Wage & Hour Counsel : Wage & Hour Lawyer & Attorney : Littler Mendelson Law Firm : Employment Law, Labor Relations

By Bill Allen

Relying on the U.S. Supreme Court’s recent decision in Comcast Corp. v. Behrend, the U.S. District Court for the Central District of California denied Rule 23 class certification of California state law claims for off-the-clock work and unpaid work time during meal periods in Forrand v. Federal Express Corp.*

First, the plaintiff alleged that she and other hourly employees were not paid for work performed during the time between their clock-in times and their scheduled start times. The district court had previously denied class certification on this claim, but in 2010 the Ninth Circuit reversed and remanded that decision to “determine whether the level of FedEx’s control over employees within the proposed general class when they are on-the-clock but off-shift” was sufficient to render that time compensable under California law. On remand, the district court noted that Comcast requires a plaintiff “to bring forth a measurement method that can be applied classwide and that ties the plaintiff’s legal theory to the impact of the defendant’s illegal conduct.” The court found that the plaintiff’s proposed damages methodology, which assumed the entire gap between clock-in and the start of paid time was compensable, could be applied classwide, but failed “to tie California law to liability and a reliable measure of damages.” The court found that the plaintiff’s proposed class claim raised factual questions regarding whether each individual employee was in fact working and/or under the employer’s control during the gap period, and therefore individual factual inquiries predominated over classwide inquiries.

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In Gonzales v. Downtown LA Motors, LP, a California Court of Appeal dealt another blow to employers this month when it held automobile mechanics, who earned at least minimum wage for every hour worked, were entitled to separate hourly compensation for any time not spent performing auto repairs. The attorneys for Downtown LA Motors argued it "can't be right" to find that employers who guarantee their employees the minimum wage for every hour worked somehow failed to satisfy their minimum wage obligation. The appellate court disagreed, awarding the class in excess of $1.5M. To learn more about the decision, please see Littler's ASAP, "That Can't Be Right!" California Appellate Court Rules that Piece Rate Workers Are Entitled to Separate Hourly Compensation, by Richard Rahm, Julie Dunne, and Michelle Heverly.

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By Jennifer Ciralsky and Sophia Behnia

In Wang v. Chinese Daily News, Inc., on remand from the U.S. Supreme Court, the Ninth Circuit Court of Appeals applied the Supreme Court’s decision in Dukes v. Wal-Mart to reverse and remand a federal district court decision certifying a California state wage law class action. Like Dukes, Wang has had a somewhat protracted history. Following certification as an FLSA collective action, and prior to the Supreme Court’s decision in Dukes, the district court certified the plaintiffs’ state wage law claims as a class action under Rule 23(b)(2) of the Federal Rules of Civil Procedure (FRCP) or, in the alternative, under Rule 23(b)(3). Following a 16-day jury trial, the plaintiffs were awarded over $2.5 million. The company appealed and the Ninth Circuit affirmed. On appeal to the U.S. Supreme Court post-Dukes, the Court vacated the Ninth Circuit decision and remanded for reconsideration in light of its decision in Dukes.

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At this month's general election, 59 percent of the voters in the City of San Jose, California approved an initiative measure to institute a $10 per hour minimum wage for covered employers and employees. The ordinance will take effect in early 2013, raising San Jose's minimum wage to two dollars an hour more than California's minimum wage. To learn more about the San Jose minimum wage ordinance, please see Littler's ASAP, Do You Know the Way to Pay in San Jose? San Jose Becomes the Fifth – and Largest – U.S. City to Enact Its Own Minimum Wage Ordinance, by Christopher Cobey and Karin Cogbill.

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By Stacey E. James

Effective January 1, 2013, California’s new Labor Code section 2751 requires employers to provide written commission plan agreements to all employees who perform services in California and whose compensation involves commissions. The agreement must explain the method by which the commissions shall be computed and paid. The commission plan must also be signed by the employer and the employer must obtain a signed receipt from each employee.

The new law incorporates the definition of commissions from California Labor Code section 204.1, which defines commission wages as “compensation paid to any person for services rendered in the sale of such employer’s property or services and based proportionately upon the amount or value thereof.” Types of payments that are specifically excluded from this definition include:

• Short-term productivity bonuses such as are paid to retail clerks;
• Temporary, variable incentive payments that increase, but do not decrease, payments under the written commission contract; and
• Bonus and profit-sharing plans, unless there has been an offer by the employer to pay a fixed percentage of sales or profits as compensation for work to be performed.

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California Labor Code sections 515.5 and 515.6 provide that certain computer software employees, as well as licensed physicians and surgeons, are exempt from state overtime requirements if they receive a minimum hourly, monthly, or yearly rate. The rate is determined annually based upon changes to the California Consumer Price Index for Urban Wage Earners and Clerical Workers. Because the Index experienced a 2.6% increase from August 2011 to August 2012, the California Division of Labor Standards Enforcement (DLSE) adjusted the rates these individuals must be paid to be considered overtime-exempt.

Computer Software

Effective January 1, 2013, the DLSE announced a $1.01 increase in the hourly rate for computer professionals, from $38.89 to $39.90 per hour. The monthly rate increases $175.56, from $6,752.19 to $6,927.75 per month. Finally, the annual salary increases $2,106.68, from $81,026.25 to $83,132.93 per year.

Licensed Physicians or Surgeons

Effective January 1, 2012, DLSE announced a $1.84 increase in the hourly rate for licensed physicians and surgeons, from $70.86 to $72.70 per hour.

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By Laura Hayward

In See’s Candy Shops, Inc. v. Superior Court, the California Court of Appeal for the Fourth Appellate District explicitly held that in California employers are entitled to use a timekeeping policy that rounds employee punch in/out times to the nearest one-tenth of an hour (a “nearest-tenth rounding policy”) if the rounding policy is “fair and neutral on its face” and “is used in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.” The court adopted the standard used by both the United States Department of Labor and the California Division of Labor Standards Enforcement, bringing “sweet” news to employers who use rounding policies.

The very existence of these policies had been called into question by the trial court in this case when it granted summary adjudication to the plaintiffs on several of See’s key affirmative defenses in a certified wage and hour class action challenging See’s timekeeping policy. Two of these defenses encompassed See’s claims that: (1) its nearest-tenth rounding policy was consistent with state and federal laws permitting employers to use rounding to compute and pay wages and overtime; and (2) that its rounding policy did not deny the plaintiff or class members full and accurate compensation. In response to the trial court decision, See’s filed a writ of mandate petition challenging the court’s decision on these two defenses, which was summarily denied by the appellate court. 

Undeterred, See’s filed a petition for review with the California Supreme Court, which granted the petition and ordered the appellate court to vacate its prior order and issue an order to show cause in the matter. After extensive further briefing of the issues by both parties, and the filing of several briefs by amici curiae, See’s got its just desserts when the appellate court ordered the trial court to vacate its decision and enter a new order denying summary adjudication to the plaintiffs as to See’s affirmative defenses. Of course, while the ruling leaves open the issue of whether See’s will ultimately prevail in proving its rounding policy is fair and neutral, it does spare rounding policies from what could have been a death knell.

To learn more about the decision, please see Littler's ASAP, Sweet News on Rounding for California Employers: See's Candy Shops, Inc. v. Superior Court, by Laura Hayward.

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By Brian Dixon

The favorable outcome for some employers in Arechiga v. Dolores Press, 192 Cal. App. 4th 567 (2011), which we previously discussed, has been undone by the California Legislature. In Arechiga, a California Court of Appeal ruled that a non-exempt employee’s salary could provide compensation for more than 40 hours of work in a week. This result, however fortuitous for employers, was difficult to reconcile with section 515(d) of the California Labor Code, which stated in fairly specific terms that the hourly rate of a salary-paid, non-exempt employee was the salary divided by 40. Whatever latitude there may have been for the conclusion reached by the court in Arechiga under the statute has been banished by Governor Brown’s signing Assembly Bill  2103 into law on September 30, 2012. That bill adds section 515(d)(2) and slightly revises section 515(d)(1) of the Labor Code with the stated intent to overrule Arechiga. Section 515(d)(2) now states that “Payment of a fixed salary to a nonexempt employee shall be deemed to provide compensation only for the employee’s regular, non-overtime hours, notwithstanding any private agreement to the employer.” For the typical non-exempt employee, section 515(d)(2) will mean that any salary will not extend beyond providing compensation for five, eight-hour days per week. The amendments to the Labor Code will take effect January 1, 2013. 

Photo credit: Asilvero

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The California Legislature was active this past session. As a result, numerous wage and hour laws have been enacted that will take effect January 1, 2013. Highlights include:

• Revised provisions concerning penalties for wage statement violations.
• Increasing the amount of wages that are exempt from wage garnishment.
• Specifying that fixed salaries paid to non-exempt employees only provide for an employee’s regular, non-overtime hours, regardless of the parties’ agreement.
• Additional wage statement and Wage Theft Prevention Act notice requirements for temporary services employers.

To learn more about these and other new California laws, please see Littler’s ASAP, What's New? California's Major 2012 Employment Laws Affecting Private Sector Employers, by Christopher Cobey and Tomomi Glover.

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By Richard Rahm and Angela Rafoth

In a significant victory for trucking companies operating in California, a superior court judge decertified a class of California truck drivers who challenged the legality of compensating drivers on a “combined” piece rate that covers both driving and non-driving duties, when compensation for the “piece” is based generally on the number of miles driven. The decertification order in Carson v. Knight Transportation is particularly significant not only because it is the first state-court order addressing the legality of a combined piece rate, but also because three federal courts in the Northern and Central Districts of California concluded that such a combined piece rate runs afoul of California’s law prohibiting the “averaging” of hours worked.

The plaintiffs made two arguments against decertification, which were both rejected by the Superior Court. First, the plaintiffs argued that based on Cardenas v. McLain FoodServices, Inc., 796 F. Supp. 2d 1246 (C.D. Cal. 2011), a combined piece rate that covers both driving and non-driving activities is illegal. In its May 8, 2012 ruling, the Superior Court rejected the Cardenas decision, finding its reasoning “to be circular” because the district court simply assumed that a piece-rate contract that calculates compensation based on mileage does not cover non-driving work. Because the Superior Court found that such a combined piece rate was not “illegal on its face,” the Court held that Plaintiffs’ claims were essentially contractual.

Second, the plaintiffs argued that even if the claims were contractual, the terms of the contract were ambiguous and therefore there was no contract providing that the piece rate covered non-driving work. Thus, the plaintiffs claimed, they were owed payment for non-driving work. In its ruling on August 30, 2012, the Superior Court found the argument illogical. If there was a lack of mutual agreement, then there would be “no contract at all,” and if there was no contract at all, the plaintiffs could not have a contractual claim. Thus, their only claim could be that they were paid less than minimum wage. But, the court stated, “[t]here is no way to determine whether any driver was not paid at least minimum wage without an individual inquiry into each trip and/or day.” Accordingly, The Superior Court found the case inappropriate for class action treatment and decertified the class.

To learn more about the decision, please see Littler's ASAP, California Court Validates Piece-Rate Pay for Drivers, by Richard Rahm and Angela Rafoth.

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By Mhairi Whitton

In a consolidated decision in three actions against Bayer Corporation, Wyeth Pharmaceuticals, and Roche Laboratories, the Ninth Circuit Court of Appeals affirmed summary judgment for the pharmaceutical companies, holding that their pharmaceutical sales representatives (PSRs) were properly classified as administratively exempt under California law.

Specifically, the court found that:

• The employees’ duties involved “the performance of . . . non-manual work directly related to management policies or general business operations” of their employers, in that they were involved in representing their respective employers and “promoting sales of prescription drugs within their assigned territories.”
• In terms of the so-called “administrative/production worker dichotomy,” the court found that the sales representatives were not involved in developing or manufacturing pharmaceuticals and therefore fell squarely on the administrative side of the dichotomy.
• The duties they performed, which included improving market share and generating a large amount of business for the company, were of “substantial importance to the management or operations of the business.” The court found it “not determinative” that the PSRs did not participate in the formulation of their employers’ sales and promotional policies at the corporate level.
• he PSRs “customarily and regularly” exercised “discretion and independent judgment,” in applying their training, customizing their messages based on their knowledge of individual physicians, and distinguishing their products from those of their competitors.
• The sales representatives performed their functions under only general supervision, controlling how they spent their time, and the work they did required specialized sales training.

As the plaintiffs did not contest the fact that they earned more than twice the California minimum wage, the Ninth Circuit concluded that they satisfied each aspect of the administrative exemption.

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By Karin M. Cogbill

In a much anticipated decision, a federal judge in California's Southern District ruled last week that CVS Pharmacy was not required to provide its cashiers with seats to use while operating cash registers. The plaintiff is a former customer service representative (“clerk/cashier”) at CVS who filed a lawsuit on behalf of all California customer service representatives alleging that CVS violated Wage Order 7–2001, section 14(A) when it failed to provide its clerks/cashiers with suitable seats during the performance of their job duties. Section 14 of Wage Order 7–2001 provides:

1. All working employees shall be provided with suitable seats when the nature of the work reasonably permits the use of seats.
2. When employees are not engaged in the active duties of their employment and the nature of the work requires standing an adequate number of suitable seats shall be placed in reasonable proximity to the work area and employees shall be permitted to use such seats when it does not interfere with the performance of their duties.

In ruling on the motion for summary judgment, the court first considered the interplay between subsections A and B, and ultimately held that the two subsections were mutually exclusive. In doing so, the court rejected the plaintiff's argument that the phrase “nature of the work” refers to any particular duty that an employee performs during the course of her work. Instead, the court agreed with the defendant that the “nature of the work” performed by an employee must be considered in light of that individual’s entire range of assigned duties in order to determine whether the work permits the use of the seats or requires standing. It is not enough to simply look at certain tasks in isolation to determine whether those tasks could be performed while seated, the court held. Instead, the court's inquiry was whether or not the job as a whole permitted the use of a seat or required standing. The court held that if the nature of the work requires standing, subsection B applies.

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Last week, in Cash v. Winn, a California Court of Appeal flatly rejected an exception to the personal attendant exemption from overtime for individuals who provide in-home “health care services.” Under California Industrial Welfare Commission Wage Order No. 15-2001 (“Wage Order”). individuals employed as “personal attendants,” defined to mean employees who “supervise, feed, or dress” the client, are exempt from overtime pay requirements. However, if the caretaker performs a “significant amount of work” in addition to these tasks, the caretaker is not exempt from overtime pay requirements. In addition, with certain exceptions, if the caretaker is a registered nurse employed to engage in the practice of nursing in the home, the nurse is not exempt from overtime pay requirements.

The issue the court addressed in Winn was whether there exists an additional exception to the personal attendant exemption rule if a caretaker, who is not a licensed nurse, performs any form of health care related services for an elderly client. After conducting a thorough analysis of the relevant case law and statutory authority, the Fourth District Court of Appeal concluded that such an exception was inconsistent with the spirit and letter of the Wage Order. To learn more about the decision and its potential implications for employers please continue reading at Littler’s Healthcare Employment Counsel.

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By Julie Dunne and Alison Hightower

The California Supreme Court’s much-anticipated decision regarding how employers are supposed to manage meal periods and rest breaks is finally here! The unanimous decision in Brinker Restaurant Corporation v. Superior Court was issued today, and it is largely a win for California employers. Littler will sponsor webinars providing a detailed analysis of the decision on April 17, 2012, from 10 to 11 a.m. PST, and on April 26 from 10 to 11 a.m. PST. In the meantime, here are the highlights.

Duty to Relieve Employees of Duty

The California Supreme Court held that an employer must relieve employees of all duty during their meal period, with the employee thereafter at liberty to use the meal period for his or her own purpose. Importantly, the court rejected the plaintiffs' argument that the California Wage Order requires employers to ensure that no work is done during an employee’s meal period. If an employee continues to work after the employer relinquishes control, the employer will be liable for straight pay only when it knew or reasonably should have known that the worker was working through the authorized meal period. The court thus clarified that premium pay (an extra one hour’s wage) is not owed when the employer relinquishes control and the employee nevertheless continues to work.

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In Duran v. U.S. Bank National Association, the California Court of Appeal, First Appellate District, overturned a $15 million judgment against U.S. Bank ("USB") entered in a case tried before Alameda County Superior Court Judge Robert Freedman. In its lengthy and very detailed opinion, the court shredded all the major trial management and evidentiary rulings made by the trial court, holding that its use of flawed statistical evidence and refusal to admit relevant testimony in support of USB's defense of exempt status denied USB its right to due process. In the first California appellate decision to apply the U.S. Supreme Court's 2011 Wal-Mart Stores v. Dukes decision, the court determined that the trial management plan was a fatally flawed exercise in "Trial by Formula." As a final repudiation of the trial court's rulings, the Duran court also ruled that the class should be decertified. To learn more about the decision and its potential implications for employers, please continue reading Littler's ASAP, "Trial by Formula" Rejected and $15M Overtime Judgment Overturned, by Diane Kimberlin.

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By Diane Kimberlin

On January 24, 2012, the California Court of Appeal, Fourth Appellate District, issued an important decision providing new and needed guidance on the commissioned sales exemption. In Muldrow v. Surrex Solutions Corporation, the court concluded that a class of “senior consulting service managers” was exempt from overtime pay requirements.

Although California courts require an employee be “involved principally” in “selling” in order to qualify for the commissioned sales exemption, there has been very little guidance on the meaning of this requirement. Muldrow supplies that guidance. It also addresses another previously unanswered question: must a commission be based solely on the price of goods or services sold, or may it include other factors? 

The plaintiffs were employed by Surrex to locate candidates to fill job orders placed with Surrex by its client companies. They used an internal database, made cold calls, and used other resources to find suitable candidates. They worked to convince the candidate that the job was desirable and convince the client company that the candidate was a good fit for the job. The plaintiffs were required to “nail down” the client’s rate, the candidate’s rate and to make sure that deals held together. Surrex was paid only when a placement was complete.

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By Mary Walsh

In a matter of significance for California employers, in See’s Candy Shops, Inc. v. Superior Court of San Diego, the California Supreme Court recently ordered the California Court of Appeal, Fourth Appellate District, to review a trial court decision holding that rounding employee time entries violated California law.

Last year, in an unprecedented ruling, the San Diego Superior Court held that See’s Candy Shops, Inc. (“See’s") violated California law by rounding employee time entries to the nearest six minutes. The court granted the plaintiff’s motion for summary adjudication on two of See’s rounding affirmative defenses, finding them at odds with sections of the California Labor Code dealing with the timing of wage payments.

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By James Oh, Andrew Voss and Tracy Stott Pyles

After a trial to the court in September 2011, the United States District Court for the Southern District of Ohio entered judgment on January 5, 2012 in favor of Defendant Nationwide Mutual Insurance Company, on all claims alleged against it by a nationwide class of Special Investigators who claimed they were misclassified as exempt from the overtime requirements of the FLSA and New York and California state wage laws.

The case was initially filed in September 2007 in federal court in California, and venue was transferred to the Southern District of Ohio, where Nationwide is headquartered. Notice to opt-in was issued nationwide to current and former Special Investigators, and ninety-one joined the action.

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By William Hays Weissman

In Arnold v. Mutual of Omaha Insurance Company, a California appellate court issued a published decision holding that insurance agents are not employees under the California Labor Code. This appears to be the first time the court has addressed the status of insurance agents.

The plaintiff filed a putative class action asserting that she was misclassified as an independent contractor and therefore denied reimbursement of business related expenses under Labor Code section 2802, and was not paid all wages in a timely fashion. She also asserted that failure to pay business expenses constituted an unfair business practice.

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By Alison S. Hightower

In a long-awaited decision, the California Supreme Court unanimously gave California employers a holiday present in an opinion that follows the majority of federal courts in finding that insurance claims adjusters are exempt administrative employees.

At issue in Harris v. Superior Court was the exempt status of a certified class of Liberty Mutual insurance claims adjusters who the California Court of Appeal found did not satisfy the requirements of the administrative exemption as a matter of law. Under California law exempt administrative employees must receive a minimum compensation of not less than two times the minimum wage, and also (1) perform office or non-manual work “directly related to management policies or general business operations of his/her employer or his/her employer’s customers,” and (2) “customarily and regularly exercise discretion and independent judgment.”

The administrative exemption has been one of the most hotly-contested and litigated of California’s overtime exemptions. This decision provides more clarity on the application of the exemption, and the role of the “administrative/production worker dichotomy” as an analytical tool in assessing exempt status.

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UPDATE: On the morning of January 3, 2012, the Labor Commissioner changed the FAQs on this notice requirement to clarify that the notice does not need to be given to current employees except under certain circumstances. The Labor Commissioner did so by simply deleting the following sentence formerly in the answer to FAQ 2: “The notice should be given to all current employees and then to all new employees at the time of hire.”

By Christopher Cobey

The California Labor Commissioner posted its template wage notice form required by Labor Code section 2810.5 of the California Wage Theft Protection Act (WTPA), and accompanying FAQs. Beginning January 1, 2012, the form must be provided to certain newly hired employees, and at least certain current employees whose specified employment information changes on or after January 1. The Labor Commissioner’s FAQ 2 takes the position that the notice must be provided to "all current [covered] employees," although section 2810.5’s language does not explicitly require such notice.

The form requires more information than is specified in section 2810.5. The new law authorizes the Labor Commissioner to include “any other information the Labor Commissioner deems material and necessary,” so employers should complete all information included on the form.

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By Brian Dixon

In Aleman v. Airtouch Cellular, a California Court of Appeal ruled on December 21, 2011 that one class representative was not entitled to additional reporting pay or split shift premiums and a second class representative could not pursue such claims because she had signed a release in exchange for enhanced severance compensation. The court did, however, reverse the award of attorneys’ fees to the employer.

The first class representative was scheduled for store meetings which occurred once or twice a month before the store opened. The meetings were scheduled at least four days in advance and were scheduled to be an hour to an hour-and-a-half in length. The class representative always worked for at least one half of the meeting time.

The first class representative sought reporting time pay under the provision of the California Wage Orders that states: “Every work day 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 shall not be less than the minimum wage.”

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By Jim Hart

On December 13, 2011, the Ninth Circuit Court of Appeals reconsidered the case, Sullivan v. Oracle Corp., after the California Supreme Court had decided several certified questions of law. The Ninth Circuit had previously delayed ruling, and instead asked the California Supreme Court to decide three questions of California law, including whether a company with its principal place of business in California was required to pay out-of-state employees temporarily working in California according to California’s daily overtime rules. The California Supreme Court took up the issue, and according to the Ninth Circuit, “[t]he California Supreme Court agreed with the answers we had given in our original opinion to these three questions” – that Oracle was required to pay daily overtime to its instructors temporarily working in California. The Ninth Circuit took up the case again after the California Supreme Court’s ruling, and considered several constitutional arguments raised by Oracle. Oracle argued that applying California’s daily overtime rules to out-of-state employees temporarily in the state violates the Due Process Clause of the Fourteenth Amendment and the Dormant Commerce Clause of the United States Constitution. The Ninth Circuit rejected these arguments and remanded the case to the district court.
 

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By Karin Cogbill

In the first significant ruling of its kind, the Los Angeles Superior Court in Bright v. 99¢ Only Stores granted the defendant’s motion to strike the plaintiff’s representative Private Attorneys General Act (PAGA) allegations. The plaintiff, Eugina Bright, filed a complaint against 99¢ Only Stores in June 2009 alleging that the store failed to provide her, and all other cashiers, with suitable seating. In October 2009, the court granted the store’s demurrer prohibiting the plaintiff from pursing a suitable seating claim through PAGA (California Labor Code §§ 2698 et seq.). In November 2010, the court of appeal reversed and remanded the case.

Back at the trial court, the plaintiff represented that she intended to seek class certification for her PAGA claim; yet she ultimately failed to move for certification. Instead, the store proactively moved to strike the plaintiff’s representative allegations in order to prevent her from seeking to recover penalties on behalf of all other alleged “aggrieved” employees. The store first argued that the plaintiff was an inadequate representative of its other cashiers. The store submitted declarations from 376 of its cashiers, all of whom indicated they disagreed with the plaintiff’s demand that they be provided seats, and the plaintiff failed to provide even a single rebuttal declaration. The store also noted the plaintiff’s independent interests in recovering lost wages and her failure to reach out to even a single “aggrieved” employee she sought to represent.

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A federal district court in California recently issued a decision in Dilts v. Penske Logistics, LLC, holding that motor carriers that transport property are not subject to California’s meal and rest break laws because such laws are preempted by the Federal Aviation Administration Authorization Act. To learn more about the decision and its implications for employers, please continue reading Littler's ASAP, Federal District Court Holds Motor Carriers Are Not Subject to California's Meal and Rest Break Laws, by Michael Gregg.

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UPDATE: In an unusual move, the California Supreme Court accepted a post-argument brief concerning the “rolling 5” issue – whether meal periods must be provided for every 5 consecutive hours of work, e.g., in an 8-hour shift, if an employee takes a meal period after 3 hours, then works a further 5 hours after the meal period, must a second meal period be provided. Also, the brief addresses whether the court’s decision will apply prospectively or retroactively. If applied retroactively, the statute of limitations for meal period violations is 3 years, but challenges could also be filed under California’s unfair competition law, which has a 4-year statute of limitations.

By Alison Hightower

The long awaited oral argument in the seminal meal and rest break decision involving Brinker Restaurant finally occurred today. Before a packed courtroom, lawyers for a hopeful class of waiters and waitresses and the representatives of California employers battled it out before the seven justices of the California Supreme Court.

At issue are critical issues of interpretation that plague California businesses daily, and have sparked literally thousands of lawsuits, most brought as class actions seeking to recover the one hour “premium pay” owed for every missed meal or rest period.

• What does it mean to “provide” an uninterrupted 30 minute off-duty meal period—is it sufficient to make that meal period “available” to the employees and allow the employee to decide whether to take that time off, or must the employer “ensure” that the employee in fact did no work for 30 minutes?
• When must that meal period be taken to be legally compliant—could Brinker require employees to take that meal period within the first two hours of their shifts so they would be available to service customers during busy periods?
• “Must a meal period be provided every five hours? If an employee takes an early meal period after the second hour, would the employee be entitled to two meal periods in one eight-hour shift?”
• Must a rest period be offered within the first four hours of a shift, or could Brinker delay the rest period until after 4 hours had been worked?
• Must that rest period be offered before the meal period is made available?

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• Brinker Restaurant Corp. v. Superior Court">Share Link

Under the California Labor Code, certain computer software employees, as well as licensed physicians and surgeons, are exempt from state overtime requirements if they receive a minimum hourly, monthly or yearly rate. The rate is determined annually based upon changes to the California Consumer Price Index for Urban Wage Earners and Clerical Workers. Because the Index experienced a 2.5% increase over the past year, the California Division of Labor Standards Enforcement (DLSE) adjusted the rates these individuals must be paid to be considered overtime-exempt.

Computer Software Employee

Effective January 1, 2012, DLSE announced a 95-cent increase in the hourly rate for computer professionals, from $37.94 to $38.89 per hour. The monthly rate increases $164.69, from $6,587.50 to $6,752.19 per month. Finally, the annual salary increases $1,976.25, from $79,050 to $81,026.25 per year.

Licensed Physicians or Surgeons

Effective January 1, 2012, DLSE announced a $1.73 increase in the hourly rate for licensed physicians and surgeons, from $69.13 to $70.86 per hour.

Photo credits: arakonyunus and Inkastudio

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In 2011, for the first time since 2003, California's legislative process was controlled by a governor and a legislature of the same party. Yet the results at the end of this year's session were not as one-sided as some had predicted or expected. In the first year of his second administration as Governor of California, Jerry Brown stayed true to his promise to paddle on both sides of the canoe when deciding which of the 889 bills presented to him he would sign, and which he would veto. For California private sector employers, the results reflect the governor's methodology. To learn more about the bills signed into law this month by California's governor that affect all, or many, California private sector employers, please continue reading Littler's ASAP, Paddling on Each Side: How California Private Sector Employers Must Change Their Operations in 2012, by Christopher Cobey and Isela Pérez.

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By Bruce Sarchet, Dylan Wiseman, and Eric Ostrem

When an employee is sued by his or her employer for alleged wrongdoing related to the job, and the employee wins, does the employer have to pay the employee's attorney fees? In Nicholas Laboratories, LLC v. Chen,¹ published on October 12, 2011, a California Court of Appeal answered “no,” at least not under California Labor Code section 2802.

In that case, Nicholas Labs sued its own director of information technology, Christopher Chen, alleging that he engaged in a side-business that competed with the company, diverted business opportunities away from the company, stole certain computers and printers, and misused a company credit card, among other things.² Chen responded with a cross-complaint against his employer, arguing that the company should have to pay his legal bills if he wins the case. On the verge of trial, Nicholas Labs agreed to dismiss its claims against Chen as long as Chen agreed to let the judge, instead of a jury, decide his cross-complaint for attorneys’ fees.

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Three years after review was initially granted, on November 8, 2011, the California Supreme Court will hear oral arguments in Brinker Restaurant Corporation v. Superior Court and determine whether under California law an employer's obligation is to provide meal and rest periods, or to ensure that meal and rest breaks are actually taken.

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By Christopher Cobey

In September, Governor Brown signed a bill (A.B. 240) that will equalize the penalties available to employees and the defenses available to employers on certain employee wage claims, brought either in court or in the administrative system.

Under current California law, an employee who wishes to bring a claim alleging payment of less than the minimum wage has a choice of making that claim either in California Superior Court or in an administrative proceeding before the Labor Commissioner (the chief of the Division of Labor Standards Enforcement). A significant difference in the remedy available to a successful claimant between the court and the administrative agency is that a judge in a court proceeding could award the claimant liquidated damages equal to the amount of the wages unlawfully unpaid and the interest on that sum. The Labor Commissioner, however, had no authority to award liquidated damages as a remedy to a successful claimant.

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By Milton Castro

California Governor Edmund G. Brown recently signed Assembly Bill No. 587 (AB 587) into effect, one of two recent amendments to the California Labor Code. Before AB 587, volunteer workers were exempted from the Code’s requirement that all workers employed on public works projects be paid not less than the general prevailing rate of per diem wages, but only until January 1, 2012. AB 587 extends the exemption by five years, to January 1, 2017.

When the exemption was first introduced in 2004, proponents argued that a public works exemption for volunteers was needed due to the “importance of volunteers in building community support for local projects,” many of which included environmental projects such as restoration of streams and wetlands. AB 587’s proponents claim that the exemption has since proven successful and thus its extension is necessary to allow volunteers, many of whom are students, to continue participating in preservation activities on public lands.

Photo credit: Mangostock

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In Zelasko-Barrett v. Brayton Purcell, LLP, No. A130540 (Aug. 17, 2011), California's First District Court of Appeal affirmed the trial court's order granting summary judgment in favor of the employer, Brayton Purcell. The appellate court held that California's professional overtime exemption applied to the plaintiff during the period of time he was employed as a law clerk at Brayton Purcell and had not yet passed the California Bar Examination. To learn more about the decision and its implications for employers, please continue reading Littler's ASAP, California Court Finds Professional Overtime Exemption Applies to Law Clerks, by Alan Levins, Kurt Bockes and Rachelle Wills.

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By Ryan L. Eddings

A federal judge in California held this week that employers may lawfully deduct amounts owed by employees on their employer-guaranteed credit cards from the employees’ final pay. In Ward v. Costco Wholesale Corporation, a group of former employees claimed that Costco’s deduction of outstanding amounts owed by these former employees on their Costco-sponsored credit cards from the employees’ final paychecks violated the Fair Labor Standards Act and California minimum wage and overtime legal requirements.

Like many employers, Costco provided a guaranteed credit card program to some employees, guaranteeing the credit card to the issuer in the event of an employee’s default. Each employee signed an authorization permitting Costco to deduct an amount equal to the employee’s credit card then-outstanding balance from the employee’s final paycheck. Each terminating employee received a final paycheck that included pay for all hours worked during the final pay period, as well as accrued vacation and sick leave pay. Costco then deducted an amount equal to the outstanding balance of the employer-sponsored credit card from the employees’ final pay.

At trial, the group of former employees argued that only gross wages for hours worked could be considered in determining whether Costco satisfied its obligation to pay minimum and overtime wages. The court rejected this argument, holding that it could also consider the pay for non-work, such as accrued vacation and sick leave pay. Using this figure, the court concluded that none of the nineteen former employees “had an amount withheld high enough to invade minimum or overtime wages.” Accordingly, the court entered judgment in favor of Costco, holding that plaintiffs failed to prove a violation of the FLSA and California wage and hour laws.

Photo credit: Matthew John Hollinshead

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By Jim Hart

On June 30, 2011, the California Supreme Court in Sullivan v. Oracle Corporation (S170577) considered a claim by three nonresidents of California. The plaintiffs brought claims of unpaid overtime against Oracle, a Delaware corporation with its headquarters in California. The three plaintiffs traveled to California from Colorado and Arizona for periods of time ranging from several weeks to several months to instruct customers on Oracle products. The California Supreme Court issued rulings concerning the reach of California's overtime laws to employees temporarily working in the state:

• First, California's overtime laws were found to apply to the non-resident plaintiffs for the time they were temporarily working in California, particularly since Oracle was a California-based employer and the employees worked at least a full day in the state;
• Second, the court also found that the plaintiff's temporary work in California provided a basis to seek overtime compensation under California's unfair competition law; and
• Third, the court found making a decision in California to classify the plaintiffs and others as exempt did not, standing alone, justify applying California's unfair competition law to alleged violations that occurred outside the state.

For more information about the decision and its implications for employers, please continue reading Littler's ASAP, California Supreme Court Finds Out-of-State Employees Working in California Are Protected by California Overtime Laws.

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By Mary Walsh

In Campbell v. PricewaterhouseCoopers, LLP, the Ninth Circuit Court of Appeals held that unlicensed accountants in California were not ineligible, as a matter of law, from being exempt from overtime under either the professional or administrative exemptions.

Two former unlicensed accountants in a subdivision of PricewaterhouseCoopers (PwC) filed a class action lawsuit alleging that PwC violated California wage and hour laws by improperly classifying them as exempt from overtime. Plaintiffs claimed they performed predominately routine and menial work and that strict instructions, computer software, and a work review-system precluded them from exercising any significant degree of discretionary judgment or analytical thinking. PwC argued that plaintiffs performed work integral to PwC’s services and to the extent that they did not exercise discretion and independent judgment, they were failing to meet the firm’s expectations. Both parties filed motions for partial summary judgment on whether plaintiffs were exempt under the professional, executive, and administrative exemptions. The district court granted plaintiffs’ motion for partial summary judgment, finding that as a matter of law, PwC could not classify plaintiffs as exempt from overtime under the applicable IWC Wage Order on the grounds that: (1) unlicensed accountants categorically are ineligible for the professional exemption; and (2) PwC had not established an issue of triable fact on whether plaintiffs’ work was performed “under only general supervision,” an essential element of the administrative exemption.

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By Gregory Iskander

Making new law on what qualifies as a “commission” for purposes of the overtime exemption for salespeople, a California Court of Appeal upheld a pay plan that compensates sales employees at a fixed rate for each product sold as opposed to relying on a percentage of the sales price.

In Areso v. CarMax, Inc.¹ a former sales consultant of CarMax filed a class action against the company alleging that CarMax violated the California Labor Code by classifying her and other sales consultants in California as exempt and failing to pay her overtime. CarMax utilized a compensation plan for its sales consultants, who sold used vehicles, warranty plans, and vehicle accessories, with a uniform dollar payment for each sale of a vehicle or service plan. Concerned with the applicability of the California salesperson overtime exemption, CarMax modified its pay plan for California employees and used a formula which took into account the number of vehicles sold and the average price of the vehicles – such that a sales consultant would earn approximately the same uniform payment per vehicle sold. CarMax used this uniform payment based on the number of vehicles sold instead of a percentage of the sales price so that its salespeople did not push higher priced cars.

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By R. Brian Dixon

The time period for the California Supreme Court to grant review of Arechiga v. Dolores Press, 192 Cal. App. 4th 567 (2011), has expired without review being granted. This is mixed news for employers, as the result in Arechiga, while favorable to employers, does not resolve the questions posed by the Court of Appeal’s decision.

In Arechiga, the court concluded that an employer can include overtime in a fixed salary amount. The court found that each of the requirements for doing so under older California case law was met as the employer had, before the work at issue was performed, specified: (1) the days that the employee would work each week; (2) the number of hours the employee would work each day; (3) the specific amount of the guaranteed salary; (4) the hourly rate on which the salary was based; and (5) that the salary covered both regular and overtime hours.

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On May 11, 2011, the California Supreme Court denied review of a state appellate court's decision in Price v. Starbucks. As we previously discussed, in that case, the California Court of Appeal, Second District, upheld the lower court’s orders striking the plaintiff’s itemized wage statement claim for failure to show injury and his reporting time pay claim finding no violation of law.
 

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By Wayne Hersh and Heather Peck

In February 2011, the California Court of Appeal rejected an employer’s use of an "artificial" workweek where the workweek ran from 12:00 a.m. on Monday to 11:59 p.m. the following Sunday and where the employees worked a 14-day shift from Tuesday to Tuesday.¹ In its opinion, the court held that while an employer "may designate any workweek it wishes" it cannot "require its employees to work one workweek, such as from Tuesday noon to Tuesday noon, and designate another workweek, such as Monday to Sunday night, for the purposes of calculating overtime compensation."²

The employer subsequently filed a motion for reconsideration, which was granted, and the court re-issued its opinion on April 14, 2011.³ In its re-issued opinion, the court affirmed its prior decision, rejecting the artificial workweek utilized by the employer.⁴ The court’s reasoning, however, was significantly modified. Rather than flatly rejecting the artificial workweek, the court acknowledged that an employer may designate a workweek which differs from the work schedules of the employees if it has a bona fide business reason for doing so, "which does not include the primary objective of avoiding the obligations of overtime."⁵

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In the wave of class litigation flooding the courts in California claiming rest breaks were not permitted, one court recently denied class certification based on a common sense conclusion that the experience of a handful of guards could not be assumed to be the experience of thousands.

In a recent case, Temple v. Guardsmark LLC, two security guards sought penalties on behalf of a class of thousands of guards based on their employer’s alleged failure to provide “off-duty” rest periods and accurate wage statements.

The guards worked “solo” at various client sites and thus had no one to relieve them from duty for breaks. They alleged company policies prohibited them from leaving their posts to take ten minute rest periods, and they supported their motion for class certification with sworn declarations from fourteen guards saying they took no breaks. Defendant Guardsmark countered with 96 sworn guard declarations, each attesting to having regularly taken rest breaks, spending the time engaged in a wide variety of personal activities.

Faced with the dueling declarations, the question before the court was not whether Guardsmark in fact failed to legally provide rest periods, but whether the two security guards who sought to be class representatives could offer common evidence to prove that thousands of guards in fact were illegally denied rest breaks without trying the claims of each guard one-by-one. The court found that the guards had not shown they could resolve these claims based on “common proof.” The evidence instead suggested that many guards—at least the 96 who supported their employer—did in fact take rest breaks, and even the evidence offered by plaintiffs raised questions such as whether idiosyncratic directions of a lone wolf supervisor rather than a common company-wide policy was the reason for some employees being deprived of rest breaks.

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Pursuant to California law, a non-exempt employee is usually entitled to premium pay on the seventh day of work in any one workweek. For example, where an employee works six consecutive days within a workweek, she must be compensated at time and a half for the first eight hours worked and double time for any additional hours worked on the seventh day. A “workweek” is defined as “any consecutive days, starting with the same calendar day each week. ‘Workweek’ is a fixed and regularly recurring period of 168 hours, seven consecutive 24-hour periods.”

Prior to the court’s recent ruling in Seymore v. Metson Marine, Inc., it was presumed that employers had flexibility in defining the “workweek” as applied to their employees. However, in Seymore v. Metson Marine, Inc., the plaintiffs argued that they were entitled to unpaid overtime because the defendant artificially created a workweek to circumvent premium pay requirements. The workweek, as defined by the employer, ran from 12:00 a.m. on Monday to 11:59 p.m. the following Sunday. The plaintiffs worked a 14-day on/14-day off schedule that ran from Tuesday to Tuesday, which resulted in a single seventh day premium at the end of the second week.

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Ten years ago, in Bell v. Farmers Insurance Exchange, 87 Cal. App. 4th 805 (2001), the California Court of Appeal held that insurance claims adjusters in that case were nonexempt administrative employees and, consequently, were entitled to overtime pay. That decision lead to a $90 million dollar judgment against the defendant and a slew of copycat lawsuits. Since then, a number of federal courts have gone in the opposite direction and held that claims adjusters are exempt from overtime. See e.g., Palacio v. Progressive Insurance Company, 244 F. Supp. 2d 1040 (C.D. Cal. 2002); McAllister v. Transamerica Occidental Life Insurance Company, 325 F.3d 997 (8th Cir. 2003); Cheatham v. Allstate Insurance Company, 465 F.3d 578 (5th Cir. 2006); In re Farmers Ins. Exch., Claims Representatives’ Overtime Pay Litig., 466 F.3d 853 (9th Cir. 2006); Roe-Midgett v. CC Services, Inc., 512 F.3d 865 (7th Cir. 2008); Robinson-Smith v. Gov’t Employees Ins. Co., 590 F.3d 886 (D.C. Cir. 2010). In Hodge v. Aon Insurance Services, the California Court of Appeal followed this trend and held that Aon’s claims adjusters were properly classified as exempt administrative employees. In doing so, the court in Hodge limited the holding issued 10 years ago in Bell.

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Carlos Arechiga may have been, as the trial court found, ecstatic when he was first told that he would earn $880 per week as a custodian, but he certainly was dismayed after working six 11-hour days per week for several years and never receiving a separate payment for overtime. Arechiga was undoubtedly more dismayed when the California Court of Appeal, in Arechiga v. Dolores Press, affirmed the trial court’s conclusion that his salary included his overtime compensation and he was due no additional wages. The Court of Appeal concluded that Arechiga’s employer had sufficiently spelled out the six factors needed to have, under California law, an enforceable wage agreement that included all required overtime. Perhaps surprisingly, the Court of Appeal also ruled that the wage agreement prevailed over section 515(d) of the Labor Code, which seemingly outlawed such agreements.

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In the California Supreme Court opinion of Sonic-Calabasas A, Inc. v. Moreno, a 4-3 majority of the court concluded that a pre-dispute employee-employer arbitration agreement requiring the arbitration of employee wage claims, which could otherwise be brought before the state's Labor Commissioner, is contrary to public policy and unconscionable, and is thus unenforceable. The court's majority declared that the 2008 U.S. Supreme Court case of Preston v. Ferrer did not compel a different conclusion and that the court's holding was not preempted by the Federal Arbitration Act (FAA; 9 U.S.C. §§ 1 et seq.). See our recent ASAP for a detailed analysis of the decision's implications for employers.

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The California Court of Appeal, Second District, affirmed yet another ruling in favor of employers in the state. In Price v. Starbucks, case number B219501, the court upheld the lower court’s orders striking the plaintiff’s itemized wage statement claim for failure to show injury and his reporting time pay claim finding no violation of law.

Plaintiff Drake Price was employed by Starbucks as a barista for a brief period in late 2007. When Price failed to show up for a shift he was taken off the work schedule for the week, and was told to come in to “have a talk” with the manager five days later. When Price reported to Starbucks on the designated date, he was told his employment was being terminated in a “45 second” meeting. On the day of his termination, Price was paid his final wages and also paid two hours of “reporting time pay” for the termination meeting, as required by Cal. Code Regs., tit. 8, § 11050, subd. 5(A). He thereafter sued on behalf of himself and all others similarly situated, asserting claims for reporting time pay pursuant to the California Wage Orders, inaccurate wage statements in violation of California Labor Code section 226, and for various other Labor Code violations, as well as unfair business practices under the California Business and Professions Code.

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In the same week that one California court held that employees are entitled to two hours pay for any day in which they did not receive required meal and rest breaks, employers received welcome news from another California appellate court, which found employers do not have to ensure employees receive their meal breaks to avoid class claims for extra pay.

California’s Labor Code requires employers to “provide” meal periods to employees, but the precise obligation that provision imposes has been the subject of conflicting court opinions. Employees contend that the employer must ensure that they actually receive a break of at least 30 minutes, whereas employers argue that the word “provide” means that employers must merely make meal periods available to employees.

A California court of appeal has now agreed with employers, holding that the word “provide” should be construed according to its dictionary meaning of “to supply or make available.” In Tien v. Tenet Healthcare, an employee sought to certify a class of hourly non-exempt employees who supposedly were denied 30-minute meal periods and ten-minute rest breaks. The trial court waffled, first certifying several classes, then reversing itself, eventually agreeing with the employer.

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A California Court of Appeal rendered a potentially significant blow to California employers on Wednesday. In the first reported decision of its kind from a California appellate court, the court in United Parcel Service, Inc. v. Superior Court, held that California Labor Code section 226.7 permits an employee to recover up to two premium payments per work day: one for failure to provide a meal period and another for failure to provide a rest period.

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.

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On February 10, 2011, the California Court of Appeal for the Second District affirmed summary judgment in favor of Costco Wholesale Corporation (Costco), in Head v. Costco Wholesale Corp., case number B222841, finding that Costco properly calculated the regular rate of pay of its salaried, nonexempt ancillary managers.

In 2001, Costco reclassified its ancillary managers from salaried exempt to salaried non-exempt, using a conversion formula to ensure that their incomes would remain the same after the reclassification. Specifically, Costco calculated the managers’ regular rates of pay using their salaries prior to the reclassification, based upon a 40-hour workweek, which resulted in reduced hourly pay rates for the managers. The reduced hourly pay rates were listed on the managers’ wage statements as their regular rates of pay. Costco then calculated new salaries for the managers based on this regular rate of pay, adding as additional compensation an anticipated five hours of overtime pay per week at the premium rate, as such overtime hours were expected of these employees. The revised salaries were listed on Costco’s internal personnel forms as the managers’ reported salaries. After reclassification, an ancillary manager would receive the revised salary for hours worked up to 45, plus overtime compensation for any hours worked beyond 45 per week.

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On January 26, 2011, the California Supreme Court created more uncertainty regarding meal and rest period obligations in California by granting review of the Court of Appeal’s published decision in Hernandez v. Chipotle Mexican Grill, Inc. As we discussed more fully on November 5, 2010, in Hernandez, the Court of Appeal affirmed the trial court’s ruling that an employer need only make meal periods available to employees, and affirmed the denial of class certification, holding that individual issues predominated over common issues as some employees received both meal and rest breaks, some missed only rest breaks, some missed only meal breaks, some missed both, and even the named plaintiff admitted that the ability to take breaks depended on the location where he worked.

With the grant of review and depublication of Hernandez, employers are once again left to read the tea leaves while waiting for the California Supreme Court to decide Brinker Restaurant Corporation v. Superior Court. In October 2010, the Court granted review in Faulkinbury v. Boyd & Assocs., which had affirmed an employer’s duty to make meal periods available, but held that certification was improper in that case. In May 2010, the Court let stand the published decision in Jaimez v. Daiohs, which affirmed the lower court’s rulings that meal periods must be made available, and that in certain cases, certification of such claims is proper.

Oral argument has not been scheduled yet in Brinker.

This entry was written by Erica H. Kelley.

Photo credit: shirhan

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On Thursday, the state Supreme Court dealt another blow to California employers in Pineda v. Bank of America, N.A. In a unanimous opinion, the Court announced that the penalties recoverable under section 203 of the California Labor Code are subject to a three-year statute of limitations rather than a one-year statutory period, irrespective of whether the employee seeks to recover unpaid pages along with the penalties.

Under section 203, if an employer willfully fails to timely pay final wages to an employee after termination or resignation, the employee is entitled to a penalty in the amount of a day’s wages for each day the wages remain unpaid, to a maximum of 30 days. Following a review of the statutory language, legislative history, and public policy underlying section 203, the Supreme Court ruled that all section 203 penalties are subject to a three-year statute of limitations, as specified within the statute itself. With this decision, the California Supreme Court increases the potential for wage and hour class actions seeking section 203 penalties alone, as such cases can now clearly be brought as much as three years after the alleged failure to timely final wages.

This entry was written by Dominic Messiha and Lauren Howard.

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In a case of first impression, a California court of appeal held in Bright v. 99¢ Only Stores, No. B220016 (Cal. Ct. App. Nov. 12, 2010) that the “suitable seats” provision of Wage Order 7-2001 may be enforced through the Private Attorneys General Act of 2004, California Labor Code § 2698 et seq. (PAGA).

Plaintiff’s Complaint and Procedural Background

The plaintiff, Eugina Bright, filed a class action complaint against her former employer 99¢ Only Stores. The plaintiff alleged that while employed as a cashier at 99¢ Only Stores she was not provided with a seat despite her contention that the nature of her work as a cashier reasonably permitted the use of a seat. The plaintiff based her claim for a seat on Wage Order 7-2001, Section 14 (entitled “Seats”), which provides:

A. All working employees shall be provided with suitable seats when the nature of the work reasonably permits the use of seats.

B. When employees are not engaged in the active duties of their employment and the nature of the work requires standing, an adequate number of suitable seats shall be placed in reasonable proximity to the work area and employees shall be permitted to use such seats when it does not interfere with the performance of their duties.

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A California federal court gave final approval to a $2.91 million settlement between Kaiser Foundation Hospitals and approximately 500 information technology employees who alleged they were misclassified as exempt under both the Fair Labor Standards Act and California law, and denied overtime for working through meal periods and working in excess of 40 hours per week, 8 hours per day or on the 7th consecutive day of a workweek. To learn more about the case, please continue reading at Littler's Healthcare Employment Counsel blog.

Photo credit: Bartek Szewczyk

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A California Court of Appeal has upped the ante in the ongoing legal debate concerning meal and rest period obligations in California (pdf), unambiguously asserting that an employer is only obligated “to ensure that its employees are free from its control for thirty minutes, not to ensure that the employees do any particular thing during that time.” This holding is all the more notable given the court’s subsequent order certifying its opinion in Hernandez v. Chipotle Mexican Grill, Inc. (pdf), No. B216004, as suitable for publication. Consequently, it is currently citable and available as precedent.

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Employers of unionized commercial truck drivers and unionized employers in the security services, construction and public utilities industries received some welcome relief from burdensome California meal period regulations with the recent enactment of Assembly Bill 569.

AB 569 was introduced by state representative for Riverside/San Bernardino District 63 Bill Emmerson in February of 2009. It was one of many bills attempting to deal with the complex thicket of regulation of meal and rest breaks, which has resulted in a deluge of class action litigation in California in recent years. Attempts to enact broader relief have not thus far succeeded. However, the current law was passed by the State Assembly by a 72-2 margin on May 21, 2009. It will go into effect on January 1, 2011 assuming it is not overturned or otherwise suspended pending judicial resolution of any challenge during a 90 day period following its enactment.

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On August 8, 2010, in Lu v. Hawaiian Gardens Casino (pdf), the California Supreme Court held that employees do not have a private right of action under Labor Code § 351 to pursue remedies for misappropriated tips. The decision does not, however, address whether or not a cause of action for unfair competition may be predicated on Labor Code § 351, leaving employers exposed to unfair competition law (UCL) claims for providing tips to “agents” of the employer.

While the decision finally puts to rest the issue of whether the Legislature created a private cause of action under Labor Code § 351, employers should still carefully review their tip pooling policies. As a practical matter, this decision does not prevent employees from filing suit alleging a UCL cause of action based on Labor Code § 351. For a detailed discussion of this decision, please see Littler ASAP, “California Supreme Court Rejects Employees Right to Sue for Misappropriated Tips But Unfair Competition Law Cause of Action Remains" by Matthew Marca and Guissu Raffat.

This entry was written by Matthew Marca.

Photo credit: Thomas_EyeDesign

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The Ninth Circuit Court of Appeals recently rejected a Texas corporation’s argument that drivers who performed services for the company were independent contractors—and therefore not subject to the requirements of the California Labor Code—because their contracts with the company contained a Texas choice of law provision. In Narayan v. EGL, Inc., the Ninth Circuit reversed the district court’s decision to grant the company’s motion for summary judgment and instead remanded the case for trial. In so holding, the Ninth Circuit demonstrated the heavy burden imposed on companies seeking to establish an independent contractor relationship, even when the company has a written contract designating the workers as independent contractors.

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After nearly four years, the California Supreme Court has finally issued a unanimous decision in Martinez v. Combs, finding that officers and directors of a corporate employer cannot be held civilly liable for causing the corporation to violate the statutory duty to pay minimum wages where the individual corporate agents acted within the scope of the agency.

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For those of you following the Jaimez v. Daiohs USA, Inc. case, on May 12, the California Supreme Court denied defendant Daiohs' requests for review and depublication of the appellate court's decision. For those of you who have not been following the Jaimez case, read on. The decisions of both the California court of appeal and California Supreme Court are as significant as they are discouraging.

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In April 2010, the U.S. Department of Labor (DOL) issued a new Fact Sheet discussing the circumstances under which “interns must be paid the minimum wage and overtime under the Fair Labor Standards Act (FLSA) for services that they provide to ‘for-profit’ private sector employers.” At the same time, California’s Division of Labor Standards Enforcement (DLSE) stated in an opinion letter that it will apply the same rules that the DOL has applied in the past and will continue to apply as described in the Fact Sheet.

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In its ongoing enforcement efforts of California's public works laws, the State Labor Commissioner's Office issued a press release on March 10, 2010, announcing that two Southern California contractors would be prohibited from bidding on or receiving any public works projects for three years beginning April 19, 2010. California Labor Commissioner Angela Bradstreet explained that the Orders of Debarment were necessary due to the contractors’ “deliberate and willful attempts to skirt the law,” which “will not be tolerated as they take unfair advantage of employees as well as tax payers who fund these public works projects.”

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Several new wage and hour bills made it through various state legislatures during the second half of the year. Below is a wrap up of some new developments (including regulatory updates) from July 1st through December 31st. Click here to read our post on changes to state minimum wages.

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In Barbosa v. IMPCO Technologies, Inc., the California Court of Appeals for the Fourth District held that terminating an employee for exercising his statutory right to overtime wages out of a reasonable, good faith belief of entitlement to it, (notwithstanding the subsequent discovery that he was wrong), was contrary to California public policy.

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In a putative class action pending in the Northern District of California filed by Catherine Sullivan against Kelly Services, Inc. (Case No. C 08-3893 CW), Judge Claudia Wilken ruled in a summary judgment motion that the time spent interviewing by Kelly Services' employees seeking temporary work assignments with Kelly Services' clients is compensable under California law. However, Judge Wilken also ruled that the time spent preparing for and commuting to the client interviews was not compensable, and that Kelly Services was not required to reimburse the employees for expenses incurred in attending the interviews. Judge Wilken found that under the facts of this case, the employees were "subject to the control" of Kelly Services and that Kelly Services "suffered or permitted" the employees to work in connection with the interviews. She rejected the defense argument that the client interviews were "voluntary," finding that the failure to interview would prevent the employee from being considered for 50% of the job assignments . She also rejected the defense argument that the interviews were not time worked as the employees were not employed in between work assignments, finding this latter argument inconsistent with the position taken by the employer in a prior action between the parties.

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On September 9, 2009, the California Supreme Court declined to review an appellate court order reversing an $86 million trial award against Starbucks. As discussed in detail in our earlier blog entry, in Jou Chau v. Starbucks Corporation, the court of appeal reversed the trial court's award to a certified class of Starbucks "baristas" who had challenged Starbucks’ tip policy on the ground that certain service employees, known as “shift supervisors,” had improperly shared in the customer tips left in a collective tip box. Since a denial of review by the California Supreme Court is done without comment, it is hard to predict what this means for other tip pooling cases. However, it is important to remember that the appellate court made a clear distinction between a collective tip box and service companies that pool tips. According to the appellate court, the Starbucks policy passed muster because (1) “shift supervisors” were part of the “team” of employees who provided service to the customers (along with baristas) and (2) a collective tip box was used.

 This blog entry was authored by Matthew Marca.

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An important new opinion letter from the California Division of Labor Standards Enforcement (DLSE), issued on August 19, 2009, conforms California’s approach to furloughing salaried “white collar” exempt employees with the federal approach. The opinion approved an employer’s request to reduce its exempt employees’ scheduled work days from five to four days per week, along with a corresponding reduction in salary. This approach was designed to address the employer’s significant but temporary economic difficulties, with the expectation that as soon as business conditions permitted, the employer would restore the full five-day work schedule and the full salaries of its exempt employees. This opinion withdraws a prior DLSE opinion that had concluded that federal and California law “precludes an employer from reducing the salary of an exempt employee during a period when a company operates a shortened workweek due to economic conditions.” DLSE Opinion 2002.03.12 at p. 5. 

For an in-depth discussion and guidance on this development, see Littler ASAP, DLSE Agrees California’s Partial-Week Furlough Options Are Coextensive With Federal Law. 

This blog entry was authored by Dan Thieme and Alison Hightower

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On June 2, 2009, the Fourth Appellate District, Division One, issued an opinion in the class action case of Jou Chau v. Starbucks Corporation, reversing the trial court’s award of over $86 million to a previously certified class of Starbucks “baristas” who had challenged Starbucks’ tip policy on the ground that certain service employees, known as “shift supervisors,” had improperly shared in the customer tips left in a collective tip box.

The facts and legal arguments at the bench trial were fairly straightforward. Starbucks allowed shift supervisors who primarily engaged in barista-type customer service duties to share tips left by customers in a collective tip box. A former barista, Jou Chau, brought a putative class action against Starbucks, claiming that the tip-sharing policy violated California Labor Code section 351. That Section states, in relevant part:

No employer or agent shall collect take, or receive any gratuity or a part thereof that is paid, given to, or left for an employee by a patron, or deduct any amount from wages due an employee on account of a gratuity, or require an employee to credit the amount, or any part thereof, of a gratuity against and as a part of the wages due the employee from the employer. Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for. . . .

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On May 29, 2009, the California court of appeal held that an admittedly valid employment arbitration agreement would control the disposition of a former employee’s administrative wage claim against his former employer. Sonic-Calabasas A, Inc. v. Moreno, Case No. B204902.

The employee was subject to an arbitration agreement requiring certain claims, including claims for unpaid vacation, be submitted to arbitration. The former employee nonetheless filed an administrative charge with the Labor Commissioner seeking recovery for unpaid vacation. The employer sought to dismiss the administrative proceeding and compel arbitration. The trial court refused to enforce the arbitration agreement, but the court of appeal reversed.

The court of appeal held that the arbitration agreement was enforceable under the Federal Arbitration Act (FAA) because it did not pose a significant obstacle to the vindication of the employee’s statutory rights. In reaching its decision, the court relied on recent authority from the United States Supreme Court. In Preston v. Ferrer, 128 S. Ct. 978 (2008), the Supreme Court held that the Labor Commissioner’s original and exclusive jurisdiction was divested by the FAA with regard to a contract dispute arising under the Talent Agencies Act. Although not entirely on point, the court of appeal found the Preston decision to be persuasive, emphasizing its reasoning that the arbitration clause was binding since it only decided the forum of adjudication without relinquishing any substantive rights. So too in this case, the arbitration provision did not negate any substantive rights, but only required the employee to bring his vacation claim in arbitration rather than before the Labor Commissioner.

This blog entry was authored by Jim Hart.
 

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On April 29, 2009, the Supreme Court of California granted the petitioner’s petition for review of the Second District Court of Appeal’s opinion in Lu v. Hawaiian Gardens Casino (2009 170 Cal. App. 4th 466, 88 Cal. Rptr. 3d 345), concerning the legality of tip-pooling arrangements with casino dealers.

In granting review, the Supreme Court limited the pure legal question to the following: “Does Labor Code section 351, which prohibits employers from taking ‘any gratuity or part thereof that is paid, given to, or left for an employee by a patron,’ create a private right of action for employees?” The vote for review of the Court of Appeal decision was unanimous.

In addition to the recent Etheridge v. Reins Int’l Cal., Inc. opinion by California’s Second District Court of Appeal, California employers should note the Second District’s recent tip-pooling opinion in Grodensky v. Artichoke Joe’s Casino, 171 Cal. App. 4th 1399 (2009). In Grodensky, the plaintiff, a casino card dealer, filed a putative class action challenging a mandatory tip-pooling policy that Artichoke Joe’s Casino had implemented for its dealers. The trial court determined (and the Court of Appeal affirmed) that the casino had not violated the minimum wage law by the tip-pooling arrangement, but had violated Labor Code section 351 by requiring the dealers to share their tips with shift managers. The Court of Appeal found no error in the trial court’s issuance of a pre-trial protective order prohibiting any communications regarding the lawsuit between the casino and dealers while determination of the class certification motion was pending. The Court of Appeal also affirmed that Grodensky and the putative class had a private right of action under Labor Code § 351 and that the trial court did not abuse its discretion by ordering the disgorgement of the sums taken from the dealers’ tips and distributed to the shift managers. Compare Etheridge v. Reins Int’l Cal., Inc., 2009 WL 794521 (Cal. Ct. App. 2009) with Budrow v. Dave & Buster’s of Cal., Inc., 171 Cal. App. 4th 875 (2009) (restaurant employees who do not provide direct table service may share in tip pool).

This blog entry was authored by Tyler Paetkau.
 

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In a blow to UPS, and other employers in California, a California federal court recently ruled that employers are liable for up to two hours of additional pay when an employee misses both a meal and rest break. California law provides for a one hour premium of regular pay for each day that a non-exempt employee is not provided meal or rest breaks as required by the various California Wage Orders. (California Labor Code sec. 226.7).

Employers have argued that under California law, an employer is only obligated to pay a one hour premium for missed meal and lunch breaks per day, whether there was one or multiple violations in the same day. In the first direct ruling on this issue, the court in Marlo v. United Parcel Service, Case No. CV 03-04336 DDP, held that the employee may recover up to two additional hours of pay on a single work day for meal period and rest break violations: one if any meal period violations occur in a work day and one if any rest break violations occur in a work day. However, if more than one rest period violation occurs in a single work day but no meal period violations occur, the employee may only recover one additional hour of pay for all of the rest period violations combined; likewise, if more than one meal period violation occurs in a single work day but no rest period violations occur on that day, the employee may only recover one additional hour of pay for all of the meal period violations combined.

While the ruling will likely be appealed, employers should evaluate their pay practices with respect to missed meal and rest periods to comply with the ruling until further authority is established. On a positive note, the Court agreed with other recent rulings and held that an employer's obligation with respect to meal breaks is to make a meal period available to employees, but places them under no further obligations to ensure that a meal break is taken. This issue is currently pending a decision by the California Supreme Court in Brinker Restaurant Corp. v. Superior Court (Hohnbaum).

This blog entry was authored by Gregory G. Iskander.
 

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This most recent on the city charter exemption in State Building and Construction Trade Council of California, AFL-CIO v. City of Vista (4/28/09) D052181 (PDF), is a favorable one for city contractors who might do work for chartered cities. The court held that chartered cities are exempted from the requirements of the prevailing wage statute, Labor Code section 1720, et seq. under the municipal affairs clause of the California Constitution. The victory may be short-lived, given the number of amicus on this appellate decision, including California’s Attorney General, which filed a brief in support of the Building Trade Councils. The “municipal affairs exemption” is ripe for Supreme Court review. Those following prevailing wage cases will recall that many anticipated a decision from the California Supreme Court in City of Long Beach v. Department of Industrial Relations (2004) 34 Cal.4th 942 on the municipal affairs exemption but were disappointed when the California Supreme Court reached a decision on other grounds and failed to address the exemption.

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On November 6, 2008, the Ninth Circuit Court of Appeal, issued an opinion in Oracle v. Sullivan, 547 F.3d 1177 (9th Cir. 2008), which came to three important conclusions regarding the reach of California law, including the following:

First, California's overtime laws may apply to nonresident employees (in the case itself, individuals from Arizona and Colorado were involved) for those periods of time that the employees temporarily work in California;

Second, the court found that a company that has a sufficient presence in the state, such as Oracle, can be required to comply with California law without violating that employer's due process rights; and

Third, the court found that California's unfair competition law does not apply to acts based on alleged federal wage law violations that occur outside of the state.  

This opinion was reported in our earlier blog posting, Federal Court Finds California Law Applies to Out Of State Workers.

 

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Several new wage and hour bills made it through various state legislatures during the first quarter of the year. Below is a wrap up of new developments (including regulatory updates) since the beginning of the year.

Arkansas House Bill 1552 Effective 7/17/2009.  Requires employers to provide unpaid break time and reasonable locations for expressing breast milk.

California Assembly Bill x2 5 Effective 1/1/2010.  Eases the requirements for an alternative work week. For additional information see our previous Blog entry, Requirements for Use of Alternative Workweek in California Eased Slightly.

Iowa Senate File 618 Effective July 1, 2009. Updates civil and criminal penalties of up to $10,000 for the illegal use of child labor and from $100 to $500 per violation for workplace labor violations.  For additional information see our previous Blog entry New Mexico and Iowa Toughen Penalties for Wage and Hour Violations.

Massachusetts Senate Bill 2438 Effective 4/9/2009.  A mother may breastfeed her child in any public place or establishment or place which is open to and accepts or solicits the patronage of the general public and where the mother and her child may otherwise lawfully be present. The statute doesn't specifically mention employment, however it can be construed to include places of employment.

Montana House Bill 101 Effective 3/20/2009.  Revises the time period that an employer may withhold money from an employee's final paycheck in cases of theft or property or theft of funds.

Missouri Regulation 8 MO-ADC 4.010 et seq Effective 3/30/2009.  The Missouri Department of Labor's minimum wage regulations expressly adopts interpretations of the FLSA, and federal regulations.  For additional information see our previous Blog entry, New Missouri Wage and Hour Rules Reintroduce Federal Interpretations.

Nevada Minimum Wage and Overtime Rates Announced Effective 7/1/2009. For more details see our previous blog entry here.

New Mexico House Bill 849 Effective Jun 19, 2009.  Allows workers to collect treble damages against employers that violate the state's $7.50-an-hour minimum wage law.  For additional information see our previous Blog entry New Mexico and Iowa Toughen Penalties for Wage and Hour Violations.

North Dakota Senate Bill 2344 Effective September 5, 2009.  Provides that if the woman acts in a discreet and modest manner, a woman may breastfeed her child in any location, public or private, where the woman and child are otherwise authorized to be.  Although this portion of the new law it does not expressly mention employers, its terms are broad enough to apply to the workplace.

Oregon Regulation OR-ADC 839-020-0050 Effective 1/12/2009.  Clarifies meal and rest period requirements in situations where providing a 30-minute uninterrupted meal period is not feasible. For additional information see our previous blog entry here.

US House Resolution 11 Effective 5/28/2007.  The Lilly Ledbetter Fair Pay Act, which Congress made retroactive to May 28, 2007, extends the time period for employees to assert pay discrimination claims by making each paycheck a discriminatory act; not just the initial pay determination. For further information, see Littler ASAP Paycheck Rule Revived for Pay Discrimination Claims with Signing of the Lilly Ledbetter Fair Pay Act.

Virginia Senate Bill 1264 Effective 7/1/2009.  Allows employers to utilize prepaid credit cards or a debit card without employee's consent for employees hired after January 1, 2010, when the employee has not designated a financial institution to receive direct deposit of the employee's wages.

Wisconsin Regulations DWD 272.01 et seq. Effective 7/24/2009.  Changes the state minimum wage to $7.25 an hour effective July 24, 2009. Also changes opportunity wage and allowance for boarding.

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The California Court of Appeal in Etheridge v. Reins International California, Inc. has held that mandatory tip-pooling policies that allow tips to be shared with staff who do not provide direct table service are enforceable. California restaurant employers and other employers that allow tips would be well advised to review, and if necessary, amend mandatory tip-pooling policies.  See Littler ASAP California Appellate Court Protects Employers Who Allow Tips for Dishwashers for more information.
 

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On February 20, 2009 in Ontiveros v. Zamora, the court held that the plaintiff stated a viable claim for individual liability under a joint employment theory for violations of state wage and hour laws.

The court agreed with defendants that a corporate officer could not be held liable for the wage and hour violations of a corporation based on the individual's status alone, including the fact that he owned or otherwise controlled the corporation as was the case here. The court acknowledged California courts have consistently held that individual officers, directors, shareholders, and managers of a corporation cannot be considered personally liable for the corporation's failure to pay wages to employees or for related California Labor Code violations. See, e.g., Reynolds v. Bement, 36 Cal.4th 1075 (2005); Bradstreet v. Wong, 161 Cal.App.4th 1440 (2008). The rationale has been that that none of the Labor Code sections at issue expressly define the term "employer." Rather, the courts have applied the common law definition of "employer," which does not include corporate agents acting within the scope of their agency.

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On March 2, 2009, the California Second District Court of Appeal rejected a putative class plaintiff’s argument that the California “tip pooling” statute, Labor Code § 351 (“§ 351”), prohibits so-called “indirect” servers (in this case bartenders) from sharing tips. Budrow v. Dave & Buster’s of California, Inc., (2d Dist. 3/2/09). The plaintiff and appellant, Aaron Budrow, brought a putative class action against respondent Dave & Buster’s of California, Inc., on the theory that distributions from the “tip pool” to persons who did not provide direct table service violated § 351. After the trial court sustained demurrers (motions to dismiss) to two of appellant’s three causes of action without leave to amend, the employer moved for summary judgment on the remaining cause of action that alleged a violation of California Business and Professions Code section 17200. The trial court granted the motion. The court of appeal affirmed.

The employer owned and operated restaurants throughout the U.S., employing servers, cocktail servers, buspersons and bartenders. The plaintiff was a cocktail server for a brief period of time. (The employer contended that it employed the plaintiff for one month; the employee contended that he worked for the employer for three months.) Dave & Buster’s tipping policy requires that servers contribute 1% of their gross sales to bartenders and other employees.

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The California Court of Appeal recently confirmed the right of an employer to secure a release from claims for unpaid overtime where there exists a bona fide dispute over whether overtime wages were actually due. In Chindarah v. Pick Up Stix, Inc., two former employees of Pick Up Stix brought a proposed class action lawsuit against their former employer asserting claims for unpaid overtime, alleging they were misclassified as exempt from overtime pay. The employer was able to obtain settlements with over two hundred putative class members in exchange for their execution of a general release, wherein the employee acknowledged that he or she spent more than 50% of their time performing managerial duties and released Pick Up Stix from all claims for unpaid overtime and any other Labor Code violations during the relevant time period. Thereafter, the plaintiffs challenged the validity of these releases and argued that the settlement agreements violated Labor Code section 206.5, which provides: "An employer shall not require the execution of a release of a claim or right on account of wages due, or to become due, or made as an advance on wages to be earned, unless payment of those wages has been made. A release required or executed in violation of the provisions of this section shall be null and void as between the employer and the employee."
 

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We recently reported a significant California Court of Appeals decision, marking what appears to be turning point in the development of California's Labor Code Private Attorney General Act ("PAGA"). In Deleon v. Verizon Wireless, the Second District Court of appeal addressed several unsettled PAGA issues. The Court's analysis has far-reaching consequences with respect to several issues, including (i) the settlement of individual and class-wide PAGA claims, (ii) the status of an "aggrieved employee" as a plaintiff, and (iii) the nature of PAGA representative actions.

On February 23, 2009, the plaintiff's in Deleon filed for review by the California Supreme Court. Employers are advised to monitor the Supreme Court's actions in this case, particularly those currently litigating purported PAGA claims. Unless and until the Supreme Court grants review, however, Deleon may still be cited as good law. For a more thorough analysis of the impact of the Deleon decision, see the Littler ASAP "Bounty Hunters" Lose Their State "Badge" as Court of Appeal Clarifies Several PAGA Issues.

This blog entry was authored by Vincent J. Mersich.
 

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Ten years after it was first enacted, and as part of the resolution of California's budget crisis, California Labor Code section 511 authorizing the use of an alternative workweek was amended for the first time (AB X2 5) last week.

The bill itself was a model of expedited lawmaking - its creation, passage, and signing took less than ten days. AB X2 5 was introduced in the Assembly as a budget trailer bill on February 11, modified to its final form on February 14, and passed finally by the Senate on February 19, with the Governor signing it the next day. The bill was never reviewed by any budget or legislative policy committee.

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California Labor Code section 1776 requires public works contractors and subcontractors to maintain payroll records showing the name, address, social security number, work classification, straight-time and overtime hours worked each day and week, and the actual per diem wages paid to workmen employed on a public works project, and to verify under penalty of perjury in a written declaration the accuracy of such payroll records. These certified payroll records must be prepared on forms provided by the Division of Labor Standards Enforcement or may consist of printouts of payroll data that are maintained as computer records, provided the printouts contain the same information as the forms provided by the Division of Labor Standards Enforcement. Certified payroll records must be made available for inspection and/or furnished to employees and their authorized representative, members of the public, the awarding body, Labor Compliance Programs, the Division of Labor Standards Enforcement and the Division of Apprenticeship Standards of the California Department of Industrial Relations upon request, and generally within 10 days from the date of the request.

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UPDATE: On February 17, 2009, the Ninth Circuit withdrew its decision in Sullivan v. Oracle and remanded the case back to the California Supreme Court for reconsideration.  The Ninth Circuit asked the California Supreme Court to consider the following issues:

First, 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?

Second, does California Business and Professions Code section 17200 apply to the overtime work described in question one?

Third, 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?

This blog update was authored by Jim Hart.
 

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Deleon v. Verizon Wireless concerns a case where the employer had been previously sued under various sections of the California Labor Code for charging back commissions to its salespeople. No claims under the California Labor Code Private Attorneys General Act (PAGA) were alleged in the original complaint. That case settled in 2006, and the court certified a class for purposes of settlement. Nothing in the settlement agreement made reference to the PAGA. Rather, the agreement defined "released claims" to include all liabilities and penalties arising out of "any conduct, events, or transactions occurring during the class period." After the settlement, the plaintiff in Deleon sued the same employer, purportedly on behalf of the same employees, based on the same violations of the Labor Code, but this time seeking only penalties pursuant to the PAGA. The employer demurred to the second complaint, and the court of appeal upheld the trial court's dismissal of the second complaint based on res judicata. The recent Deleon decision is significant for employers in at least the following three ways:

Settlement Agreements. Even if an employer is settling a class action that has no PAGA claims, provided the employees release all "liabilities and penalties" arising out of "any conduct, events, or transactions” occurring in the class period, Deleon provides that the employer should be protected against any subsequent tag-along PAGA actions. More importantly, the employer need not designate any part of the settlement amount as settling PAGA claims, and no part of the settlement amount need be paid to the State of California in order to release non-asserted PAGA claims. On the other hand, if PAGA claims are a part of the complaint, the parties will most likely be required to designate some portion of the settlement amount as settling PAGA claims, and 75 percent of that amount should be paid to the state.

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On January 21, 2009, the California Court of Appeals denied the plaintiffs' motion for rehearing in the Marin v. Costco Wholesale Corporation case which addressed how to calculate overtime on a bonus. The court modified its opinion to clarify that the only controlling California authority on the issue is the directive that overtime hours be compensated at a rate of no less than one and one-half times the regular rate of pay. The December 23, 2008 opinion, with the January 21, 2009 revisions, was certified for publication.  Marin v. Costco was discussed in further detail in our previous post.

This blog entry was authored by Sandra Dermody.

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On January 22, 2009, a California Court of Appeal, Second Appellate District, issued an opinion upholding casino employers' right to maintain mandatory tip-pooling arrangements with dealers, finding no principled distinction between tip-pooling arrangements in the more familiar restaurant industry and the casino industry. Lu v. Hawaiian Gardens Casino, Inc.,  __ Cal. App. 4th __, (B194209 1/22/09). However, in partially reversing the summary judgment for the casino employer, the court also held that a triable issue of material fact existed as to whether certain "customer service representatives" and "senior customer services representatives" were "agents" of the employer entitled to participate in the mandatory tip-pooling arrangement. Further, although the court agreed with the trial court that California Labor Code sections 351 and 450 do not provide for a private right of action, it held that these sections can provide the predicate violation for an action under the California Unfair Competition Law (UCL), Cal. Bus. & Prof. Code § 17200. The court also recognized that employees could use alleged violations of California Labor Code §§ 351 and 450 to bring an action under the California Labor Code Private Attorneys General Act, Lab. Code §§ 2698 et seq.

The court found that there was sufficient evidence from which a reasonable jury could conclude that the customer service representatives have the authority to, and do, "supervise, direct, or control the acts of" the dealers, making them ineligible to participate in mandatory tip-pooling arrangements.

As reported in our prior blog entry, California employers should ensure that supervisory employees, such as floor managers, do not participate in a tip-pooling arrangement.

This blog entry was authored by Tyler Paetkau.

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On January 14, 2009, the California Supreme Court granted review in Brinkley v. Public Storage, Inc. which, like Brinker Restaurant Corporation v. Superior Court, held that employers are only required to “provide” meal and rest breaks and, absent a policy or practice which discourages or prevents employees from taking their meal and rest breaks, claims for missed meal and rest breaks are not suitable for class treatment. As expected, the Supreme Court is holding the Brinkley case pending determination of the earlier Brinker Restaurant case. This means there will be no activity in Brinkley until Brinker Restaurant is decided.

The opening brief in Brinker Restaurant was filed on January 20, 2009. Respondent and amici (friends of the court) briefs will follow, as well as the final reply brief, a process that can take several months. At that point the case will be scheduled for oral argument. Check back on this blog for the progress of Brinker Restaurant.

This blog entry was authored by AnnaMary Gannon.
 

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In an opinion letter dated December 19, 2008 (FLSA2008-18), the DOL found that itamae-sushi chefs and teppanyaki chefs were tipped employees under the FLSA, eligible to participate in employer-mandated tip pools.

Section 3(t) of the FLSA defines tipped employees as “any employee engaged in an occupation in which he/she customarily and regularly receives more than $30 a month in tips.” 29 U.S.C. § 203(t). Section 3(m) allows tip-pooling among employees who customarily and regularly receives tips. 29 U.S.C. § 203(m); see also 29 C.F.R. § 531.54.

Itamae-sushi chefs and teppanyaki chefs have direct contact with customers, at the bar counter area (itamae-sushi chefs) and at customer tables (teppanyaki chefs). In support of its opinion, the DOL cited its “longstanding position that counter persons who serve customers may participate in tip pools. Citing FLSA Field Operations Handbook § 30d04(a); Wage and Hour Opinion Letter 1/25/83 (waiter chef who brings food order from kitchen to table and cooks it on hibachi grill in front of customers may share in tip pooling).
 

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Many employers do not know that paying a non-discretionary bonus to non-exempt employees will require the payment of additional overtime. The California Court of Appeal’s decision in Marin v. Costco Wholesale Corporation is a good reminder of the need to pay overtime on such bonuses and of the fact that the method for calculating overtime on a bonus depends upon whether it qualifies as a “production bonus” or a “flat rate bonus.”

As a general matter, the payment of a non-discretionary bonus (one that is not discretionary in either the fact that it will be paid or in the formula for calculating it) to non-exempt employees triggers an additional overtime obligation because it retroactively increases the regular rate of pay for the employee receiving the bonus for the time period covered by the bonus. A non-exempt employee is entitled to be paid overtime at 1.5 times (or double, in some cases) the regular rate of pay for each overtime hour worked. With some specific exceptions not relevant here, the regular rate of pay for overtime purposes includes all compensation earned during the workweek. Thus, an employee who is paid a quarterly bonus has received additional compensation that was not included in the regular rate of pay when he or she was paid overtime for hours worked during the quarter at issue. An employer is required to resolve this issue by calculating a “regular rate” of pay on the bonus itself and then paying some portion of that regular bonus rate for each overtime hour worked during the period in which the bonus was earned. The precise method for calculating the overtime due on a bonus depends upon whether the amount of an employee’s bonus increases with each hour worked (in which case it is a “production bonus”) or whether the amount of the bonus is fixed independent of the hours worked (in which case it is a “flat rate bonus”).

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While large insurance companies reportedly have paid over $100 million each to settle overtime claims brought by claims adjusters, insurance brokerage giant Aon rolled the dice and won a significant trial victory last week. Aon prevailed in an eleven-day trial against a certified class of 1,024 current and former claims adjusters employed by Aon’s wholly-owned subsidiary, Cambridge Integrated Services, Inc. As in most of these cases brought by claims adjusters, Aon’s adjusters sought overtime pay, and Aon successfully relied upon the administrative exemption to justify its failure to pay overtime in a bench trial before retired judge Ronald Sabraw. Since the California Court of Appeal previously rejected the applicability of the administrative exemption to insurance claims adjusters in Bell v. Farmers Ins. Exch. (2001) 87 Cal.App.4th 805, Aon’s adjusters here might have expected a cake walk. But little went their way this time.

Aon had four significant hurdles to overcome to avoid liability. To prove the adjusters were correctly classified exempt, Aon had to prove that: (1) the claims adjusters’ duties involved the performance of office or non-manual work directly related to management policies or general business operations of Aon or its customers; (2) the claims adjusters customarily and regularly exercised discretion and independent judgment; (3) the claims adjusters performed under only general supervision work requiring special training, experience or knowledge; and (4) the adjusters spend at least 50 percent of their time performing these exempt duties. Aon cleared every one of these hurdles.

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A federal district court judge granted partial summary adjudication to SkyWest Airlines, Inc., holding that a former employee’s claims under California wage and hour laws are pre-empted by federal law. Specifically, the court found that the former employee is not entitled to California’s daily overtime and meal and paid rest periods because they conflict with federal law – Railway Labor Act (RLA), 45 U.S.C. § 151-88.

Tiffany Blackwell, a former customer service representative for SkyWest, sought relief for multiple alleged violations of state law including claims that SkyWest failed to compensate her for daily overtime hours and provide her with meal and paid rest periods. SkyWest countered that Ms. Blackwell was a member of SkyWest Airlines’ Frontline Association (SAFA) and was subject to SkyWest-SAFA’s negotiated collective employee contract, which governed the terms of her employment.

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California Labor Code section 515.5 exempts certain employees in the computer software field from the state overtime requirements provided certain criteria are met. Historically, this exemption was only available for employees whose compensation exceeded a minimum hourly rate, which was set annual by the Division of Labor Statistics and Research (DLSR). Effective September 10, 2008, Assembly Bill 10 took effect, which expanded the exemption to include employees who are paid on a salary basis, as long as the salary exceeds certain monthly and annual amounts.

The DLSR has announced the applicable minimum rates for employees to qualify for California’s computer professional exemption. Effective January 1, 2009, the new hourly rate for computer software employees is $37.94 and the minimum annual salary exemption is $79,050.00, which must be paid in amounts no less than $6,587.50 per month. To qualify for the exemption, an employee’s compensation must equal or exceed these amounts and the employee must satisfy each of the elements set forth in section 515.5 of the Labor Code. The employee must be:

• Primarily engaged in duties that consist of at least one of the following: (1) application of system analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications; (2) the design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications; and (3) the documentation, testing creation, or modification of computer programs related to the design of software or hardware for computer systems; and
• Highly skilled and proficient in the theoretical and practical application of highly specialized information to computer systems analysis, programming, and software engineering.

This blog entry was authored by Stacey James.
 

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For the past several years, plaintiffs have routinely sought punitive damages in their wage and hour actions under the California Labor Code. A December 3, 2008 decision by the California Court of Appeals for the Fourth Appellate District may put a stop to that practice.

The plaintiff in Brewer v. Premier Golf Properties sued her former employer for denying her meal and rest breaks, failing to pay her minimum wage for all hours worked, and not providing her with accurate itemized wage statements. The jury awarded the plaintiff $26,300 in unpaid wages and penalties and, after finding that the defendant employer had engaged in malice, awarded the plaintiff an additional $195,000 in punitive damages.

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Now that the California Supreme Court has accepted review of Brinker Restaurant Corporation v. Superior Court (Hohnbaum), Supreme Court No. D049331 (2008), California employers are hopeful that the Supreme Court will affirm the well-reasoned decision of the Court of Appeal explaining an employer’s obligation to provide meal and break periods, as opposed to ensure that the meal and break periods are actually taken. Opening briefs in Brinker are due to be filed with the Supreme Court on January 20, 2009.

Immediately following the Court of Appeal’s decision in Brinker, the California Labor Commissioner issued a memorandum to all Department of Labor Standards Enforcement staff to follow the rulings in Brinker. When the Supreme Court granted review, the Labor Commissioner withdrew her memorandum, but directed DLSE staff to follow the numerous federal court decisions that concluded that, under California law, it is an employer’s obligation to ensure that its employees are free from its control for thirty minutes, not to ensure that the employees do any particular thing during that time. For more information on the Labor Commissioner’s memorandum and citations to the federal cases addressing meal and break periods, see the Littler Mendelson ASAP, California Supreme Court Grants Review to Brinker – Employers Await Answers on Meal Period Obligation (October 2008).

The California Labor Federation, which represents more than 1,200 labor unions in California, protested loudly that the Fourth District Court of Appeal’s decision in Brinker merely created a split with the Third District’s earlier decision in Cicairos v. Summit Logistics Inc. (2006) 133 Cal.App.4th 949. In Cicairos, the court quoted a 2002 DLSE Opinion Letter that employers have “an affirmative duty to ensure that workers are actually relieved on duty.” The Supreme Court declined to grant review in Cicairos, as well as a request to have the opinion depublished. The defense bar and, fortunately, the California Labor Commissioner, read Cicairos as in accord with Brinker that an employer need only provide meal and rest breaks but, on unique facts, found that Summit Logistics failed to make meal and break periods available to its delivery drivers.

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The Court of Appeals for the Ninth Circuit recently held that California’s Labor Code applies to work performed in California by non-residents of California. Sullivan v. Oracle Corporation (08 Cal. Op. Serv. 13,881) (Nov. 6, 2008).

The three Oracle plaintiffs were Colorado and Arizona residents who traveled to California to work for periods ranging from several weeks to several months.  The plaintiffs brought a wage and hour class action against their employer, a Delaware corporation headquartered in California, seeking unpaid overtime on behalf of all out-of-state employees who worked complete days in California. The plaintiffs also brought a claim under California’s Unfair Competition Law (aka/ Business and Professions Code § 17200 et seq.), both for violations that occurred in California and throughout the United States.

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