On October 4, 2023, Governor Newsom approved a new law, SB 616, that increases the amount of paid sick leave that nearly every employer in California must offer to employees.  Here are five key issues California employers need to understand about the new law and to comply with its requirements:

1. New requirements under SB 616:

As background, California’s existing paid sick leave law, the Healthy Workplaces, Healthy Families Act of 2014, became effective on January 1, 2015.  The law requires employers of all sizes to provide 1 hour of paid sick leave for every 30 hours worked to employees who worked for the employer for 30 or more days.  Employers may cap the accrual of paid sick leave at 48 hours and cap the use of paid sick leave at 3 days or 24 hours, whichever is greater, within a 12-month period.  SB 616 increases the amount of paid sick leave employers must provide starting on January 1, 2024. 

SB 616 will require employers to provide the following as of January 1, 2024:

  • Requires employers to provide paid sick leave of 5 days or 40 hours.
  • Employers may still offer an accrual rate of one hour of PSL for every 30 hours worked. For employers that use a difference accrual method other than 1 hour of PSL for every 30 hours worked, the employer must offer on an accrual on a regular basis of no less than 24 hours of accrued sick leave or paid time off by the 120th calendar day of employment or each calendar year, or in each 12-month period, and no less than 40 hours of accrued sick leave or paid time off by the 200th calendar day of employment or each calendar year, or in each 12-month period. Employers may satisfy the accrual requirements by providing not less than 24 hours or 3 days of PSL by the employee’s 120th calendar day of employment, and no less than 40 hours or 5 days of PSL by the employee’s 200th calendar day of employment.
  • Employers may limit the use of PSL to 40 hours or five days in each year of employment, calendar year, or 12-month period.
  • Employers may cap the accrual of paid sick leave to 10 days or 80 hours.  A total of 10 day or 80 hours is also the cap that employers can place on the amount of paid sick leave an employee can carryover from year to year.  However, employers who provide an upfront grant of 5 days or 40 hours at the beginning of each year do not need to provide any accrual, nor do they need to allow any carryover. 

2. Update new hire packets and Notice to Employee:

Employers must update their new hire packages to include an updated Notice to Employee required by Labor Code section 2810.5.  The current version (which does not reflect the new requirements going into effect on January 1, 2024) is available here: https://www.dir.ca.gov/dlse/lc_2810.5_notice.pdf 

Stay tuned for updates regarding when this form is updated to comply with SB 616. 

3. Update employee handbooks and workplace posters:

Employer’s paid sick leave policies in their handbooks will need to be updated to conform to the new requirements under SB 616.

4. Update pay stub information:

Also, just as required under existing law, the new law requires that employers provide notice to the employee of the amount of PSL that is available to the employee by employee’s pay date with the employee’s payment of wages.  This notice can be made on the employee’s pay stub or some other writing at the time the employee is paid.  Employers should start working with their payroll companies to ensure the updated amounts are reflected on pay stubs issued after January 1, 2024.  It is recommended that a sample from the payroll processing company should be reviewed prior to January 1, 2024 to ensure it meets the legal requirements.

5. Do not rely on payroll company to implement these changes:

Employers must proactively contact their payroll companies to ensure that the new upfront grants or accrual rates are reflected on the employee pay stubs and that the paid sick leave is being tracked according to the new upfront grants or accrual rates after January 1, 2024.  Do not rely on your payroll company to automatically update the pay stubs and tracking of paid sick leave – make sure your payroll company starts working on this sooner than later.  

On September 28, 2023, Governor Newsom signed AB 1228 into law, which repealed the FAST Act and implemented new regulations of the fast food industry in California.  AB 1228 was amended to reflect the terms of an agreement reached between labor representatives and fast-food companies that was announced on September 10, 2023.  We have reported on the terms of the agreement before here, but given the importance of the new law, this Friday’s Five delves into the details of AB 1228 and highlights five key issues of the new law signed by Governor Newsom:

1. Covered employers:  AB 1228 applies to national fast food chains, which are defined as “limited-service restaurants consisting of more than 60 establishments nationally that share a common brand, or that are characterized by standardized options for decor, marketing, packaging, products, and services, and which are primarily engaged in providing food and beverages for immediate consumption on or off premises where patrons generally order or select items and pay before consuming, with limited or no table service. For purposes of the definitions in this part, “limited-service restaurant” includes, but is not limited to, an establishment with the North American Industry Classification System Code 722513. Bakeries and grocery stores are exempt from this definition and are not included as fast food restaurants. 

2. Minimum wage for fast food restaurant employees: $20 per hour on April 1, 2024.  Each year thereafter on January 1, the fast food council may increase the minimum wage by the lesser or 3.5% or the average change in the U.S. Consumer Price Index.  The council has the ability to set a different minimum wage based on the region of the state or to set a statewide minimum wage increase.  The fast food council’s minimum wage preempts any other local city or county minimum wage requirements. 

3. Establishment of the Fast Food Council: This council, set up within the Department of Industrial Relations, will have representatives for all interests – employers, employees, and advocates alike. The council would be made of 9 voting members, including representatives from various sectors of the fast food industry, fast food restaurant franchisees or restaurant owners, fast food restaurant employees, advocates for fast food restaurant employees, and a neutral chairperson.  However, the Governor still maintains the power to appoint all but 2 of the 9 positions on the council. The council’s responsibilities are significant.  From 2025 to 2029, they can adjust the hourly minimum wage each year (subject to the caps discussed above). The council can also recommend other workplace standards to state agencies. But, these recommendations will undergo rigorous review under the California Administrative Procedure Act and the council does not have authority to implement any other workplace standards by itself. 

4. The FAST Act (AB 257) will be repealed and the referendum that was set to go to California votes in November of 2024 will be withdrawn

5. Key issues eliminated from the law:

  • The Industrial Welfare Commission will not be revived.   Governor Newsom signed AB 102 on July 10, 2023, and a part of that bill funded the IWC to reconvene to issue wage orders regulating the “wages, hours, and working conditions” for various industries.  Employers could have expected regulations from the IWC covering nearly every industry in California (as the current wage orders cover most industries) by October 2023. By funding the IWC, labor representatives had a backup plan to continue to regulate the quick-service industry (among other industries across California) in case the FAST Act was repealed by the voters in 2024.  The agreement reached now eliminates the funding for the IWC and it will not reconvene. 

The implications of AB 1228 are significant for the fast food industry in 2024. It is imperative for employers to be prepared. As the Governor’s deadline for signing other bills looms in mid-October, our firm remains diligent in reviewing any key legislative updates. We invite business owners, human resource professionals, and in-house counsel to join our webinar on October 26, 2023, where we will review the newly enacted employment laws for California. Registration for this informative session can be accessed here.

The legislative session has drawn to a close, and a slew of bills now await Governor Newsom’s decision. He has until October 14, 2023, to either sign them into law or veto them. In this week’s Friday Five, we spotlight the five bills, in the author’s view, that could profoundly affect California employers:

1. SB 731 – Work From Home Rights (text of bill)

SB 731 would require an employer to provide employees with at least 30 days’ written notice by mail or email prior to requiring an employee to return to work. The bill includes specific language that must be contained, including language about requesting a reasonable accommodation if they have a disability. 

2. SB 699 – Noncompete Agreements – Already Signed Into Law (text of bill)

Already signed by the Governor, SB 699 will go into effect on January 1, 2024, and prohibits employers from entering into or enforcing noncompete agreements, regardless of the employee’s work location, or when and where the agreement was entered into.

3. AB 1076 – Noncompete Clauses (text of bill)

AB 1076 would void noncompete agreements in an employment contract, regardless of how narrowly tailored they are. This bill would also require employers to give employees who have previously signed a noncompete agreement notice that it is now void.

4. SB 616 – Paid Sick Leave Expansion (test of bill)

Currently, employers are required to provide employees with three days, or 24 hours, of paid sick leave. SB 616 would increase the amount of sick paid leave to five days, or 40 hours. Employers would be able to control the amount used per year at five days or 40 hours per year and cap accrual at 10 days or 80 hours.

5. SB 497 – Presumption of Retaliation (text of bill)

SB 497 creates a rebuttable presumption of retaliation if an employer disciplines or takes adverse action against an employee within 90 days of that employee engaging in protected conduct.

Indeed, if you’re keen to discover more about pending employment law bills that the Governor has yet to decide on, join us in our 2nd annual “Sign or Veto” Challenge. Showcase your knowledge in employment law and make your predictions on which bills the Governor will approve or decline. Plus, stand a chance to grab some exclusive Zaller law swag!

We recommend employers develop a separation checklist to ensure the company’s policies are followed as well as all applicable laws that pertain to the employer.  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? Is this 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 and timing requirements

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).

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.

3. Compile list of documents to provide to separating employees

California law requires employers to provide certain documents to employees upon their separation from employment.  Here is a list of some of the common forms often required to be provided to employees:

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

4. Establishing protocol for references and disclosing why the employee left the company within the company

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.

5. Evaluate whether a severance agreement would be appropriate

Under California law, the obligation to provide severance to a departing employee is not required. However, employers can offer severance to employees for numerous reasons:

  • during a layoff the employer wants to provide something to the employees for their recognized service,
  • the company entered into a contract with an executive to provide severance if certain conditions were met, or
  • the separation is high risk and there is potential litigation between the parties and the employer wishes to obtain a release of claims to prevent future litigation.

If an employer offers severance payment to a departing employee, they should always have the severance agreement reviewed by an employment attorney to ensure that it contains a broad release of claims so that the employee cannot initiate litigation against the company for claims that arose during their employment. My previous article discussed in more detail issues about severance and severance agreements.

Big changes are coming to the quick service industry in California.  An agreement reached between labor and fast-food companies has been documented in a Term Sheet dated 9/11/2023 proposes to drastically alter the FAST Act and the fast food industry in California.  The term sheet agreement, if it becomes final, introduces pivotal provisions impacting fast food workers, employers, and the entire sector at large.  Here’s a breakdown of what this means for the industry if the agreement between representatives and business becomes final:

  1. Repeal of the FAST Act: AB 257, known as the FAST Act, would be repealed.  The FAST Act was a paradigm shift on how regulations would be implemented for an industry, whereby the legislature shifted its power to regulate the fast food industry to a group of unelected members of an appointed council. 
  2. Raise in Minimum Wage For Limited-Service Restaurants: As part of the negotiations, it was agreed that starting April 1, 2024, all limited-service restaurants that are a part of a chain with over 60 locations nationwide, must pay a minimum wage of $20.00 per hour.
  3. No More Referendum on AB 257: Under the agreement, businesses supporting the referendum on AB 257 (the FAST Act) have agreed to withdraw this challenge to the law by January 1, 2024.  We previously wrote about the referendum challenging the FAST Act here.
  4. Joint Employer Provisions Eliminated in AB 1228: AB 1228’s joint employer provisions will be removed.  As a reminder AB 1228, deemed the Fast Food Franchisor Responsibility Act, would require fast food franchisors to share in civil legal responsibility and liability for the franchisee’s violations. An employee, or former employee, would be able to bring an administrative charge or civil lawsuit against not only the franchisee, but also the franchisor for violation of various employment laws.  Under this agreement, joint employer liability between franchisor and franchisee would be deleted from the bill.  We previously wrote about what AB 1228’s impact would have been on the industry here
  5. The Industrial Welfare Commission Will Not Be Revived: The budget appropriation for the Industrial Welfare Commission (IWC), including its budget control language, has been scrapped under the deal.  By funding the IWC, labor had a backup plan to continue to regulate the quick-service industry (among other industries across California) in case the FAST Act was repealed by the voters in 2024.  Governor Newsom signed AB 102 on July 10, 2023 and a part of that bill funded the IWC to reconvene to issue wage orders regulating the “wages, hours, and working conditions” for various industries.  Employers could have expected regulations from the IWC covering nearly every industry in California (as the current wage orders cover most industries) by October of 2024. 
  6. Establishment of the Fast Food Council:
    • This council, set up within the Department of Industrial Relations, looks to have representation for all interests – employers, employees, and advocates alike.
    • The council would be made of 9 voting members, including representatives from various sectors of the fast food industry, fast food restaurant franchisee or restaurant owners, fast food restaurant employees, advocates for fast food restaurant employees, and a neutral chairperson.  However, the Governor still maintains the power to appoint all but 2 of the 9 positions on the council.
    • The council’s responsibilities are significant.  From 2025 to 2029, they can adjust the hourly minimum wage each year.  However, they’re capped at an increase of the lesser between 3.5% or the annual change in Consumer Price Index.  They also have the flexibility to reduce future wage increases by region with specific limitations.
    • The council can also recommend standards to state agencies. But, these recommendations will undergo rigorous review under the California Administrative Procedure Act.
  7. Local Municipalities Are Limited On Setting Minimum Wages: Local governments won’t be able to set a higher minimum wage for fast food employees than what is mandated by the council.

The term sheet published by the Save Local Restaurants is available here.  This agreement introduces major changes, and employers in the quick-service industry must closely watch the implementation of this agreement.  We will report on any other developments. 

On September 1, 2023, Governor Newsom signed SB 699 into law that adds additional prohibitions on employer’s use of non-competition agreements and another restrictive covenants. This legislation has several key components that employers both within and outside California should be keenly aware of:

1. Implementation Date: The law will take effect from January 1, 2024.

2. Restrictions on Non-Compete Agreements: AB 699 introduces additional prohibitions on the use of non-compete agreements by employers. This is codified under section 16600.5 of the Business and Professions Code. Significantly, this section renders any such agreement unenforceable by an employer or former employer, irrespective of the location and time of signing or even if the employee’s role was maintained outside California. The new provision empowers employees, ex-employees, or potential hires to seek a private action for injunctive relief, damages, or both. Moreover, a prevailing employee or potential employee is also entitled to attorney’s fees and costs.

3. Implication for Current Agreements: Employers in California who currently employ non-competition agreements should assess and possibly modify or annul these agreements before January 1, 2024. Historically, there were no monetary repercussions for California employers maintaining unenforceable non-compete agreements. If contested, courts would simply deem such agreements void. The landscape has now changed. Employees, including prospective ones, have a monetary incentive (in addition to the plaintiff’s attorneys who are now entitle to fees if they prevail) to contest any contract that infringes on section 16600. Successful litigants can now claim damages, injunctive relief, attorney’s fees, and costs. Employers found in breach of section 16600 might also face a PAGA representative action, potentially incurring penalties across their entire workforce.

4. Scope Beyond California: Interestingly, AB 699 isn’t confined to only California employers. The law’s intent is to deter employers, even those never based in California or those without California employees, from enforcing a non-competition agreement against someone hired by a Californian employer. The rationale is that California aims to protect its employers’ freedom to employ anyone, regardless of their state of residence, to foster a competitive business environment. Nonetheless, non-Californian employers are expected to challenge this scope of the new law, especially if they’ve entered valid non-competition agreements with residents from other states and those agreements are legally binding under the other states’ laws. Legal challenges based on constitutional grounds are anticipated.

5. Potential Liability for Non-Solicitation Agreements: Employee non-solicitation clauses may be at risk as well if they are overly restrictive, thereby impinging on the employee’s freedom to work. In Loral Corp. v. Moyes (1985), the Sixth District Court of Appeal ruled that the agreement at issue was more of a “noninterference agreement” between the employer and former employee and upheld the employer’s non-solicitation provision. The ruling upheld an agreement that prevented the former employee from soliciting employees from the employer, and even though the agreement did not have a time limitation, the court interpreted the agreement to apply a one-year limit. However, in AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. (2018) a different court of appeal held that an employee non-solicitation provision could be deemed an illegal restraint on trade. Consequently, employers employing such non-solicitation provisions could face increased liability under AB 699 if these clauses violate the Business and Professions Code.

To sum up, SB 699 heralds a new chapter in the landscape of employment agreements, and employers should be proactive in understanding and adapting to these changes.

Employee terminations and resignations must be planned for in advance to avoid common pitfalls for California employers.  This Friday’s Five focuses on critical management and legal considerations during the separation process to minimize potential liability:

1. Documenting the reason for termination

What is the reason for termination? Is there a company policy that was violated? [Note: Is the company policy in writing?  Has it been distributed to the employee?  Is there a signed acknowledgement of the policy in the employee’s file?]  Who was involved in termination decision? Review documentation for termination if “for cause” and ensure this documentation is maintained in the employee’s personnel file.

2. Final pay and accounting

Employers need to prepare the employee’s final paycheck and ensure that any unused accrued vacation time is also included.

Final wages must be paid within certain time limits, including the following:

  1. An employee who is discharged must be paid all of his or her wages, including accrued vacation, immediately at the time of termination.
  2. An employee who gives at least 72 hours prior notice of quitting, and quits on the day given in the notice, must be paid all earned wages, including accrued vacation, at the time of quitting.
  3. An employee who quits without giving 72 hours prior notice must be paid all wages, including accrued vacation, within 72 hours of quitting.
  4. An employee who quits without giving 72-hours’ notice can request their final wage payment be mailed to them. The date of mailing is considered the date of payment for purposes of the requirement to provide payment within 72 hours of the notice of quitting.
  5. Final wage payments for employees who are terminated (or laid off) must be made at the place of termination. For employees who quit without giving 72 hours’ notice and do not request their final wages be mailed to them, is at the office of the employer within the county in which the work was performed.

Employers should also review if commissions, bonuses, or expense reimbursement owed to employee.  Obtain all expense reimbursement forms form employee.

Employers with multiple locations need to ensure that the final wages are made available.  The place of the final wage payment for employees who are terminated (or laid off) is the place of termination. The place of final wage payment for employees who quit without giving 72 hours prior notice, and who do not request that their final wages be mailed to them at a designated address, is at the office of the employer within the county in which the work was performed. Labor Code Section 208.

3. Company property and passwords

Obtain all company property from employee and reset passwords.  Also, has employee returned all company provided uniforms?  Have all company keys been returned?  The company should also develop a list of all passwords employee had access to and ensure the passwords are reset.

4. Final notices

Employers need to ensure that all required notices are provided to the employee.  For example, common notices include:

  • Notice to Employee as to Change in Relationship
  • For your Benefit (Form 2320)
  • COBRA and Cal-COBRA Notices from insurance provider
  • Notify insurance provider
  • Health Insurance Premium (HIPP) Notice

5. Retention of employee files

Employers need to take measures to secure and save employee’s file, wage, and time records.  In this regard, employers need to develop policies for the following issues:

  • What is kept in a personnel file?
  • Where is the personnel file maintained? Is it physical or electronic?  Who has access to personnel files?  If stored electronically, are the safety protocols that prevent deletion?  Are the files backed up?
  • How are time records kept? Physical or electronic?  Who has access to them?  How long are they stored for?
  • Retention of pay records: How long are pay records maintained? How easily can this data be pulled for California’s pay data reporting requirements? 

In my experience as a litigator in California, I’ve found the following five issues to be the most effective way to reduce employment-related lawsuits:

1. Owner/president/CEO is present and available.

One of the single most effective factors in reducing employment lawsuits is if the company’s leader is present at the workplace and is available to speak with employees. Generally, this creates an atmosphere in which employees feel empowered to raise issues before they become a concern.

2. HR understands compliance and takes action.

I’ve said it many times before on this blog, HR needs to be way more than processing new employees and remembering employee’s birthdays. The HR function in a company is critical in reducing liability, and sets the culture for the company. Being compliant and taking action to investigate and correct any issues is a critical to preventing many lawsuits.

3. Managers are trained and understand when to involve upper management.

A well-trained front-line management team that knows when to involve the c-suite in any potential problems will also greatly reduce liability.

4. Culture of compliance.

Company must do the following:

  • maintain complainant and up-to-date policies
  • keep current on regular mandatory trainings (such as sexual harassment prevention training)
  • train front-line managers about wage and hour issues, when it is necessary to accommodate employees, and how to properly hiring employees (meaning how to legally and effectively conduct an interview).

5. Manager and upper management must have a culture of serving the employees.

Simply put: Don’t let your managers act like Steve Jobs. Unless your start-up has a huge backer and litigation budgets are not a concern, being a demanding manager that only says what is exactly on your mind when it comes into your mind may get good results, but it will also invite litigation. Don’t get me wrong, there is nothing illegal about being a demanding manager at work, but a lot of people probably don’t understand that. Also, over 20 states have proposed legislation to make bullying in the workplace illegal, but none of these attempts have become law – yet. Plus, even if the employee understands it is not illegal behavior, it creates an environment where the employee wants to get even with a manager or founder for how they were treated. This leads them to talk to a lawyer, which may lead to a lawsuit based on some other ground. Even if a lawsuit filed against a company is frivolous, it will take time and money away from what the company is supposed to be doing.

Are there are any “predictive scheduling” requirements under California law?  Can California employers change schedules for employees without notice?  These are some of the questions I’ve dealt with lately about scheduling requirements in California.  This Friday’s Five reviews five issues California employers should understand about regulations pertaining to setting and changing schedules under California law:

1. There are no predictive scheduling requirements statewide in California

While not a requirement across California, other states and local cities within California have passed scheduling mandates that require employers to set schedules for employees well in advance, and if the employer changes the schedules within a certain time frame the employer must pay a penalty for the change.  See our prior post about Los Angeles’ Fair Work Week Ordinance that requires predictive scheduling for certain retail employers in the City of Los Angeles

There has been proposed legislation on a state-wide basis for predictive scheduling, but as of 2023, none of these bills have passed.  For example, in 2016, California’s legislature drafted SB 878 that proposed to require retail establishments, grocery stores, and restaurants to set employees schedules 28 days in advance, and impose penalties on the employer if the schedule is modified by the employer.  This law, and others proposed since 2016 have not become law.  Nearly every year the California legislature debates some type of predictive scheduling requirement.  With that said, California law still sets certain limits regarding scheduling employees as explained below.

2. Reporting time pay

California law requires an employer to pay “reporting time pay” under the applicable Wage Order.  This requires that when an employee is required to report for work and does report, but is not put to work or is furnished less than half said employee’s usual or scheduled day’s work, the employee shall be paid for half the usual or scheduled day’s work, but in no event for less than two (2) hours nor more than four (4) hours, at the employee’s regular rate of pay, which cannot not be less than the minimum wage.

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

Employers must remember, when an employee is scheduled to work, the minimum two-hour pay requirement applies only if the employee is furnished work for less than half the scheduled time.

3. Reporting time pay: meetings and calls into work

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

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

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.  Given these facts, the court agreed with the employee, and held that requiring employees to call into work two hours prior to their scheduled shift to see if they were needed at work trigger reporting time pay.

4. Split Shifts

A split shift is defined in the California IWC Wage Orders as:

…a work schedule, which is interrupted by non-paid non-working periods established by the employer, other than bona fide rest or meal periods.

See Cal. Code Regs., tit. 8, § 11040, subd. 2(Q). If the employee works two shifts separated by more than a rest or meal period, they are entitled to receive one hour’s of pay at state minimum wage, or the local minimum wage if it is higher, in addition to the minimum wage for that work day. See Cal. Code Regs., tit. 8, §11040, subd. 4(C). Any additional amounts over minimum wage paid to the employee can be used to offset the split shift pay due to an employee. For example, say an employee earns $10 per hour. She works 10:00 a.m. to 1:00 p.m., and then again from 3:00 p.m. to 8:00 p.m. This is a total of eight hours worked for the day, and she is entitled to a split shift payment of one hour of pay at the minimum wage rate.  Assume, for this example, that the applicable minimum wage is $8 per hour.  Therefore, because the employee earned $16 over minimum wage ($2 above minimum wage x 8 hours = $16) for the eight hours of work, this amount can be used to offset the amount owed for the split shift pay. As a result, there is nothing owed to the employee in this example. 

5. On-Call Pay

If the employee is under the control of the employer, even if the employees are traveling to a work site or even sleeping, the employer may have to pay them for being on-call.  For example, the California Supreme Court held that security guards who were required to reside in a trailer provided by the employer at construction worksites would still need to be paid for the time they slept while on-call.  In that case, during weekdays the guards were on patrol for eight hours, on call for eight hours, and off duty for eight hours.  On weekends, the guards were on patrol for 16 hours and on call for eight hours.  The Court held that the employer was not permitted to exclude the time guards spent sleeping from the compensable hours worked in 24-hour shifts.  See Mendiola v. CPS Security Solutions, Inc.

Likewise, in Morillion v. Royal Packing Co., the California Supreme Court held that, “we conclude the time agricultural employees are required to spend traveling on their employer’s buses is compensable under Wage Order No. 14-80 because they are ‘subject to the control of an employer’ and do not also have to be ‘suffered or permitted to work’ during this travel period.”  Generally, travel time is considered compensable work hours where the employer requires its employees to meet at a designated place and use the employer’s designated transportation to and from the work site.

California’s Department of Finance provided a letter to Governor Newsom as required under Labor Code section 1182.12 to reflect the adjustment in the state minimum wage each year.  The Department announced that California’s minimum wage will increase by 3.5% to $16.00 per hour for all employers as of January 1, 2024. This Friday’s five reviews how the increase impacts California’s employers:

1. White Collar Exemptions – Salary Requirement Tied to State Minimum Wage

California’s employment laws classify employees into two main categories: exempt employees and nonexempt employees. Federal and state laws exempt certain employees from wage and hour requirements. An exempt employee is an individual who is exempt from any overtime pay or minimum wage requirements. The “white collar” exemptions are: Professional, Executive and Administrative. To qualify as an exempt employee, the employer bears the burden to meet the requirements of a two-part test the employees must meet to be exempt: (1) the salary basis test and (2) the duties test. The salary basis test requires that the employee must be paid a salary that is at least two times the state minimum wage, which will increase as California’s minimum wage increases.

With the increase to the California minimum wage on January 1, 2024, the minimum annual salary to meet the white-collar exemption increases to $66,560 per year, and $5,546.67 per month (increasing from $64,480 per year in 2023).  For more information on exempt employee classifications, see our prior article here.

2. Computer Professional Exemption Salary Requirement Increases in 2024

Labor Code section 515.5 sets forth that certain computer software employees are exempt from overtime requirements under the Labor Code. One aspect to meet this exemption is a minimum salary.  For 2023, California’s Department of Industrial Relations adjusted the computer software employee’s minimum hourly rate of pay exemption from $50.00 to $53.80, the minimum monthly salary exemption from $8,679.16 to $9,338.78, and the minimum annual salary exemption from $104,149.81 to $112,065.20 effective January 1, 2023.  The DIR will be announcing the increase for computer professionals in October 2023. 

3. Local Minimum Wage Ordinances

There are over 35 local minimum wage ordinances throughout California.  Employers are required to comply with the higher of the state or local minimum wage that applies to them.  Many of the local minimum wage rates increase on July 1 of each year, but there still are some that have a January 1 increase date.  Employers must carefully review all applicable local minimum wage (and paid sick leave) requirements.

4. Industry Specific Minimum Wages

  • Hotel Workers:

In addition to state and local minimum wage rate, some localities also have industry specific rates. The employers should always check their local ordinances that might apply to their workforce/industry. There are some cities that apply specific rates for hotel workers. For example, the City of Long Beach and the City of West Hollywood have adopted ordinances requiring a higher minimum wage for these workers.

  • FAST Act – Fast Food Workers:

As we have written about on this blog, on September 5, 2022, California Governor Gavin Newsom signed into law AB 257, termed the Fast Food Accountability and Standards Recovery Act or FAST Recovery Act.  The law proposes to establish a Fast Food Sector Council to regulate California’s fast food restaurants and set the minimum wage rate, among other workplace regulations, for the fast food industry. However, the law has been challenged and a coalition, the Save Local Restaurants Coalition, submitted over one million signatures on December 5, 2022, in opposition to the FAST Act and now the bill will be on the November 2024 ballot as a referendum for California voters to decide the fate of the law.

5. Planning For Minimum Wage Increases

As employers start to prepare for 2024, some best practices for ensuring compliance with all minimum wage requirements include:

  • Review all exempt employee classifications and specifically list which exemption they qualify for and ensure they are paid the statutorily required salary.
  • Develop a chart listing all nonexempt employees by location and ensure compliance with the location where the employee is working.
  • Audit your payroll processing company to ensure they are updating the minimum wage and salary payments to employees. Do not rely on your payroll company to know or understand the minimum wage requirements here in California.

Finally, there is an initiative that qualified for the November 2024 ballot that would increase California’s minimum wage to $18 per hour and then increase each year based on the cost of living.  Employers will need to continue to monitor this initiative in 2024.