In Rodriguez v. Taco Bell Corp., 896 F.3d 952 (9th Cir. 2018), an employee brought a putative class action alleging that Taco Bell’s discounted meal policy effectively denied employees the ability to take a duty free meal break.  At issue in this case was Taco Bell’s policy of offering a discounted meal from the restaurant during the employees’ meal breaks as long as the employees ate the meal on the company’s premises.  The ability to purchase discounted meals was voluntary.  The policy was implemented to prevent theft.  The employees argued that because they were required to remain on the company’s property in order to obtain the discounted meal they employees were not provided a duty free meal break.  The court rejected Plaintiff’s argument and held that Taco Bell’s policy complied with California law.  Here are five issues California employers should understand about the decision:

1. Meal and rest break requirements

The court in Rodriguez v. Taco Bell explained that California requires non-exempt employees be afforded rest breaks and meal periods after working a certain number of hours. See Cal. Labor Code §§ 226.7, 512.  At issue in this case is the Labor Code’s requirement that employees who work more than five hours in a day be afforded a meal period of “not less than 30 minutes” and employees who work more than ten hours in a day must be provided a second meal period of the same duration. Labor Code 512(a).  The court also noted that California Industrial Welfare Commission (“IWC”) Wage Order 5-2001 “requires employees be relieved of ‘all duty’ during the meal period. Cal. Code Regs., tit. 8, § 11050, subd. 11(A).”

The court also explained that if a meal or rest break is not provided according to California law, employees are entitled to the remedy of premium wages of “one additional hour of pay at the employee’s regular rate of compensation for each workday that the meal or rest or recovery period is not provided.” Cal. Labor Code § 226.7(c).

2. Discounted meal policy did not establish control over employees

The court found that Taco Bell’s meal policy was compliant under California law because the company relieved the employees of all duty and relinquished control over their activities.  Taco Bell did not require its employees to purchase the discounted meal, there was no evidence that Taco Bell pressured its employees to purchase the discounted meals, employees were free to purchase meals and full price and leave the company premises.  In addition, there was no evidence to show that employees were required or pressured to work while on premises during the meal period.  In fact, Taco Bell had a policy prohibiting this, “as employees were required to take rest breaks and meal periods away from ‘[t]he food production area’ and ‘[t]he cash register service area.’”

3. Voluntary nature of the discounted meal policy was key issue in case

Plaintiff argued that employers must pay employees whenever they control the employees, even if the employee is not required to work, as set forth in Morillion v. Royal Packing Co., 22 Cal.4th 575 (2000). In Morillion, the employer required employees to travel to work on employer-provided buses, and the employees had no option to drive themselves.  There, the court held that employer’s work rules “prohibited employees from using their own transportation to get to and from the fields” where they worked, and therefore this time was considered work time and the employees had to be paid.  The court in Taco Bell also noted however that the Morillion court made it clear that if the employer provided optional transportation that the employee was not required to use, the travel time would not need to be compensated.  The court in Taco Bell explained that this scenario is more similar to Taco Bell’s voluntary discount meal program.

4. Employers must relieve employees of all duty during breaks

The court in Taco Bell did note that “an employer may so burden the use of employee’s break time that the employees must be considered ‘on duty.’”  The court explained:

In Augustus, the employees were required to carry a device so that the employer could reach the employee during the break if services were needed. Augustus, 211 Cal.Rptr.3d 634, 385 P.3d at 832. The California Supreme Court said that such an arrangement was “irreconcilable with employees’ retention of freedom to use rest periods for their own purposes.” Id. In Madera, the employees were not only on call, but were forbidden to conduct any personal business. See Madera, 204 Cal.Rptr. 422, 682 P.2d at 1089.

5. Remember to record meal breaks

Although not an issue in the case, the Wage Orders require that meal breaks taken by the employees must be recorded by the employer. See Wage Order No. 5 (7)(A)(3) (“Meal periods, split shifts intervals and total daily hours worked shall also be recorded.”).  The California Supreme Court held in Brinker Restaurant Corp. v. Superior Court that, “[i]f an employer’s records show no meal period for a given shift over five hours, a rebuttable presumption arises that the employee was not relieved of duty and no meal period was provided.”  Brinker Restaurant Corp. v. Superior Court, 53 Cal.4th 1004, 1053 (2012).

However, there is no similar requirement for employers to record 10-mintute rest breaks.

For more information about meal and rest breaks, see my prior article here.

Rick Reyes, a law clerk at our firm, recently wrote an article published in the National Law Review: Transgender Individuals in the Workplace: An Overview of Employers’ Scope of Obligations in California.

The article provides some great guidance for employers on this developing issue, such as new posters required by California law, training that addresses gender identity, gender expression and sexual orientation, facility, and grooming considerations.  The article can be read here. 

Congratulations Rick!

California employers have many different obligations to train employees on certain issues.  The primary training obligation that applies to nearly every employer (with 5 or more employees) is to provide sexual harassment prevention training.  However, as set forth below, different industries have different standards, and employers need to review the requirements that pertain to their industries and companies to ensure compliance.

This article is the fifth article in my series of articles of employment audits to start out 2019.  Prior articles covered the hiring process, records retention practices, wage and hour considerations, and end of employment issues.    This article provides five reminders about a few of the training obligations facing California employers:

1. Employers with 5 or more employees must provide sexual harassment prevention training to all employees (even nonsupervisory employees) by January 1, 2020. 

SB 1343 is a bill that was passed in 2018 that requires employers with 5 or more employees, including temporary or seasonal employees, to provide at least 2 hours of sexual harassment training to all supervisors and at least one hour of sexual harassment training to all nonsupervisory employees by January 1, 2020, and once every 2 years thereafter.

The bill does require that the Department of Fair Employment and Housing (“DFEH”) is to develop or obtain 1-hour and 2-hour online training courses on the prevention of sexual harassment in the workplace and to post the courses on the DFEH’s website. The bill requires the DFEH to make existing informational posters and fact sheets, as well as the online training courses regarding sexual harassment prevention, available to employers and to members of the public in specified alternate languages on the DFEH website.  At this point the DFEH has not indicated when the training and materials will be available, but check back here throughout the year for updates.

2. Harassment prevention training must cover certain topics.

Employers issuing sexual harassment prevention training to its employees must review the training to ensure that the training covers the required topics.  For example, some of the topics include:

  • The law that applies, such as California’s Fair Employment and Housing Act (“FEHA”) and Title VII of the Civil Rights Act of 1964.
  • Remedies available for sexual harassment victims in civil actions, and potential employer and individual exposure and liability.
  • How to prevent harassment.
  • The essential elements of an anti-harassment policy and how to utilize it if a harassment complaint is filed.
  • Anti-Bullying – A review of the definition of abusive conduct (for more information on this aspect see my prior article here).

3. Talent agencies required sexual harassment training and educational materials.

AB 2338 requires talent agencies to provide educational materials about sexual harassment prevention, retaliation, and reporting to its artists.  At a minimum, the materials shall include the information listed in the DFEH’s Form 185.  Materials may be provided electronically, such as a website or other means.  The bill also requires talent agencies to make available educational materials regarding nutrition and eating disorders available to adult artists within 90 days of agreeing to representation.  Talent agencies must keep records for three years confirming it has made the required information available.

4. Hotel and motel operators must provide training on human trafficking awareness.

SB 970, passed in 2018, requires hotel and motel operators to provide at least 20 minutes of “interactive training and education” regarding human trafficking awareness to employees who are likely to interact or come into contact with victims of human trafficking.

The require training must take place by January 1, 2020 and must be provided to employees within six months of employment in such a covered position.  Training is required once every two years thereafter.

Training is required for, but is not limited to, the following positions: “an employee who has reoccurring interactions with the public, including, but not limited to, an employee who works in a reception area, performs housekeeping duties, helps customers in moving their possessions, or drives customers.”

5. Employers need to develop an anti-harassment policy that includes a complaint procedure.

All employers should have an anti-harassment policy of their own developed and distributed to all employees.  Employers are required to develop a harassment, discrimination, and retaliation prevention policy that meets the following requirements:

  1. Is in writing;
  2. Lists all current protected categories covered under the Act;
  3. Indicates that the law prohibits coworkers and third parties, as well as supervisors and managers, with whom the employee comes into contact from engaging in conduct prohibited by the Act;
  4. Creates a complaint process to ensure that complaints receive:
    • An employer’s designation of confidentiality, to the extent possible;
    • A timely response;
    • Impartial and timely investigations by qualified personnel;
    • Documentation and tracking for reasonable progress;
    • Appropriate options for remedial actions and resolutions; and
    • Timely closures.
  5. Provides a complaint mechanism that does not require an employee to complain directly to his or her immediate supervisor, including, but not limited to, the following:
    • Direct communication, either orally or in writing, with a designated company representative, such as a human resources manager, EEO officer, or other supervisor; and/or
    • A complaint hotline; and/or
    • Access to an ombudsperson; and/or
    • Identification of the Department and the U.S. Equal Employment Opportunity Commission (EEOC) as additional avenues for employees to lodge complaints.
  6. Instructs supervisors to report any complaints of misconduct to a designated company representative, such as a human resources manager, so the company can try to resolve the claim internally. Employers with 50 or more employees are required to include this as a topic in mandated sexual harassment prevention training, pursuant to section 11024 of these regulations.
  7. Indicates that when an employer receives allegations of misconduct, it will conduct a fair, timely, and thorough investigation that provides all parties appropriate due process and reaches reasonable conclusions based on the evidence collected.
  8. States that confidentiality will be kept by the employer to the extent possible, but not indicate that the investigation will be completely confidential.
  9. Indicates that if at the end of the investigation misconduct is found, appropriate remedial measures shall be taken.
  10. Makes clear that employees shall not be exposed to retaliation as a result of lodging a complaint or participating in any workplace investigation.

In addition, employers are required to distribute the pamphlet, Sexual Harassment Is Forbidden by Law (DFEH-185), to all employees.  Employers should also routinely discuss the sexual harassment policy with employees at meetings and remind them of the complaint procedures and document these additional steps.  This additional training will show that the company is serious about preventing harassment and took affirmative steps to protect its employees.

On March 7, 2019, the United States Department of Labor (“DOL”) issued a proposed rulemaking to increase the salary level that employees must receive in order to qualify as an exempt employee.  The DOL sets standards under the Federal Labor Standards Act (“FLSA”), but California employers are also required to comply with California’s wage and hour laws.  This Friday’s Five reviews five issues California employers need to understand about the DOL’s proposal and how it may affect them:

1. DOL’s proposed salary threshold for exempt employees.

The DOL’s proposal increases the minimum salary required under the FLSA for an employee to qualify as an executive, administrative or professional exemption (referred to as the “EAP” exemption) from the currently-enforced level of $455 to $679 per week (equivalent to $35,308 per year).

Since 2004,  the salary required under the FLSA was set at $23,660 per year.  The Obama administration proposed rules that would have required employers to pay employees that qualify for the EAP exemption a minimum salary level of at least $921 per week or $47,892 annually.  The Obama administration rules were set to take effect on December 1, 2016, but were blocked by a lawsuit filed by 21 states.  The March 7, 2019 proposed rules lower the salary requirement by about $12,000 as compared to the Obama administration proposed rules.

The DOL’s proposed rules are expected to become effective in January 2020.

2. DOL also increased the total annual compensation required for “highly compensated employees.”

The proposal increases the total annual compensation requirement for “highly compensated employees” (“HCE”) from the currently-enforced level of $100,000 to $147,414 per year.  This amount is about $13,000 higher than the proposed rule under the Obama administration.

3. The DOL did not propose any changes to the job duties test and did not set any automatic increases to the salary levels.

There were no changes to the job duties test that is required to qualify as an exempt employee.  In addition, there are no future automatic adjustments to the salary threshold.

4. California employers must still comply with California’s more stringent standards regarding exempt employees.

Under California law, exempt employees must perform specified duties in a particular manner and be paid “a monthly salary equivalent to no less than two times the state minimum wage for full-time employment.” (Lab. Code, § 515(a).)  As of January 1, 2019, the minimum wage in California increased from $11.00 to $12.00 per hour for employers with 26 or more employees (the increase is from $10.50 per hour to $11.00 per hour for employers with 25 or fewer employees on January 1, 2019).  With the increase in the state minimum wage, there is a corresponding raise in the minimum salary required to qualify as exempt under the EAP exemptions.

Therefore, on January 1, 2019, in order to qualify for an EAP exemption under California law, the employee must receive an annual salary of at least $49,920 for large employers and $45,760 for small employers.

In addition, California does not permit employers to consider bonuses, commissions, or other payments made to the employee during the year as part of the employee’s salary to meet the minimum threshold.  Finally, California does not contain a “highly compensated employee” exemption.

5. Don’t forget about the duties test.

With attention on the DOL’s salary increase required to meet the EAP exemptions, it is important for employers to remember that this is only one-half of the test used to qualify  as an exempt employee.  The law also requires that the employee perform more than 50% of their time performing exempt duties.  The duties that qualify as exempt can be difficult to determine, and many industries, such as insurance claim adjusters, financial service industry employees, executive assistants, and purchasing agents are just a few job classifications that have been the subject of litigation in the past.

California passed a wave of new laws in 2018 relating to the #metoo movement, many of which prohibit confidential settlement agreements or disclosure of allegations related to sexual harassment in the workplace.  This Friday’s Five post reviews five areas impacted by these new laws in 2019, which illustrate the need for employers to stay informed about the new requirements that apply to their company and industry:

1. SB 820 added Civil Procedure Code section 1001 – Limits on confidentially clauses

California’s Stand Together Against Nondisclosure (STAND) Act prohibits certain terms in agreements with employees.  The law voids any confidentiality provisions in agreements settling claims for sexual harassment under Civil Code section 51.9, workplace sexual harassment or discrimination, failure to prevent harassment, and retaliation for reporting sexual harassment or discrimination.

This law applies to agreements entered into on or after January 1, 2019 involving claims filed in court or filed in an administrative action.  The law permits the claimant to request a term in the settlement that his or her identify remain confidential, including all facts that could lead to the discovery of his or her identity, including pleadings filed in court.

The law does not apply to pre-litigation settlements.  The law also permits parties to keep the amount of the settlement confidential (unless a government agency or public official is a party to the settlement agreement).

2. AB 3109 added Civil Code section 1670.11 – Right to testify about sexual harassment

Civil Code section 1670.11 makes any provision in a contract or settlement agreement entered on or after January 1, 2019 void and unenforceable if it waives a party’s right to testify in an administrative, legislative, or judicial proceeding about alleged criminal conduct or alleged sexual harassment.

3. SB 1300 added Government Code section 12964.5 – Employer may not release FEHA claims unless it involves a “negotiated settlement agreement”

SB 1300 added section 12964.5 to the Government Code which makes it an unlawful employment practice for an employer to require and employee to sign a release of a claim or right under the Fair Employment and Housing Act (“FEHA”).  In addition, the law prohibits an employer from requiring an employee to sign a nondisparagement agreement or other document that denies the employee the right to disclose information about unlawful acts in the workplace, including, but not limited to sexual harassment.  The new law took effect on January 1, 2019.

The law makes any document violating its terms unenforceable.

The law does not apply to “a negotiated settlement agreement” to resolve an underlying claim filed by an employee in court, before an administrative agency, alternative dispute resolution forum, or through an employer’s internal complaint process.  “Negotiated” is defined as an agreement that “is voluntary, deliberate, and informed, provides consideration of value to the employee, and that the employee is given notice and an opportunity to retain an attorney or is represented by an attorney.”

4. The Tax Cuts and Jobs Act – Limit on tax deductions for payments and attorney’s fees related to confidential settlements or payments

Enacted on December 22, 2017, the Tax Cuts and Jobs Act changed the Internal Revenue Code to prohibit tax deductions as an ordinary and necessary business expense for any settlements or payments “related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement.”  The law also disallows any deductions for attorney’s fees related to the confidential settlement or payment.  See 26 U.S.C. § 162(q).

5. Review standard forms to ensure compliance

Employers should review their documents and forms to ensure compliance with the new laws.  For example, employers should review and potentially update employment documents, which may include the following:

  • severance agreements
  • standard release of claims, and settlement agreements
  • non-solicitation agreement
  • confidentiality agreements
  • nondisclosure agreements
  • employee handbook procedures and policies

The process of separating an employee from a company must be clearly set out and planned in advance.  I recommend developing a separation checklist so that all of the company’s policies are followed, as well as any applicable laws that pertain to the employer and their industry.  This article is the fourth article in my series of articles of employment audits.  Prior articles covered the hiring process, records retention practices, and wage and hour considerations.  This article provides five issues employers should consider in developing a separation checklist for their company:

1. Documenting reason for termination

Employers should establish a protocol for documenting the reason for termination.  Some considerations for documenting could include the following:

  • Is there a company policy that was violated? This is policy in writing?  Has it been distributed to the employee, and has the employee signed an acknowledgment of the policy?
  • Who was involved in the termination decision?
  • Review reasons for termination, and have clear guidelines for seeking legal counsel to avoid any potential wrongful termination or discrimination claims.

 2. Final paycheck amounts

An employee who is discharged must be paid all of his or her wages, including accrued vacation, immediately at the time of termination.  Ensure that the final paycheck will be available to the employee on a timely basis (see below for timing requirements).  If an employee had direct deposit, an employee must re-authorize direct deposit for a final paycheck, and this should be documented.  In Canales v. Wells Fargo, N.A., (2018) the court held that employers are not required to provide final wage statements (pay stubs) at the same time as the final check, but instead have until the semimonthly deadline set forth in Labor Code section 226(a).

3. Timing of final paycheck

California law requires the employer comply with the following deadlines for providing final paychecks:

  • An employee who is discharged must be paid all of his or her wages, including accrued vacation, immediately at the time of termination. This does not mean that the company cuts the check and mails it to the employee, the check must be provided to the employee at the time of termination.
  • An employee who gives at least 72 hours prior notice of quitting, and quits on the day given in the notice, must be paid all earned wages, including accrued vacation, at the time of quitting.
  • An employee who quits without giving 72 hours prior notice must be paid all wages, including accrued vacation, within 72 hours of quitting.
  • An employee who quits without giving 72-hours’ notice can request their final wage payment be mailed to them. The date of mailing is considered the date of payment for purposes of the requirement to provide payment within 72 hours of the notice of quitting.

Final wage payments for employees who are terminated (or laid off) must be made at the place of termination. For employees who quit without giving 72 hours’ notice and do not request their final wages be mailed to them, the location is at the office of the employer within the county in which the work was performed.

4. List of all required documents to separating employees

California law requires employers to provide certain documents to employees.  Here is a list of some of the routine forms required:

Employers should take time to review their obligations and forms that are required for their particular industry or situation.

5. Have established protocol for references and disclosing why the employee left the company within the company itself.

Employers often establish that it will only confirm the title and dates of employment for former employees, and, if authorized by the former employee, the former employee’s final pay rate. Employers do this to avoid potential claims for misrepresentation, violation of privacy, and defamation. Also, employers need to be careful about disclosing the reason for an employee departure within the company, as that may violate the former employee’s privacy rights. Employers should remind employees and management not to disclose this information to people in the company that do not have a reason to know, and remind employees about who any requests for references should be directed to within the company.

On February 4, 2019, a California Court of Appeal ruled that employees calling their employer to determine if they must come into work is considered reporting to work, and reporting time pay is owed to the employee if they are not required to work that day.  The case is Ward v. Tilly’s, Inc. from the Second District Court of Appeals.  Here are five key issues for employers to understand about the ruling:

1. Reporting time pay.

California law requires an employer to pay “reporting time pay” under the applicable Wage Order.  Wage Order 7 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.” See Wage Order 7-2001(5).

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.

2. Does requiring an employee to call two hours prior to their shift to see if they are needed at work trigger reporting time pay obligations?

The court in Ward v. Tilly’s, Inc. was presented the issue of what does “report for work” mean?  The phrase is used in Wage Order 7 to trigger reporting time pay obligations, and is not defined in the Wage Orders.  In Ward, the plaintiff was required to contact the employer two hours before the start of her on-call shifts to determine if she was required to come into work for that shift.  Plaintiff argued that being required to call her employer two hours before a potential shift to see if she was required to work that day should be considered reporting to work, which triggers the employer’s obligation to pay reporting time pay.  As the court noted, “[b]oth parties assert this phrase is unambiguous—but they interpret it in very different ways.”

The employer argued that “report[ing] for work” requires the employee’s “physical presence at the workplace at the start of a scheduled shift.”  The employee argued that reporting referred to in Wage Order 7 refers to “any manner of reporting, whether in person, telephonic, or otherwise.”  Plaintiff argued that given present day’s work arrangements, it is common for employees to work remotely, use phones for work, and not even physically ever arrive to work while still working.  Therefore, the employee argued that calling the employer is tantamount to reporting to work.

The employer argued that the meaning of the term “report for work” when it was drafted by the IWC in 1940 should be the controlling meaning applicable to the court’s analysis.  The employer argued that when the Wage Order was drafted, the phrase “’report [for] work’ meant physically showing up.”  The Court agreed and recognized “that is how an employee reported for work in the 1940’s,” but this should not end the court’s analysis.  The court continued to note that “in applying existing statutes to new circumstances, ‘we must maintain our usual deference to the Legislature in such matters and ask ourselves first how that body would have handled the problem if it had anticipated it.”  Basically, the court placed itself into the role of “channeling” the drafters of the Wage Orders to interpret the Wage Orders as they would have applied them to today’s workforce.

3. The court in Ward held that a telephone call to employer does trigger reporting time pay.

Considering how the 1940 drafters of the IWC Wage Orders would approach this issue, the court held that they would have defined “report for work” to include making a telephone call to the employer:

[S]uch an omission [of telephonic reporting] ‘is not surprising’ because neither the practice of on-call scheduling nor the cell phone technology that makes such scheduling possible existed when the IWC adopted the reporting time pay requirement in the 1940’s. Consistent with Apple Inc. and WorldMark, we therefore next consider whether, had the IWC been “prescient enough to anticipate” cell phones and telephonic call-in requirements, it “would have intended” the reporting time pay requirement to apply.

The court explained that “had the IWC considered the issue, it would have concluded that telephonic call-in requirements trigger reporting time pay.”

On a side note, and not discussed in the court’s opinion, the telephone had in fact been invented in 1876, well before the IWC drafted the Wage Orders in the 1940’s.  In addition, it appears that there were nearly 30 million telephones connected to the phone system in the United States by 1948.

4. Other courts and the DLSE have viewed “reporting for work” differently.

The dissenting opinion noted that “[a]s recently as 2011, the DLSE stated that reporting time penalties are due only when ‘the employer finds it necessary to send the employee home because there is no work.’” (DLSE, Information Sheet: Wages et al. (Jan. 2011).)  Not discussed in the opinion, but also interestingly, the DLSE’s current website’s FAQs on reporting time pay also only discusses examples of when the employee is sent home from work.

The dissenting opinion also noted that federal courts examining the same issue came to a different conclusion.  In Culley v. Lincare, Inc., 236 F.Supp.3d (E.D.Cal. 2017) the court held that reporting time pay only applies when employees “were required to physically report to work and not to when they performed work via telephone.”  In Casas v. Victoria’s Secret Stores, LLC (C.D.Cal., Dec. 1, 2014, No. CV 14-6412-GW), a federal district decision by the Hon. George Wu held that, “Viewed in context, then, the plain meaning of the word ‘report’ supports [the retailer’s] interpretation—that a person ‘reports to work’ by physically showing up at the place ready to work.”

Alternatively, in Bernal v. Zumiez, Inc. 2017 WL 3585230 (E.D. Cal. Aug. 17, 2017) the court held that “report for work” does not require physical presence, and reporting time would be triggered by a telephone call.  Zumiez appealed this decision and it is currently pending before the Ninth Circuit.  In Segal v. Aquent LLC, 2018 WL 4599754 (S.D. Cal. Sept. 24, 2018) the court agreed with Bernal, and held that “report for work” does not require physical presence, but asked the parties to notify the court of any development in the Zumiez appeal before the Ninth Circuit.

5. Next steps for employers.

Another issue noted by the court, but not addressed, was how much advance notice must be given to employees prior to their shift in order to avoid reporting time pay.  The court did not answer this question: “We agree that the wage order potentially creates some difficult line-drawing challenges, but we need not resolve all of those challenges to answer the limited question before us….”

This issue raising many new concerns and may be a case that will be appealed to the California Supreme Court.  However, the decision in Ward v. Tilly’s is arguably controlling law in California, and employers need to review their reporting time pay policies to ensure compliance with applicable law, and should continue to monitor for any new court decisions on this issue.

For more information about reporting time pay, see my prior posts here , here, and here.

Expense reimbursement may seem like a small issue in comparison with the other areas of liability facing California employers, but the exposure for not appropriately reimbursing employees can be substantial. In Gattuso v. Harte-Hanks Shoppers, Inc., the California Supreme Court clarified the parameters of mileage reimbursement under California law, as well as the three different methods available for employers to reimburse employees for their mileage reimbursement.  This 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 2019 IRS mileage rate is as follows:

  • 58 cents per mile for business miles driven, up 3.5 cents from 2018
  • 20 cents per mile driven for medical or moving purposes, up 2 cents from 2018; and
  • 14 cents per mile driven in service of charitable organizations

2. Mileage reimbursement rates do not necessarily have to be set at the IRS rate, but use caution

The California Supreme Court 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.

3. Employees who challenge a mileage reimbursement amount set by the employer bear the burden in establishing their actual costs

If the employee challenges a predetermined amount set by the employer and agreed to by the employee, but then challenges the amount set later on, 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.

4. There are different methods employers can use to reimburse mileage

The Count in Gattuso explained that there are three different methods employers may use to reimburse employees mileage:

Actual expense method

In examining the different methods of reimbursement, the Supreme Court held that the actual expense method is the most accurate, but it is also the most burdensome for both the employer and the employee. Gattuso, at 478. Under the actual expense method, the parties calculate the automobile expenses that the employee actually and necessarily incurred and then the employer separately pays the employee that amount. The actual expenses of using an employee’s personal automobile for business purposes include: fuel, maintenance, repairs, insurance, registration, and depreciation.

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.

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 under Labor Code section 2802. 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.

 

With the start of 2019, I’m writing a series of posts covering employment law areas that employers should audit on a routine basis.  The first two articles covered hiring practices and records retention practices.  This post covers five wage and hour considerations that every California employer should review on a routine basis:

1. Payroll

  • Are the company’s 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?
  • Is vacation properly documented and tracked?

2. Wages

  • 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, required cell phone use, work equipment and miles driven for work?
  • Are employees provided their final wages according to California requirements?  For example, employees terminated must receive their wages (including all accrued and unused vacation) at the time of termination.  More information on the timing requirements for final paychecks can be read here.

3. Employee Classifications

  • 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?

4. Timekeeping

  • 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 timekeeping system round employee’s time?
    • If so, is the rounding policy compliant with the law?

5. Meal and rest breaks

  • Are meal and rest period policies set out in handbook and employees routinely reminded of policies?
    • Are meal and rest breaks provided on a timely basis?
    • 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?

The next article in this series will addresses end of employment issues.  Have a great weekend.

The beginning of 2019 brought substantial employment case settlements and verdicts.  This Friday’s Five reviews the settlements and verdicts that should catch the attention of all employers, as well as a review of the U.S. Supreme Court’s new ruling on arbitration agreements for transportation workers:

1. Restaurant settles claim with Labor Commissioner for $4 million covering approximately 300 employees.

The restaurant chain in the San Francisco bay area, Rangoon Ruby, settled a Labor Commissioner claim involving more than 300 employees for $4 million.  The damages included payments for unpaid overtime wages, minimum wages, split shift premiums, liquidated damages, waiting time penalties, and failure to provide accurate itemized wage statements.

2. ABM Industries settles class action lawsuit for $5.4 million for required used of cell phones.

In the case, Castro v. ABM Industries, Inc., plaintiffs alleged that the employer required its employees to use their cell phones for business purposes and were not reimbursed for the costs associated with the cell phone use as required under Labor Code section 2802.  Plaintiffs contended they were required to use their cell phones to clock in and out for work and to communicate with their supervisors.

Employers need to be careful regarding requiring employees to use certain apps or their cell phones for work purposes.  As new work-related apps find their way into the workplace, employers need to be careful of claims that the use of their personal cell phone for work purposes was required.  Apps used in the workplace for timekeeping, scheduling, and reporting complaints to employers could be susceptible to these types of allegations.

Indeed, it is a good reminder for employers that employers are still required to reimburse employees for the expense of cell phone use even though the employee did not pay additional cell phone fees for using their cell phone for work purposes.  See prior post on holding in Cochran v. Schwan’s Home Service here.

Plaintiff’s motion for preliminary approval of the class action settlement can be found here.

3. Virgin America flight attendants awarded $77 million in wage and hour class action.

A federal judge awarded a class of flight attendants the money after entering summary judgment against the airline for California flight attendants that were not paid for all hours worked, overtime premiums, missed meal and rest breaks, and inaccurate wage statements.  The court also found the airline liable for waiting time penalties under Labor Code section 203 and awarded derivative penalties under California’s Private Attorney General Act (“PAGA”).  The case is Bernstein v. Virgin America Inc.

4. California Senate settles harassment claim for $350,000.

The Senate settled the lawsuit in November 2018, but was recently reported by the Los Angeles Times.  The lawsuit alleged that a former staffer was terminated in retaliation for reporting being raped by an Assembly legislative aide in December 2016.  On a similar note, the California legislature passed many new #metoo laws in 2018.

5. Supreme Court narrows enforceability of arbitration agreements for transportation workers.

Plaintiff filed a wage and hour class action against New Prime, a trucking company.  New Prime filed a motion to compel arbitration under the Federal Arbitration Act.  Plaintiff countered that the employer could not enforce its arbitration agreement with him because §1 of the FAA exempts from arbitration disputes involving “contracts of employment” of certain transportation workers.  New Prime argued that the question of §1’s applicability in this case is for the arbitrator to decide, and even if the court could decide the issue, plaintiff in this case was an independent contractor.  Therefore, §1’s exclusion from arbitration would not apply in this case.

The Supreme Court framed the two issues as follows:

When a contract delegates questions of arbitrability to an arbitrator, must a court leave disputes over the application of §1’s exception for the arbitrator to resolve? And does the term “contracts of employment” refer only to contracts between employers and employees, or does it also reach contracts with independent contractors?”

The Supreme Court answered the first issue in explaining that “a court should decide for itself whether §1’s ‘contracts of employment’ exclusion applied before ordering arbitration.”  The Supreme Court answered the second issue in explaining that the Federal Arbitration Act’s term “contracts of employment” referred to agreements to perform work, which would also include agreements with independent contractors.  Therefore, the Court held that §1 of the FAA precluded New Prime from compelling arbitration of the plaintiff’s claims in this case.  The case is New Prime Inc. v. Oliveira.