The Colorado Department of Labor and Employment has announced that, effective January 1, 2013, the minimum wage for non-exempt employees will increase from $7.64 to $7.78 per hour. Moreover, the minimum wage that tipped employees must be paid increases from $4.62 to $4.76 per hour, whereas the maximum tip credit employers may apply towards meeting their minimum wage obligation remains $3.02 per hour. Colorado joins Missouri, Vermont, and 7 other states that will have increased minimum wage rates in 2013.
Washington's highest court has ruled that missed paid rest breaks count as "hours worked" that trigger overtime obligations for employers. According to the court, employers must add missed rest break time to their employees' hours actually worked, and pay an overtime premium for any resulting hours over 40 in a workweek. Thus, an employee who works 40 hours in a workweek and misses a required 10-minute paid rest break is owed compensation at the overtime rate of one and one half times the regular rate for the missed 10-minute rest break. To learn more about the decision, please see Littler's ASAP, Washington State Supreme Court Orders Overtime Payment for Missed Breaks, by Daniel Thieme and Breanne Sheetz.
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.
The new law also clarifies that, in the case where a commission plan expires and where the parties nevertheless continue to work under the terms of the expired contract, the contract terms are presumed to remain in full force and effect until the contract is superseded or the employment relationship is terminated by either party. This further reinforces the need for employers to provide updated commission plans prior to implementing them among their workforce.
While the statute does not include any specific penalty provisions for failure to comply, employers should be wary of ignoring this requirement and potentially strengthening an employee’s argument that his or her interpretation of the plan terms and provisions is entitled to greater weight.
Year end is also the perfect time to evaluate the legality and viability of existing compensation plans, especially with respect to compliance with multi-state requirements. Please contact your trusted Littler adviser for assistance with incentive compensation issues.
Littler webinars on written California Commission Plan Requirements will be conducted on the following dates.
- December 13, 2012 – 10:00 a.m. PST (1 hour program)
- January 9, 2013 – 10:00 a.m. PST (1 hour program)
If interested, please contact: Cheri Devlin at 408.961.7105 or firstname.lastname@example.org.
Photo credit: Christian Baitg
For the first time since July 2009, the Missouri minimum wage will exceed the federal rate. The Missouri Department of Labor & Industrial Relations announced that, effective January 1, 2013, the state minimum wage for non-exempt employees will increase from $7.25 to $7.35 per hour. Moreover, the minimum wage that tipped employees must receive increases from $3.63 to $3.68 per hour, and the maximum tip credit employers may take increases from $3.62 to $3.67 per hour. The Missouri announcement comes a few days after Vermont announced an increased 2013, and shortly after a host of other states announced higher minimum wage obligations for employers in 2013.
California Announces 2013 Minimum Pay Requirements for Exempt Computer Software, Physician and Surgeon Employees
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.
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.
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.
The 2013 federal minimum wage will remain unchanged at $7.25 per hour for non-tipped employees, and $2.13 per hour for tipped employees. However, 7 states have announced that their minimum wage will increase on January 1, 2013. Moreover, one state has proposed an increase. Additionally, 2013 minimum wage determinations have not yet been announced by two states whose minimum wage is adjusted each January 1.
States Increasing Minimum Wage
Arizona: The Industrial Commission of Arizona announced that the minimum wage will increase from $7.65 to $7.80 per hour for non-exempt employees effective January 1, 2013. The minimum wage for tipped employees increases from $4.65 to $4.80 per hour, plus tips.
Florida: It was announced that the minimum wage will increase from $7.67 to $7.79 per hour, effective January 1, 2013. The minimum wage for tipped employees increases from $4.65 to $4.77 per hour, plus tips.
Montana: The Department of Labor & Industry announced that effective January 1, 2013, the minimum wage will increase from $7.65 to $7.80 per hour for non-exempt employees.
Ohio: The Department of Commerce announced that effective January 1, 2013, the minimum wage will increase from $7.70 to $7.85 per hour for non-tipped employees. In 2013, the minimum wage increases from at least $3.85 to at least $3.93 per hour, plus tips, for tipped employees. Note that the 2013 minimum wage provisions will only apply to business with annual gross receipts of more than $288,000 per year (in 2012: more than $283,000 per year).
Oregon: The Bureau of Labor & Industries announced that effective January 1, 2013, the minimum wage will increase from $8.80 to $8.95 per hour for non-exempt employees.
Rhode Island: The governor signed two bills (available here and here) increasing the minimum wage from $7.40 to $7.75 per hour for non-exempt employees, effective January 1, 2013. Rhode Island permits employers to apply a tip credit toward satisfying its minimum wage obligations for tipped employees, and sets a minimum cash wage tipped employees must be paid. However, that statute was not amended, so the minimum cash wage a tipped employee must be paid remains $2.89 per hour. However, the tip credit an employer may apply increases from $4.51 to $4.86 per hour.
Washington: The Department of Labor & Industries announced that effective January 1, 2013, the minimum wage will increase from $9.04 to $9.19 per hour for non-exempt employees.
State Proposing Minimum Wage Increase
Colorado: The Department of Labor & Employment has proposed increasing the minimum wage, effective January 1, 2013, from $7.64 to $7.78 per hour for non-tipped employees. The Department also proposes increasing the minimum wage from to $4.62 to $4.76 per hour for tipped employees.
States Where Minimum Wage Determination Is Pending
By statute, the minimum wage in Missouri and Vermont is adjusted on January 1. However, to date, no announcements have been made concerning these states’ 2013 minimum wage.
We will continue to monitor, and report on, final minimum wage determinations in Colorado, Missouri, and Vermont.
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In Rindfleisch v. Gentiva Health Services, Inc., five former home healthcare clinicians brought claims on behalf of a class of thousands of registered nurses, physical therapists, and occupational therapists for alleged overtime violations, asserting they were misclassified as exempt employees and therefore denied overtime compensation for hours worked over 40 in a workweek. A federal district court recently denied class certification of the plaintiffs’ state law misclassification claims, finding the claims were too individualized and that proceeding as a class action would render the case unmanageable. To learn more about the decision, please continue reading at Littler’s Healthcare Employment Counsel.
New California Bill Clarifies that Non-Exempt Employee Salary Covers Only Regular Non-Overtime Hours
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
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.
North Carolina Governor Beverly Purdue Forms Task Force to Scrutinize Independent Contractor Misclassification
By Julie Adams
On August 22, 2012, Governor Beverly Perdue issued Executive Order 125 establishing a task force to address concerns that North Carolina employers are allegedly misclassifying employees as independent contractors to avoid obligations under federal and state laws, including laws governing wage and hour issues. According to the Order, the primary purposes of the “Task Force on Employee Misclassification” are “to enhance coordination and communication among various state agencies,” and “to identify effective mechanisms to combat unlawful practices like employee misclassification that harm workers.” The Task Force will be chaired by the Commissioner of Insurance and include heads of various state agencies, or their designees, and representatives of other entities with expertise on these issues, such as the Commissioner of Labor.
Of particular significance to North Carolina companies who use independent contractors, Governor Purdue directed the Task Force to “[i]dentify sectors of the economy where misclassification occurs most frequently” and “[i]dentify ways to increase the filing of complaints by employees and other members of the public against noncompliant employers.” One goal of the Task Force is to “utilize a cooperative approach in working with employers and community groups” in an effort “to reduce the prevalence of employee misclassification” through the promotion of education materials explaining the distinction between employees and independent contractors, and raising public awareness of the problems arising from misclassification.
The panel will also consider changes to North Carolina laws and regulations and work with state and local investigators and prosecutors to enhance enforcement and develop procedures to ensure that “appropriate” misclassification cases are referred for criminal prosecution.
Reports regarding the Task Force’s activities, including summaries of the panel’s accomplishments and proposed legislative and regulatory changes are due to the Governor every six months.
In a pair of recent decisions, the United States District Court for the Western District of Pennsylvania held that the “fluctuating workweek” method of calculating overtime is not lawful under Pennsylvania law when the employer pays an overtime premium of one-half of the employee’s regular hourly rate, in addition to the employee’s salary. Foster v. Kraft Foods Global, Inc., 2012 U.S. Dist. LEXIS 121282 (W.D. Pa. Aug. 27, 2012); Cerutti v. Frito Lay, Inc., 777 F. Supp. 2d 920 (W.D. Pa. 2011). While these cases do not necessarily represent the last word on the subject (indeed, the Foster case is still pending in district court), employers who utilize the fluctuating workweek method in Pennsylvania should take note of these developments.
Under federal law, the fluctuating workweek method allows an employer to pay an employee a fixed weekly salary for all hours worked, so long as the employer also pays an overtime premium equal to one-half of the employee’s regular hourly rate for hours worked in excess of 40 per week. In order to determine the employee’s regular hourly rate, the employee’s salary is divided by all hours worked during the week. Because the employee has already been paid (by the salary) at that regular rate for all hours worked (including the overtime hours), the employee is only owed an additional “one-half” the regular rate for the overtime hours. This method of calculating overtime is expressly authorized under the federal Fair Labor Standards Act (FLSA). 29 C.F.R. § 778.114.
The Pennsylvania Minimum Wage Act (PMWA) does not include language tracking the FLSA’s fluctuating workweek provision. Rather, employers utilizing the fluctuating workweek method in Pennsylvania have relied on 34 Pa. Code section 231.43(d)(3), which provides:
No employer may be deemed to have violated [the PMWA] by employing an employee for a workweek in excess of [40 hours] if, under an agreement or understanding arrived at between the employer and the employee before performance of the work, the amount paid to the employee for the number of hours worked by him in the workweek in excess of [40 hours] . . . [i]s computed at a rate not less than 1½ times the rate established by the agreement or understanding as the basic rate to be used in computing overtime compensation thereunder. . . .
In Foster and Cerutti, the court held that section 231.43(d)(3) requires overtime payment at a rate of “1½ times” the regular rate, and does not authorize the “½ time” calculation used under the FLSA’s version of the fluctuating workweek.
In Foster, the court did not dispute that section 231.43(d)(3) may authorize the employer to use the fluctuating workweek method to calculate an employee’s regular hourly rate. However, the court concluded that the employer must then pay overtime at a rate of one-and-one-half times that hourly rate for all overtime hours worked – in addition to the employee’s full salary. This effectively results in employees earning “double time and a half” for overtime hours.
To better understand how this might work in Pennsylvania, consider the following example. An employee is paid a salary of $400 per week and works 50 hours in a week. Under both the FLSA and the PMWA, the employee’s regular hourly rate would be $8 per hour ($400 / 50 hours). Under the FLSA fluctuating workweek method, the employee would be owed an additional $40 as an overtime premium ($8/hour x ½ x 10 hours), or $440 total. Under Pennsylvania law as described in Foster and Cerutti, however, the employee would be owed an overtime premium of $120 ($8/hour x 1½ x 10 hours), for a total of $520.
In Foster, the employer argued that the fluctuating workweek method complies with the “1½ times” requirement because the employee’s salary is compensation for all hours worked, and thus the employee receives the “1 times” component of the “1½ times” overtime obligation via the salary payment, leaving only the “½ times” component as the overtime premium. In our view, this is the correct interpretation of the applicable provision of the Pennsylvania Code. The Foster court rejected this interpretation, however, calling it a “textbook example of trying to force a square peg into a round hole.”
In our view, by focusing solely on the “1½ times” language of section 231.43(d), the Foster and Cerutti decisions overlooked that section 231.43(d) does not require payment of the employee’s entire salary in addition to the “1½ times” the amount determined to be the employee’s hourly rate. In fact, section 231.43(d) does not even mention the concept of “salary” as a necessary prerequisite for compliance with that section. It would seem, therefore, that an employer and employee should be permitted to agree that for purposes of Pennsylvania law the employee’s “salary” is simply a tool that is used to determine the employee’s “basic rate to be used in computing overtime” (which would be determined by dividing the salary by all hours worked). Then, the employee would be paid that “basic rate” for the first 40 hours, and “1½ times” that “basic rate” for all overtime hours. Following the above example, the employee’s “basic rate” would be $8 per hour ($400 / 50 hours), and the employee would be paid $8 per hour for the first 40 hours (or $320), and $12 per hour for the 10 overtime hours (or $120), for a total of $440. The end result would be payment of the same amount authorized under the FLSA, while still complying with the “1½ times” requirement of Pennsylvania law. While this approach may enable employers to continue using the fluctuating workweek method in Pennsylvania, we note that the Pennsylvania Code requires that there be an “agreement or understanding” about the approach before the work is performed. Thus, employers should carefully consider whether their existing fluctuating workweek policies provide employees with sufficient information to understand how their overtime will be calculated for purposes of the FLSA and also for purposes of Pennsylvania law. Also, we emphasize that Foster and Cerutti did not endorse (or even consider) this potential approach, and we anticipate further challenges. Employers who continue to utilize the fluctuating workweek method in Pennsylvania should take note of Foster and Cerutti and should recognize the risks associated with continuing to utilize this practice in Pennsylvania.
Photo credit: Matthew John Hollinshead
On August 6, 2012, Governor Deval Patrick of Massachusetts signed into law Senate Bill 2400, "An Act improving the quality of healthcare and reducing costs through increased transparency, efficiency and innovation." The law is primarily intended as a healthcare cost containment measure and has received some fanfare for that aspect. What has received considerably less attention are two provisions of the law that apply to hospitals as employers, one of which prohibits mandatory overtime for nurses. To learn more about the law and its potential implications for hospital employers, please continue reading Littler's ASAP, Massachusetts Healthcare Bill Bans Mandatory Overtime for Nurses and Limits Spending to Oppose Unionization, by John Doran and Carie Torrence.
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.
UPDATE: Governor Cuomo signed this legislation into law on September 7, 2012.
It will go into effect on November 6, 2012.
The New York State Senate and Assembly recently passed a bill amending New York Labor Law section 193 to expand an employer's ability to make deductions from employee wages. The bill is currently awaiting delivery from the New York State Assembly to the governor's office for his approval. The governor's approval is virtually certain as his office previously submitted a memorandum supporting the amendment.
Once effective, the new law will amend Labor Law section 193 to allow employers to make additional wage deductions, with an employee's written consent, for:
- Prepaid legal plans;
- Purchases at certain charitable events;
- Discounted parking or passes, fare cards, or vouchers related to mass transit;
- Fitness, health club or gym memberships;
- Cafeteria, vending machines and pharmacy purchases at the employer's premises;
- Tuition, room, board and fees related to certain education institutions; and
- Certain child care expenses.
To learn more about the legislation and its potential implications for employers, please continue reading Littler's ASAP, Wage Deductions Almost Legal in NY? Legislation Allowing Employers to Make Wage Deductions Awaits Governor's Signature, by Bruce Millman and Adam Colón.
UPDATE: On July 5, 2012, the Governor signed the 8/80 bill (HB 1820). While the legislature’s action was certainly welcome news for Pennsylvania employers who had been using the 8/80 method, the amendment is prospective only, so employers may continue to face litigation over this issue for prior use of the 8/80 method. Also, this incident stands as a stark reminder to all Pennsylvania employers that wage and hour compliance is not just a federal issue. Where Pennsylvania law differs from the FLSA (and there are many such differences, even now that the 8/80 issue has been reconciled), employers must be aware of their obligations under both federal and state law.
In what would bring an end to a recent rash of class actions aimed at healthcare employers, the Pennsylvania Legislature presented Governor Corbett with a bill on June 28 that would amend the Pennsylvania Minimum Wage Act (PMWA) to specifically allow healthcare employers to pay employees overtime on a 14-day workweek, as opposed to a 40-hour workweek. The amendment would bring the PMWA into compliance with a provision of the Fair Labor Standards Act (FLSA) that permits medical facilities to pay employees overtime for hours worked in excess of 8 hours per day or 80 hours in a 14-day period. To learn more about the legislation and its potential implications for employers, please continue reading at Littler's Healthcare Employment Counsel blog.
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:
- All working employees shall be provided with suitable seats when the nature of the work reasonably permits the use of seats.
- 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.
In determining the nature of the work for a clerk/cashier at CVS, the court noted that it was undisputed that many of the duties at issue required employees to stand while performing them (i.e., stacking, helping customers with locating items, sweeping or other cleaning, retrieving items from a high shelf, and retrieving photographs or cigarettes from other parts of the store). In fact, the plaintiff herself testified that many of the tasks she performed could not be performed while seated. The court also found it appropriate to consider the employer’s “business judgment” in attempting to discern the nature of an employee's work. While the court did not go so far as to find that CVS's business judgment was necessarily entitled to deference, the court did find that the expectation that the majority of duties would be performed while standing was relevant to understanding the nature of a clerk/cashier's work. The undisputed facts confirmed that CVS expected its employees to place a premium on customer service and in doing so trained its employees to be ready to perform any one of a multitude of job duties that required being on their feet. The plaintiff's own experience confirmed the standing requirement as she was instructed that she would be required to stand while operating a cash register during her job interview.
The court ultimately concluded that if the majority of employees’ assigned duties must be performed while standing, and the employer expects and trains employees to stand while performing their duties, the “nature of the work” requires standing. When applied to the plaintiff, the court concluded that CVS need not comply with subsection A as the nature of the work of a clerk/cashier at CVS does in fact require standing.
While this decision is cause for cautious optimism for employers facing seating lawsuits, employers should be mindful of the recent decision in Garvey v. Kmart Corp. by a federal judge in California's Northern District, finding that disputed facts existed regarding the nature of the plaintiffs’ work, precluding summary judgment.
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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.
The Tennessee General Assembly recently amended the state’s meal and rest break law to require meal breaks for tipped employees in the food and beverage industry. Fortunately, the new law also allows tipped employees to waive their right to meal breaks as long as employers follow a very specific process.
Under Tennessee law, employers must grant employees a 30-minute unpaid meal break unless the nature of the business provides “ample opportunity [for employees] to take an appropriate meal break.” Before the recent amendment, Tennessee employers in the food and beverage industry were not obligated to grant rest breaks to their tipped employees. In the interest of providing regulatory guidance to employers in the industry, the Tennessee Department of Labor determined that waiters and waitresses fall within the exception to the meal break requirement because, by the nature of the business in which they work, there is ample opportunity to take a meal break. As a result of the Tennessee DOL’s guidance, employers in the food and beverage industry were able to avoid disruptions in service caused by meal breaks and provide the uninterrupted attention that is vital to customer satisfaction.
The recent amendment, however, supersedes the Tennessee DOL’s guidance and requires employers in the industry to provide meal breaks to all tipped employees in the service of food or beverages to customers. Realizing that unpaid meal breaks may be unpopular in the industry, the Tennessee General Assembly inserted a provision in the new law that allows tipped employees to waive their rights to unpaid meal breaks by signing a waiver request form. To obtain a valid meal break waiver, an employer must develop a waiver request form that acknowledges an employee’s right to an unpaid meal break and allows the employee to knowingly and voluntarily waive that right.
In addition to providing a valid waiver request form, the employer also must post in at least one conspicuous place in the workplace a reasonable policy that permits employees to waive their meal breaks subject to the demands of the work environment. The employer’s meal break waiver policy must contain the employer’s waiver form, must identify the length of time the waiver will be effective, and outline the procedure for rescinding the waiver agreement. For a waiver to be valid, the employee must submit the waiver request knowingly and voluntarily and both the employer and employee must consent to the waiver. In other words, the employer cannot coerce the employee into waiving a meal break.
The amendments become effective on May 16, 2012, and directly and significantly impact industry employers whose tipped employees may wish to waive their rights to meal breaks.
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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.
Timing of Meal Periods
The California Supreme Court further held that employers must provide meal periods in accordance with the applicable Wage Order within the first five hours of a work shift. The court rejected the plaintiffs' argument that a meal must be provided every rolling five hours of work. Consequently, the first meal must be afforded no later than the end of the employee’s fifth hour of work (or no later than the start of an employee’s sixth hour of work), and a second meal period no later than the end of an employee’s 10th hour of work.
Regarding rest breaks, the Brinker court held that a “major fraction” of a four-hour work period is anything more than two hours over and above the prior four-hour work period. Consequently, the rest break rules now mean: an employee who works a shift of only 3.5 hours or less is entitled to no rest break; an employee who works 3.5 to 6 hours is entitled to one 10-minute rest break; an employee who works more than 6 and up to 10 hours is entitled to two 10-minute rest breaks, and an employee who works more than 10 and up to 14 hours is entitled to three 10-minute rest breaks.
In terms of the timing of rest breaks, the court sided with Brinker, holding that employers are “subject to a duty to make a good faith effort to authorize and permit rest breaks in the middle of each work period, but may deviate from that preferred course where practical considerations render it infeasible.” The court rejected the plaintiffs' contention that the rest period must in all situations be provided before the meal period.
The California Supreme Court clarified the trial court’s approach to determining whether to certify meal period and rest break claims. The court found it was error for the Court of Appeal to reverse class certification on the basis that rest breaks can be waived because Brinker’s uniform policy itself was alleged to violate the law. As for the meal period class, the court remanded to the trial court to reconsider its certification. Because the trial court used a class definition that assumed that Brinker was required to provide a meal period for every rolling five hours of work, the trial court must now reconsider whether the meal period claims should be certified in light of the clarification of the law now provided.
As a result, under certain circumstances class claims of meal and rest break violations may be certifiable. However, because it is now clear that employers must only make an off-duty meal period available and must simply authorize and permit rest breaks, meal period and rest breaks claims should be much more difficult to certify because of the individualized questions of fact those claims raise, assuming that the employer has legally compliant policies.
Compliance is Key
Importantly, the California Supreme Court did not address whether its decision should be applied on a prospective basis only, apparently leaving the argument open for parties to litigate in their individual cases. Employers should therefore immediately review their meal period and rest break policies and make any modifications necessary to reflect the Brinker court’s rulings today, and train their employees about the meal period and rest break policies as soon as possible.
For an even more detailed examination of the Brinker decision and its implication for employers, please see Littler’s ASAP, California Supreme Court Clarifies Employer Meal & Rest Period Duties, by Julie Dunne and Alison Hightower.
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As we reported earlier, the New Jersey Department of Labor and Workforce Development (DLWD)amended its wage and hour regulations in September 2011 to eliminate inconsistencies between state and federal overtime law. In so doing, the DLWD inadvertently omitted the exemption for commissioned sales employees, commonly referred to as the “inside sales” exemption, from the amendment. The DLWD’s mistake, which it acknowledged was inadvertent, potentially put employers at risk for misclassification lawsuits.
Now, however, the DLWD has corrected its error, and on February 21, 2012, the exemption was fully restored. The regulation now defines “administrative” employee to include an employee whose: (1) primary duty is sales; (2) total compensation is comprised of at least 50% commissions; and (3) total compensation is $400 or more per week.
Notably, the restored New Jersey “inside sales” exemption differs from the exemptions available under federal law. As a result, employers should carefully analyze whether their commissioned sales employees qualify as exempt under both state and federal law.
In a case of first impression, a Massachusetts Superior Court judge recently held that an employer may adopt a policy prohibiting employees from accepting tips from customers without violating the Massachusetts Tips Law. Any such policy, however, must clearly and conspicuously be announced to customers, such that a reasonable customer would understand that any money left by the customer would not be given to employees as a tip.
In Meshna v. Scrivanos, a number of employees who worked at Dunkin’ Donuts franchises sued the owner/operator of those franchises, claiming that the stores’ no-tips policy violated Massachusetts law. The policy required employees to return tips to customers. According to the complaint, if the employee was unable to return a tip to a customer, then the employee was required to put the tip in the register to be retained by management.
The defendant moved for judgment on the pleadings, arguing that Massachusetts law permits employers to have a no-tipping policy. The court agreed with the defendant’s argument in principle, holding that the Massachusetts Tips Law does not prohibit “a no-tipping policy that is clearly and conspicuously announced” to customers such that a reasonable customer would understand that any money left by the customer would not be given to employees as a tip.
However, the court denied the defendant’s motion because the complaint alleged that customers routinely left, or attempted to leave, tips. The court reasoned that this practice supported an inference that many customers believed that the money they left would go to employees as a tip for services rendered. This practice, coupled with the allegation that any money left by customers would be retained by management, cast doubt on whether the policy in place had been clearly and conspicuously announced to customers.
The court concluded by noting that if “an employer chooses to prohibit tipping, it must take responsibility for communicating that policy to its customers effectively. If it does, so that customers could not reasonably expect money left on the counter to be treated as tips, the conclusion may follow that such money is not received by or given to employees as tips.” Under these circumstances, a no-tipping policy would not violate the Massachusetts Tips Law.
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California Court of Appeal Finds Employees Are Exempt Under California's Commissioned Sales Exemption
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.
Some candidates were retained by Surrex as consultants, and their services were leased to Surrex’s clients. The plaintiffs’ compensation for this type of placement was a percentage of the “adjusted gross profit” earned by Surrex. The starting point of this calculation was the rate received from Surrex’s client for the services of the consultant. From this, Surrex subtracted the costs of employing the particular consultant – typically the consultant’s pay, benefits, and expenses as well as an overhead adjustment factor. Commissions were paid as a percentage of the resulting “adjusted gross profit.”
The plaintiffs argued that only time spent finding new client companies was time spent selling, and contended that none of their work to identify and recruit candidates was sales activity. The court rejected this argument. Finding that the plaintiffs’ “primary duty was to recruit ‘candidates’ for employer ‘clients,’” the court agreed with the trial judge that ignoring all the activity that must be done before the actual point in time when a sale is made “perceives the word sales in a vacuum contrary to the job description of any salesman.” The tasks associated with identifying job candidates were “essential prerequisites necessary to accomplishing the sale.” Finding these activities to be sales related, the court concluded that the plaintiffs were “employed principally in selling a product or service.”
The plaintiffs also argued that pay earned as a percentage of the “adjusted gross profit” could not qualify as a commission because the formula was “far too complex” and was not based solely on the price of services sold. They contended that California courts require that a “commission” be based solely on a percentage of price. The Muldrow court rejected this argument, branding it an “excessively narrow and wooden application” of prior cases, neither of which had any occasion to address the question.
The court also distinguished decisions cited by the plaintiffs because the employees in those cases increased the profitability of their companies by increasing revenue, while plaintiffs’ efforts affected not only the revenue received by Surrex, but the costs incurred. A compensation plan based solely on price would reward the plaintiffs’ efforts to increase profits by increasing revenue, but do nothing to reward those who helped Surrex achieve greater profits by limiting costs. Referencing older cases addressing commission disputes, the court noted that “a commission based on profits is hardly a concept foreign to California law.” The court concluded that “Surrex’s commissions were sufficiently related to the price of services sold to constitute commissions for purposes of the commissioned employees exemption (Cal.Code. Regs., tit. 8, § 11070, subd. (3)(D)).”
The Muldrow decision applies a dose of common sense in answering some fundamental questions that had not been answered before. In the future, however, employers should consult counsel before relying on Muldrow, to be certain that it has not been taken up for review before the California Supreme Court. Once review is granted, as those who are “waiting for Brinker” are well aware, a case cannot be cited or relied upon in court proceedings. Because it provides new answers, Muldrow is a potential candidate for review.
Is Rounding of Employee Time Entries Legal in California?--California Supreme Court Orders Appellate Court to Decide
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.
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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Insurance Company Special Investigators are Exempt Under Federal and State Laws, Ohio District Court Rules
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.
Nationwide continuously maintained that Special Investigators were properly classified as exempt administrative employees under federal and state wage and hour law. To qualify for the FLSA’s administrative exemption, employees must be compensated at a rate not less than $455 per week; their “primary duty” must be the “performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers;” and the primary duty must include “the exercise of discretion and independent judgment with respect to matters of significance.” In March 2010, the court found that Nationwide had satisfied the first two elements of the administrative exemption test, but determined that material issues of fact existed as to the third element.
In September 2011, a two-week trial commenced before U.S. District Judge Edmund A. Sargus Jr. on the remaining issue of whether the Special Investigators’ primary duty includes the exercise of discretion and independent judgment. The parties called sixteen witnesses to testify at the trial, submitted testimony from two additional witnesses via deposition transcript, and admitted dozens of exhibits into evidence. The court ultimately concluded that the Special Investigators’ primary duty is to conduct investigations into suspicious claims for the purpose of resolving indicators of fraud present in those claims. The court further concluded that this primary duty includes the exercise of discretion and independent judgment with respect to matters of significance in at least two ways: Special Investigators: (1) are tasked with resolving indicators of fraud; and (2) have nearly unilateral discretion to refer claims to law enforcement or the National Insurance Crime Bureau (“NICB”).
While the plaintiffs contended that resolving indicators of fraud was merely the gathering and reporting of facts, the court disagreed. The court concluded that the Special Investigators determine the truth about what happened on a suspicious claim, which “necessarily requires judgment and discretion.” The court noted that nearly all of the Special Investigators who testified at trial characterized their investigations as searches for the truth and that “A doctorate in philosophy is not required to realize that the ‘truth’ is not an entirely objective concept. Determining truth requires ‘factual findings,’ a process that necessarily requires judgment and discretion.” In addition, because the Special Investigators’ resolution of fraud indicators can have an influence on a claims adjuster’s decision to pay or deny a claim, they exercised discretion and independent judgment on matters of significance.
The plaintiffs also claimed that referrals to law enforcement and NICB are automatic. However, the court noted that such referrals are made when the Special Investigator is unable to resolve the indicators of fraud. Accordingly, the judgment and discretion that is inherent in the resolution of fraud indicators also attaches to the decision to make a referral. In addition, because these referrals can subject individuals to criminal prosecution, they pertain to matters of significance.
Finally, because the parties stipulated that the New York claims would rise or fall with the FLSA claims, the court awarded judgment to Nationwide on those state claims, and also awarded judgment to Nationwide on the California state law claims after determining that the Special Investigators satisfied the California Labor Code requirement that they are “primarily engaged in the duties that” meet the administrative exemption, and “customarily and regularly exercise discretion and independent judgment in performing” those duties.
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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.
The trial court granted the defendant summary judgment, finding that the plaintiff was an independent contractor under the common law standard set forth in S. G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989), and therefore not entitled to business expense reimbursement or timely payment of wages.
The plaintiff appealed, asserting it was error to apply the common law standard rather than the broader statutory standard under Labor Code section 2750. The court rejected the plaintiff’s contention, stating that “section 2750 does not supply such a definition of ‘employee’ that is clearly and unequivocally intended to supplant the common law definition of employment for purposes of Labor Code section 2802.”
The court then upheld the determination that the plaintiff was an independent contractor under the common law. It found that Mutual’s managers made themselves available to assist agents, but did not supervise them, offered training, but did not make it mandatory, and offered software as a “best practice.” Facilities were offered to agents, who paid a fee for use. While paid at regular intervals, there was no guarantee of compensation. Her appointment was non-exclusive, and she was free to sell other companies’ policies. She was engaged in a distinct occupation requiring licensing by the Department of Insurance, paid all her own expenses, provided her own tools, and the parties believed they were forming an independent contractor agreement. Also, the court noted that while the contract was “at-will,” such clauses could be included in independent contractor agreements. The court thus concluded that there was sufficient evidence to support the trial court’s grant of summary judgment.
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California Supreme Court Finds the "Administrative/ Production Worker Dichotomy" Not Dispositive in Determining Insurance Claims Adjusters Exempt
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.
In Harris, the California Supreme Court overruled the Court of Appeal, which held that the claims adjusters were “production” workers because their work “ investigating claims, determining coverage, setting reserves, etc. is not carried on at the level of policy or general operations, so it falls on the production side of the dichotomy.” Thus, the lower appellate court concluded, they did not perform in a role that was “directly related to management policies or general business operations” and were therefore not exempt administrative employees. The California Supreme Court disagreed.
First, the court rejected the Court of Appeal’s almost exclusive reliance on the administrative/production worker dichotomy analysis. The rigid application of this analysis, the court stated, ignores the limitations of the dichotomy and results in a “strained attempt to fit the operations of modern-day post-industrial service-oriented businesses into the analytical framework formulated in the industrial climate of the late 1940s.” The court clarified, however, that it was not holding that “the dichotomy can never be used as an analytical tool. We merely hold that the Court of Appeal improperly applied the administrative/production worker dichotomy as a dispositive test.”
Second, the court clarified that under the federal regulations California looks to for guidance in applying state exemption classifications, work that is “directly related to management policies or general business operations” includes “advising management, planning, negotiating, and representing the company.” The court admonished the Court of Appeal for interpreting this prong of the administrative exemption too narrowly. In other words, work may be directly related to management policies or general business operations even if it is not performed at the corporate policy level. In this regard the court pointed out that the Ninth Circuit and other federal courts, applying recent applicable federal regulations, have determined claims adjusters satisfy the administrative exemption under the Fair Labor Standards Act “if they perform activities such as interviewing witnesses, making recommendations regarding coverage and value of claims, determining fault and negotiating settlements.”
Third, the court emphasized the importance of assessing the language of the relevant statutes and wage orders as applied to the particular facts of each case, noting “the difficulty in relying on the particular role of employees in one enterprise to deduce a rule applicable to another kind of business.”
The Harris decision therefore is a victory for Liberty Mutual, but it is also a good reminder to California employers of the importance of reviewing the particular circumstances and actual job duties of their exempt administrative employees – as well as their other exempt employees – not just relying on their job descriptions to determine that the exempt classifications are appropriate.
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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.
Second, the store argued that any trial would actually require a series of mini-trials to determine whether there is a reasonable need to offer a seat based upon each individual cashier’s specific duties, store, and other responsibilities. The store argued it would be deprived of its due process rights if it were not able to defend itself on a cashier-by-cashier basis.
Ultimately the court agreed with the store, and held that the plaintiff was not an adequate and competent representative and that allowing her to prosecute the action in a representative capacity pursuant to PAGA would be unmanageable. Thus, with trial set for January 23, 2012, the plaintiff is left to pursue only her individual PAGA claim. The penalties provided for by PAGA are subject to a one year statute of limitations and limited to $100 per pay period for the initial violation and $200 per pay period for each subsequent violation – undoubtedly a significantly lower amount than the plaintiff initially sought to recover.
While this case has significant implications for the ever-popular seating lawsuits plaguing many California employers, it also has a wider impact on all cases asserting PAGA claims. The court reaffirmed that a defendant may proactively utilize a motion to strike in order to test a plaintiff’s representative status and the manageability of a representative claim, while at the same time providing some guidance for defending against a PAGA representative action.
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As previously discussed, in recent amendments to its overtime regulations, New Jersey had inadvertently eliminated the exemption for sales employees paid on commission, which closely tracked an exemption in Section 7(i) of the Fair Labor Standards Act (sometimes known as the "inside sales" exemption).
After Littler assisted in drawing attention to this issue, the New Jersey Department of Labor and Workforce Development published on November 21, 2011, a proposed amendment to its regulations designed to restore the exemption. A public hearing on the proposed amendment is scheduled for Tuesday, December 13, 2011, and written comments are due by January 20, 2012. Final regulations, then, could issue as early as February.
To learn more about the proposed amendment and its implications for employers, please continue reading Littler's ASAP, New Jersey Issues Proposed Regulations to Restore Its Exemption for Commissioned Sales Employees, by Tammy McCutchen.
On May 9, 2011, the U.S. Department of Labor announced the launch of its first smartphone application, an electronic timesheet employees can use to track their hours of work, including breaks. According to a DOL press release, the information tracked through this application “could prove invaluable during a Wage and Hour Division investigation when an employer has failed to maintain accurate employment records.” The app, currently available in English and Spanish and only for iPhone, iPad and iPod Touch devices, allows users to input their hourly rate of pay and calculates the amount of wages due to the worker. Additionally, through the app, users can add comments related to their work hours; view a summary of work hours in a daily, weekly and monthly format; and email the summary of work hours and gross pay as an attachment. A glossary, limited information regarding wage and hour laws, and contact information for the DOL are accessible through the app. The agency stated it will pursue the development of updates that allow employees to track their tips, commissions, bonuses, deductions, holiday pay, pay for weekends, shift differentials and pay for regular days of rest, among other pay information.
The DOL intends to explore updates to this application to make it or similar versions compatible with other smartphone platforms, such as the Android and BlackBerry.
The DOL also has made available a printable work hours calendar for workers who do not own smartphones. This downloadable calendar allows workers to track their rate of pay, start and stop times, and arrival and departure times, and includes information about workers’ wage and hour rights and how to file a wage violation complaint. The new app poses several concerns for employers. First, the app has the potential to create confusion where, for instance, an employer has a permissible time entry rounding system in place. Because the app does not provide for rounding, in such instances, there may be discrepancies between the amount of time recorded by an employee (and the amount of wages calculated by the app to be due) and the employer's time records. Second, the app could potentially be abused by workers who “clock in” on the app before their actual start time, clock out after their actual stop time, or fail to accurately record non-compensable breaks. Employers should be mindful of these potential problems if an employee attempts to present data from the app as “evidence” of improper wage payment. In fact, the app itself includes a disclaimer of which employers and employees should be aware:
Disclaimer: This App is designed as a reference tool. It does not include every possible situation encountered in the workplace. Some situations not addressed in this App may yield a different result in the calculation of total pay. These include, but are not limited to, situations where, for example, the employee is not covered by the Fair Labor Standards Act or is exempt from the minimum wage and/or overtime pay requirements of the FLSA. Further, the conclusions reached by this App rely on the accuracy of the data provided by the user. Therefore, DOL make no express or implied guarantees as to the accuracy of this information.
Notwithstanding the potential issues raised by the app, employees should not be prohibited from using it at work, as its use may constitute protected activity under the Fair Labor Standards Act and similar state wage laws. However, employers may permissibly enforce existing information technology policies regarding the installation of the app on company-provided electronic devices.
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On February 22, 2011, the Illinois Department of Labor issued emergency rules to more swiftly implement and enforce the legislature’s amendment to the Illinois Wage Payment and Collection Act (IWPCA or the “Act”) that went into effect on January 1, 2011. The amendment modified the Act by: (1) clarifying an employee’s right to pursue a private right of action; (2) providing a new administrative forum for claims under $3,000; (3) imposing enhanced civil and criminal penalties; and (4) expanding employees’ protection from retaliation. With the emergency rules now in place, the Act has been further modified in some of the following ways:
- The Department has reconfirmed that administrative, executive, and professional exemptions to the Act’s overtime requirements shall be determined based on the regulations to Fair Labor Standards Act as they existed prior to the 2004 amendments;
- The Act now specifically prohibits employers from requiring employees to enroll in a direct deposit arrangement.
- Rather than just keep records for each employee, employers must make and maintain records to include particular information about employees’ hours worked, pay, vacation days earned, etc.
- Claimants now have 1 year to file a wage claim (extended from 180 days) from the time their wages or final compensation are due. Employers are likewise allowed 15 days rather than 10 to respond to a wage claim.
The Department’s most substantial addition to the Act, by way of these emergency rules, is the establishment of a formal administrative procedure (so-called “formal default hearings”) for the adjudication of wage claims under $3,000 (which reportedly constitute 75% of all wage claims filed each year). Here are some of the key developments: scheduling and notice requirements for formal default hearings are outlined and explained; consolidation/severance of hearings is possible; the Department is empowered to issue subpoenas to compel the attendance of a witness and/or production of documents; and non-waivable administrative fees and statutory penalties may be assessed upon a finding against the employer.
These emergency rules appear to be an attempt by the Department to increase its enforcement power, while at the same time creating more informal procedures that will allow it to take on more claims per year. The Department is now taking comments on the emergency rules, which will remain effective for 150 days, or until July 22, 2011. On that date, any of the rules that have not been adopted will be nullified. However, it is likely that the emergency rules will, in large part, be ratified as they presently exist.
For more information on the Illinois Wage Payment and Collection Act and its recent amendments, please see our ASAP.
A recent decision by the U.S. District Court for the Southern District of New York illustrates the impact of class waiver provisions in employment agreements. In Sutherland v. Ernst & Young LLP, plaintiff, a former accountant, brought a class action against Ernst and Young (“E&Y”) under the Fair Labor Standards Act and New York law, alleging that she and putative class members were unlawfully denied overtime compensation. E&Y moved to dismiss and compel arbitration of Sutherland’s claims on an individual basis pursuant to the parties’ arbitration agreement which included a class waiver provision.
In denying defendant’s motion, the court relied on In re American Express Merchants’ Litigation, 554 F.3d 300 (2nd Cir. 2009) (“Amex”). There, the Second Circuit invalidated a class waiver provision in an arbitration agreement, finding that it precluded plaintiffs from vindicating their statutory rights. The Amex court held that the enforceability of a class waiver provision should be determined by referencing several factors, including: (1) the provision’s fairness; (2) the individual plaintiff’s cost-to-recovery ratio; (3) the ability to recover attorneys’ fees and costs and thus obtain legal representation; and (4) the waiver’s effect on the company’s “ability to engage in unchecked market behavior.”
The court’s reliance on Amex was surprising considering the Supreme Court’s recent order vacating and remanding the judgment in that case to the Second Circuit for reconsideration in light of Stolt-Nielsen S.A. v. Animal Feeds Int’l Corp, 130 S. Ct. 1758 (2010) (“Stolt-Nielsen”). In Stolt-Nielsen, the Supreme Court held that class arbitration is not permitted unless the parties agree to it. The district court determined, however, that Amex remained persuasive authority and analyzed Sutherland’s case using the factors articulated there.
Based on this analysis, the district court determined that the arbitration agreement at issue was unenforceable. Specifically, the court found that Sutherland’s maximum potential recovery of approximately $1,867.02, was “too meager to justify” her expenses, which were likely to exceed $200,000. The court reasoned that under these circumstances, Sutherland was unlikely to find an attorney willing to represent her. By contrast, if Sutherland was permitted to aggregate her claim with similarly situated individuals, “she would have no difficulty in obtaining legal representation.” Finally, the court asserted that enforcement of the class waiver provision would grant E&Y effective immunity from labor laws. Therefore, the court denied defendant’s motion to dismiss and compel arbitration and permitted plaintiff’s class action to proceed.
This entry was written by Sarah Green.
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California Court of Appeal Holds That Insurance Adjusters Are Exempt-Thereby Limiting The Decision In Bell v. Farmers Insurance Exchange
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.
The court in Bell reached its conclusion by applying the administrative/production dichotomy and did not address whether the adjusters met the duties standards set forth in the language of Industrial Welfare Commission Wage Order No. 4-2001. Under the administrative/production dichotomy, employees whose primary duty is producing the goods or services the employer produces are not considered exempt administrative employees. By necessity, application of the administrative/production dichotomy requires consideration of the nature of the employer’s business. The court in Hodge said this test was not useful and rejected the notion that “every enterprise can be subjected to a simplistic parsing of its ‘primary’ business function for purposes of labeling administrative versus production-level, rank-and-file workers.” Ultimately, however, the court said it would have reached the same conclusion even had it applied the administrative/production dichotomy.
The court in Hodge, unlike Bell, analyzed the exemption by applying the duties standards set forth in the Wage Order and distinguished the holding in Bell saying that outcome was unique to those facts. For example, the court emphasized, the claims manual in Bell specifically stated that questions of importance had to be decided by the branch claims manager or regional claims manager. The adjusters processed a large number of small claims and almost all of the claims were between $2,000 and $8,000. Also, in Bell, the adjusters’ authority to settle claims was set at $15,000 or lower—often $5,000 or lower. Significantly, on matters of importance, the claims representatives in Bell acted only as conduits of information that their supervisors used to make decisions.
By contrast, the adjusters in Hodge investigated claims, reviewed evidence, determined coverage questions, set reserves, authorized settlement or litigation and made independent conclusions about elements such as causation and appropriate compensation. These conclusions were based on facts gathered during investigations and were made by the insurance adjusters using their judgment, training and experience. The court said the setting of reserves—allocating an estimate of the total costs for a claim—is equivalent to the adjusters spending the clients’ money. The adjusters’ reserve authority was generally between $20,000 and $100,000, and the aggregate reserves set by an individual adjuster could tie up millions of dollars. The adjusters also negotiated and settled claims, managed litigation, made recommendations and worked with counsel in developing litigation plans.
While the decision in Hodge is a favorable one for employers, the California Supreme Court is expected to weigh in soon when it issues a decision in Harris v. Superior Court (Liberty Mutual Ins. Co.), 154 Cal. App. 4th 164 (2007). The California Supreme Court will decide the weight to be given to the administrative/production dichotomy under Wage Order No. 4-2001 as well as the proper analysis of the administrative exemption under the Wage Order.
This entry was written by Michael Gregg.
Photo credit: Digiphoto
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.
Starbucks initially demurred and moved to strike Price’s allegations related to his claim for improper wage statements under California Labor Code section 226. The demurrer was sustained, thereby dismissing Price’s claim on the basis that he had not alleged sufficient injury as required by the statute.
The Court of Appeal agreed, noting that in order to recover under section 226, “an employee must suffer injury as a result of a knowing and intentional failure by an employer to comply with the statute,” and the injury required by this section “cannot be satisfied simply if one of the nine itemized requirements in section 226, subdivision (a) is missing from a wage statement.” Citing, Jaimez v. Daiohs USA, Inc., 181 Cal. App. 4th 1286, 1306 (2010); see also Elliot v. Spherion Pacific Work, LLC, 572 F. Supp. 2d 1169, 1181 (C.D.Cal. 2008). Although Price alleged a “mathematical injury,” the court found that because no computations were required in order for him to analyze whether the wages paid in fact compensated him for all hours worked, such allegations were insufficient. Moreover, Price’s “speculation” regarding possible underpayment was, according to the Court of Appeal, not sufficient to state a section 226 claim.
Following the successful initial ruling, Starbucks also moved for summary judgment on the remaining claims, arguing that Price had been appropriately paid reporting time pay when he was provided with two hours of pay for the termination meeting and that all remaining claims were derivative of the reporting time pay claim. California’s Wage Orders provide:
Each workday 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. Cal. Wage Order 5-2001, Section 5(A) (2007).
Both the trial court and Court of Appeal agreed with Starbucks, holding that an employee who comes in for a meeting, as opposed to a regular work shift, is owed only two hours of pay at his or her regular rate. Thus, even though Price regularly worked more than four hours per shift, and thus may have been owed more pay if he had been sent home early on a regular workday, he had no expectation of working a full shift on the day he reported for the “talk.” Accordingly, only the minimum payment rules applied and Starbucks appropriately compensated Price for the meeting.
This entry was written by Michelle Heverly.
Photo credit: Matthew John Hollinshead
California Court of Appeal: Employers Must Simply Make Meal Periods Available To Employees, Not Ensure They Are Taken
UPDATE: On May 18, 2011, the California Supreme
Court granted review of the Tien decision.
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.
In affirming the trial court’s decision to deny class certification, the appellate court adopted the trial court’s reasoning. Noting that Labor Code section 226.7 states that “[n]o employer shall require any employee to work during any meal . . . period,” the court found that “a corollary to an employer’s obligation to ensure that its employees are free from its control for 30 minutes is the employer must not compel the employees to do any particular thing during that time – including, if employees so choose, not taking their meals.” Where the employer has a policy of making such meal periods available, and does not prevent its employees from taking those breaks, the court found the employer satisfied its legal obligation.
This decision provides employers with more hope that their obligation to “provide” meal breaks will be construed once and for all by the California Supreme Court to be limited—as the Tenet court found—to making such breaks “available,” without frustrating the employees’ ability to take breaks. While this decision is good news, employers cannot rest easy given that the state Supreme Court has accepted review of four other decisions addressing this very issue, including Brinker Restaurant Corp. v. Superior Court, but has yet to set oral argument in any of the cases. Further, the California Supreme Court recently denied review of another California court of appeal decision upholding certification of a class to resolve meal period claims. Given the lack of consistency in the various decisions, it remains to be seen how the California Supreme Court will ultimately resolve this issue.
This entry was written by Alison Hightower.
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.
Relying on the “for each work day” language of the statute, employers have long argued that under California law, an employer is only obligated to pay a maximum of one premium payment per work day regardless of the number of missed meal and rest periods occurring on a given work day. Following the recent federal court decision in Marlo v. United Parcel Service, Inc., 2009 U.S. Dist. Lexis 41948 (C.D. Cal. May 5, 2009), the court however, disagreed.
In reaching its decision, the court looked to the language of the IWC Wage Orders, noting that the Wage Orders treat meal periods and rest periods in separate sections, and each section provides for an additional hour of pay per work day for the designated type of violation. The court reasoned that permitting the recovery of two premium payments under Section 226.7 would draw consistency between Section 226.7 and the applicable Wage Orders. The court further reasoned that allowing recovery of two premium payments per work day would further the intent behind Section 226.7 of providing “an incentive to employers to comply with labor standards and compensate employees when those standards are violated.”
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.
This entry was written by Karin Cogbill.
Photo credit: skodonnell
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.
Before the trial court, and again on appeal, the managers contended that Costco’s calculation of their regular rate of pay violated California Labor Code section 515, which requires an employee’s regular hourly rate to be 1/40th of the employee’s weekly salary. Specifically, the managers argued that Costco should have calculated their regular rate of pay based upon what Costco had listed as their “reported salary” on its internal personnel forms, an amount that included the overtime premium pay.
The court of appeal disagreed. Finding for Costco, the court held that Costco’s method of calculating the managers’ regular rate of pay did not violate California’s Labor Code. The court rejected the managers’ argument that Costco was bound by the designation of reported salary on its internal personnel forms, reasoning that after the reclassification, Costco was free to set the managers’ base salaries at any amount, subject to minimum wage laws. Given that the revised managers’ salaries already included an anticipated five hours of overtime per week at the premium rate, the court noted that, “To accept appellants’ position would mean ancillary managers after reclassification would be paid overtime upon overtime.” Although the court’s decision is unpublished, the decision reaffirms the notion that an employer has discretion in setting an employee’s base salary, so long as the salary meets minimum wage requirements. The decision also demonstrates that an employee’s regular rate of pay may be calculated based upon an employee’s weekly salary, and need not include amounts incorporated as overtime compensation.
This entry was written by Michele Babb.
Photo credit: Matthew John Hollinshead
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
On January 20, 2011, the Governor of Maine, Paul R. LePage, issued an Executive Order abolishing the State’s Joint Task Force on Employee Misclassification. The Task Force was established by former Governor John Baldacci in 2009 to address concerns that employers allegedly were misclassifying employees as independent contractors to avoid obligations under federal and state laws, including laws governing wage and hour issues. According to the Executive Order issued by Governor LePage, the Task Force added an unnecessary “extra layer of bureaucracy, to take actions on a matter within the shared jurisdiction of the Legislature, the Executive Department and the Judicial Department.” The Executive Order also notes that future legislation could negate or alter the Task Force’s determinations and that the Task Force has created uncertainty within the business community. Governor LePage has expressed concern that the various definitions and rules governing independent contractors under state and federal law have gone “too far” and caused some businesses to virtually eliminate their use of independent contractors. Accordingly, the Governor asked his staff to draft legislation addressing the varying classification standards and establishing the same definition of “independent contractor” for all agencies and businesses.
This entry was written by Sarah Green.
The Seventh Circuit recently reversed the denial of class action certification in a Fair Labor Standards Act (FLSA) collective action, rejecting the notion that FLSA collective actions and state-law class actions are incompatible when filed in the same lawsuit. Ervin v. OS Rest. Servs., No. 09-3029, 2011 U.S. App. LEXIS 863 (7th Cir. Jan. 18, 2011).
In Ervin, the plaintiffs, former and current employees of a popular restaurant, sued the restaurant on behalf of themselves and all others who had previously worked or were currently employed at the restaurant as hourly or tipped employees, claiming that the restaurant’s tipping policy violated both the FLSA and two state wage & hour laws – the Illinois Minimum Wage Law and the Illinois Wage Payment and Collection Act.
The U.S. District Court for the Northern District of Illinois, Eastern Division, granted conditional certification on the plaintiffs’ FLSA claims, but then denied the plaintiffs Fed. R. Civ. P. 23(b)(3) certification on their supplemental state-law claims based on the court’s finding that FLSA collective actions and state law class actions cannot be litigated together. The court reasoned that the plaintiffs could not satisfy Fed. R. Civ. P. 23(b)(3)’s superiority requirement because the FLSA collective action was now certified and proceeding. According to the court, allowing both types of actions to proceed would mean that some of the individuals included as part of the state-law classes (those who did nothing) would be excluded from the FLSA collective action (for failing to opt-in). The court thought that such a result would undermine congressional intent as expressed in the FLSA.
On appeal, the Seventh Circuit disagreed. First, the court found no categorical rule or case law against certifying a state-law class action in the same proceeding as an FLSA collective action. In addition, the court pointed to the familiar savings clause in the FLSA which states that no provision of the FLSA shall excuse non-compliance with any federal or state law establishing a higher minimum wage or a shorter maximum workweek. In other words, both FLSA collective actions and state-law class actions can peacefully co-exist in the same lawsuit.
On the issue of how to notify potential class members when both types of representative actions are certified (thus requiring opt-in and opt-out notices), the court acknowledged how the potential for confusion was a valid case-management consideration under Rule 23(b)(3)(D), but nonetheless failed to see how this notice problem was “any worse” than numerous other problems district courts face in managing class actions. According to the court:
It does not seem like too much to require potential participants to make two binary choices: (1) decide whether to opt in and participate in the federal action; (2) decide whether to opt out and not participate in the state-law claims.
Finally, the court noted that if an FLSA collective action were allowed to proceed separately in federal court while the state-law class action proceeded in state court, the situation would be much worse as the two courts would send uncoordinated notices to the putative classes. As a general rule, the court explained, it is preferable to have notice issued from a single court and in a unified proceeding.
This entry was written by Milton Castro.
As we wrote last month, the New York State Department of Labor has issued amended wage regulations for restaurants and hotels effective January 1. The DOL has now issued a notification to employees that the employer must post the regulation’s requirements in a conspicuous place in the establishment. Note that the poster is somewhat misleading with respect to the overtime rate for tipped employees. Overtime for tipped employees is one and one half times the minimum wage less the tip credit.
The poster also mentions call-in pay and spread-of-hours pay. Call-in pay is additional hours at minimum wage owed to employees who are sent home early. Spread-of-hours pay is an additional hour of pay at minimum wage owed to any employee when the length of the interval between the beginning and end of his or her workday exceeds ten hours. It should be kept in mind that while employers will have until March 1, 2011, to implement the required changes, the changes must be retroactive to January 1, 2011. Therefore, it is imperative that employers begin keeping thorough records of hours worked and wages and tips paid.
This entry was written by Andrew Marks.
There is good news for New Jersey employers who utilize rounding. The New Jersey Department of Labor and Workforce Development has reconsidered its prior rejection of federal "rounding" rules. After a public comment period, the Department formally adopted a new rule which adopts, verbatim, the federal regulation regarding the use of time clocks and rounding practices. Under the new rule, rounding is lawful under New Jersey law so long as it "averages out ... over a period of time." This development means that New Jersey employers no longer need to assess the impact of rounding on a week-to-week basis. While this is a welcome development, employers who utilize rounding should remain vigilant to ensure that rounding is not "one sided" and that it does, in fact, average out over time.
This entry was written by Robert W. Pritchard.
In a significant victory for Massachusetts healthcare employers, on December 20, 2010, the Massachusetts federal court applied the state overtime exemption available to hospitals, nursing homes, and certain other healthcare employers, and dismissed all 13 state wage-law claims in Cavallaro v.UMass Memorial Health Care. Plaintiffs in the case, a class action filed on behalf of 13,000 current and former employees of UMass Healthcare and its subsidiaries, claimed the hospital did not compensate them for time worked: (1) during meal breaks that were automatically deducted from wages; (2) before and after scheduled shifts; and (3) time spent in training sessions. To learn more about the Cavallaro decision and its implications for employers, please continue reading at Littler's Healthcare Employment Counsel blog.
Photo credit: MSRPhoto
New York law has long prohibited employers from paying workers less than the minimum wage or failing to pay proper overtime. This newly enacted piece of legislation, the Wage Theft Prevention Act, now adds strict new penalties for failure to comply with minimum wage and overtime laws. The new law also amends current wage notification requirements for employers.
Under the Wage Theft Prevention Act, in the event of a wage payment violation, an employer may be liable for up to twice the amount that was due as wages as well as other penalties and legal fees. The law also prohibits retaliation against employees who exercise their rights under the statute.
Additionally, the new law requires notifications to be provided to employees in their native language at the time of hire and on or before each February 1st. Previously the law required such a notification to include the rate of pay and regular paydays. The new law adds several additional requirements to the contents of the notification, including more detail on the basis of pay (i.e., whether the employee is paid on a salary, hourly, piece or commission basis, etc.) and information regarding the employer, such as its address and phone number. There are also new detailed requirements concerning the acknowledgment of the required notification, and a new records retention requirement of 6 years.
The long-awaited revisions to New York's hospitality industry wage regulations have finally become official. They go into effect January 1, 2011, but full compliance is not required until March 1, 2011. Here are some highlights:
Minimum and Overtime Wage: The tip credit rate for food service workers is increased from $4.65 to $5.00 per hour. The new overtime rate for tipped food service workers will be $8.63. All nonexempt employees who work in the hospitality industry, including office workers employed by a hotel or restaurant, must be paid by the hour: shift pay, weekly salary or other non-hourly rate bases will no longer be permitted.
Spread of Hours: All nonexempt employees are eligible for spread of hours pay (i.e., an additional hour of pay at the minimum wage) if the time between the beginning and end of their workday exceeds ten hours.
Tip Sharing and Tip Pooling: Employers now may require tip pooling and set the percentages for each position. The regulations clarify that, in order to be eligible to receive shared tips or a distribution from a tip pool, employees must perform, or assist in performing, personal service to patrons at a level that is a “principal and regular part of their duties and is not merely occasional or incidental.” Employers who operate a tip sharing or tip pooling system must also maintain records for six years.
Service Charges: Any added charge for service or the like is presumed to be a gratuity and must be distributed to the food service workers who provided the service. To avoid having a mandatory charge purport to be a gratuity, administrative charges, overhead fees, operations charges or similar charges in connection with a banquet or special function must be clearly identified as such, and customers must be specifically notified that the charge is not a gratuity or tip. Adequate notification must include a statement in the banquet or event agreement, and on any menu or bill listing practices, that the fee is not purported to be a gratuity and will not be distributed as a gratuity to the employees who provide service to guests. The notice must appear, at least, in font size similar to surrounding text, and must immediately follow the disclosure of the charge.
Written Notice of Pay Rates, Tip Credit and Pay Day: Prior to the start of employment, and any time an employee’s hourly rate of pay is changed, an employer must give an employee written notice of the: (1) regular hourly pay rate; (2) overtime hourly pay rate; (3) the amount of tip credit taken, if any; and (4) the regular pay day. The notice must also state that extra pay is required if the employee’s tips are ever insufficient to bring the employee up to the basic minimum hourly rate. The notice must be provided in English and any other language spoken by the employee as his or her primary language. Employers must obtain an acknowledgement of receipt from their employees of this notice, and such acknowledgment must be retained by the employer for six years.
This entry was written by Andrew Marks.
Pennsylvania’s Minimum Wage law requires that employees who work in excess of 40 hours in a workweek be paid overtime at the rate of 1½ times the worker’s regular rate of pay. The law exempts “ [d]omestic services in or about the private home of the employer” from the minimum wage and overtime requirements. According to regulations enacted by the PA Department of Labor and Industry (“DOLI”), however, the exemption applies only to the services of aides who are hired directly by the householder, not to the services of aides who work for a third party agency. On November 17, 2010, in Bayada Nurses, Inc v. Department of Labor and Industry, the Pennsylvania Supreme Court unanimously upheld DOLI regulations as consistent with the intent of state law and held that a home health agency cannot rely on the “domestic services” exemption to avoid paying overtime to its home health aides because it is a third party agency employer.
In contrast, in 2007, in Long Island Care at Home, Ltd, v. Evelyn Coke, the U.S. Supreme Court held that Fair Labor Standards Act (FLSA) regulations exempted home care agencies from having to pay overtime to its employees who worked in clients' homes. The Pennsylvania Supreme Court, however, rejected Bayada’s argument that it should be subject to the exemption standards under the FLSA, not Pennsylvania Minimum Wage law.
The decision means that, in Pennsylvania, home health agencies must now pay overtime to aides who work more than 40 hours in a workweek. The decision also has broader implications for any employer relying on the domestic services exemption. To come within the domestic services exemption: (1) the worker must be providing domestic services in or about a private home; and (2) the work must be performed in the home of the employer, not a third party. Employers in the state should carefully review their overtime exemptions and be sure that they are not erroneously relying on FLSA provisions where there are differing Pennsylvania requirements.
This entry was written by Thomas Benjamin Huggett.
California Supreme Court Applies Longer, Three-Year Statute Of Limitations To All Claims For Waiting Time Penalties, Increasing Costs To Employers
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.
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.
The plaintiff alleged that the defendant’s failure to provide her with a seat in violation of Section 14 constituted a violation of Labor Code § 1198, which provides in relevant part that “The employment of any employee for longer hours than those fixed by the [Wage] order or under conditions of labor prohibited by the [Wage] order is unlawful.” The plaintiff alleged that because the defendant violated Section 1198, she was entitled to recover the PAGA civil penalties provided for by Labor Code § 2699(f). Labor Code § 2699(f) establishes a “default” civil penalty for violations of the Labor Code when a civil penalty has not otherwise been specifically provided for. The penalty provided for by Labor Code § 2699(f) is one hundred dollars ($100) for each aggrieved employee per pay period for the initial violation and two hundred dollars ($200) for each aggrieved employee per pay period for each subsequent violation.
On demurrer, the trial court ruled that a failure to provide suitable seats under Section 14(A) of the Wage Order does not constitute a violation of Labor Code § 1198 because such failure is not a condition of labor “prohibited” by the Wage Order. The trial court additionally held that even if a violation of the seats provision constituted a violation of Labor Code § 1198, the default penalties provided by Labor Code § 2699(f) were not recoverable by the plaintiff because Section 20 of the Wage Order already provided for civil penalties for all violations of the Wage Order, including Section 14. Section 20 of the Wage Order provides that in addition to any other civil penalties provided by law, any employer who violates the provisions of this order shall be subject to $50.00 for each underpaid employee for each pay period during which the employee was underpaid for an initial violation and $100.00 for each subsequent violation. Since the plaintiff did not allege she was underpaid, the trial court held she could not state a claim for relief and the demurrer was sustained without leave to amend.
Court of Appeal Reverses, Finding Suitable Seats Provision Enforceable Through PAGA
On appeal, the Second Appellate District, reversed the decision of the trial court in its entirety. First, the appellate court held that the “suitable seats” provision of the Wage Order is a condition of labor encompassed by Labor Code § 1198. Accordingly, the court found that Labor Code § 1198 renders unlawful violations of Wage Order 7-2001, Section 14.
Second, disagreeing with the trial court, the appellate court held that the penalties provided for by Section 20 of the Wage Order do not apply to violations of the suitable seats requirement, as such penalties relate solely to wage order violations for underpaid employees. Additionally, the court held that no provision of the Labor Code specifically provided a penalty for a violation of Labor Code § 1198. As such, the court concluded that Labor Code § 2699(f)’s civil penalties are available for a violation of Labor Code § 1198 premised on the failure to comply with Wage Order 7-2001, Section 14.
Harris v. Home Depot USA
In a case raising the same legal issues, plaintiffs Devon Harris and Lawrence Winston filed suit against their employer, Home Depot, alleging that as cashiers they were not provided with seats despite their allegation that the nature of the work they performed reasonably permitted the use of seats. On demurrer, Home Depot raised the same legal challenges that were addressed by the trial court in Bright. Home Depot’s demurrer was overruled, and it subsequently filed a petition for writ of mandate with the California Court of Appeal, Second Appellate Division. On July 30, 2010, the court of appeal issued an Order to Show Cause to the trial court as to why a peremptory writ of mandate should not issue ordering the trial court to vacate the order overruling Home Depot’s demurrer and to make a new and different order sustaining the demurrer without leave to amend. Oral argument is presently scheduled for December 10, 2010.
Although the appellate court in Bright has ruled that the plaintiff may legally continue to pursue her claim for PAGA penalties, the court offered no opinion as to what it means to provide employees with suitable seats and the circumstances under which such seats are required. Employers are encouraged to contact counsel with further inquiries and questions regarding the applicability of the Seats provision to their specific work environment.
This entry was written by Karin Cogbill.
Photo credit: tamergunal
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
The Texas Workforce Commission recently amended its regulations to clarify the types of compensation that must be paid to employees upon the termination of the employment relationship.
The new rules state that vacation, sick pay, paid time off (“PTO”), and paid days off “(“PDO”) accrue and must be paid to separated employees only if required by a written agreement or policy. In addition, accrued leave time does not carry over from year to year unless a written agreement or policy provides for such carry over.
Under the new rules, employers must pay terminated employees commissions or bonuses already earned, based on routine or practice or special agreement. An employee earns a commission or bonus when the employee has met all required conditions set forth in an agreement. The regulations state, however, that if an employer wishes to change the terms of such an agreement, it must do so in writing and with notice to the affected employee. In addition, the regulations provide that draws against commissions or bonuses may be recovered from an employee’s pay.
The regulations also provide guidance regarding loans to employees. For example, employers may only recoup employee loans using the written authorization described in Texas Labor Code §61.018 (pdf), unless it is a “wage advance.” Under the regulations, a wage advance is an advance that is recovered from the next regularly scheduled paycheck. Such an advance is not considered a deduction or withholdings under Texas Labor Code §61.018. The regulations further provide that, in recouping a loan, employers may count the loan repayment toward any minimum or overtime wages due.
The regulations also state that expense reimbursements paid to employees are not wages for purposes of the Texas Labor Code.
This entry was written by Harry Jones.
On July 7, 2010, Alaska enacted a law restricting the amount of overtime nurses can work at private and public health care facilities. Many of the law’s provisions do not take effect until 2011. The law does provide, however, that a health care facility must file a report with the Alaska Department of Labor and Workforce Development’s Division of Labor Standards and Safety prior to February 1, 2011. The report, which covers the time period from July 2010 through December 31, 2010, must identify, for each nurse employed by the health care facility or under contract with the health care facility, the number of overtime hours worked and the number of hours the nurse was on call. The Department just recently made the required form available on its web site.
Health care facilities whose nurses have not worked overtime hours and have not been on call during the reporting period may simply indicate on the form that there are no reportable hours.
This entry was written by Christopher Kaczmarek.
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.
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.
Photo credit: skodonnell
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.
On January 1, 2011, six states (listed below) will increase their minimum wage requirement. Two states—along with American Samoa and the Northern Mariana Islands— elected to keep their current rate. Colorado is considering an increase to the minimum wage which, if passed, will also take effect on January 1, 2011. The federal minimum wage rate remains unchanged at $7.25/hr.
States that are increasing their minimum wage
$7.35/hr. Effective January 1, 2011, the Arizona minimum wage will increase from $7.25 to $7.35 per hour. Ariz. Rev. Stat. § 23-363.
$7.35/hr. Effective January 1, 2011, Montana’s minimum wage will increase from $7.25 to $7.35 per hour. Mont. Code Ann. § 39-3-409.
$7.40/hr ($3.70/hr for tipped employees). Effective January 1, 2011, the Ohio minimum wage will increase from $7.25 to $7.40 per hour. Constitution of the State of Ohio, Art. II, § 34a.
$8.50/hr. Effective January 1, 2011, there will be an increase to the Oregon minimum wage from $8.40 to $8.50 per hour. Or. Rev. Stat. § 653.025.
$8.15/hr ($3.95/hr for tipped employees). Effective January 1, 2011, the Vermont minimum wage will increase from $8.06 to $8.15 per hour. Vt. Stat. Ann. tit. 21, § 384.
$8.67/hr ($7.37/hr for minors aged 14 to 15 years old). Effective January 1, 2011, the State of Washington increases its minimum wage for the first time in 2 years from $8.55 to $8.67 per hour. Wash. Rev. Code § 49.46.020.
States proposing to increase their minimum wage
The Colorado Department of Labor & Employment announced a proposed increase to the state minimum wage (to $7.36/hr; $4.34/hr for tipped employees) which would take effect January 1, 2011 and create a new Minimum Wage Order. Const. of the State of Colorado, Art. XVIII, § 15; Proposed Colorado Minimum Wage Order No. 27.
States that elected not to change the minimum wage
$7.25/hr. The Florida Agency for Workforce Innovation announced that the state minimum wage will remain unchanged in 2011. Constitution of the State of Florida, Article X, section 24.
$7.25/hr. The Missouri Department of Labor announced that the state’s minimum wage will remain the same in 2011. Missouri Revised Statutes §290.502.
American Samoa & Northern Mariana Islands
On September 30, 2010, President Obama signed a bill, H.R. 3940, which delays the minimum wage increases which were scheduled to take effect in American Samoa and the Commonwealth of the Northern Mariana Islands (CNMI). The minimum wage in American Samoa varies by industry. The CNMI minimum wage is $5.05 per hour.
On October 13, 2010, Governor Rendell signed into law the Construction Workplace Misclassification Act. The Act curtails the circumstances under which a construction worker may be classified as an independent contractor for purposes of workers’ compensation and unemployment insurance.
Under the Act, to be classified as an independent contractor, a construction worker must meet three criteria: (1) have a written contract to perform services; (2) be free from the hiring party’s control or direction when performing such services; and (3) be customarily engaged in an independently established trade, occupation, profession or business.
For the hired party to be “customarily engaged in an independently established trade, occupation, profession or business,” the hired party must: (1) possess the essential tools for the job, independent of the person for whom the services are performed; (2) realize a profit or loss as a result of performing the services; (3) perform the services through a business he owns, at least in part; (4) maintain an independent business location; (5) either perform similar services for another hiring party while meeting the first four requirements or credibly hold himself out as able to perform similar services; and (6) maintain individual liability insurance during the term of the contract of at least $50,000. Each criterion must be specifically met in order to classify a worker as an independent contractor.
Construction industry employers who misclassify workers and fail to provide coverage or make required payments or contributions under the Workers’ Compensation Act or the Unemployment Compensation Law may be penalized with fines or incarceration. Officers and agents of those employers, and those who intentionally contract with such an employer knowing that it intends to misclassify workers in violation of the Act, are subject to the same penalties. The Act further prohibits retaliation against whistleblowers.
The law goes into effect on February 11, 2011. Before that time companies engaged in construction should carefully review their arrangements with independent contractors to ensure they comply with the requirements of the law.
Photo credit: BartCo
Breakthrough Amendment to California Labor Code Eases Regulations on Meal Periods for Unionized Commercial Drivers and Unionized Employees in the Security, Construction and Utilities Industries
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.
Labor Code section 512 prohibits employers from requiring an employee to work more than five hours per day without providing a meal period, or ten hours per day without providing a second meal period.
AB 569, signed by Governor Schwarzenegger on September 30, 2010, creates a potential exemption from these requirements for commercial drivers and employees in the utilities, security and construction industries, instead allowing them to negotiate mutually agreeable meal period rules through the collective bargaining process.
The new law defines a “commercial driver” for purposes of the exemption as “an employee who operates a vehicle described in Section 260 or 462 of, or subdivision (b) of Section 15210 of, the Vehicle Code.”
Security guards are also exempted from the meal period requirements of Labor Code section 512. The exclusion applies to “[a]n employee employed in the security services industry as a security officer who is registered pursuant to Chapter 11.5 (commencing with Section 7580) of Division 3 of the Business and Professions Code, and who is employed by a private patrol operator registered pursuant to that chapter.”
The law similarly covers employees in a construction occupation, which includes work involving alteration, demolition, building, excavation, renovation, remodeling, maintenance, improvement, and repair, and any other similar or related occupation or trade. Finally, the law includes employees of electrical and gas corporations or local publicly owned electric utilities, as defined in Section 218 and 222 of the California Public Utilities Code.
Employees in these occupations/industries will fall within this new exemption if they meet the following requirements:
- the employee is covered by a valid collective bargaining agreement;
- his collective bargaining agreement expressly provides for wages, hours of work, working conditions, meal periods, final and binding arbitration of disputes concerning application of the CBA’s meal period provisions, and premium wage rates for all overtime hours worked; and
- the employee’s regular hourly rate of pay of not less than 30 percent more than the state minimum wage rate (currently $10.40/hour based on a minimum wage of $8.00/hour).
Assuming AB 569 goes into effect, California employers engaged in collective bargaining negotiations will be empowered to negotiate meal periods that fit the particular needs, demands and realities of their industry. The new statute also potentially puts a powerful tool in the hands of many unionized employers who have been swept up in the wave of litigation brought by unionized employees who claim meal period violations despite receiving meal periods that are consistent with their collective bargaining agreements. We can expect further litigation over the extent to which this new law affects ongoing litigation or cases extending back before the law becomes effective.
Image credit: skodonnell
Oregon’s Bureau of Labor & Industries (BOLI) announced that, effective January 1, 2011, the state minimum wage will increase by ten cents, to $8.50 per hour. Oregon employers are required to post the revised minimum wage poster, which BOLI will make available for download. Oregon is one of ten states whose minimum wage is adjusted annually based on inflation and the Consumer Price Index. In 2010, no increase occurred because the cost of living decreased.
New York recently enacted the “New York State Construction Industry Fair Play Act.” Under this law, which becomes effective on October 26, 2010, a construction worker is presumed to be an employee—as opposed to an independent contractor—unless the worker is a separate business entity, as defined by the law, or the worker: (1) is free from control and direction in performing the job, both under his or her contract and in fact; (2) the service performed is outside the usual course of business; and (3) the worker is customarily engaged in an independently established trade, occupation, profession, or business that is similar to the service at issue. If all three criteria are met, the worker may be considered an independent contractor.
Employers who willfully violate the law are subject to civil penalties of up to $2,500 for the first violation and up to $5,000 for each subsequent violation within a five year period. This penalty may be assessed for each worker who is misclassified. Additionally, employers who violate the law may be guilty of a criminal misdemeanor, and subject to imprisonment for up to 30 days or a fine up to $25,000 for the first offense, or imprisonment for up to 60 days or a fine up to $50,000 for a subsequent offense. If the employer is a corporation, any officer or shareholder who owns or controls 10% or more of the corporation and who knowingly allows a violation of the law, may also be subject to civil and/or criminal liability. The new law also prohibits retaliation and requires a notice posting. The law explicitly states that violators may be subject to additional penalties for the misclassification of a worker with regard to unemployment compensation insurance, workers’ compensation insurance, or business, corporate, or personal income taxes.
This entry was written by Adam Malik.
Photo credit: BartCo
On July 30, 2010, Illinois Governor Pat Quinn signed Senate Bill 3568, the most extensive change to the state’s wage theft statute in decades. The amendment to the Illinois Wage Payment and Collection Act, which goes into effect on January 1, 2011, focuses on the following:
- Broader coverage;
- Efficient enforcement mechanisms;
- Enhanced civil and criminal penalties; and
- Increased protection from retaliation.
In particular, Senate Bill 3568 empowers the Illinois Department of Labor (IDOL) to establish a streamlined administrative procedure for processing “small” wage claims (those under $3,000), which constitute 75% of all wage claims filed each year. Most notably, SB 3568 expressly grants employees the right to pursue their wage claims in either a private civil action or in a class action on behalf of others similarly situated. The employee may not, however, pursue both a claim with IDOL and a civil action.
With SB 3568, Illinois joins a number of states who have passed tougher legislation to address wage and hour violations, which, according to the bill’s advocates, is a growing problem. “Illinois workers deserve every penny they have earned, on-time and in-full,” said Governor Quinn “This important legislation will help Illinois workers recover unpaid wages faster and will further crack down on wage theft throughout our state.”
This entry was written by Milton Castro.
Photo credit: chestnutphoto
The Connecticut Supreme Court recently issued a decision in which it unanimously concluded that a year-end bonus, the amount of which is discretionary, does not constitute wages under Connecticut’s wage and hour statute, Conn. Gen. Stat. § 31-71a. Therefore, Connecticut’s private right of action for wages, Conn. Gen. Stat. § 31-72, which provides for double damages and attorney’s fees, does not pertain to claims for discretionary bonuses.
The plaintiff in Ziotas v. The Reardon Law Firm, P.C., 296 Conn. 579 (2010), was Angelo Ziotas, an associate at The Reardon Law Firm. He claimed he had been denied a bonus and sued his former employer, claiming both breach of contract and violation of Connecticut’s wage and hour statute. The trial court granted the defendant employer’s motion to strike the wage claim, noting that under certain circumstances, bonuses may be subject to the wage statutes. Such bonuses, however, are based solely on individual production or performance. In this case, the bonus was based on a number of factors, including the overall performance of the firm. The appellate court reversed the trial court’s decision.
In reversing the appellate court, the Supreme Court referenced its recent decision in Weems v. Citigroup, Inc., 289 Conn. 769 (2008), in which it held that bonuses awarded solely on a discretionary basis, and not linked solely to the ascertainable efforts of the particular employee, are not wages under Conn. Gen. Stat. § 31-71a. In his hair-splitting position in Ziotas, the plaintiff argued that Weems did not apply to his case because he was contractually entitled to a bonus and only the amount of the bonus was discretionary. The Supreme Court disagreed and held that even where an employee is contractually entitled to a bonus, if the amount of the bonus is indeterminate and discretionary, such a bonus does not constitute wages.
In reaching its decision, the court noted that although Conn. Gen. Stat. § 31-72 is remedial, it carries substantial criminal and civil penalties and any interpretation of the term “wages” that would allow for the imposition of such penalties when the amount of a bonus is indeterminate and discretionary would raise serious questions of fundamental fairness and due process.
Finally, in holding that a discretionary bonus is not subject to the wage statutes, the court noted that a plaintiff would still be able to pursue a breach of contract claim and indeed, Mr. Ziotas’ contract was enforced.
To the extent there was any ambiguity regarding the extent to which bonuses are not considered wages in Connecticut, this decision resolves the ambiguity and gives employers the assurance that discretionary bonuses are not wages subject to Connecticut’s wage statutes.
This entry was written by Patricia Reilly.
New Hampshire recently amended its wage and hour law to permit employers to make deductions from employees’ wages for “legal plans and identity theft plans without financial advantage to the employer when the employee has given his or her written authorization and deductions are fully recorded.” The amendment becomes effective on August 13, 2010.
Although this amendment is modest in nature, it does clarify an issue that previously had confused many New Hampshire employers. Prior to this amendment, the New Hampshire Department of Labor had taken the position that employers could not make deductions from employees’ wages for legal services plans or identity theft plans, even though employees had voluntarily enrolled in those plans and authorized the requisite deductions, because these plans were not identified as permissible deductions under the state’s wage and hour law. This law makes clear that such deductions are now permissible.
This entry was written by Christopher Kaczmarek.
The Nevada Labor Commissioner announced that, effective July 1, 2010, Nevada’s minimum wage increased as follows:
- Employers not offering qualifying health insurance benefits must pay employees a minimum wage rate of $8.25 per hour (up from $7.55 per hour).
- Employers offering qualifying health insurance benefits must pay employees a minimum wage rate of at least $7.25 per hour (increased from $6.55 per hour).
Additionally, also effective July 1, 2010, the Illinois minimum wage increased as follows:
- Employees aged 18 and older must be paid $8.25 per hour.
- Employees aged 18 and older may be paid a training wage of $7.75 per hour for the first 90 consecutive calendar days of employment, unless that individual is a day or temporary laborer, or he or she is only occasionally or irregularly employed for less than 90 days.
- Employees under 18 may be paid $7.75 per hour.
- Tipped employees must be paid at least $4.95 per hour after 90 days of employment. During the initial 90-day period, tipped employees can be paid $4.65 per hour.
As of May 21, 2010, Vermont joins a growing number of states who now allow employers to pay employee wages with payroll debit cards. The new law, Act 115 (S.58), amends Vermont State Code §§ 342 and 343 to permit an employer to credit an employee’s wages to a “payroll card account directly or indirectly established . . . in a federally insured depository institution.” Before the employer can do so, however, it must obtain the employee’s written consent, and fully disclose the terms and conditions of the payroll card account option. Furthermore, the employer may not pass on any of the expenses associated with the payroll card account to the employee nor may the employer receive any remuneration for using the card at the employee’s expense. Also, Vermont’s Department of Banking, Insurance, Securities, and Health Care Administration, the agency charged with regulating the Act, may impose additional obligations on employers who utilize payroll debit cards.
Before the passage of Act 115, Vermont employers could only pay wages by check, direct deposit, or cash. Indeed, the state’s Department of Labor had long maintained that, “A debit card does not fit the definition of cash or check defined by the [Vermont Uniform Commercial Code].” Now, employers have a cost-effective alternative to writing checks for those employees who lack or refuse to use direct deposit.
The problem for employers, however, is that the payroll debit card alternative remains just that – an alternative. Because an employee’s written consent must first be obtained, employers are prohibited from simply mandating payroll debit cards for those employees who lack or refuse to use direct deposit. Thus, employers may still have to incur the expense of paying employee wages with checks. In fact, the average, annual cost to employers in having to generate replacement checks and checks for exception pay is $48 million.
According to its drafters, the Act is a win-win for all parties: “The intent of this act is to provide employees with a convenient, safe, and flexible way to receive wages and to reduce employers’ payroll costs by allowing for the transfer of wages to a payroll card account.”
This entry was written by Milton Castro.
Effective March 1, 2011, retailers who conduct business in Maryland must provide their employees with mandatory shift breaks or be subject to substantial fines of up to $300 per employee for a first offense. The Healthy Retail Employee Act (the "Act"), was signed into law by Governor Martin O'Malley on May 20, 2010. To continue reading about the new law and its implications for employers, see Littler's ASAP Maryland Enacts "The Healthy Retail Employee Act" and Amends Its Wage Payment and Collection Law by H. Tor Christensen and Steven E. Kaplan.
On May 12, 2010, Wisconsin Governor Jim Doyle signed into law two pieces of legislation regarding the misclassification of employees. Senate Bill 672, which will become effective January 1, 2011, requires the Department of Workforce Development (DWD) to establish a system ensuring the proper classification of workers under unemployment insurance, worker’s compensation and labor standards laws. Specifically, the DWD is required to educate employers, employees and the public about the proper classification of persons performing services for an employer; receive and investigate complaints alleging misclassification; conduct investigations on its own initiative; inform other state or local agencies of misclassification of employees; and appoint attorneys to conduct hearings and issue decisions as appeal tribunals.
The bill also authorizes the DWD to require an employer to provide proof of maintaining proper employee records, including wage and hour information, and sufficient worker's compensation coverage for its employees. Failure to provide the requested information may result in the DWD serving a notice on the employer of the DWD's intent to issue an order requiring the employer to stop work at the locations specified in the notice. The employer will then have three business days to provide the requested information. Failure to do so may result in the issuance of an order requiring the employer to stop work at the location identified in the order. The employer may appeal the order.
The second piece of legislation -- Assembly Bill 929 -- provides that employers engaged in the painting or drywall finishing of buildings or other structures who willfully misclassify or attempt to misclassify employees, with the intent to evade the unemployment insurance laws, worker’s compensation laws, income tax laws or discrimination laws, shall be fined $25,000 for each violation. This bill amends a current law providing the same penalty for willful misclassifications in other trades in the construction industry. The DWD is required to promulgate rules defining what constitutes willful misclassification of an employee.
This entry was written by Jennifer Ciralsky.
Individual Owners, Officers and Managers Not Personally Liable For Unpaid Minimum Wages Under California Law
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.
The plaintiffs in Combs worked as seasonal agricultural workers for Munoz & Sons (Munoz). Munoz grew and harvested strawberries in the Santa Maria Valley and employed the plaintiffs during the 2000 strawberry season. Munoz, with the assistance of its foremen, hired and fired its employees, trained them, supervised them, “told them when and where to report to work, when to start, stop and take breaks, provided their tools and equipment, set their wages, paid them, handled their payroll and taxes, and purchased workers’ compensation insurance.”
Apio, Inc. (Apio) and Combs Distribution Co. (Combs) were produce merchants who contracted with Munoz for the purchase of fresh strawberries. Corky and Larry Combs were principals in Combs and Juan Ruiz was Combs’ field representative who inspected the quality of the available strawberries and explained the manner in which the strawberries were packed. Munoz filed and was later granted a discharge in bankruptcy. Therefore, the plaintiffs sought to recover unpaid minimum wages under Labor Code section 1194 against Apio, Combs, its principals and Ruiz.
To do so, plaintiffs argued that the Industrial Welfare Commission's (IWC) Wage Order No. 14-2001 (Wage Order 14) defined each of the defendants (Munoz, Combs, Apio) as employers for purposes of section 1194. The lower courts rejected this argument and the California Supreme Court affirmed.
Before the California Supreme Court, the plaintiffs claimed that pursuant to the IWC, each of the remaining entity defendants (Combs and Apio) “suffer[ed], or permit[ted plaintiffs] to work” because they knew Munoz would need to hire workers to fulfill its contracts with Apio and Combs for their respective benefit. The plaintiffs further argued that the defendants exercised control over the plaintiffs’ wages, hours and/or working conditions as defined by Wage Order 14. Specifically, the plaintiffs contended that the defendants controlled payment of Munoz's share of sales proceeds pursuant to their purchase agreements with Munoz and, therefore, a portion of the income from which Munoz paid his employees.
The defendants argued that Reynolds v. Bement, 36 Cal. 4th 1075 (2005) controlled the issue. In Reynolds, the court held that directors and officers of a corporation are not liable for the corporation’s employees’ unpaid overtime compensation. Alternatively, the defendants requested that the court construe the wage order as if it incorporated the “economic reality” definition developed under the federal Fair Labor Standards Act (FLSA).
After a lengthy analysis of the legislative history and intent behind the creation of the IWC, the court ruled that (1) the scope of the IWC's delegated authority extends to wages, hours and working conditions, (2) the IWC's definition of “employer” could include situations in which multiple entities control different aspects of the employment relationship, and (3) the definition of “employer” was intended to distinguish state wage law from federal law.
The court rejected each of the plaintiffs’ arguments and found that for a business proprietor (such as Apio or Combs) to “suffer or permit” work under the IWC and section 1194, the proprietor must (1) know that persons are working within the “business without being formally hired or while being paid less than the minimum wage . . . [and (2)] fail to prevent it, (3) while having the power to do so.”
The court dismissed the theory that a business relationship was sufficient to transform the downstream beneficiary (the purchaser in this case) into an employer under section 1194. The court concluded that the business entity must have the power to prevent the work from occurring and the “specific sense of exercising control over how services are performed” to be considered an employer under section 1194. Accordingly, the court affirmed the appellate court’s ruling that defendants Apio, Combs and Ruiz did not employ or have an employment relationship with the plaintiffs.
Effective July 1, 2010, Tennessee has amended its wage payment statute, Tennessee Code section 50-2-103, to allow employers to pay their employees using prepaid debit cards if the following conditions are met:
- The employee has the ability to make at least one withdrawal or transfer each pay period without cost to the employee for any amount contained on the card; and
- The employer provides the employee with a full written disclosure of any fees that may apply.
Employees must be provided the option of being paid via direct deposit or prepaid debit card. If an employee elects to be paid by direct deposit but does not designate an account at a financial institution in a timely fashion for the transfer to occur, the employer may arrange to pay the employee via prepaid debit card.
This entry was written by Andrew Voss.
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.
In Jaimez, the plaintiff moved to certify a number of claims on behalf of a class of drivers, including alleged claims for misclassification of drivers as exempt from overtime, failure to provide meal periods to the drivers, failure to authorize and permit drivers to take rest breaks, and failure to provide drivers with compliant pay stubs. In support of his motion, the plaintiff submitted nine declarations from drivers who claimed that: (1) they had been reclassified from exempt to non-exempt, (2) they had not been paid overtime before or after reclassification, (3) their managers had pressured them to complete their route within eight hours, leaving insufficient time for them to take meal periods or rest breaks, and (4) their pay stubs were inaccurate. The defendant submitted 25 declarations from putative class members indicating that the drivers had been paid all overtime wages due, had routinely been provided meal periods and rest breaks, and had been provided accurate pay stubs. The trial court denied class certification, finding: the named plaintiff (a convicted felon) was not an adequate class representative; common questions of fact did not predominate the dispute; and class action procedure would not be superior to individualized litigation.
Despite the high degree of deference California appellate courts routinely give trial court class certification decisions, the Jaimez court: reversed the trial court's order denying class certification; ordered the trial court to certify the class claims; and, because the court agreed the named plaintiff was an inadequate representative, ordered the trial court to permit the plaintiff to find an adequate class representative. The appellate court held that conflicts in putative class members' declarations regarding whether they had been afforded the opportunity to take meal periods and rest breaks did not raise individualized questions of fact. Instead, the plaintiffs’ declarations alone were sufficient to corroborate a common theory of liability – that the defendant failed to provide meal periods and rest breaks – and the defendant's conflicting declarations simply meant the defendant's ultimate liability would be reduced.
Daiohs asked the California Supreme Court to review the appellate court decision, or to at least depublish it. On May 12, the California Supreme Court denied both requests. 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 Julie Dunne.
On May 5, 2010, Connecticut Governor Jodi Rell signed into law "An Act Implementing the Recommendations of the Joint Enforcement Commission on Employee Misclassification." The legislation will increase the state's civil penalty for independent contractor misclassification, currently $300 per violation, to $300 per day per violation. It also will expand criminal liability for employers who knowingly misclassify workers with the intent to injure, defraud or deceive the state because of their failure to pay workers' compensation or second injury fund assessments. The new act is scheduled to become effective on October 1, 2010. Nothing in the legislation reconciles the conflicting interpretations of independent contractor status under state and federal law. To continue reading about this development, see Littler’s ASAP Stiffer Penalties on the Horizon for Independent Contractor Misclassification in Connecticut? by GJ Stillson MacDonnell and Stephen Rosenberg.
As we reported last year, the Division of Wage and Hour Compliance at the New Jersey Department of Labor and Workforce Development rejected federal “rounding” rules for enforcement purposes under New Jersey law. Specifically, while the U.S. Department of Labor assesses the impact of rounding “over a period of time” (and allows rounding practices that “average out” over time), the Division announced that it would evaluate the impact of rounding on a week-to-week basis. According to the Division, if an employer rounds, it must be to the benefit of the employee each week in order to comply with New Jersey law.
It appears that the New Jersey Department of Labor and Workforce Development may be reconsidering its position. The Deputy Commissioner of the Department directed his staff to prepare a notice of proposal for new rules within the New Jersey Administrative Code which would adopt the federal rounding standard. Of course, change takes time. In order to make this change, the Department must undergo full notice and comment rule-making, including the publication of a notice of proposal in the New Jersey Register, the solicitation of comments from the public, and the holding of a public hearing. In the meantime, the Department may still take the enforcement position that rounding practices must be evaluated on a week-to-week basis. We will continue to monitor developments.
This entry was written by Robert Pritchard.
Effective March 24, 2010, employers in Utah are now permitted to use pay cards to compensate their employees for their wages or salary. The new regulation (Utah Admin. Rule R610-3-22) defines a pay card as a “stored value card that can be used at an ATM-type machine to access wages that are credited to the card.” If an employer in Utah intends to pay employees with a pay card, it must ensure that this new practice meets the following conditions:
- With one use, or a single transaction, the employee must be able to withdraw the full amount of earned wages without incurring a fee.
- The full amount of wages for a pay period shall be available for the employee via the pay card on the applicable payday.
- On each payday, the employer must provide the employee with a written or electronic statement of deductions from the employee’s gross wages for the pay period at issue.
Utah is not the only state to permit employers to utilize pay cards for the payment of wages. At this time, many states allow this practice, including: Alaska, Arizona, California, Colorado, Delaware, District of Columbia, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington, West Virginia, Wisconsin, and Wyoming. Many of these states, however, have different requirements governing the use of pay cards. Moreover, in a number of these states, it may be unlawful to require employees to accept payment via pay card. As a result, before implementing a pay card system, employers should check the laws in states in which they operate to ensure that any change to existing pay practices complies with state law.
This entry was written by Jennifer L. Mora.
Image credit: Channel R
The Maryland General Assembly recently amended the Maryland Wage Payment and Collection Law (MWP&CL) in two significant ways. The MWP&CL governs the timing of payment and payment of wages (such as salary, bonus or commissions) upon the termination of employment.
First, the General Assembly added “overtime wages” to the definition of “wage.” Accordingly, if a court now finds that an employer withheld overtime wages, other than as a result of a bona fide dispute, the employee may be entitled to treble damages. This represents a change from existing court precedent, which provided that an employee could sue for overtime wages only under the Fair Labor Standards Act and the Maryland Wage and Hour Law, but not under the MWP&CL. Notably, the new law fails to provide any guidance to courts about how the conflicting penalty sections of these statutes should be reconciled.
Second, the General Assembly provided the Maryland Department of Labor, Licensing, and Regulation (“DLLR”) with the authority to investigate and adjudicate wage claims of up to $3,000. Upon receipt of a complaint from an employee, DLLR will send a copy to the employer and require a written response within 15 days. Following an investigation, DLLR may issue an order to pay the wages plus interest or dismiss the claim. Significantly, DLLR is not authorized to order attorney’s fees or treble damages, which would otherwise be available to an employee in court.
Within 30 days after receipt of an order to pay wages, an employer may request a de novo administrative hearing. If an employer is unsuccessful at an administrative hearing, it may appeal the decision to a circuit court. However, the court may overturn the administrative decision only if it “is unsupported by competent, material, and substantial evidence in light of the entire record as submitted; or is arbitrary or capricious.”
These changes become effective on October 1, 2010.
This entry was written by Steven Kaplan.
Ninth Circuit Rules that First Amendment's "Ministerial Exception" Bars Overtime Claim Under Washington Minimum Wage Act
The U.S. Court of Appeals for the Ninth Circuit applied the First Amendment’s “ministerial exception” to the claim of a Catholic seminarian, affirming the district court’s Rule 12(c) dismissal of the plaintiff’s claim for overtime pay under the Washington Minimum Wage Act (WMWA). In Rosas v. Corp. of the Catholic Archbishop of Seattle, the Ninth Circuit adopted a new test for determining whether a person is a “minister” for purposes of the ministerial exception.
Plaintiff Rosas was a Catholic seminarian in Mexico. The Catholic church required Rosas to participate in a ministry training program at St. Mary Catholic Church in Marysville, Washington, as the next step in becoming an ordained priest. The defendant, the Corporation of the Catholic Archbishop of Seattle, hosted Rosas in the ministry training program. Rosas claimed that as part of the ministry training program he was required to perform “maintenance of the church” and that he “worked many overtime hours he was not compensated for.”
The district court dismissed the plaintiff’s overtime claims on the pleadings under Rule 12(c). On appeal, the Ninth Circuit affirmed. The Ninth Circuit began its analysis by confirming that the “interplay between the First Amendment’s Free Exercise and Establishment clauses creates an exception to an otherwise fully applicable statute if the statute would interfere with a religious organization’s employment decisions regarding its ministers.” The Ninth Circuit then analyzed the potential impact of the WMWA on the interests protected by the Free Exercise and Establishment Clauses, and ruled that the First Amendment’s ministerial exception applies to claims asserted under the WMWA. The Ninth Circuit concluded that (1) subjecting a church to state overtime claims could have an adverse impact on religious liberty, and (2) applying the WMWA to the clergy-church employment relationship would create an unconstitutional entanglement between church and state.
Turning to the plaintiff’s individual claims, the Ninth Circuit held that plaintiff’s state overtime claims were barred as a matter of law under the First Amendment’s ministerial exception because the plaintiff was a “minister” and because subjecting the defendant to WMWA claims would interfere with protected employment decisions. In analyzing the plaintiff’s status, the Ninth Circuit adopted a new three-part test for determining whether a person is a “minister” for purposes of the ministerial exception, which considers the following factors: (1) whether the person is employed by a religious institution, (2) whether the person was chosen for the position based largely on religious criteria, and (3) whether the person performs some religious duties and responsibilities. Applying this test to the allegations in the plaintiff’s complaint, the Ninth Circuit found that the plaintiff was a “minister.”
With respect to interference with protected employment decisions, the Ninth Circuit held that allowing the plaintiff to pursue state overtime claims would interfere with the defendant’s right to select ministers using whatever criteria it deems appropriate, and to determine the duties to be performed by plaintiff in furtherance of the religious mission of the Catholic Church. As explained by the Ninth Circuit, the Catholic Church could “require its candidate for the priesthood to spend a year mostly cleaning sinks without overtime pay.” Such decisions are protected by the Free Exercise and Establishment Clauses, and by the First Amendment’s ministerial exception to statutory claims like overtime claims under the WMWA.
This entry was written by Douglas E. Smith.
Washington State Department of Labor & Industries Approves Housekeeping Revisions to State Wage and Hour Regulations
The Washington State Department of Labor & Industries (“L&I”) has approved a number of housekeeping revisions to the Washington state wage and hour regulations contained in Chapter 296-126 of the Washington Administrative Code (WAC). The revisions take effect on March 15, 2010.
As explained by L&I, the purpose of the revisions is to “repeal and delete outdated requirements; remove duplicative provisions; establish rules consistent with current statutory requirements; specify the information for certain requirements; create cross references and update definitions and terms for consistency and clarity.”
The following changes were made to the regulations:
- WAC 296-126-001 was updated to clarify language, delete the reference to the Industrial Welfare Committee, and add notes referring public employers to RCW 49.12.005(3) and employers to the variance rule in WAC 296-126-130.
- WAC 296-126-002 definitions were revised as follows:
- “Employer” was updated to reflect the amended definition in chapter 49.12 RCW;
- “Employee” was clarified by restating the exemptions from the definition;
- “Adult” was updated by deleting “of either sex”;
- “Minor” was updated by deleting “of either sex”;
- “Committee” was deleted since the Industrial Welfare Committee no longer exists; and
- “Department” and “Director” were added to be consistent with chapter 49.12 RCW.
- WAC 296-126-010 was updated by deleting outdated language that refers to the adult minimum wage as $1.80 an hour. In addition, language was added to address the payment of sub-minimum wage rates under special certificates issued by L&I.
- WAC 296-126-015 was revised to add a new section that explains how to calculate wage rates under special certificates.
- WAC 296-126-030(8) was modified by replacing the term “deductions” with “adjustments” in order to be consistent with other rules.
- WAC 296-126-040 was updated to clarify the requirements for employee pay stubs. The revised regulation requires that employee pay stubs be provided in “a separate written statement from the paycheck.” In addition, the revised regulation clarifies that pay stubs “may be furnished or made available electronically provided each employee has access to receive and copy it on the payday.”
- WAC 296-126-050 was updated to clarify the requirement that, upon receiving a written request from a former employee, an employer must furnish a signed written statement stating the reasons for and effective date of the employee’s discharge within 10 days of the former employee’s request. A note was also added to the regulation explaining that additional recordkeeping requirements are stated in WAC 296-128-010 through 296-128-030.
- WAC 296-126-060 was repealed to eliminate duplicative language requiring an employer of minors to obtain a work permit (the requirement is already provided in chapter 296-125 WAC).
- WAC 296-126-080 was revised to add the specific title of the poster employers are required to keep.
- WAC 296-126-090 was revised to replace the term “industrial welfare committee” with “department” in order to be consistent with RCW 43.22.280 and .282 and RCW 49.12.
- WAC 296-126-096 was repealed because it addressed non-wage and hour issues (manual lifting) that are already covered by the L&I Division of Safety and Health.
- WAC 296-126-130 was updated to clarify the process for employers to obtain wage and hour variances from L&I.
This entry was written by Douglas E. Smith.
Image credit: Dbenbenn.
Ohio Supreme Court Rules that Contractors Must Be Assessed 100% Penalty for Violating State's Prevailing Wage Law
In Bergman v. Monarch Construction Company, the Ohio Supreme Court considered whether, in an employee-initiated enforcement action, the penalties set forth in Ohio Revised Code section 4115.10(A) are mandatory and must be imposed against a party found to have violated the prevailing wage law. In a 5-2 majority opinion, the supreme court rejected the reasoning adopted by the trial court and the Twelfth District Court of Appeals, both of which had interpreted the language in section 4115.10(A) as giving the trial court discretion to enforce the prevailing wage penalties. The supreme court observed that in section 4115.10(A), the phrase “may recover” refers to the choice the underpaid employee can make to enforce his or her right to recover the underpayment, not the court’s choice to enforce the penalties. Therefore, if the employee chooses to enforce his or her statutory right to recover unpaid wages, and successfully proves his or her case, a 100% penalty must be assessed against the employer for violating the prevailing wage law. For further analysis, see Littler’s ASAP Ohio Supreme Court’s Ruling on Penalties Ups the Ante for Contractors Subject to Ohio’s Prevailing Wage Law by Heidi Alten and Neil Grindstaff.
This entry was written by Neil Grindstaff.
The New York State Department of Labor ("NY DOL") is in the process of combining separate restaurant and hotel industry minimum wage orders into a single wage order which will be called the Hospitality Industry Wage Order. Although the NY DOL has not yet issued regulations for this consolidated wage order, a Labor Commissioner Order dated November 5, 2009 foretells the major changes in store for non-exempt employees in the hospitality industry. For more information on the changes, see Littler’s ASAP Here’s A Tip: New York is Overhauling the Restaurant and Hotel Industry Wage Orders by Gerald T. Hathaway and Lisa M. Brauner.
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.
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.
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.
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 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.
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.
If this decision is upheld and/or adopted by state courts in California or elsewhere, staffing companies may face claims for unpaid wages for time spent by their employees interviewing with their clients for assignments. Unless a staffing company can show that its employees are not under their control in connection with the interview process or that they do not "suffer or permit" such activity by their employees, they will face potential liability, at least minimum wage, for the time the employee's spend interviewing. This could result in staffing companies not allowing, or limiting, the ability of candidates to interview with clients in advance of the commencement of assignments, or require staffing companies to increase the rates charged to its customers for this added expense.
For an in-depth discussion and guidance on this development, see Littler ASAP, "Staffing Companies Face Potential Exposure for Interview Time."
This entry was written by Michael McCabe.
Beginning July 1, 2009, every employer subject to Indiana's minimum wage law or any rule or order issued under that law, is required to post a poster providing employees with the following information: the current Indiana minimum wage; a description of an employee’s rights under the minimum wage law; and information regarding how an employee can obtain additional information from, or direct questions or complaints to, the Indiana Department of Labor. The poster is available free of charge from the Indiana Department of Labor.
This blog post was authored by Christopher Kaczmarek.
Maine recently enacted a new statute designed to protect private sector employees who disclose, compare or otherwise discuss their wages. 26 Me. Rev. Stat. § 628-A. Specifically, Section 628-A provides that "an employee may inquire about, disclose, compare or otherwise discuss employee wages, and the employer may not interfere with, discharge or in any manner discriminate against the employee for such inquiries, disclosures, comparisons or other discussions." Although Maine has chosen to give employees specific protection for discussing and disclosing their wages, the National Labor Relations Board has long considered such conduct by employees -- even in non-union workplaces -- to be "protected concerted activity" within the meaning of Section 7 of the National Labor Relations Act. Thus, an employer in Maine who disciplines an employee for discussing her wages with co-workers could face liability under Section 628-A as well as an unfair labor practice charge before the NLRB.
For the full text of the bill, please follow this link: http://www.mainelegislature.org/legis/bills/bills_124th/billtexts/SP003301.asp
This blog entry was authored by Brian Clarke.
The start of a new year often brings with it changes in governing wage and hour legislation. Effective January 1, 2009, eleven states will increase the minimum wage for employers subject to state wage and hour laws. In addition to noting the wage increase, employers should ensure that they are properly displaying a copy of the state’s current minimum wage poster in a conspicuous location in the workplace that notes the wage increase, even if the increase will not affect hourly employees at any particular workplace. The following states have increased their state minimum wage, effective January 1, 2009:
- New minimum wage $7.25 per hour.
- New minimum wage $7.28 per hour.
- Tipped employees must be paid at least $4.26 an hour starting on January 1, 2009, and tips plus cash wages must equal at least $7.28 an hour.
- New minimum wage $8.00 per hour.
- New minimum wage $7.21 per hour.
- Tipped employees must be paid a direct wage equal to the minimum wage of $7.21 minus $3.02 (the tip credit under the federal Fair Labor Standards Act), or $4.19 per hour effective January 1, 2009.
- State minimum wage will increase again effective on July 24, 2009, when the federal minimum wage increases to $7.25, employers must pay the higher federal minimum wage.
- New minimum wage $7.05 per hour.
- Tipped employees must be paid by their employer at least 50% of the minimum wage rate and tips plus cash wages must equal at least $7.05 per hour as of January 1, 2009.
- Effective July 24, 2009 the federal minimum wage will be $7.25, and employers must pay the higher federal minimum wage.
- New minimum wage $6.90 per hour.
- State law prohibits employers from using tips as a credit against the minimum wage owed the employee.
- State minimum wage will increase again effective on July 24, 2009, when the federal minimum wage increases to $7.25, employers must pay the higher federal minimum wage.
- New minimum wage $7.50 per hour.
- New minimum wage $8.40 per hour.
- New minimum wage $8.06 per hour.
- Tipped employees must be paid at least $3.91 per hour, and cash wages plus tips must equal at least $8.06 per hour. If they do not, the employer is required to make up the difference.
- New minimum wage $8.55 per hour.
- Washington law prohibits employers from using tips as a credit against the minimum wage owed the employee.
This blog entry was authored by Stacey James.