employees as a matter of law. Proper safety equipment such as goggles, gloves or other accessories or apparel must always be provided by the employer if they are required by a regulation of the Occupational Safety and Health Standards Board.

How is maintenance of a uniform handled?

In addition to the cost of the uniform, the employer must provide non-exempt employees with reasonable maintenance of the uniforms. The employee can either maintain the uniform itself, or pay the employee a weekly maintenance allowance of an hour's pay at minimum wage, provided that an hour's pay is a reasonable estimate of the time necessary to maintain uniform properly. It is reasonable to require employees to maintain uniforms requiring minimal care, such as washing and tumble drying, without reimbursement; however, special care, such as ironing, dry cleaning or separate laundering because of heavy soiling or special color, must be reimbursed to non-exempt employees.  Click here to read a Department of Labor opinion letter about when employers should bear the costs to maintain uniforms under the FLSA.  California's DLSE also has an opinion letter on the topic, which is very similar to the DOL's opinion. 

Employers need to remember that they can never impose a financial burden on employees, with respect to purchasing or maintaining clothing that reduces the employees' wage rate below the minimum wage.

Other Concerns:

Employers must also be careful to pay employees for all time worked.  If putting on a uniform (or other equipment) takes a long time, it could be considered time worked, and therefore must be paid.  For more information, a DLSE opinion letters can be read here, here, and here

 

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Rules To Avoid Paying Overtime For "Makeup Time"

As difficult as it is to comply with California’s daily overtime rules, it is easy to forget the one form of flexibility provided to employers -- makeup time. This provision allows employers to avoid paying overtime when employees want to take off an equivalent amount of time during the same work week. There are, however, a few requirements that must be met to ensure that the employer is not required to pay overtime for the makeup time:

  1. An employee may work no more than 11 hours on another workday, an not more than 40 hours in the workweek to make up for the time off;
  2. The time missed must be made up within the same workweek;
  3. The employee needs to provide a signed written request to the employer for each occasion that they want to makeup time (and if employers permit makeup time, they should have a carefully drafted policy on makeup time and a system to document employee requests); and
  4. Employers cannot solicit or encourage employees to request makeup time, but employers may inform employees of this option.

Remember, time and a half overtime is due for (1) time over eight hours in one day or (2) over 40 hours in one week or (3) the first eight hours worked on the seventh consecutive day worked in a single workweek; and double time is due for (1) time over 12 hours in one day and (2) hours worked beyond eight on the seventh consecutive day in a single workweek. For more information regarding overtime and related issues, the DLSE provides a good summary here.
 

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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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Costly Mistake of Misclassifying Independent Contractors

Many California companies have recently been sued and had an assessment issued against them by the California Employment Development Department (“EDD”) for unpaid payroll taxes because the company allegedly misclassified its California workers as independent contractors rather than employees.

If a company improperly classifies a worker as an independent contractor, it may face liability from an assessment from the EDD for unpaid unemployment insurance, disability insurance, and employment taxes. In addition to the EDD assessment, the misclassified workers could also allege that they are owed unpaid overtime going back four years in addition to seeking reimbursement and for businesses expenses and penalties in violation of Labor Code section 2802.

For guidance on whether employers have properly classified its workers as independent contractors, the California Division of Labor Standards Enforcement (“DLSE”) provides an explanation of the “economic realities” test. The DLSE maintains that the most indicative fact determinative of whether a worker is an employee or an independent contractor depends on whether the person to whom service is rendered (the employer or principal) has control or the right to control the worker both as to the work done and the manner and means in which it is performed. The DLSE also sets forth the other factors that are considered when determining an employee’s status:

  1. Whether the person performing services is engaged in an occupation or business distinct from that of the principal;
  2. Whether or not the work is a part of the regular business of the principal or alleged employer;
  3. Whether the principal or the worker supplies the instrumentalities, tools, and the place for the person doing the work;
  4. The alleged employee’s investment in the equipment or materials required by his or her task or his or her employment of helpers;
  5. Whether the service rendered requires a special skill;
  6. The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;
  7. The alleged employee’s opportunity for profit or loss depending on his or her managerial skill;
  8. The length of time for which the services are to be performed;
  9. The degree of permanence of the working relationship;
  10. The method of payment, whether by time or by the job; and
  11. Whether or not the parties believe they are creating an employer-employee relationship may have some bearing on the question, but is not determinative since this is a question of law based on objective tests.

The DLSE’s full explanation of this topic can be found here. The DLSE’s information provides a great starting point for employers to audit their classifications of employees, but each case may present different facts, and the economic realities test may change depending on the jurisdiction and whether state or federal law is at issue.
 

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On-Call Time - When Do Employers Have To Pay?

The question whether an employer is obligated to pay an employee for time on-call depends on interpretation of the term “hours worked.”

In a recent opinion regarding class action issues (Ghazaryan v. Diva Limousine, LTD), an appellate court offered an analysis of what would be considered “hours worked” and, therefore, entitling the employee to pay. The court examined this definition by turning to the IWC’s Wage Order No. 9. This provision defines “hours worked” as “the time during which an employee is subject to the control of an employer, and includes all the time the employee is suffered or permitted to work, whether or not required to do so.”

The court also looked to California’s Division of Labor Standards Enforcement (DLSE). The DLSE offers opinions on California employment issues, and while the DLSE’s opinions are not binding on the courts, they are given some weight by the courts. The court in Diva explained the DLSE opinion letter on the issue of what constitutes hours worked by an employee:

One such advisory letter, issued on March 31, 1993,  acknowledges the inquiry is “highly fact-driven,” but “[t]he bottom line consideration is the amount of ‘control’ exercised by the employer over the activities of the worker. . . . [I]mmediate control by the employer which is for the benefit of the employer must be compensated.”

The court continued to explain that in another opinion letter dated December 28, 1998, the DLSE summarized the factors relevant to this inquiry:

  1. Whether there are excessive geographic restrictions on the employee’s movements;
  2. Whether the frequency of calls is unduly restrictive;
  3. Whether a fixed time limit for response is unduly restrictive;
  4. Whether the on-call employee can easily trade his or her on-call responsibilities with another employee; and
  5. Whether and to what extent the employee engages in personal activities during on-call periods.

While the court's decision is primarly dealing with class action issues, this analysis of what constitutes compensatable time is a good overview.

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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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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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Petition For Review Filed In Brinkley v. Public Storage

Plaintiff filed a petition for review to the California Supreme Court in Brinkley v. Public Storage, Inc.  Shortly after the Supreme Court granted review of Brinker v. Superior Court, the Brinkley decision was issued by a lower appellate court (click here to read the opinion in Brinkley v. Public Storage, Inc.).  The appellate court in Brinkley held that:

  • Meal periods need not be provided within the first five hours of the shift.
  • Defendant must provide meal periods but need not ensure that they are actually taken.
  • Defendant did not violate Labor Code section 226.7 because defendant made rest periods available.

This ruling basically agrees with the appellate court's decision in Brinker. The holdings in Brinkley and Brinker definitely make plaintiff's attempt to certify class actions in meal and rest break cases much more difficult.  If the standard is that employers only need to provide (and not ensure) meal breaks, then the inquiry into why employees did not take meal breaks becomes more individualized, which means a court probably cannot make these determinations on a class-wide basis.  For example, the court would have to determine if employees voluntarily worked through meal breaks, as opposed to whether the employee was required to work through the breaks. 

I expect the California Supreme Court will issue a grant and hold in Brinkley, making it non-binding on California trial courts until a final ruling is issued by the Supreme Court on similar issues in Brinker v. Superior Court.

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Court Holds That Employer Is Not Liable For Punitive Damages For Labor Code Violations

Christine Brewer, a longtime waitress employed at the Cottonwood Golf Club restaurant, quit her job in March 2005. Shortly thereafter, Brewer filed this action against her employer, Premier Golf Properties, LP, dba Cottonwood Golf Club alleging a causes of action for age discrimination, for meal and rest break violations (among other Labor Code violations), sought compensatory and punitive damages, and attorney fees.

The jury returned special verdicts in favor of Brewer on most of her Labor Code violations, and allowed Brewer to recover attorney fees and costs pursuant to section 218.5 and costs pursuant to Code of Civil Procedure section 1032.

The issue in this case is that the jury also granted plaintiff punitive damages for $195,000. In order for there to be punitive damages, the defendant must act with fraud, oppression or malice toward Brewer. The jury found that the defendant had acted with malice, but only in regards to the Labor Code violations and not on the conduct underlying Brewer's age discrimination claim.

The court held that Labor Code violations alone could not support the finding for punitive damages:

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 contract, 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.

The “New Right-exclusive Remedy” Doctrine Bars Punitive Damages for Labor Code Violations

The court explained that the “new right-exclusive remedy” doctrine provides that "[w]here a statute creates new rights and obligations not previously existing in the common law, the express statutory remedy is deemed to be the exclusive remedy available for statutory violations, unless it is inadequate." The court acknowledged that meal and rest break provisions of the Labor Code created new rights that were not already provided under common law (i.e., meal and rest break requirements) and that the statutes provided an adequate remedy (i.e., premium wage of one hour of pay at the employee’s regular rate of pay for a violation). Therefore, because the right to meal and rest breaks is created by a statute that provides for adequate remedies, an employee could not add punitive damages to his or her claim.


Punitive Damages Not Available For Obligations Arising From Breach Of Contract

The court also found that, even were the remedies provided by the statutory scheme not the exclusive remedies for the new rights, punitive damages would not be available in this case because punitive damages can only be recovered "for the breach of an obligation not arising from contract." (Civ. Code, § 3294) The court stated that Brewer's claims for unpaid wages and missed meal and rest breaks all arise from her “employment contract” and, therefore, punitive damages were not available for this additional reason.

The case, Brewer v. Premier Golf Properties, LP, can be read from the court's website in Word or PDF

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Commissions In California

Perhaps one of the most misunderstood and improperly applied issues in California is how to treat commissioned sales people. Here are some of the most common mistakes I’ve encountered that can create substantial liability for employers.

Mistake: Treating all commissioned sales people as exempt employees (i.e. paying them a straight salary). 

Usually there are two exemptions that sales people could qualify for: outside sales exemption or inside sales exemption under California law. If the employee meets one of these exemptions, it only means the employee is not entitled to overtime pay – all other wage and hour laws still apply. 

Outside Sales Exemption

To qualify for the outside sales exemption, as the name implies, the employee must work outside of the office for more than 50% of their working time. 

Inside Sales Exemption

To qualify for the inside sales exemption, the employee must (1) earn more than one-and-one-half times the minimum wage (as of November 2008 the minimum wage is $8.00/hr in California) and (2) more than one-half of the employee’s compensation is from commissions. Employers have to be careful because there is no equivalent exemption to the inside sales exemption under Federal law –and even though an employee may qualify to be exempt under California law for overtime, they still may have to pay overtime under Federal law. 

It is possible that the employee may qualify for another exemption, such as professional, administrative, or executive, but the two exemptions discuss above most often apply to sales personnel.

Mistake: Making illegal deductions from the employee’s pay for orders that were cancelled.

There have been several court decisions that significantly restrict an employer’s ability to take an offset against an employee’s wages.  Cases have held that employers may not make deductions from employees’ commissions when the customer returns the sold items under certain circumstances. Also, another case held that the requirement that the employee make a “balloon payment” for the entire remaining balance of outstanding loan owed to the employer when the employee leaves employment is an unlawful deduction - even where the employee authorized such payment in writing. Finally, another case held that it was unlawful for employers to deduct from an employee’s current payroll for past salary advances that were in error. As these cases illustrate, employers need to be very careful when deducting from an employee’s pay. Even though the deduction may seem innocent, it could possibly violate California law.

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

Noncompetition Agreements In California Are Narrowly Construed

In Edwards v. Arthur Andersen LLP (link to PDF), the California Supreme Court ruled on the following issues: (1) To what extent does Business and Professions Code section 16600 prohibit employee noncompetition agreements; and (2) is a contract provision requiring an employee to release “any and all” claims unlawful because it encompasses nonwaivable statutory protections, such as the employee indemnity protection of Labor Code section 2802?

Noncompetition Agreements
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. Andersen argued that California courts have held that section 16600 embrace the rule of reasonableness in evaluating competitive restraints.

The Court disagreed with 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, 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 another 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 eliminates the validity of non-competition agreements under California that are not expressly provided for in Section 16600.

Contract Provision Releasing “Any and All” Claims
The second issues in the case was whether Andersen's condition of Edwards’s obtaining employment that Edwards execute an agreement releasing Andersen from, among other things, “any and all” claims, including “claims that in any way arise from or out of, are based upon or relate to [Edwards’s] employment by, association with or compensation from” Andersen.

Edwards argued that Labor Code section 2804 voids any agreement to waive the protections of Labor Code section 2802 (which provides that employers must reimburse employees for all business related expenses that the employee incurs) as against public policy.

The Court noted that Labor Code section 2804 has been interpreted to apply to Labor Code section 2802, making all contracts that waive an employee’s right to reimbursement null and void. Therefore an employee’s right to be reimbursed for business expenses provided under Labor Code section 2802 are nonwaivable, and any contract that does purport to waive an employee’s right would be contrary to the law. Edwards maintained, therefore, the agreement was an independent wrongful act that would support another claim he was alleged for intentional interference with prospective advantage.

The Court disagreed with Edwards, and concluded that a contract provision releasing “any and all” claims does not encompass nonwaivable statutory protections, such as the employee indemnity protection of Labor Code section 2802. Therefore, such agreements are still valid and enforceable under the law.
 

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