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.

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.

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.

last post provided an overview of the Berman hearing process

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.

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. 

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.

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. 

Governor Brown signed a number of new employment laws that take effect in January 2012.  During this webinar, we will cover the new obligations facing employers under these recently enacted employment laws as well as the proper steps employers should take to comply with them.  The discussion will also cover the recent oral argument in Brinker Restaurant Corp. v. Superior Court and what steps employers should take while waiting for the Supreme Court’s ruling.

Other topics will include:

• New laws effective January 2012, including:
  • Statute increasing the penalties for employers who misclassify independent contractors
  • What the Wage Theft Protection Act of 2011 means for employers
  • Gender identity and expression
  • Prohibiting e-verify requirements under the Employment Acceleration Act of 2011.
  • New requirement to provide health benefits during pregnancy disability leave
• Review of new developments that took place in 2011:
  • Development of case law upholding class action waivers in arbitration agreements
  • Payment requirements for non-resident employees working in California

The cost is $150 per connection (no fee for existing clients).  Click here for more information and to register. 

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

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.

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.

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.

The Plaintiffs were employed by Oracle as instructors who train Oracle’s customers in the use of the company’s products. Two Plaintiffs reside in Colorado, and another plaintiff resides in Arizona. The Plaintiffs primarily worked in their home states but also performed work in California and other states. During the relevant time period for this case (2001-2004), Plaintiff Sullivan worked 74 days in California, Plaintiff Evich worked 110 days, and Plaintiff Burkow worked 20 days.

The case came to the California Supreme Court as a request by the Ninth Circuit to decide unresolved questions of California law. The issues presented to the Court were:

1. Does the California Labor Code apply to overtime work performed in California for a California-based employer by out-of-state plaintiffs in the circumstances of this case, such that overtime pay is required for work in excess of eight hours per day or in excess of forty hours per week?
2. Does Business and Professions Code section 17200 apply to the overtime work described in question one?
3. Does Section 17200 apply to overtime work performed outside California for a California-based employer by out-of-state plaintiffs in the circumstances of this case if the employer failed to comply with the overtime provisions of the FLSA?

Does California Overtime Apply to Out-Of-State Plaintiffs Working In California?

The Supreme Court held that the Plaintiffs were owed California overtime. It explained:

California’s overtime laws apply by their terms to all employment in the state, without reference to the employee’s place of residence. The overtime statute declares simply that “[a]ny work in excess of eight hours in one workday and . . . 40 hours in any one workweek . . . shall be compensated at the rate of no less than one and one-half times the regular rate of pay . . . .” (Lab. Code, § 510, subd. (a), italics added.) The civil enforcement provision provides that “any employee receiving less than . . . the legal overtime compensation applicable to the employee is entitled to recover in a civil action the unpaid balance . . . .” (Id., § 1194, subd. (a), italics added.) Moreover, a preambular section of the wage law (Lab. Code, div. 2, pt. 4, ch. 1, §1171 et seq.) confirms that our employment laws apply to “all individuals” employed in this state (id., § 1171.5, subd. (a), italics added).

The Court explained that states have broad authority under their police powers to regulate employment matters within their boundaries (such as child labor laws, minimum and other wage laws, and workers compensation laws). “To exclude nonresidents from the overtime laws’ protection would tend to defeat their purpose by encouraging employers to import unprotected workers from other states.”

The Court was clear that the holding in this case is limited to the facts presented to it. The court stated, “[t]hus, we are not prepared, without more thorough briefing of the issues, to hold that IWC wage orders apply to all employment in California, and never to employment outside of California.” (emphasis in original).

Does B&P Code Section 17200 (“Unfair Competition Law” or “UCL”) Apply to The Unpaid Overtime?

The Supreme Court held it does, stating:

We have already decided that the failure to pay legally required overtime compensation falls within the UCL’s definition of an “unlawful . . . business act or practice”

Does the UCL Apply When To Claims Under the FLSA for Overtime Worked By Nonresidents In Other States?

The Court concluded that the UCL does not apply to claims under the FLSA for alleged violations that occurred in other states. It explained that in holding so would extend the UCL to apply outside of California’s boarders, in violation of the “presumption against extraterritorial application.”
 

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

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.

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.

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.
 

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. 
 

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.