California employers cannot forget about detailed employment provisions such as reporting time pay.  Given the natural disasters facing California recently, I was interviewed on public radio about employer’s obligations during times of emergencies and natural disasters.  So I thought this Friday’s Five would be a good reminder about when employers need to pay reporting time pay to employees:

1. What is reporting time pay?

California law requires an employer to pay “reporting time pay” under the applicable Wage Order.  This requires that when 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 cannot not be less than the minimum wage.

In addition, if an employee is required to report to work a second time in any one workday and is furnished less than two hours of work on the second reporting, he or she must be paid for two hours at his or her regular rate of pay.

California’s Labor Commissioner provides the following example:

For example, if an employee is scheduled to report to work for an eight-hour shift and only works for one hour, the employer is nonetheless obligated to pay the employee four hours of pay at his or her regular rate of pay (one for the hour worked, and three as reporting time pay). Only the one-hour actually worked, however, counts as actual hours worked.

Employers must remember, 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.

2. Time paid as reporting time pay does not trigger overtime pay.

Reporting time pay for hours in excess of the actual hours worked is not counted as hours worked for purposes of determining overtime.

3. Reporting time pay and meetings.

There has been significant litigation over reporting time pay that is owed when employees are called in for meetings.  If an employee is called in on a day in which he is not scheduled, the employee is entitled to at least two hours of pay, and potentially up to four hours if the employee normally works 8 hours or more per day. See Price v. Starbucks.

However, if the employer schedules the employee to come into work for two hours or less, and the employee works at least one half of the scheduled shift, the employer is only required to pay for the actual time worked and no reporting time is owed.  See my prior post on Aleman v. AirTouch for a more detailed discussion.

4. Exceptions to the reporting time requirements – “Acts of God”.

The Wage Orders provide that employers are not required to pay overtime pay during the following circumstances:

  1. When operations cannot begin or continue due to threats to employees or property, or when civil authorities recommend that work not begin or continue; or
  2. When public utilities fail to supply electricity, water, or gas, or there is a failure in the public utilities, or sewer system; or
  3. When the interruption of work is caused by an Act of God or other cause not within the employer’s control, for example, an earthquake.

5. What if the employee voluntarily leaves early?

Employers are not required to pay reporting time pay if the employee voluntarily leaves work early.  For example, if the employee becomes sick or must attend to personal issues outside of work and leaves early, then the employer is not obligated to pay reporting time pay (however, this may trigger paid sick leave or other legal obligations for the employer).

AB 168 was approved by Governor Brown on October 12, 2017 which prohibits employers from seeking or taking into consideration an applicant’s prior compensation and benefits when determining whether to hire the applicant, and in setting the applicant’s compensation and benefits.  The new law creates Labor Code section 432.3.  This Friday’s Five covers five issues of the new law that employers must understand:

  1. The law applies to all employers, regardless of size, effective January 1, 2018.
  2. Employers may not rely on salary history information of an applicant in determining whether to offer employment and in determining the about of compensation to offer.
  3. Employers may not seek salary history information, which includes compensation and benefits, about the applicant.
  4. Upon a reasonable request, an employer must provide the “pay scale” for the position to an applicant.
  5. Nothing in the law prohibits employees from voluntarily disclosing salary history to a prospective employer.

Employers should start taking steps to comply with the new law by the beginning of the new year to ensure compliance.  Some steps to consider include:

  • Train hiring managers about new law and that they are not to seek information from applicants regarding prior salary and benefits history.
  • Remove any requests or questions about salaries at prior employment on applications or other documents provided to candidates.
  • Prepare a set “pay scale” for the positions the employer is hiring for. The law does not set forth what information must be included on the pay scale.  In addition, the law does not explicitly require that this information must be provided in writing to the applicant.  However, employers should consider whether the pay scale should be done in writing in case there is a dispute about whether the pay scale was provided to the applicant and what information was conveyed to the applicant.

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

1. Establish and communicate a time keeping policy

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

2. Rounding

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

(1) Do they have a rounding policy?

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

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

3. De minimis time

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

4. Record meal breaks

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

5. Time records

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

This Friday’s Five sets out five resources that are free for California employers that are published by the state of California.  Employers need to understand that while these publications are made available by the state of California, the agencies publishing the resources are only expressing their opinion about the current status of the law, but this is not necessarily binding on employers or the current state of the law.  While it is important to always seek legal counsel, these resources can help employers understand some of the issues that they may face, and they provide a good starting point into researching obligations.  Here are five free resources available for employers published by the state of California:

1. Department of Industrial Relations’ (DIR) information about meal periods

The DIR’s website provides a good overview of meal break obligations, including:

  • When the breaks must be provided
  • On-duty meal breaks and written agreement required for these
  • When meal breaks must be paid
  • Penalties for failure to provide meal breaks

2. DIR’s information about rest periods

The DIR’s website also provides an explanation of the common issues regarding rest breaks, including:

  • timing of rest breaks
  • How much time must be provided for rest breaks
  • The need for employers to provide suitable resting facilities available for employees during working hours in an area separate from the bathrooms

3. California Department of Fair Employment and Housing’s (DFEH) information about sexual harassment in the workplace

The DFEH’s website sets forth parameters of what constitutes sexual harassment under California law.  The website also explains the training requirements for California employers, which employees need to attend sexual harassment training, and how the training must be conducted to comply with California law.

4. Division of Labor Standards Enforcement (DLSE) Enforcement Policies and Interpretations Manual

The DLSE’s Enforcement Policies and Interpretations Manual is very detailed and can be a bit daunting for employers.  However, the manual addresses many potential issues regarding compensation under California law and the DLSE’s opinion on these issues.  It is a great starting point to begin research into more difficult wage and hour issues facing employers.

5. DIR’s information about independent contractor classification

This web page sets out the factors under California law that can be considered when determining if a worker has been properly classified as an independent contractor.  This resource is a great review for any employers who have independent contractors and audit the classification to ensure that the workers’ classification can withstand scrutiny.  Misclassification of workers as independent contractors when they should have been treated as an employee can open employers up to many forms of penalties, including back payroll taxes and tax penalties, unpaid minimum wages, unpaid overtime, missed meal and rest breaks, and unpaid final wages, among other damages.

California’s state legislature is nearing the end of its term, and employers are beginning to glimpse some of the laws that could apply in 2018.  There are multiple proposed bills that prohibits employers’ ability to rely upon or seek information about applicant’s previous wages to set the employee’s pay.  This Friday’s Five reviews the current law – California’s Fair Pay Act, the proposed bills on disclosure of wages, and San Francisco’s local ordinance that recently passed.

1. Current law – California’s Fair Pay Act (Labor Code section 1197.5)

Existing law generally prohibits an employer from paying an employee at wage rates less than the rates paid to employees of the opposite sex in the same establishment for equal work for work performance that requires equal skill, effort, and responsibility that are performed under similar working conditions.  Effective as of January 1, 2017, AB 1676 amended California’s Fair Pay Act, found in Labor Code section 1197.5, prohibiting employers from relying on an employee’s prior salary, by itself, to justify any disparity in compensation.  It is important to note the bill was modified to take out language that would have prohibited employers from obtaining an applicant’s prior salary.

2. Proposed State Bill – AB 1209 – Gender Pay Gap Transparency Act

This bill has been sent to the Governor’s desk during the week of September 11, 2017 to be signed into law or vetoed.  The bill, if signed by the Governor, would require employers with at least 500 employees to calculate the difference between the wages of male and female exempt employees in California by each job classification or title.  The employer would also have to do the same for all board members who are located in California.  The employer would need to report the difference in pay, which would be published on the Internet by the Secretary of State.  Governor Brown has until October 15, 2017 to sign or veto the bill.

3. Proposed State Bill – AB 168 – Salary Information

This bill prohibits employers from replying upon or seeking salary history from applicants.  In addition, employers would be required to provide the pay scale for a position to an applicant.

4. San Francisco local ordinance: Parity in Pay Ordinance

San Francisco passed a local law that prohibits employers from asking job applicants to disclose their salary history.  It also prohibits employers from considering an applicant’s pay history as a factor in determining the level of pay to offer.  The law is effective July 1, 2018, so San Francisco employers have some time to review hiring practices to comply.

5. Proposed State Bill – AB 46 – Wage Discrimination

This bill amends the California Fair Pay Act to make clear that the law applies to both public and private employers.

Two cases decided in the last two months have further clarified the scope of discovery and plaintiff’s ability to pursue damages in addition to individual damages under California’s Private Attorneys General Act (PAGA).  The holdings are a bit of a mixed bag for employers, but they offer some clarification into PAGA.  This Friday’s Five is a summary of five issues employers need to understand about PAGA and the new decisions setting out the rights plaintiffs have to pursue representative actions under the statute:

1. PAGA representative actions are different than class actions.

California’s Private Attorneys General Act (PAGA) was designed by the California Legislature to offer financial incentives for private individuals to enforce state labor laws. At the time PAGA became law, the state’s labor law enforcement agencies did not have enough resources or staffing necessary to keep up with the rapid growth of California’s workforce. Therefore, PAGA allows aggrieved employees to sue as a proxy or agent of California’s state labor law enforcement agencies in collecting civil penalties for Labor Code violations. The employee must give 75 percent of the collected penalties to the Labor and Workforce Development Agency, and the remaining 25 percent is to be distributed among the employees affected by the violations.

First, because the plaintiff under PAGA is seeking penalties and not other forms of damages, a one year statute of limitations applies. This varies drastically from the four year statute of limitations that apply to most wage and hour class actions when a Business and Professions Code section 17200 cause of action is alleged.

Second, in Arias v. Superior Court, the California Supreme Court held that a plaintiff does not have to certify a class under PAGA to recover damages on behalf of all the other employees in the representative action.  However, as set forth below, courts are still deciding the scope of PAGA representative actions in terms of discovery rights and manageability issues.

2. Arbitration agreements with class action waivers are enforceable, but representative actions brought under the Private Attorneys General Act are not subject to arbitration and cannot be waived.

Many courts have been upholding arbitration agreements that contain class action waivers, including the California Supreme Court in Iskanian v. CLS Transportation Los Angeles, LLC.  That case held that class action waivers are enforceable, following the standards set forth by the U.S. Supreme Court in AT&T Mobility v. Concepcion.  However, in Iskanian, the California Supreme Court held that PAGA representative actions cannot be waived by employees and cannot be compelled to arbitration.  The Court held 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.”

3. PAGA penalties are separate from individual damages.

In August 2017, a California appellate court held in Esparza v. KS Industries that PAGA representative actions can only seek “civil penalties” permitted by PAGA.  As set forth above, the civil penalties recovered by a PAGA claim 75 percent must be allocated to the Labor and Workforce Development Agency and 25 percent to the aggrieved employees in the representative action.  The court found that PAGA civil penalties do not include unpaid wages sought by the individual plaintiff.

4. Employers defending PAGA claims must require plaintiffs to explicitly state whether they are pursuing individual damages (which must be arbitrated) or PAGA civil penalties (which cannot be arbitrated).

As the court noticed in Esparza, PAGA representative claims for civil penalties are not subject to arbitration, but claims for unpaid wages based on Labor code section 558 are not civil penalties and can be compelled to arbitration.

If the employee wants to pursue both, the employer should compel arbitration of the plaintiff’s individual claims and stay the PAGA case pending the resolution of the individual claims.

5. Employers facing PAGA cases must consider filing a motion to sequence discovery early in the case.

In Williams v. Superior Court, a case decided in July 2017, the plaintiff sought to obtain the contact information for fellow California employees who worked for defendant, Marshalls of CA, LLC.  Defendant refused to provide the contact information for the other employees, and plaintiff filed a motion to compel.  The trial court limited the ability of plaintiff to obtain contact information to the store where the plaintiff worked, but denied it as to every other California store, subject to change after plaintiff sat for his deposition and made a showing of some merit to the underlying action.

The California Supreme Court reversed the trial court’s ruling and required defendant to provide the contact information for all California employees:

Our prior decisions and those of the Courts of Appeal firmly establish that in non-PAGA class actions, the contact information of those a plaintiff purports to represent is routinely discoverable as an essential prerequisite to effectively seeking group relief, without any requirement that the plaintiff first show good cause.  Nothing in the characteristics of a PAGA suit, essentially a qui tam action filed on behalf of the state to assist it with labor law enforcement, affords a basis for restricting discovery more narrowly.

The Court was clear, however, that upon a defendant’s motion showing good cause, a trial court can ordered sequenced discovery.   The Court explained:

Marshalls reasons instead that the trial court’s imposition of a merits requirement can be justified under Code of Civil Procedure section 2019.020.  That provision sets out the general rule that the various tools of discovery may be used by each party in any order, and one party’s discovery “shall not operate to delay the discovery of any other party.”  (Id., subd. (a).)  However, if a party shows “good cause,” the trial court “may establish the sequence and timing of discovery for the convenience of parties and witnesses and in the interests of justice.”  (Id., subd. (b).)  But Marshalls did not file a section 2019.020 motion, and we thus have no occasion to decide what showing might suffice to warrant a court order sequencing discovery.

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

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

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

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

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

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

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

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

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

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

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

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

In this Friday’s Five I discuss:

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

USCIS released a revised version of Form I-9, Employment Eligibility Verification. The revised I-9 was released on July 17, 2017, and employers can use this revised version or continue using Form I-9 with a revision date of 11/14/16 N through September 17, 2017. On September 18, 2017 employers must use the revised form with a revision date of 07/17/17 N. Employers must continue following existing storage and retention rules for any previously completed Form I-9.

The City of Los Angeles recently assessed Carl’s Jr. Restaurants $1.45 million in fines for violation of the City’s minimum wage law ordinance.  The City sought these penalties against Carl’s Jr. for allegedly failing to pay 37 employees the applicable Los Angeles minimum wage rate of $10.50 per hour from July 1, 2016 to December 31, 2016.  The city also claimed that the company failed to post the required notices required by the ordinance and did not allow investigators access to two locations.  This astronomical fine imposed by the city seems out of proportion for the size of the number of employees affected, but it is a stark reminder for employers about how serious any violations of the local ordinances could be.  Here are five lessons for Southern California employers from this incident:

1. Enforcement of local ordinances is taking place.

The cities that have passed local ordinances are enforcing the laws strenuously.  The City of Los Angeles has especially been active in investigating potential violations.  First hand I have had a number of clients who have been contact by the city seeking information about compliance with the ordinance.  The investigators have appeared at workplaces in person and also contacted the employers over the phone. As discussed in item number five below, it is important for employers to train staff about how to appropriately respond to questions with people entering the workplace asking for information about the employer’s employment practices.

2. Review pay rates to ensure compliance with local ordinances.

Employers need to remember that even if their business is not located in a city or county that does not have a minimum wage or paid sick leave requirement, this does not mean your company can ignore the new laws.  Most of the ordinances require compliance with their local laws if any employee works two hours within the city or county even if the employer is not based within that city or county.  For example:

  • Santa Monica:  Law applies to any employee working a minimum of two hours within Santa Monica in a given week (even if employer is located outside of Santa Monica).
  • City of Los Angeles: Ordinance applies to “[a]n employee … who performs at least two hours of work in a particular week within the City of Los Angeles….”
  • County of Los Angeles: Ordinance applies to “[a]nyone who works at least two hours in a one-week period within the unincorporated areas of Los Angeles County is entitled to the County minimum wage for the hours worked in the unincorporated area of the County.”
  • Pasadena: Applies to employees who perform at least two hours of work in Pasadena.
  • Malibu: “This ordinance applies to employees who perform at least two hours of work in a particular week within the Malibu city limits.”

3. Penalties for non-compliance are substantial.

An employer who violates the City of Los Angeles’ minimum wage requirements is liable to the employee for payment of back wages and an additional penalty of $100 for each day that the violation occurred or continued.  Where retaliation has occurred, the employee is entitled to reinstatement and a trebling of all back wages and penalties.

In addition, employers are subject to administrative fines as set forth below:

Failure to post notice of the Los Angeles Minimum Wage rate

$500 per day per employee
Failure to allow access to payroll records $500 per day per employee
Failure to maintain payroll records or to retain payroll records for your years $500 per day per employee
Failure to allow access for inspection of books and records or to interview employees $500 per day per employee
Retaliation for exercising rights under the ordinance $1,000 per day per employee
Failure to provide employer’s name, address, and telephone in writing $500 per day per employee
Failure to cooperate with the Division’s investigation $500 per day per employee
Failure to post Notice of Determination to employee $500 per day per employee

4. Ensure all poster and notice requirements are complied with.

The cities and counties that have local minimum wage and paid sick leave ordinances are making the notices relatively easy to obtain from their websites.  For example, here are a few links published by various cities in the Los Angeles area:

Santa Monica notices:  https://cityofsantamonica.app.box.com/s/nuccal4on935m43p0nhmuzgy65f5mbwl

City of Los Angeles notice: http://wagesla.lacity.org/#information

County of Los Angeles notice: http://file.lacounty.gov/dca/cms1_245570.pdf

Pasadena notice:  http://www.cityofpasadena.net/minimumwage/

Malibu: http://www.malibucity.org/minimumwage

5. Implement policy and train staff and managers about how to respond to investigators.

All staff should receive training about how to respond if contacted by anyone who indicates that they are from a government office and are seeking information about the workplace.  It is important for the employer to be able to identify and confirm that the investigators are who they are reporting to be and that they are actually working for the federal, state or local government.  Once their identify has been confirmed, employers need to designate who from the company will gather and communicate the relevant information to the investigators in a timely manner.  The person designated by the employer should have experience in dealing with investigations, an understanding of the company’s policies and the local legal requirements.  Finally, the employer should address whether they need the assistance of legal counsel to assist in the investigation.