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

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.

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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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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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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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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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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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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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.

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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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.

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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.

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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.
 

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.

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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.

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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.

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.

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.
 

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.

Going Forward

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

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.

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.

States that are increasing their minimum wage

Arizona
$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.

Montana
$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.

Ohio
$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.

Oregon
$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.

Vermont
$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.

Washington
$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

Colorado
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

Florida
$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.

Missouri
$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.

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.

This entry was written by Thomas Benjamin Huggett and Matthew J. Hank.

Photo credit: BartCo

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:

1. the employee is covered by a valid collective bargaining agreement;
2. 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
3. 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.

This entry was written by Kevin Lilly and Gregory Wong.

Image credit: skodonnell

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
 

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 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.

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.
   

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.

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.

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.

This entry was written by Heather Davis and Lauren Howard.

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.
 

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.
 

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

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.

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.

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.

California

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

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

Illinois

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

New York

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

New Jersey

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

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.

Arizona:

• New minimum wage $7.25 per hour.

Colorado:

• 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.

Connecticut:

• New minimum wage $8.00 per hour.

Florida:

• 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.

Missouri:

• 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.

Montana:

• 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 Mexico:

• New minimum wage $7.50 per hour.

Oregon:

• New minimum wage $8.40 per hour.

Vermont:

• 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. 

Washington:

• 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.