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

The plaintiff’s principal argument was that, in her view, Maryland's highest court, the Court of Appeals, in Medex v. McCabe, 811 A.2d 297 (Md. 2002), held that the MWPCL constituted such a fundamental Maryland public policy. There, the Court of Appeals refused to uphold a provision in an employment agreement between a Maryland company and a Maryland resident requiring continued employment to receive already earned payments, holding that the provision violated the MWPCL. Because the Maryland Court of Appeals struck down the provision at issue, the plaintiff reasoned that the Maryland Court of Appeals would likely strike down any provision in an employment agreement that contradicted or violated the MWPCL. Thus, the plaintiff argued, the Court of Appeals would strike the choice of law provision at issue because the New Jersey wage payment and collection law was more favorable to employers.

The Fourth Circuit easily distinguished Medex. In particular, the court emphasized that the employment agreement at issue was between a Maryland employer and a Maryland employee. Hence, the only issue was whether the provision violated the law, and not whether the MWPCL itself contained a fundamental Maryland public policy. The court then noted that the fact that 42 other states have enacted similar wage payment laws undermines the notion that the MWPCL is a fundamental public policy.

Notably, no Maryland state court has yet evaluated whether the MWPCL embodies a fundamental public policy. However, three Maryland federal district courts, and now the Fourth Circuit, have held that this law does not appear to represent a fundamental policy of the State of Maryland. If it chooses to do so, the Maryland Legislature can of course always amend the MWPCL to expressly state that it does.

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Among the open questions about the form and its use are:

• Whether its reference to business or entities that “administer wages or benefits” applies to third-party administrators of benefits;
• The meaning of terms in the form such as “worksite employer,” “recruiting service,” and “payroll processing service;”
• What would qualify as a "system where the worker can acknowledge the receipt of the notice" in FAQ 9; and
• Whether the form allows employers to designate that an employee is covered by an employment agreement that is both oral and written.

There is no restriction on covered employers developing their own separate, stand-alone section 2810.5 form, and including additional information, as long as the elements of the Labor Commissioner’s template form are included.

Employers who have questions should consult with experienced California employment counsel regarding compliance with the required wage notice and other aspects of the WTPA. For more information concerning the requirements of the WTPA, including a detailed discussion of section 2810.5’s requirements, please see Littler's ASAP, California's New Wage Disclosure Notice and the Wage Theft Prevention Act of 2011.

The court concluded that, inasmuch as all of the meetings were scheduled at least four days in advance, and inasmuch as the class representative was paid for at least half of each scheduled meeting, no obligation to provide reporting pay was triggered. In the court’s opinion, no reference to the duration of the plaintiff’s usual day’s work day was appropriate inasmuch as all of the meetings were scheduled. Had the plaintiff been called in without any advance notice on a vacation day, reference to the usual day’s work might have been relevant.

The court applied a straightforward reading of the split shift premium formula to deny the first class representative additional wages. A split shift is any two work periods separated by non-working, non-paid periods other than bona fide meal or rest periods. The split shift premium formula calls for calculating whether any premium is due by adding one hour to the number of hours actually worked in the day, and multiplying the total hours by the minimum wage. That result would be subtracted from the employee’s wages for the day and any difference would then be due as a split shift premium. Inasmuch as the first class representative’s wage rate was substantially in excess of the minimum wage, the split shift formula did not result in additional wages being due. The court rejected the first class representative’s argument that the split shit premium should always result in an additional hour of pay, because the Wage Orders are clear and specific as to the appropriate wage rate reference.

The court found that the second class representative was not entitled to pursue her claims for reporting pay and split shift premiums because the employee had signed a release of claims in exchange for enhanced severance benefits. The court found that there was a bona fide dispute as to the plaintiff’s entitlement to any additional wages and, where such a dispute exists, an otherwise enforceable settlement agreement would not be invalid.

Finally, the court reversed the award of attorneys’ fees in favor of the employer. The court noted that section 1194 of the Labor Code provided for fees only to a prevailing plaintiff where the plaintiff’s claims concerned minimum wage or overtime. The court had no doubt that a claim for a split shift premium, which is calculated in relation to the minimum wage, was a minimum wage claim. Given the inter-related nature of the split shift and reporting pay obligations, the court concluded that a claim for reporting pay should also be considered to be a minimum wage-type claim. As fees could only be awarded to the prevailing plaintiff with respect to such minimum wage claims, no fees could be awarded to the defendant employer.

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In the course of their employment, the banquet sales managers received a handbook that stated that all contracts must be pre-approved by supervisors before the banquet sales managers could sign them. Additionally, prices were fixed by their supervisors, and “sales managers were not permitted to deviate or discount in any way without management approval.”

A number of banquet sales managers sued claiming that they were misclassified under the FLSA, as well as the wage and hour laws of Massachusetts and Rhode Island. The district court granted the employer’s motion for summary judgment, concluding that the banquet sales managers were exempt employees. The banquet sales managers then appealed to the First Circuit.

The First Circuit affirmed the district court’s decision, concluding that the banquet sales managers qualified as exempt administrative employees. The primary issue on appeal was whether the banquet sales managers exercised sufficient discretion and independent judgment to qualify for the exemption. The court rejected plaintiffs’ argument that they fell outside this exemption because they had no supervisory, policymaking, or financial decision-making authority. The court reasoned such authority “is a factor that the regulations instruct us to consider, it is not, however, a requirement.” According to the court, “working with a client to create a custom product, personalized to individual tastes and budgets” constitutes sufficient discretion and independent judgment to satisfy the requirements of the administrative exemption. Moreover, the court noted that “an employee’s discretionary action need not ‘have a finality that goes with unlimited authority and a complete absence of review.’”

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What Does It Mean to “Provide” a Meal Period?

Counsel for the employees, Kimberly Kralowec, argued that California law protects employees by requiring affirmative steps to be taken by the employers to ensure that work stops for the required 30 minutes for meal periods. She was immediately pummeled with questions by most of the justices regarding this position, particularly the practical effect on both employees and employers. A majority of the court seemed inclined to interpret the statutes and wage orders to give employees the flexibility to decide whether to work through meal periods.

Justice Goodwin Liu asked plaintiffs’ counsel, “isn’t the hallmark of a meal period that the employer suspends control? Shouldn’t the employee be allowed to work if he wants?” When plaintiffs’ counsel responded, “no, the employee can’t work; the employer exercises control over the employee to prevent the employee from working,” Justice Liu followed up by asking “isn’t this coercive? Isn’t the most worker-friendly interpretation that the employee can do what he or she wants?” Plaintiffs’ attorney disagreed.

Justice Kennard similarly inquired “how does the employer enforce that standard? Isn’t that tantamount to an “ensure” standard? Why not give the employee the flexibility?” Justice Baxter asked how it could be “protective” of the employee to require the employer to discipline or terminate the employee if that employee disregards the employer’s instructions and works during a meal period? Justice Werdegar skeptically asked plaintiffs’ counsel, “you’re saying in order to protect the employee, if the employee freely chooses to work he should be disciplined?” Plaintiffs’ counsel responded, “yes,” because the off-duty meal period is mandatory, the employer is in control and therefore should discipline the employee if he or she works during the meal. This standard, Ms. Kralowec contended, is the same as with overtime, where an employee can be fired for working without authorization but still must be paid.

Defense counsel Rex Heinke argued that an employer has an affirmative duty to provide an opportunity to take a 30-minute meal period relieved of all duty, but agreed with Justice Kennard that the statutory language provides some flexibility because the employee decides whether to take that time as an off-duty period.

When Must a Meal Period Be Provided?

Another issue raised by this appeal is when the employer must provide a meal period—in the middle of the shift or anytime within the shift? Brinker employees did not necessarily wait until the middle of their shifts to take a meal period and thus might work more than five hours before receiving a second meal period or ending their shifts. Plaintiffs contended that Labor Code section 512 requires employees to be provided a meal before the end of the fifth hour and at least once every five hour “work period.”

Justice Kennard interpreted the plaintiffs’ argument as providing no flexibility on this issue, summarizing that “after five hours you stop work.” She read a long passage from a Labor Commissioner’s hearing in which restaurant workers, truck drivers, nurses and other employees objected to being forced to take meal breaks by the end of the fifth hour. She thus seemed sympathetic to Brinker’s position that meal periods can be offered anytime within the shift.

Brinker’s attorney argued that the wage order does not say that an employee earns a meal period for each consecutive five hours of work. The statute says only that those employees working “more than 10 hours per day” are entitled to two meal periods, and that plaintiffs’ interpretation renders the language requiring a second meal after ten hours a day “mere surplusage.” The Industrial Welfare Commission, moreover, specifies that rest periods shall, insofar as practicable, be offered in the middle of the work period, but makes no similar requirement for meal periods, except in the wage order governing the entertainment industry. To the extent the Wage Orders require meal periods for every five hours of consecutive work, even if the Wage Order would give employees “greater protections”—that interpretation conflicts with the Labor Code and should be disregarded, according to Brinker’s attorneys.

Justice Liu, however, differed with that interpretation, contending that the language of the Wage Order instead means that after any work period of five hours—including one taken after a 30-minute meal—gives the employee the right to a meal period, even a second meal period in an 8- or 9-hour day. For instance, if the employee started work at 8 a.m., took a meal period from noon to 12:30 p.m., and then worked until 6 p.m., he would be entitled to a second meal because he worked more than 5 hours after lunch. Mr. Heinke responded that the commission that issued the wage orders specifically deleted language that would have so required, and adopted the words “per day” to specify the obligation as to provide one meal period per day unless the employee worked 10 or more hours in that day. Since the other justices did not offer an opinion, it is unclear which way the court will go on this issue.

Rest Periods

The parties’ positions were just as much at war with respect to the interpretation of the employer’s obligation to authorize and permit rest periods. Plaintiffs in their briefs characterized the court of appeal’s ruling as entitling an employee working an eight hour shift to only one rest break because the first rest break would be granted only “after” the first four hours of work. Brinker retorted that the appellate court found that such an employee would be entitled to two rest breaks in one eight-hour period.

In oral argument before the California Supreme Court plaintiffs focused on their contention that Brinker’s policies discouraged or impeded employees from taking rest breaks. Brinker never paid the one hour’s wage to any employees, never conducted a compliance audit, and did nothing to determine or monitor compliance, they argued. Plaintiffs claimed that Brinker’s policies impeded, frustrated or dissuaded employees from taking rest breaks because their tips were not pooled, so they would lose tips when they took rest breaks. Justice Corrigan inquired whether plaintiffs were arguing that the employer “must” use a tip-pooling policy, and plaintiffs’ counsel responded, no, but the court erred in not allowing plaintiffs as a class to challenge the practice of penalizing employees who took rest breaks. Justice Liu seemed incredulous, asking why can’t the employer structure tips as it chooses, and how is this unlawful? Plaintiffs responded that Brinker’s practice of denying tip pooling created a “coercive atmosphere” that in their view violated the Labor Code and the Wage Orders.

Class Certification

Equally important given the flood of class actions being brought, the California Supreme Court has been asked to decide some difficult and important issues involving the standards for certifying classes alleging missed meal and rest periods, particularly what evidence can establish liability on a class-wide basis:

• Did individual issues predominate over common issues, thereby precluding class certification?
• Could Brinker’s meal policy coupled with records of workers’ shift lengths establish violations of Labor Code section 226.7, supplemented with representative employee evidence and survey/expert testimony—even assuming that meal periods only had to be “made available” to employees?
• Could plaintiffs establish liability for rest period violations through common corporate policies, corporate time records, representative employee testimony and/or survey evidence?
• Did plaintiffs’ expert survey and statistical evidence prove common issues sufficient to support class certification?
• Did the appellate court reweigh the evidence in overturning class certification?

The trial court certified a class back in 2006, finding that a common legal question of whether Brinker must force employees to take meal breaks predominated despite the individualized questions Brinker raised to defend against a finding of liability. The appellate court reversed, and plaintiffs now seek to reinstate that class.

Unfortunately, the parties did not have sufficient time to address these issues in oral argument. Plaintiffs’ counsel did argue that class certification was appropriate based on what he characterized as common issues regarding Brinker’s asserted policies or practices to dissuade, impede or discourage taking rest breaks. Justice Liu asked how rest periods could be susceptible to class treatment when the employer is not required to keep records showing that they were in fact taken, particularly without a written policy that proved that rest periods were denied or impeded. Justice Werdegar followed with her own question that suggested that she agreed that at least this issue was amenable to class certification. Justice Liu returned to this issue by challenging plaintiffs’ counsel as having no basis to show that Brinker acted unlawfully if it allowed each waiter to keep his/her own tips rather than pooling them.

We now will await the court’s decision, due out by early February 2012.

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States Increasing Minimum Wage

Arizona: The Industrial Commission announced a 30-cent per hour increase, from $7.35 to $7.65 per hour; an employer can pay a tipped employee a wage up to $3.00 per hour less than the minimum wage – $4.65 per hour.

Florida: The Department of Economic Opportunity announced a 36-cent per hour increase, from $7.31 to $7.67 per hour; tipped employees must be paid at least $4.65 per hour. The minimum wage was previously increased six cents per hour on June 1, 2011.

Montana: The Department of Labor and Industry announced a 30-cent per hour increase, from $7.35 to $7.65 per hour.

Ohio: The Department of Commerce announced a 30-cent per hour increase, from $7.40 to $7.70 per hour; the minimum wage for tipped employees increases 15 cents per hour, from $3.70 to $3.85 per hour. Additionally, employers can pay the federal minimum wage to minors ages 14 & 15-years old, and adults if the business’s gross revenue is $283,000 per year (previously $271,000).

Oregon: The Bureau of Labor & Industries announced a 30-cent per hour increase, from $8.50 to $8.80 per hour.

Washington: The Department of Labor & Industries announced a 37-cent per hour increase, from to $8.67 to $9.04 per hour.

States Proposing Minimum Wage Increase

Colorado: The Department of Labor & Employment’s proposed Minimum Wage Order No. 28 includes a 28-cent per hour increase in the minimum wage, from $7.36 to $7.64 per hour. A 28-cent per hour increase is also proposed for tipped employees, from $4.34 to $4.62 per hour.

States Where Minimum Wage Announcement Is Pending

Vermont: Although by this time last year an announcement had been made concerning the 2011 minimum wage, representatives from Vermont Department of Labor have indicated that the 2012 rate will not be announced until later this month, or possibly in December. We will report on the announcement when made.

States Where Minimum Wage Remains Unchanged

Missouri: The Missouri Department of Labor announced that the state minimum wage will remain unchanged at $7.25 per hour.

Chen argued that Nicholas Labs was required to pay his attorneys’ fees of about $90,000 by virtue of: (1) an indemnification clause in a certain operating agreement; (2) California Corporations Code section 317; and (3) California Labor Code section 2802. Both the trial court and the Court of Appeal rejected all three theories.

First, the operating agreement did not apply because Chen did not work for the entity that was a party to the operating agreement—instead, he worked for a related entity, Nicholas Labs, that had no operating agreement with an indemnification clause.

Second, Corporations Code section 317, which requires a corporation to indemnify legal expenses incurred by its agents under some circumstances, did not apply because Nicholas Labs was an LLC, which was not covered under that section of the Corporations Code.

Finally, the court addressed Labor Code section 2802. Section 2802 requires an employer to “indemnify” his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties. The question of first impression presented was whether section 2802 requires an employer who unsuccessfully sues its employee to foot the employee’s legal costs? Generally, the court explained, the word “indemnify” implies an employer’s obligation to pay the employee’s defense fees if the employee is sued by a third party for acts taken by the employee in the course of his or her job.

The court found little guidance in prior case law, but the court’s consideration of the “more expansive fabric of the law suggests that any interpretation of section 2802 which would allow the statute to become a unilateral attorney fee statute in litigation between employees and employers would be incompatible with that larger body of law.” For example, the California Uniform Trade Secrets Act only allows a successful party to be awarded attorneys’ fees under limited circumstances, such as where the employer’s suit against the employee for misappropriation of trade secrets was made in “bad faith.” Cal. Civ. Code § 3426.4. Construing Labor Code section 2802 to automatically award attorneys’ fees to an employee who successfully defends any suit by his/her employer would contradict the Trade Secrets Act, as well as other laws pertaining to attorneys’ fees.

In a footnote, the court addressed another significant issue and commented that an employee does not need to win an employment-related lawsuit brought by a third party in order to be entitled to indemnification by the employer for defending against such a lawsuit. As long as the employee was acting within the scope of his or her employment, or in obedience to the employer’s direction, the employer is obligated to pay the employee’s legal fees—even if the employee ends up losing the lawsuit. Likewise, if an employer refuses to pay when it is obligated to do so, the employer will also be forced to pay the legal fees run up by an employee who subsequently is required to sue the employer to obtain the proper reimbursement.

In general, the Nicholas Laboratories decision reinforces the so-called “American Rule” of attorneys’ fees—unless a specific law or contract says otherwise, each side pays their own fees. As a result, Nicholas Laboratories provides some protection for employers who sue their employees in California for wrongful conduct, such as misappropriation of trade secrets or other unfair competition, while still providing protection for employees who are sued by third parties for acts taken in the scope of their employment.

¹ Case No. G044105, Fourth Appellate District, California Court of Appeal.

² The claims alleged in the complaint included breach of contract, breach of the implied covenant of good faith and fair dealing, conversion, negligence, money had and received, unjust enrichment, and constructive trust.

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What if the travel and jury service time exceeds the employee’s usual number of hours worked? The Opinion provides an example of an employee traveling 2 hours and spending 4 hours in jury duty. Since the Opinion’s analysis does not take into consideration how long an employee would normally work, it would appear the Opinion interprets the phrase “usual compensation” as the employee’s rate of pay, rather than the employee’s amount of pay. An employee who lives an hour away from work and works an 8-hour shift would “usually” be compensated for 8 hours. Under the new Opinion, if the employee also lives an hour away from court and sat in court for 8 hours, it would appear the employee would be entitled to 10 hours of pay – 2 hours more than the employee’s “usual compensation.” The new Opinion does reference an earlier Opinion which states that what constitutes “usual compensation” would “necessarily vary on a case-by-case basis and would be a question of fact.” However, the AG makes it clear that the jury pay statute is to be given “a broad and remedial effect to correct the injustice of compelling workers to sustain a financial loss because of their service on a jury.”

Does it matter whether the employee is paid on an hourly or a salaried basis? The Opinion does not specifically address this. Again, the one example given presumes an employee being paid on an hourly basis. The only reference to salaried employees confirms the employer’s ability to pro rate an employee’s salary if jury duty is less than the employee’s regular work day. Since the essence of a salary is a set amount regardless of the number of hours worked, it would be logical to infer that this new Opinion should only affect payment of hourly workers, but no such limitation was stated.

The requirement of payment for jury duty does not apply to employers that employ less than five people on a regular basis, and employees who have been employed on a temporary basis for less than six months. Unfortunately, the Opinion does not say whether any other “certain limited exceptions” might also apply in this context. Regardless, it is important that Tennessee employers review their policy regarding pay for jury duty and ensure they are made aware of, and compensate employees for, travel time as well as time spent serving jury duty.

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The FLSA Part 541 regulations define the exemptions in Section 13(a)(1) of the Act – executive, administrative, professional, computer and outside sales employees. Part 541 does not cover the FLSA Section 7(i) exemption for commissioned sales employees of a retail or service establishment. The New Jersey regulations no longer define the administrative exemption to include “an employee whose primary duty consists of sales activity and who receives at least 50 percent of his or her total compensation from commissions and a total compensation of not less than $400.00 per week” – and neither do the FLSA Part 541 regulations. Thus, it appears that New Jersey no longer recognizes an exemption for commissioned inside sales employees at all.

A representative from the New Jersey Department of Labor and Workforce Development has confirmed that this change was inadvertent, and that they are doing everything possible to expedite a fix to the problem. However, because reversing the change will require notice and comment rulemaking, the exemption may be unavailable in New Jersey for six months or more.

Although it is unlikely that the New Jersey Labor Department will begin citing employers for misclassifying commissioned inside sales employees as exempt, employers may soon be facing private lawsuits. Thus, we recommend that any employer relying on the Section 7(i) exemption for New Jersey employees should quickly assess whether such employees continue to remain exempt.

*Tammy McCutchen, a shareholder resident in the Washington, D.C. office, was the primary author of the 2004 revisions to the FLSA Part 541 regulations while serving as Administrator of the DOL’s Wage and Hour Division.

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

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

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Between the time the plaintiff filed her complaint and the jury rendered its verdict, the Massachusetts legislature amended the Massachusetts Payment of Wages Law and other state wage and hour laws, including the law requiring payment of overtime. Prior to the amendment, a judge had discretion in determining whether to award treble damages to a prevailing plaintiff under these laws. A judge could award treble damages if the defendant’s conduct was outrageous, because of the defendant’s evil motive or the employer’s reckless indifference to the rights of others. The 2008 amendment, however, required that a court award treble damages to a prevailing plaintiff.

After the trial, and in light of the 2008 amendment, the superior court ruled that the plaintiff in Rosnov was entitled to mandatory treble damages and in doing so, applied the mandatory treble damages provision retroactively. On appeal, the Supreme Judicial Court overturned the lower court’s decision.

In reaching its decision, the Supreme Judicial Court reiterated the basic presumption that statutes operate prospectively. The court went on to discuss the existing case law, which provides that a statute applies retroactively only if the legislature indicates an intent that the statute apply retroactively or if the statute does not affect substantive rights. The court found no evidence that the legislature intended the 2008 amendment to apply retroactively. Moreover, the court concluded that the 2008 amendment affected the defendant’s substantive rights because it created “a marked increase in the liability a defendant faces.” Accordingly, the court vacated the prior treble damages award and remanded the case to the superior court for a determination of whether a discretionary treble damages award was appropriate under the circumstances.

The 2008 amendment led to a significant increase in wage and hour litigation in Massachusetts. Although the mandatory treble damages provision remains in effect (despite numerous attempts in the legislature to repeal or amend it), the Rosnov decision is welcome news for employers. In light of Rosnov, employers are not subject to mandatory treble damages awards for alleged wage and hour violations that pre-date the 2008 amendment.

Second, New Hampshire adopted a law automatically tying the state minimum wage to the federal minimum wage. New Hampshire previously had established its own minimum wage rate. This change is effective on August 21, 2011.

Finally, New Hampshire amended its civil enforcement procedures to require that the NHDOL issue a warning to employers before imposing penalties for violating many state wage and hour requirements. This amendment becomes effective on August 13th. The employer will have 30 days from receipt of the warning to cure the violation. This warning requirement does not apply if, in the opinion of the NHDOL, the employer intends to cause harm, the violation poses a threat to public safety, or the violation involves certain specific provisions, such as a failure to pay an employee in full and on time or a failure to pay final wages in full upon termination of the employment relationship.
 

The appellate court reversed summary judgment in favor of the employer, finding that the question of whether the employer's particular sabbatical program granted a legitimate sabbatical (which does not have to be paid out upon termination), or was a subterfuge for additional vacation time, could not be answered based upon the facts before it. In reaching its decision, the court set out a four-part test for determining whether paid time off qualifies as a sabbatical and, by extension, when paid time off must be treated as vacation.

The factors of this new test are: (1) frequency of the leave; (2) length of the leave; (3) whether the leave must be in addition to regular vacation; and (4) whether the leave must be for the purpose of enhancing the employee's value as an employee upon his or her return to work.

Applying the four factors to the case before it, the appellate court found there was conflicting evidence regarding the employer's purpose in establishing the sabbatical program, and remanded the case for trial on that issue.

To learn more about the decision and its implications for employers, please continue reading Littler's ASAP, California Appellate Court Answers the Question "What Is Vacation?", by Margaret Gillespie.

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The Ninth Circuit Court of Appeals reversed. The court first concluded that the district court’s finding that plaintiffs could not fall under the professional exemption because they were unlicensed was “contrary to the exemption’s text and structure and would produce highly problematic precedent affecting several non-accounting professions.” The court examined the text of the two subsections of the Wage Order’s professional exemption. Subsection (a) allows the professional exemption to apply to an employee “[w]ho is licensed or certified by the State of California and is primarily engaged in the practice of one of the following recognized professions: . . .accounting. . .” Subsection (b) allows the professional exemption to apply to an employee “[w]ho is primarily engaged in an occupation commonly recognized as a learned or artistic profession.” The court found that simply because an accountant is unlicensed, and therefore not exempt under subdivision (a), does not mean that the accountant can not be exempt under subsection (b) if the accountant otherwise meets the test of that subsection. The two subdivisions are not mutually exclusive. The court found that to hold otherwise would mean that employees such as medical residents who were not yet licensed or first-year associates at a law firm waiting for bar exam results also could not qualify for the exemption. This was not the IWC’s intended result. The court then found there were disputes of material fact as to whether plaintiffs met the test of subsection (b) of the exemption.

The court also concluded that PwC proffered enough evidence to raise a triable issue of fact as to whether the administrative exemption applied. The court disagreed with the district court’s finding that all unlicensed accountants necessarily were subject to more than “general supervision,” and therefore could not be administratively exempt. The court stated that the authorities relied upon by plaintiffs did not distinguish general supervision from any other kind of supervision, and were not persuasive. There were numerous factual disputes in the record as to the nature and scope of PwC’s supervision of plaintiffs that only could be resolved by trial.

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

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

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

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

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

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The court began its analysis by first explaining that the FLSA controls because New York’s overtime statute is defined and applied in the same manner as the FLSA. The court then explained how the FLSA exempts from its overtime requirements any employee whose primary duty is making sales, among other criteria. The court noted that although the determination of an employee’s primary duty must be based on all of the facts in a particular case, consideration is also given to certain “hallmark activities” such as whether the employee generates commissions for himself through his work; and the amount of work done away from the employer’s place of business.

In its analysis, the court first noted that the plaintiff’s case was almost identical to that of Chenensky v. New York Life Insurance Co., in which New York Life won summary judgment against a similarly situated plaintiff – although not a registered representative – whose primary duty was sales. The court declined to distinguish Gold’s case from Chenensky on this fact, declaring that “the fact that Gold’s employment is subject to certain regulatory requirements does not mean that compliance with the regulations is his primary duty under FLSA.” In other words, compliance with the FINRA regulations “[did] not convert a sales position into an advisory one.”

The court next highlighted the fact that the Gold had been paid solely on commission, received no compensation for pure financial advice in the absence of a sale, and consistently followed his employer’s six-step “Sales Cycle,” which involved mandated sales practices such as prospecting and closing the sale. In response, Gold cited case law in which courts found that a registered representative’s primary duty was something other than sales. The Gold court, however, distinguished these cases as inapplicable because, among other things, the FLSA’s “outside sales exemption” was not at issue in any of the cases. The court was similarly unpersuaded by Gold’s reliance on Department of Labor (DOL) opinion letters, one of which stated that a registered representative may qualify for the FLSA’s administrative exemption. Indeed, the court rejected the DOL letters as non-binding, and further held that because Gold’s duties did not involve managerial or promotional responsibilities, the FLSA’s administrative exemption did not apply.

Gold’s other claims, involving violations of New York’s minimum wage law and allegations of illegal deductions, either survived summary judgment or were allowed to move forward by the court. The case is significant in that it further solidifies insurance agents whose primary duty is sales as subject to the “outside salesman” exemption of the FLSA. The case also provides further support for application of the exemption even where an insurance agent has taken on arguably non-sales duties, such as due diligence, in order to comply with FINRA’s regulations.

Photo credit: Ed Bock Photography, Inc.

That seemingly simple proposition was not easily reconciled with section 515(d) of the California Labor Code. Section 515(d) was passed after the older case law on which the Court of Appeal relied in Arechiga. Section 515(d) states that the hourly rate of a non-exempt employee who is paid a salary is calculated by dividing the salary by forty. That formula does not seem to leave room to build overtime into a salary.

In addition to the issues posed under state law by including overtime in a salary, employers need to be mindful of other issues under both federal and California law. Under federal and California law, an employer must always pay overtime when an employee exceeds the number of overtime hours built into the salary. More important, under federal law, an employer can include a guarantee of overtime hours in a salary only where all of the many requirements for a “Belo” plan are met. The many detailed requirements for a Belo plan should be reviewed by an employer before implementing such a plan.

It may be best to think of the result in Arichega as no more than an arithmetic shorthand for telling an employee what the employee would earn if and only if the employee actually worked a schedule that included a regular number of overtime hours of work. Advising employees of their hourly rates and paying non-exempt employees by the hour will always be a more secure option in California.

Photo credit: Christian Baitg

Instead of a seminal decision initially understood to fundamentally change California employers’ ability to define a workweek, this re-issued decision reaffirms that employers may set workweeks as seven consecutive 24-hour periods that differ from an employee’s shift, so long as there is a bona fide business reason. Nonetheless, the court utilized a fact-based analysis to determine that the employer in this case did not have a bona fide business justification for setting a workweek that differed from the shifts worked by its employees.

While this revised opinion bodes much better for employers than its predecessor, California employers should continue to be cautious in using a workweek that differs from the work schedules of its employees, as such a workweek may be construed as an attempt to avoid overtime obligations. Likewise, use of an artificial workweek or workday may also result in the requirement to pay split-shift differentials under California law.
 

¹ Seymore v. Metson Marine, Inc., 193 Cal. App. 4th 64 (2011) ("Metson 1"), rehearing granted, Depublished (Mar. 25, 2011); subsequent opinion on rehearing at Seymore v. Metson Marine, Inc., 2011 Cal. App. LEXIS 442 (2011) ("Metson 2")

² Metson 1, 193 Cal. App 4th at 72.

³ Metson 2, 2011 Cal. App. LEXIS 442.

⁴ Id. at *11.

⁵ Id. at *9.

A number of those seasonal workers subsequently filed a class action lawsuit, claiming that Bear Creek violated Oregon’s wage and hour laws. With regard to the minimum wage claim, the federal district court found that Bear Creek lawfully credited on-site housing costs toward the workers’ minimum wage according to Oregon’s minimum wage law, which allows Oregon employers to deduct the fair market value of lodging, meals or other facilities or services furnished by the employer for the private benefit of the employee from a worker’s minimum wage.

The Ninth Circuit reversed the district court’s decision and ruled in favor of the workers. In reaching its decision, the Ninth Circuit concluded that the deduction was not for the employees’ “private benefit,” as defined by the relevant statute, because the workers staying in on-site housing was necessary for Bear Creek to maintain an adequate workforce. Although Bear Creek had argued that three administrative decisions from the Oregon Bureau of Labor and Industries indicated that the statute applied only to on-call employees, the court determined that the rule is applicable in all instances in which an employer provides lodging because it is otherwise unable to meet its need for workers.

With regard to the workers’ other claim, the Ninth Circuit affirmed the district court’s determination that, in failing to pay all wages due on the last day of employment, Bear Creek had violated the statute regarding final payment of wages, which provides that “whenever employment terminates,” seasonal farmworkers are due “all wages earned and unpaid” immediately.

Oregon employers should evaluate their pay practices in light of this decision. Notably, the penalty for unpaid minimum wage in Oregon is calculated at the employee’s regular rate of pay x 8 hours per day x 30 days. In addition, prevailing plaintiffs are entitled to an award of attorneys’ fees and costs.

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The guards’ wage statement claim fared no better but for a different reason. The crux of this claim was that the wage statements did not specify how many hours guards worked beyond twelve hours in a day at “double time” or the wage paid at double time rates. For this alleged violation of the Labor Code, the guards sought civil penalties under California’s Private Attorney General Act (PAGA), which allows a single employee to seek penalties on behalf of all “aggrieved employees” for Labor Code violations. But to pursue such a claim in court, PAGA requires an employee to jump through a procedural hoop—pre-suit notification to the California Labor Workforce Development Agency (LWDA) of his or her claim. The plaintiff guard here had notified the LWDA of his rest break allegation, but he failed to mention any violation of the law requiring accurate wage statements. Having failed to jump through this hoop, the judge found that the plaintiff was not able to pursue this claim on a class basis, obviating the need for any analysis of the class certification request.

Rest break class actions have been among the most difficult to certify, and this case is yet another example of the individualized questions that arise when considering how and why some employees do not take rest breaks. This decision also demonstrates the value of employers being able to amass substantial evidence of compliance with the laws allegedly violated as well as proof of idiosyncratic supervisors or varying conditions that destroy the ability of plaintiff to offer common proof.

This entry was written by Alison Hightower.

Photo credit: Steve Cash

The court analogized the defendant’s workweek construction in Seymore to the workday method that was struck down in In re Wal-Mart Stores, Inc. Wage and Hour Litigation. In that case, the court looked to the plain language of California Labor Code section 510(a), which states that “[e]ight hours of labor constitutes a day’s work,” and determined that the employer’s definition of a workday impermissibly split shifts which extended past midnight. Thus, “a shift of more than eight hours of consecutive work qualifies for overtime pay” unless a specific, enumerated exception applies.

Likewise, the Seymore court looked at the plain language of Labor Code sections 510 and 500 and determined that the defendant’s definition of a workweek was an attempt to circumvent the seventh day premium pay requirements. It found that, while an employer “may designate any workweek it wishes” it cannot “require its employees to work one workweek, such as from Tuesday noon to Tuesday noon, and designate another workweek, such as Monday to Sunday night, for the purposes of calculating overtime compensation.”

In light of the Seymore decision, employers should reexamine their workweek definitions and overtime compensation policies to confirm that their definitions and policies will not be construed as an “artifice designed to evade overtime laws.” Employers should also be cognizant of “artificial” workdays and overtime problems arising as a result of “split shifts” worked over more than one day.

This entry was written by Wayne A. Hersh and Heather M. Peck.

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The trial court found that Arechiga’s supervisor had satisfied all of the requirements necessary to have an enforceable wage agreement under cases which pre-dated the passage of section 515(d). Those six factors are: (1) the employee was told the days he would work each week (six); (2) the number of hours he would work each day (eleven); (3) the guaranteed salary of a specific amount that the employee would be paid ($880 per week); (4) the basic hourly rate upon which his salary was based (true); (5) that his salary covered both his regular and overtime hours (true); and (6) the agreement was reached before the work was performed (also true). See Espinoza v. Classic Pizza, Inc., 114 Cal. App. 4th 968, 974 (2003); Ghory v. Al-Lahham, 209 Cal. App. 3d 1487, 1491 (1989); Hernandez v. Mendoza, 199 Cal. App. 3d 721, 725 (1988); Alcala v. Western Ag Enterprises, 182 Cal. App. 3d 546, 550–51 (1986). Arechiga’s straight-time rate of $11.14 and overtime rate of $16.71 totaled $880 for the 40 straight-time and 26 overtime hours in each of his workweeks.

The surprise was that the Court of Appeal found the agreement between Arechiga and his employer trumped California Labor Code section 515(d). That section provides: “For the purpose of computing the overtime rate of compensation required to be paid to a nonexempt full-time salaried employee, the employee's regular hourly rate shall be 1/40th of the employee's weekly salary.” Section 515(d) is commonly thought to incorporate the “Skyline Homes” rule. Skyline Homes v. Dep’t of Industrial Relations, 165 Cal. App. 3d 239 (1985). Under Skyline Homes, the overtime that is due an employee who was only paid a salary is determined for most employees by dividing the salary by forty hours. One and one half times the result of dividing a salary by 40 must be paid for each overtime hour of work.

The Court of Appeal’s finding that the wage agreement survived the passage of section 515(d) was not the subject of extensive analysis. The court concluded that overtime may not be waived, but that the basic hourly rate on which overtime is to be paid is still subject to agreement between the parties. The court set aside the portion of the Labor Commissioner’s Enforcement Policies and Interpretations Manual which condemned agreements such as Arechiga’s because the Manual had not been promulgated in accordance with the Administrative Procedure Act.

While Arechiga v. Dolores Press may provide a measure of comfort for some employers, some of the unarticulated exceptions to the decision should be noted. A wage agreement may include some overtime, but, if an employee works more hours than are included in the agreement, additional overtime will be due. A wage agreement may appear generous or even beneficial to an employee if the full salary is provided even when the employee works fewer than the expected hours. However, a salary that guarantees a nonexempt employee overtime, even if the employee does not work the overtime, has to meet the requirements of the federal Fair Labor Standards Act for employers who are subject to the FLSA. 29 U.S.C. §§ 201 et seq. Under the FLSA, a salary that includes overtime, whether overtime was worked or not, is only valid if it meets all of the requirements of section 7(f) of the FLSA. Section 7(f) includes a requirement that an employee’s hours vary for reasons beyond the employer’s control and that the guarantee not include more than 60 hours per week. 29 U.S.C. § 207(f). Furthermore, the United States Department of Labor and some courts would say that a fluctuating hours agreement (called a Belo agreement) is only valid if an employee’s hours vary both above and below 40 in a week. 29 C.F.R. § 778.406. Whether Arechiga made any claim under the FLSA, whether his employer was covered by the FLSA and whether all of the requirements of a BELO agreement were met are not addressed in the California Court of Appeal’s opinion. And, whether Arechiga ever worked more or fewer hours than those in his agreed schedule is not noted in the court’s opinion. The odds of an employee indefinitely working the same hours day in and day out are, however, limited. Once the employee works more hours, additional overtime must be paid. Once an employee works fewer hours, the requirements of section 207(f) must be met or the employee’s salary must be docked. Even if the requirements of section 207(f) are met, there is no specific accommodation of such plans under California’s Labor Code.

In sum, the California Court of Appeal’s conclusion that Arechiga’s wage agreement was enforceable despite the seeming hurdle imposed by section 515(d) of the Labor Code is a surprise, albeit a welcome one. Any employer thinking of using such an agreement must, however, consider the more likely restrictions of federal law before concluding that all of the employer’s overtime concerns have been resolved.

This entry was written by R. Brian Dixon.

Photo credit: MBPhoto, Inc.

Courtney Gordon, the Plaintiff-Appellant, was hired under this agreement, and resigned after only one year of service. On the day of Gordon’s resignation, the City informed her it was entitled to recover $6,400 (eighty percent of $8,000) in training costs. Accordingly, the City withheld income from Gordon’s final paycheck, but only in partial satisfaction of Gordon’s debt. As a result, Gordon received at least minimum wage income in her final paycheck, but was still accountable to the City for the remaining balance of her training costs.

Gordon then filed a class action lawsuit, seeking damages and declaratory relief under the Fair Labor Standards Act (“FLSA”), 42 U.S.C. § 1983, and various California state laws. At issue was whether the City’s paycheck deduction for training cost reimbursement constituted a “kickback” in violation of FLSA regulations (29 C.F.R. § 531.35: “The wage requirements of the Act will not be met where the employee ‘kicks-back’ directly or indirectly to the employer ... the whole or part of the wage delivered to the employee.”). The district court found that because Gordon’s paycheck still exceeded the minimum wage, despite the deduction, the City’s reimbursement demand did not violate the FLSA. The Ninth Circuit Court of Appeals affirmed.

Gordon is significant because it marks the latest Circuit Court of Appeals to uphold a training cost reimbursement agreement under the FLSA. Following the Seventh Circuit’s reasoning in Heder v. City of Two Rivers, Wisconsin, 295 F.3d 777, 781-82 (7th Cir. 2002), the Ninth Circuit called the City’s reimbursement agreement “a voluntarily accepted loan, not a kick-back.” Thus, the court explained, the cost of the training was a loan the City made to its officers, repayment of which was forgiven after five years of employment. And as long as the City paid its departing officers at least the statutory minimum wage, it could collect the training costs as any other ordinary creditor could, without violating the FLSA.

This entry was written by Milton Castro.

In Spoerle, the employees were required to wear safety gear, such as steel-toed boots and hard hats, as well as a smock and hair nets. Each worker spent a few minutes at the beginning and end of the day donning and doffing these items. The employer and the employees’ union had agreed that this time was not compensable. The Court of Appeals rejected the plaintiff’s argument that protective gear was not “clothing” under Section 203(o). The Court of Appeals held, however, that because Wisconsin’s own wage-and-hour legislation lacked any equivalent to Section 203(o), the donning and doffing time counted as work time (and overtime) under state law.

The Court of Appeals relied upon the “saving clause” of the FLSA, which provides that no provision of the Act “shall excuse noncompliance” with any state law that establishes a higher minimum wage or a lower overtime threshold. Nothing in Section 203(o) limited the ability of states to impose broader requirements.

The Court of Appeals also rejected the argument that state law interfered in the parties’ collective bargaining. According to the court, the state statute did not require an interpretation of the collective bargaining agreement. Rather, the statute required that the agreement be ignored to the extent it attempted to avoid the obligations imposed by state wage and hour law. Management and labor acting jointly through a CBA could not override state substantive law.

This entry was written by Andrew Voss.