coffee breakCalifornia Labor Code section 226.7 provides that employees are entitled to receive premium wages in the form of one additional hour of pay at the employee’s regular rate of pay for a missed meal or rest break.

An employee who works more than three and one-half hours per day must be permitted to take a paid 10-minute rest period — during which the employee shall not be required “to work” — per every four hours of work or major fraction thereof.  An employee who works at least five hours must also be given a 30-minute unpaid meal break, during which the employee must be “relieved of all duty” if the meal period is not to be counted as time worked.

As the California Supreme Court recognized in Augustus v. ABM Security Services (2016), employers how cannot provide the required meal or rest breaks to employees have various options to comply with the law.  The Court stated:

Several options nonetheless remain available to employers who find it especially burdensome to relieve their employees of all duties during rest periods — including the duty to remain on call. Employers may (a) provide employees with another rest period to replace one that was interrupted, or (b) pay the premium pay set forth in Wage Order 4, subdivision 12(B) and section 226.7. (See Brinker, supra, 53 Cal.4th at p. 1039.)

As recognized by the Supreme Court, employers may consider voluntarily paying premium wages when it is questionable if an employee did not receive a compliant break or if they in fact missed the break.  Here are five issues employers should understand about the option of paying premium pay voluntarily1.

1. Employers potentially only owe two premium pay hours for each day worked.

The court in United Parcel Service, Inc. v. Superior Court (2011) 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.  Even if the employee missed two rest breaks and one meal break in one day of work, the employee would only be entitled to one hour of premium pay for the missed rest breaks, and one hour of pay for the missed meal break, for a total of two hours of premium pay for that day.

2. Voluntarily making premium payments establishes that employer has effective open door policy.

By paying premium pay to employees who are not able to take breaks or complain that they have not been able to take breaks establishes that the company has an effective complaint procedure employees should utilize when any problems arise.  This presents an effective argument against any claims by employees after-the-fact that they were unable to take their breaks, and assert claims against the employer well after their employment ended.

3. Voluntary payment reduces potential liability.

The premium pay mentioned above is the penalty that is provided to the employee if they miss any of their required breaks.  Therefore, if the employer voluntarily pays the premium when the employee did not receive proper breaks, this will reduce the total potential liability owed to employees if sued.

4. Establishes that employer understands its legal obligations.

In making premium payments to employees who are arguably not able to take meal and or a rest break, establishes to any governmental agency or a plaintiff’s counsel that the company understands it obligations under the law and treats the obligations seriously.

5. If paid, it should be listed separately on employees’ paystubs to record payments.

It goes without saying that if the employer is taking this affirmative step, it needs to record the payments in a manner that makes it clear to the employee that the premium pay is being paid when breaks are missed.  In addition, the employer needs to have a record to establish all premium paid that could possibly be asserted by an employee has been paid out.

In speaking to a few groups of California employers this week, a common question kept coming up about what are the essential Booksemployment policies California employers must have?  While there are more than five, this week’s Friday’s Five starts with what I consider to be critical policies that every California must have in place.

1. At-will policy

Under California law, it is presumed that all employment is terminable at-will. California Labor Code section 2922 provides: “An employment, having no specified term, may be terminated at the will of either party on notice to the other.” The at-will doctrine means that the employment relationship can be terminated by either party at any time, with or without cause, and with or without advanced notice. There are some major exceptions to this rule, but generally California law recognizes that employers and employees may, at any time, and for any legal reason, terminate the employment relationship.

2. Anti-harassment, discrimination and retaliation policy

California’s Fair Employment and Housing Council published new regulations pertaining to anti-discrimination and anti-harassment requirements effective April 1, 2016.  Employers need to review and potentially update their policies in order to meet the new requirements.  The full text of the regulations can be obtained here.

3. Timekeeping policy

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.  Employers should also have a complaint procedure in place and regularly communicate the policy to employees in order to establish an effective way to remedy any issues.

4. Meal and rest break policy

As I’ve written about many times previously, employers must have a compliant meal and rest break policy.  Indeed, given the California Supreme Court’s ruling in Augustus v. ABM Security Services in December 2016, employers should review their rest beak policy to ensure it complies with this ruling.

5. Paid sick leave policy

Many local governments in Southern California have passed laws increasing the minimum wage and amount of paid sick leave that must be provided to employees.  Employers must ensure they are complying with the law that provides the most benefits to employees.  Here is a brief summary of some of the local laws in Southern California:

State/City Minimum Wage Paid Sick Leave
1) California $10/hr January 1, 2016; $10.50 January 1, 2017; $11/hr January 1, 2018; $12/hr January 1, 2019; $13/hr January 1, 2020; $14/hr January 1, 2021; $15/hr January 2022* Current: 3 days or 24 hours
2) Los Angeles – City (click here for more information about Los Angeles City’s minimum wage and paid sick leave laws) July 1, 2016: $10.50/hr; July 1, 2017 $12; July 1, 2018 $13.25; July 1, 2019 $14.25; July 1, 2020 $15.00 * (click here for more information about Los Angeles’s minimum wage ordinance) July 1, 2016: 48 hours*
3) Los Angeles – County Same as LA City (see above) No specific requirement – state law applies
4) San Diego City July 2016: $10.50 (date not set yet – likely effective in first half of July 2016); January 1, 2017 $11.50; January 1, 2019 $11.82; January 1, 2020 $12.15; January 1, 2021 $12.49; January 1, 2022 $12.84 5 paid sick days
5) Santa Monica (click here for Santa Monica’s website for details of the law) $10.50 July 1, 2016; July 1, 2017 $12.00; July 1, 2018 $13.25; July 1, 2019 $14.25; July 1, 2020 $15.00* January 1, 2017: 32 hours for small businesses, 40 hours for large businesses; January 1, 2018: 40 hours for small business, 72 hours for large businesses*
*Employers with 25 or fewer employees the implementation is delayed one year.

Happy Memorial day weekend!

Expense reimbursement may seem like a small issue in comparison with the other areas of liability facing California employers, but the Old Carexposure 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 Friday’s Five 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 2017 IRS mileage rate is as follows:

  • 53.5 cents per mile for business miles driven, down from 54 cents for 2016
  • 17 cents per mile driven for medical or moving purposes, down from 19 cents for 2016
  • 14 cents per mile driven in service of charitable organizations

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 [Labor Code] section 2802.

Gattuso, at 479.

2. Actual expense method of reimbursement

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. 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. Lump sum payment method

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 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. Don’t forget about other expenses incurred in the “course and scope” of working

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.” Employers need to be mindful about reimbursing employees for cell phone use, printing and office supplies (if employee is required to maintain a home office or use personal printer for work), and other work related expenses.

Happy Friday!  This Friday’s Five covers five areas that employers can start with in conducting an employment practices Checklistsaudit.  Coming up on the mid-point of the year, it is a good time to conduct an employment law practices audit to ensure that policies are compliant, managers are properly trained, and the company is maintaining the required records for the necessary length of time.  Here are five areas to start with in conducting an audit and a few recommended questions for each topic:

1. Hiring Practices

  • Are applications seeking appropriate information?
    • For example: Be careful about local ban the box regulations.
  • Are new hires provided with required policies and notices?
  • Are new hires provided and acknowledge recommended policies?
    • For example: meal period waivers for shifts less than six hours
  • Are hiring managers trained about the correct questions to ask during the interview?
  • Does the company provide new hires (and existing employees) with arbitration agreements with class action waivers?

 2. Records

  • Are employee files maintained confidentially and for at least four years?
  • Are employee time records maintained for at least four years?
  • Are employee schedules maintained for at least four years?
  • Do the managers have set forms for the following:
    • Employee discipline and write-ups
    • Documenting employee tardiness
  • How is the employee documentation provided to Human Resources or the appropriate manager?
  • Who is involved in reviewing disability accommodation requests?
  • How are employee absences documented?

3. Wage and Hour Issues

  • Does the company have its workweeks and paydays established?
  • Are paydays within the applicable time limits after the pay period as required under the law?
  • Are employees provided with compliant itemized wage statements?
  • Are employees provided a writing setting out their accrued paid sick leave each pay period?
  • Are employees properly classified as exempt or nonexempt?
    • For exempt employees, review their duties and salary to ensure they meet the legal requirements to be an exempt employee.
  • Any workers classified as independent contractors, and if so, could they be considered employees?
  • Are nonexempt employees properly compensated for all overtime worked?
  • Is off-the-clock work prohibited?
    • Policy in place?
    • Are managers trained about how to recognize it and what disciplinary actions to take if find employees working off-the-clock?
  • Does the company’s time keeping system round employee’s time?
    • If so, is the rounding policy compliant with the law?
  • Are meal and rest period polices set out in handbook and employees routinely reminded of policies?
    • Does the company pay “premium pay” for missed meal and rest breaks? If so, how is this documented on the employee pay stub?
    • Do employees record meal breaks?
    • Are managers trained on how to administer breaks and what actions to take if employees miss meal or rest breaks?
  • Is vacation properly documented and tracked?
  • Are all deductions from the employee’s pay check legally permitted? (use caution, very few deductions are permitted under CA law)
  • Are employees reimbursed for all business expenses, such as uniforms, work equipment and miles driven for work?

 4.End of Employment Issues

  • Are employees leaving the company provided their final wages, including payment for all accrued and unused vacation time?
  • Does the employer deduct any items from an employee’s final paycheck?
    • If so, are the deductions legally permitted?

5. Anti-harassment, discrimination and retaliation

  • Are supervisors provided with sexual harassment training every two years? (If employer has 50 or more employees, supervisors are legally required to have a two-hour harassment prevention training that complies with AB 1825 and amendments to this law).
  • Are supervisors and managers mentioning the open-door policy of the company to employees at routine meetings with employees? Is this being documented?

Please let me know if you have any other items your company considers during review of employment policies – it would be great to update this list to share with readers.  Have a great weekend.

This Friday’s Five comes on Cinco de Mayo – how appropriate.  The U.S. House of Representatives passed the Working Family Flexibility Act, now it is being consideredfamily - school by the Senate.  President Trump has indicated that he would sign the bill if it makes it to his desk.  Five issues California employers need to understand surrounding comp time:

1. What does the Working Family Flexibility Act provide?

The law passed by the U.S. House of Representatives adds sections to the Fair Labor Standards Act (FLSA) by allowing employers to offer employees compensatory time instead of paying them for overtime worked.  The bill provides for the following:

  • Comp time is accrued at the rate of not less than one and one-half hours for each hour of overtime pay is required under the FLSA;
  • Private employers that are not unionized are required to enter into a written agreement with the employee about the comp time, and the agreement must be voluntarily entered into by the employee; and
  • The employee must have worked for the employer for at least 1,000 hours for the employer for a continuous period in the 12-month period before being eligible for comp time.

2. The Federal legislation will unlikely effect California employers

California law generally prohibits most employers from offering comp time in lieu of paid overtime.  California law requires employers to pay overtime on a more stringent basis than the FLSA (below is a description of California’s daily overtime requirements).  California’s Labor Code specifically prohibits any employee from waiving their rights to overtime under the Labor Code.  See Section 1194.  Therefore, because California law is more stringent and provides employees more protection than the FLSA (and the proposed Working Family Flexibility Act), California employers would still need to comply with California law even if the Working Family Flexibly Act is passed into federal law.

3. California’s unwaivable daily overtime requirements

Under California’s Labor Code, 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 summary here.

4. California employers can offer makeup time to employees, but there are strict requirements that must be meet

California employers are not without any options however, as it is easy to forget the one form of flexibility provided to California 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.  For instance:

  • 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;
  • The time missed must be made up within the same workweek;
  • 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
  • Employers cannot solicit or encourage employees to request makeup time, but employers may inform employees of this option.

5. Will the federal legislation influence California to provide similar flexibility to workers?

If the Working Family Flexibility Act becomes federal law, it is unlikely to influence California’s legislators to draft a similar state law.  The Democrats in the U.S. House all voted against the bill, and the left is vehemently opposed to the bill, even though it provides for the payment of all comp time accrued but not used when the employee leaves employment.  Such opposition from the Democrats make it unlikely to be considered in the California legislature.

 

The basics of tipsWelcome to another Friday’s Five. This week is a discussion about issues facing restaurants, hotels, and other industries where tipping and gratuities are left for employees.  This simple concept is surprisingly complex for employers.  Here are five issues employers should understand about tips in California.

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.  Employers need to be careful to exclude any employees who direct the work of other employees from tip pools, as lead shift supervisors, floor managers, and others who do not have the authority to hire or fire may still be considered a supervisor for tip pooling purposes.

There must be a reasonable relationship between tip pooling arrangements.  The following examples of mandatory tip pooling percentages have been approved by a court, the DLSE or DOL:

  • A policy in which 80 percent of tips were allocated to waiters, 15 percent to busboys and five percent to bartenders
  • A policy in which cocktail service must give one percent of tips to bartender
  • The Department of Labor responsible for enforcing Federal law has stated that a policy that requires servers to share 15 percent of their tips with other employees is presumptively reasonable
  • A policy in which a server contributes 15 percent to a tip pool, and other employees in the chain of service receive a portion of these tips based on the amount of hours they worked

The following examples were tip pooling policies disapproved by courts or the DLSE and therefore employers cannot legally establish them:

  • A policy providing 90 percent of tips to hostesses who spend only a small amount of time seating customers
  • A policy requiring food server to share 10 percent of tips with floor managers

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) Can California employers have back of the house employees share in a tip pool?

No (as of April 2017), but this could change.  The Court in Oregon Restaurant and Lodging Association v. Perez, the Ninth Circuit Court of Appeals, which covers California, held in February 2016 that the Department of Labor’s regulations about who can participate in tip pools applies to states like California which do not permit tip credits.  The DOL has issued regulations that under the FLSA a tip pool is only valid if it includes employees who “customarily and regularly” receive tips, such as waiters, waitresses, bellhops, counter personnel who service customers, bussers and service bartenders.  According to the DOL, a valid tip pool “may not include employees who do not customarily and regularly receive[] tips, such as dishwashers, cooks, chefs, and janitors.”  The Plaintiffs in Oregon Restaurant filed a petition for review to the United State Supreme Court.  The Supreme Court will likely decide whether to hear the case in 2017.  Therefore, until any further clarification from the Supreme Court, it is best that restaurants use caution and not include back of the house employees who are not customarily and regularly tipped in tip pools.

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, 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.

A service charge added to a customer’s bill is not a tip or gratuity and remains the property of the employer.  Therefore, the employer may distribute the service charge to its employees, including back of the house employees as it wishes.  However, if a service charge is distributed to employees, it is considered wages and effects the employee’s regular rate of pay for overtime purposes as discussed below.

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.

However, if an employer implements mandatory service charges and shares these service charges with employees, the service charges must be considered wages for overtime and tax purposes.  Therefore, the employee’s regular rate of pay for overtime purposes will be higher when mandatory service charges are distributed to the employees.  To calculate an employee’s regular rate of pay, the employer must divide all compensation for the week by the total number of hours worked by the employee.

**Additional issue: Pay attention to other requirements under local ordinances regulating service charges.

For example, Santa Monica’s minimum wage ordinance requires employers to “distribute all Service Charges in their entirety to the Employee(s) who performed services for the customers from whom the Service Charges are collected.”  Santa Monica Municipal Code § 4.62.040.  “Service Charge” is defined as “any separately-designated amount charged and collected by an Employer from customers, that is for service by Employees, or is described in such a way that customers might reasonably believe that the amount is for those services or is otherwise to be paid or payable directly to Employees…under the term ‘service charge,’ ‘table charge,’ porterage charge,’ ‘automatic gratuity charge,’ ‘healthcare surcharge,’ ‘benefits surcharge,’ or similar language.”  Santa Monica Municipal Code § 4.62.010(g).

Almost two years after California’s requirement to provide employees with paid sick leave, there are still many outstanding questions about California’s Healthy Workplace Healthy Family Act of 2014.  These issues still exist even after Governor Jerry Brown signed Senate Bill 3 on April 2016 amending the Act attempting to clarify a few provisions of the law.

In this Friday’s Five video I discuss a few of the common questions employers still have about the law, such as:

  • When can attendance policies violate the law?
  • Can employers require doctor’s notes from employees who take paid sick leave?
  • Can employers discipline employees to taking leave and not providing advance notice after they exhausted their paid sick leave?

For more information, visit the Department of Industrial Relations frequently asked questions page here.

Also, don’t forget to subscribe to the Employment Law Report’s YouTube channel to receive notification about new videos.

Sorry for the late post, but there were some server upgrades for my blog on Friday.  Have a great week.

Many cities and counties across California are set to increase their minimum wages in July 2017, and employers need to start preparing now.  For example, Los Angeles City and County are increasing the minimum wage for employers with 26 or more employees to $12 per hour on July 1, 2017 (currently at $10.50 per hour). This Friday’s Five video covers five issues that employers should start to review in order to comply with these increases in the minimum wage.

For more information about the local minimum wages in place throughout California:

San Diego: http://www.californiaemploymentlawrep…

Los Angeles: http://www.californiaemploymentlawrep… and http://www.californiaemploymentlawrep…

Southern California overview of various minimum wage requirements: http://www.californiaemploymentlawrep…

Sample model pay stub: https://www.dir.ca.gov/dlse/PayStub.pdf

 

This week, in Vaquero v. Stoneledge Furniture LLC, a California appellate court issued a decision explaining employer’s obigations to separately compensate employees paid on a commission basis for rest breaks.

Plaintiffs worked as sales associates for Stoneledge Furniture, LLC, a retail furniture company doing business in California as Ashley Furniture HomeStores.  Stoneledge paid the sales associates on a commission basis.  The compensation agreement set out that if a sales associate failed to earn “Minimum Pay” of at least $12.01 per hour in commissions in any pay period, Stoneledge paid the associate a “draw” against “future Advanced Commissions.”  The commission agreement required that “[t]he amount of the draw will be deducted from future Advanced Commissions, but an employee will always receive at least $12.01 per hour for every hour worked.”

The issue addressed by the court was employees paid on a commission basis entitled to separate compensation for rest periods as required by California law, and if so, did Stoneledge’s draw-based compensation system pay for rest breaks?  This Friday’s Five addresses five takeaways from the court’s holding for California employers.

1. IWC wage orders

The appellate court explained that the legislature authorized the Industrial Welfare Commission (IWC) to regulate “the wages, hours, and working condition of various classes of workers to protect their health and welfare.”  The IWC has promulgated wage orders that set out regulations based on industries, and there are currently 18 wage orders.  The court explained: “As a consequence, ‘wage and hour claims are today governed by two complementary and occasionally overlapping sources of authority: the provisions of the Labor Code, enacted by the Legislature, and a series of 18 wage orders, adopted by the IWC.’”  Even though the IWC was defunded in 2004, the wage order are still in effect.  A list of the  Wage Orders for the various industries can be found here.

2. Rest periods

With respect to rest periods, Wage Order No. 7 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.

Wage Order No. 7 requires employers to count “rest period time” as “hours worked for which there shall be no deduction from wages.”  (Cal. Code Regs. tit. 8, § 11070, subd. 12(A), italics added.)  In Bluford v. Safeway Stores, Inc. (2013) 216 Cal.App.4th 864 the court interpreted this language to require employers to “separately compensate[ ]” employees for rest periods where the employer uses an “activity based compensation system” that does not directly compensate for rest periods.  (Id. at p. 872.)

3. Piece-rate workers must be paid for rest periods and non-productive time under Labor Code Section 226.2

Piece-rate workers are paid “according to the number of units turned out.”  For example, piece-rate workers are paid for the amount of produce harvested, the number of miles driven, or the yard of carpet installed.  Employers cannot deduct wages for rest periods from piece-rate workers, and therefore employers must separately compensate employees for rest periods.

Employers who paid employees on a piece rate basis must comply with Labor Code section 226.2.  Under Labor Code section 226.2, piece-rate workers must be paid for “rest and recovery periods and other nonproductive time separate from any piece-rate compensation.”  The law requires employers to calculate the regular rate of pay for each workweek, and then pay the piece-rate employees the higher of this regular rate of pay or the applicable minimum wage for rest break time.  The law also requires employers to pay piece-rate employees for “nonproductive time” which is defined as “time under the employer’s control, exclusive of rest and recovery periods, that is not directly related to the activity being compensated on a piece-rate basis.”  The nonproductive time is required to be paid at a rate no less than the applicable minimum wage rate.  In addition, employers who pay employees on a piece-rate basis need to report the pay for rest breaks, recovery periods, and nonproductive time separately on the employees’ pay stubs.

The court explained that piece-rate compensation plans do not directly account for and pay for rest periods because the employee is not working during the rest period and therefore is not being paid.  The Wage Order requires employers to separately compensate employees for rest periods if an employer’s compensation plan does not already include a minimum hourly wage for such time.

4. The court in Stoneledge held that the requirement to separately pay for rest periods applies to employees paid on commission as well

The primary holding Stoneledge is that Wage Order No. 7 applies “equally to commissioned employees, employees paid by piece rate, or any other compensation system that does not separately account for rest breaks and other nonproductive time.”

The court found that the commission agreement used by Stoneledge was “analytically indistinguishable from a piece-rate system in that neither allows employees to earn wages during rest periods.”  The court explained that “[w]hen an employer pays its employees by the piece… those employees cannot add to their wage during rest breaks; a break is not for rest if piece-rate work continues.” The court held that Labor Code Section 226.2, which requires piece-rate workers to be compensated for rest, recovery, and other nonproductive time, applies to commissioned employees as well.

5. Commission arrangements that advance wages that are offset against future commission earnings do not compensate employees for rest breaks

The court held that Stoneledge’s commission agreement did not properly compensate for rest periods taken by sales associates who earned a commission instead of the guaranteed minimum payment.

Stoneledge argued that under the compensation plan “all time during rest periods was recorded and paid as time worked identically with all other work time. . . .  Thus, Sales Associates are paid at least $12 per hour even if they make no sales at all.”  Even though Stoneledge deducted previous draws on commissions paid to the sales associates, Stoneledge argued that the “repayment [was] never taken if it would result in payment of less than the [Minimum Pay of $12.01 per hour] for . . . all time worked in any week.” Therefore, Stoneledge contended that the rest breaks were paid.

However, the court did not agree:

For sales associates whose commissions did not exceed the minimum rate in a given week, the company clawed back (by deducting from future paychecks) wages advanced to compensate employees for hours worked, including rest periods.  The advances or draws against future commissions were not compensation for rest periods because they were not compensation at all.  At best they were interest-free loans.

Piece-rate and commissioned based compensation structures must comply with very strict rules in California.  Employers are wise to have assistance from experienced counsel in drafting the compensation plans to ensure compliance.

Happy Friday!  This Friday’s Five provides five legal requests and/or notices that, if ignored, can create huge liability for a California employer.

1. Requests for personnel records and time records

There are many different Labor Code provisions that obligate the employer to provide current and former employees with a copy of their personnel files and/or payroll records.  For example, Labor Code section 432 permits employees to obtain a copy of any document they signed, Labor Code section 1198.5 allows current and former employees to obtain copies of their personnel records, and Labor Code section 226(c) permits employees to inspect or copy payroll records within 21 days after making a request to do so.

2. PAGA notice

Employees seeking recovery under the Private Attorneys General Act (PAGA) must comply with requirements that place the Labor and Workforce Development Agency and the employer on notice that the employee will be seeking remedies under the Act and give the Agency a chance to investigate.  If the Agency does not investigate, then the plaintiff can proceed with the claim.  Employers have the the ability to cure some issues set forth in the plaintiff’s letter to the LWDA, which could bar the plaintiff from obtaining any penalties.  Plus, the PAGA notice usually results in litigation being filed shortly after receiving the notice, so employers should begin discussing defense strategies as soon as it receives a PAGA notice.

3. Labor commissioner or DOL investigation notice

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.  Under California law, the Labor Commissioner has subpoena power and the ability to review records and workplaces in order to enforce California employment laws.  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.

4. Subpoenas from third parties

Employers may 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, the employer 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 without being satisfied that the proper subpoena procedures and notice requirements, if applicable, have been met.  Employers have a duty to maintain the privacy rights of current and former employees, which includes personnel files.

5. Service of a Complaint

Ultimately, once a lawsuit is initiated, Plaintiffs will serve the complaint on the registered agent of the company.  Generally speaking, defendants have 30 days to respond to a complaint once served.  It is important to immediately begin assessing the company’s rights and obligations once a complaint has been served in order to ensure its rights are protected.  If a company does not timely respond to a lawsuit, entry of default judgment could be entered against the company, which could result in providing the plaintiff a judgment in the full amount of damages sought.