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

With major support coming from the California Rural Legal Assistance Foundation, A.B. 240 was introduced as a solution to the perception of unequal remedies. The bill’s proponents argued that the current system discouraged employees from bringing their claims in the simpler and less-costly DLSE process, as that agency could not award liquidated damages for the subject claims as a court could. The bill’s supporters also included various labor organizations, while an array of business entities opposed the measure. The bill was based on a nearly identical measure passed by the Legislature in 2007, but vetoed by then-Governor Arnold Schwarzenegger.

Effective January 1, 2012, the difference in remedies between filing such a claim in court or before the Labor Commissioner will be eliminated, as A.B. 240 amends California Labor Code sections 98 and 1194.2. The amended statutes will allow the Labor Commissioner to award liquidated damages to a successful employee. The Labor Commissioner will also have the discretion, as the court now does, to award reduced or no liquidated damages if the employer proves that it acted in good faith and that it had reasonable grounds for believing that its act or omission was not a violation of any provision of the Labor Code relating to the minimum wage, or an order of the commission.

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CarMax classified its sales consultants as overtime exempt based on the commissioned salesperson exemption. In California, an employee covered by Wage Orders 4 or 7 may be exempt from the overtime requirements if that employee earns more than one and a half times the minimum wage and more than half of the employee’s compensation represents commissions. The California Labor Code also has a section applicable to vehicle dealers, which defines commissions 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.”² Although this code section and the case dealt with vehicle dealers, the court noted that other courts have found that the code section’s definition of commissions are more generally applicable.

The California Supreme Court had previously approved a two-part test to determine whether an employee is a commissioned salesperson exempt from overtime. First, an employee must be involved principally in selling a product or service. Second, the amount of the employee’s compensation must be a percent of the price of the product or service.³ Although CarMax’s compensation plan used a formula that resulted in a uniform payment per vehicle sold as opposed to a strict percentage of the price, the court in Areso found that under the language of the statute, the pay plan was based proportionately on the amount of vehicles sold, and thus qualified as a commission. The court thus distinguished between commissions based upon the value (price) of a product, and those based upon the amount (number) of product sold. The court rejected the position of the California Division of Labor Standards Enforcement, which had published in its enforcement manual that uniform payment constitutes “piece-rate” work and not commissioned sales work. The court held that piece-rate work pays employees for each piece of product finished, appointment made, or procedure completed – whereas the employees here made sales of property or services. The court held that although the uniform fee was a one to one proportion, the compensation was still proportionate to the amount of vehicles sold, and was thus a commission under California law, exempting those sales consultants from overtime pay under California’s wage orders.

¹ Case No. B219981, May 20, 2011, Ct. of Appeals, 2nd Appellate Dist., 1st Div.

² California Labor Code § 204.1. The primary purpose of Labor Code § 204.1 was to permit car dealerships to pay their salespeople once a month instead of biweekly as imposed upon other California employers.

³ Ramirez v. Yosemite Water Co., (1999) 20 Cal. 4th 785.

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Factual and Procedural Background

The plaintiff, Rogelio Hernandez, an hourly, nonexempt restaurant employee, brought a class action against the Chipotle fast food restaurant chain, charging that the company denied him meal and rest periods. Chipotle subsequently brought a motion to deny class certification, relying on written policies that require managers to provide all employees with meal and rest breaks. Chipotle also introduced evidence that it pays employees for the time they take breaks even though they are relieved of all duties and are free to leave the restaurant. Lastly, Chipotle submitted declarations from a number of employees who attested that they had received all meal and rest breaks, but occasionally had forgotten to record them.

Hernandez brought his own motion for class certification, offering declarations from a number of employees attesting that managers had denied or interrupted their breaks, to varying degrees. Hernandez also relied on a report submitted by his expert suggesting that missed breaks were widespread.

The trial court denied class certification, holding that although Hernandez had established the factors of numerosity, ascertainability of the class, typicality of Hernandez’s claims and adequacy of representation, he had failed to demonstrate that common issues predominated over individual issues; consequently, class treatment was not superior to individual actions. In reaching this conclusion, the trial court recognized the vacuum created by the California Supreme Court’s decision to review Brinker Restaurant Corporation v. Superior Court¹(pdf), but nonetheless concluded that the court was likely to decide that California employers are only required to provide employees with the ability to take breaks, not to ensure that breaks are actually taken. This appeal followed.

Court of Appeal Adopts ‘Provide’ Standard, Affirms Denial of Class Certification

Rather than shy away from the trial court’s embrace of the ‘provide’ standard, the court of appeal expressly affirmed the trial court’s analysis of the meal/rest period issue. It launched its own evaluation of the relevant statutes and regulations, concluding, as the trial court had, that “[i]t 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.”

In reaching this conclusion, the court limited the holding previously reached by another appellate court in Cicairos v. Summit Logistics, Inc. (pdf), 133 Cal. App. 4th 949 (2005), which some have argued had suggested that the “ensure” standard was the appropriate test. The court noted that the Division of Labor Standards Enforcement withdrew the opinion letter on which the Cicairos court based its analysis. Additionally, in Cicairos, the employer had established a system by which its driver employees were pressured to make a certain number of trips per today, a practice which effectively deprived drivers of the ability to take breaks. Hernandez could not point to any such practice implemented by Chipotle. “Thus,” the court concluded, “although the Supreme Court has yet to decide the issue, we hold that the trial court used the correct legal analysis with respect to meal breaks.”

Perhaps more importantly, the appellate court affirmed the trial court’s ability to address the legal issue, even in the vacuum created by the California Supreme Court’s review of Brinker. It noted that the California Supreme Court has not foreclosed trial courts from examining a legal issue at the class certification stage. Nor did another recent appellate decision, Jaimez v. Daiohs USA, Inc. (pdf), 181 Cal. App. 4th 1286 (2010), alter the trial court’s analysis. In Jaimez, the court determined that the defendant’s employment practices presented predominant common factual issues as to the plaintiff’s meal and rest break claims. In Hernandez, however, individual issues predominated. The court noted that some employees declared they always missed meal breaks, while others declared that they received meal breaks but not rest breaks. Still others declared that they were not denied meal breaks, while others simply declared their breaks were simply delayed. Hernandez himself had testified at deposition that he almost always was provided with breaks at one location where he worked, while managers at another location regularly denied him breaks.

Lastly, the court also seized upon the inherent unreliability of the punch data offered by Hernandez. Because Chipotle paid its employees for meal and rest breaks, there was no incentive for employees to accurately record their break time.

This fact, plus various logical flaws in the analysis conducted by Hernandez’s statistical expert, persuaded the court that individual issues predominated over common ones, thereby warranting a denial of class certification. As the court itself noted, “the evidence before the trial court suggested that in order to prove Chipotle violated break laws, Hernandez would have to present an analysis restaurant-by-restaurant, and perhaps supervisor-by-supervisor. Given the variances in the declarations, Hernandez did not demonstrate a common practice or policy.”

Court Certifies Opinion for Publication

The court injected further energy into the meal/rest period debate on October 28, 2010, when it issued an order certifying its opinion for publication. Consequently, it is currently citable and available as precedent.

This decision could have significant ramifications on meal period and rest break practices in California and employers are encouraged to speak to their employment counsel to discuss these issues in detail.

This entry was written by Ryan Eskin.

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¹ On October 22, 2008, the California Supreme Court granted review of Brinker to address the proper interpretation of California statutes and regulations governing an employer's duty to provide meal and rest breaks to hourly workers.

The Labor Commissioner’s Department of Industrial Relations’ (DIR) Division of Labor Standards Enforcement investigation revealed that one contractor asked its employees to tell investigators they were paid $51 per hour when in fact they were only paid $16.25 per hour. The DIR also discovered that the contractors failed to pay proper prevailing wage rates, failed to pay overtime, falsely certified payroll records, and falsely reported work hours of employees.

This latest action demonstrates the State Labor Commissioner’s commitment to enforcing California’s prevailing wage laws. In November 2009, for example, the DIR announced the creation of a new Compliance Monitoring Unit that was created following changes in California’s labor compliance monitoring primarily for projects funded by state-issued public works construction bonds. In addition, earlier last year, the DIR secured nearly $750,000 in wages and penalties as part of a settlement of two substantial prevailing wage enforcement actions and debarred nine contractors from public works projects for similar violations of California prevailing wage laws. These settlements and debarments are intended to send a strong message to contractors and their workers that prevailing wage violations will not be tolerated. “The action that I am taking will help to create a level playing field for legitimate employers operating in this tough economic time,” added Commissioner Bradstreet.

This entry was written by Michele Z. Stevenson.