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See’s filed a writ of mandate with the Court of Appeal, Fourth Appellate District, which was denied. See’s subsequently petitioned for review with the California Supreme Court. That petition was supported by amicus curiae letters from numerous employer groups including the California Chamber of Commerce, Employer’s Group, California Retailers Association, and California Employment Law Council. Those groups urged the California Supreme Court to review the decision because of its importance to California employers, who now face uncertainty with respect to their timekeeping practices.

California employers long have relied on the position taken by the federal Department of Labor (“DOL”), and expressly adopted by the California Division of Labor Standards Enforcement (“DLSE”), that rounding to the nearest one-tenth or one-quarter of an hour is permissible as long as, over a period of time, it does not fail to compensate employees for all hours worked. (See 29 C.F.R. § 785.48(b); DLSE Manual §§ 47.1 and 47.2). In these circumstances, no California appellate court has found rounding to be unlawful, and other federal and state trial courts have upheld the practice.

In briefing, both See’s and employers’ groups warned that if the high court did not intervene, employers would find themselves fighting against a wave of class action lawsuits challenging the validity of rounding practices that employers had in good faith believed were lawful. This would force employers to eliminate rounding practices or face the risk of litigation, which frequently results in large settlements because of the high costs of such litigation.

The California Supreme Court’s order requiring appellate review of the trial court’s decision is welcome news for employers. The issue is one of first impression for the California appellate courts, and the hope is that the Court of Appeal's ruling will clarify for employers whether rounding employee time entries is legal in California.

The opening brief in the Court of Appeal is due on March 5, 2012, with a responsive brief and applications to file amicus curiae briefs due by April 4, 2012.

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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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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.

As a general rule, the DOL has taken the position that interns providing services to for-profit employers are employees who are covered by the minimum wage and overtime provisions of the FLSA. However, the DOL has recognized that there are situations where individuals who participate in certain “for-profit” private sector internships or training programs may do so without being compensated for their work. According to the new Fact Sheet, for an individual to be considered an unpaid “intern,” the following six criteria must be met:

1. The internship, even though it includes actual operation of the facilities of the employer, must be similar to training which would be given in an educational environment. According to the Fact Sheet, “the more an internship program is structured around a classroom or academic experience as opposed to the employer’s actual operations, the more likely the internship will be viewed as an extension of the individual’s educational experience.”
2. The internship experience must be for the benefit of the intern.
3. The intern must not displace regular employees. Rather, the intern must work under close supervision of existing staff.
4. The employer that provides the training must not derive any immediate advantage from the activities of the intern, and on occasion its operations may actually be impeded.
5. The intern is not necessarily entitled to a job at the conclusion of the internship. In this regard, the internship should not be used as a “trial period” to determine whether the individual is suitable for continued employment.
6. The employer and the intern must understand that the intern is not entitled to wages for the time spent in the internship.

As the DOL notes in the Fact Sheet, the intern exclusion is “quite narrow” given that most individuals performing work for an employer are deemed to be employed under the FLSA’s extremely broad definition of “employ.” As a result, for-profit employers who intend to utilize interns without paying them minimum wage or overtime must carefully evaluate the realities of the situation to determine whether a bona fide intern relationship exists. 

This entry was written by Jennifer L. Mora.

California

A November 3, 2009 California Division of Labor Standards Enforcement (DLSE) memo indicated that the overtime exemption rates for licensed physicians and surgeons, and computer software employees in California will remain unchanged for the period beginning January 1, 2010.

Also, an August 19, 2009 DLSE opinion letter withdrew a 2002 opinion letter that precluded partial week furloughs of exempt employees, and in the process conformed California law on furloughing exempt employees to federal law. For more information, please see our previous entry and ASAP.

Illinois

HB 3634, effective August 14, 2009, amended Illinois’ Equal Pay Act and now requires that an employer preserve personnel records for a specified period of time. Additionally, an action to collect a wage claim must be brought within one year from the date of underpayment.

New York

SB 3357, effective October 26, 2009, requires that employers provide employees with written notice at the time of hire of their regular and overtime hourly wage rates, and to obtain a written acknowledgement of receipt of this notice. Although no particular form is required, the New York Department of Labor has created a form that employers can use to ensure compliance.

New Jersey

New Jersey Administrative Code § 12:55-2.1 was amended, effective September 21, 2009, to permit employers to withhold or divert a portion of an employee's wages for health club membership fees or for child care service. The deduction must be authorized either in writing by the employee, or under a collective bargaining agreement. For more information, please see our previous entry.