Wages, salaries, and benefits make up a large proportion of costs for most businesses. One way to control these costs is to control how much overtime employees work. In California, nonexempt (i.e. hourly) employees are entitled to one and half times their regular rate of pay when they work more than eight hours in a workday or 40 hours in a workweek. They’re also entitled to time and a half for the first eight hours on the seventh day of work in a workweek. Any work in excess of 12 hours in one workday, or eight hours on the seventh workday in a workweek must be paid at twice the employee’s regular rate of pay.

Some businesses address excessive overtime by telling their workers that they need management approval to work overtime. If they work overtime without approval, however, you still need to pay them for that work. You can counsel them, or even take corrective action for their failure to follow instructions. But you still need to pay them. Employees who aren’t paid for all of their time can claim overtime violations, minimum wage violations (for time they weren’t compensated for), waiting time penalties (up to 30 days pay if they weren’t paid everything they were owed at termination), PAGA penalties, attorneys’ fees, and more. California has no shortage of exorbitant penalties for seemingly minor violations.

Copyright: ximagination / 123RF Stock Photo
Copyright: ximagination / 123RF Stock Photo

Similar problems arise if employees who are forbidden to work overtime feel pressured to work “off the clock.” Take the example of a new nurse who needs to finish charting on his patients before he leaves for the day, but who’s also prohibited from working overtime. If he clocks out to finish his work and the employer knows about it, or reasonably should know about it, the employer needs to pay him for that time. Again, it can counsel him or take corrective action for not following the rules, but it can’t withhold his pay.

Managers working to reduce overtime need to make clear to their workers that they may not work off the clock. And if the managers learn of employees doing so, they need to ensure that they are paid for that time. Controlling overtime is an effective way of controlling costs, but only if you do it right. Do it wrong and you risk losing any possible savings and then some defending wage and hour claims.

Copyright: Poofy / 123RF Stock Photo
Copyright: Poofy / 123RF Stock Photo

The California Supreme Court has once again deviated from what many view as clear precedent of the U.S. Supreme Court concerning the enforcement of arbitration agreements. Last week, the California court decided McGill v. Citibank, N.A., holding that state “public policy” precludes the enforcement of arbitration agreements where a class sues for “public injunctive relief” under Business and Professions Code § 17200, California’s much abused “unfair competition” statute. This decision comes on the heels of Iskanian v. CLS, in which the California court held that a class waiver in an arbitration agreement was unenforceable to prevent a representative action under the Private Attorneys General Act, again citing “public policy.” The McGill and Iskanian decisions are at odds with recent SCOTUS opinions such as ATT Mobility v. Concepcion, and American Express Co. v. Italian Colors. In the Italian Colors case, the high court specifically rejected state “public policy” as any kind of exception to the sweeping preemption of the Federal Arbitration Act (“FAA”).

California has been in a running dog fight with the FAA since 1987. In that year, SCOTUS decided Perry v. Thomas, in which Justice Thurgood Marshal upheld the FAA under the Commerce and Supremacy clauses, and slapped down California’s attempt to undermine arbitration agreements. Thirty years later, California courts remain determined to block arbitration under PAGA and Section 17200 in the face of otherwise enforceable arbitration agreements.

Also, with today’s swearing in of Neil Gorsuch, SCOTUS returned to its full complement of nine justices. Look for the high court to grant review of California and Ninth Circuit cases that follow McGill and Iskanian in the next couple of years with an eye toward overturning those decisions. In the meantime, companies should continue to include waivers of class and representative actions in their arbitration agreements with consumers and employees, noting that the waivers are enforceable to the extent permitted by applicable law.

We recently updated a 15-page Employer’s Guide to Doing Business In California. The guide provides clear summaries of California’s unique requirements for meal and rest periods, the Fair Pay Act, paychecks and wage statements, the various leaves of absence, and more. If you subscribe to that whole “ounce of prevention” theory, this is a great way to see if your company is complying with California’s unique employment law requirements. You can download a pdf of the Guide here.

Spending a little time to determine if your company is sufficiently protected is a lot quicker and cheaper than waiting for a lawsuit and learning first hand why California ranks as the number one judicial hellhole.

Copyright: ibreaker213 / 123RF Stock Photo
Copyright: ibreaker213 / 123RF Stock Photo

Special thanks to Cristina ArmstrongTyreen Torner, and Sahara Pynes for their work updating prior versions of the guide.

Last Friday, the US Supreme Court agreed to hear cases from the 9th,  7th, and 5th Circuits in which the courts are split on the issue whether class action waivers in employee arbitration agreements violate Section 7 of the National Labor Relations Act by inhibiting employees’ rights to engage in “concerted activity”.  The NLRB has been promoting this novel theory for the past few years, under which the arbitration agreement can be invalidated notwithstanding the fact that it is otherwise enforceable under the preemptive effect of the Federal Arbitration Act.  Readers of this blog will recall that the California Supreme Court rejected that theory in Iskanian v. CLS. The defendant in that case argued that a class action does not necessarily involve “concerted” action at all.  A class action merely requires one employee with a complaint and a lawyer to file the case.  Only in the world of legal fiction can such a case automatically constitute “concerted activity”.  That legal fiction is a far cry from the scenario — several employees standing around the water cooler griping about wages and talking about unions and strikes —  envisioned by Congress in 1935 when the phrase “concerted activity” was coined.

Now, the US Supreme Court will settle the issue, and the lower  courts and particularly the NLRB will finally be bound by the result.  The cases will be briefed and argued later in the year.  By then, there will likely be a full complement of nine Justices on the Court.  The current Court may be split 4-4 on this issue.  The new Justice, assuming she or he is confirmed over what  is likely to be fierce opposition in the Senate,  will thus probably  be the deciding vote in these casesThe cases are Morris v. Ernst&Young (9th Cir.), Lewis v. Epic Systems (7th Cir.), and Murphy Oil v. NLRB (5th Cir.).  In these cases, and other employment cases likely to come before the Supreme Court in the near future, the stakes are high and the issues profound.  As we have said before, what a difference an empty chair makes.

Let’s pick up where we left off. In our last post of 2016, I was complaining about the California Supreme Court’s decision in Augustus v. ABM Security Services, Inc. The majority opinion in that case said that employees who were required to carry phones or pagers on their rest breaks, even if they didn’t get called or paged, were deprived of their statutory breaks and were therefore owed a one-hour penalty. While I found plenty to complain about in that decision (I’m good that way), there’s another issue I want to address.

Copyright: bruno135 / 123RF Stock Photo
Copyright: bruno135 / 123RF Stock Photo

The third sentence of the decisions says: “During required rest periods, employers must relieve their employees of all duties and relinquish any control over how employees spend their break time.” The language comes from Brinker Restaurant Corp. v. Superior Court, which dealt with meal periods. But what does it mean? Are employees exempt from substance abuse, dress code, firearm possession, and harassment prevention policies during breaks? Stated differently, is the employer powerless if workers use their break time to get drunk, strip off their clothes, and chase co-workers around the workplace with guns demanding sexual favors? I’d like to think that the answer is “no,” but Augustus, in interpreting the wage orders, urges us to give language its “plain and commonsense meaning,” If that’s what we’re supposed to do, it would be nice if the courts chose their words with a little more care. The penalties for not complying with wage and hour laws are draconian enough without the laws being too vague for employers to know what’s expected.

The worst aspect of California employment law is the way it combines unclear requirements with exorbitant penalties for noncompliance. So employers can’t necessarily tell what the law requires and, if they get it wrong, face crippling financial penalties. The latest illustration of that principle comes from the California Supreme Court’s December 22, 2016 opinion in Augustus v. ABM Security Services, Inc.

The plaintiffs in this consolidated class action worked as security guards and were required to keep their pagers and radio phones on during their 10-minute rest periods and to respond when needs arose. ABM argued that it was providing a sufficient rest period. But the trial court disagreed and decided on plaintiffs summary judgment motions that they were not relieved of all duty and that they were therefore entitled to $90 million in damages, interest, and penalties (the penalty for missing a 10-minute rest period being an hour of pay).

ABM appealed and the Court of Appeal reversed, holding that being on call does not constitute performing work. Then the California Supreme Court granted review and reversed the Court of Appeal, reinstating the $90 million judgment.

The Industrial Welfare Commission Wage Orders clearly state that employees must be “relieved of all duty” during meal periods. But there is no corresponding language in the rest period requirement. Instead, the majority opinion intuited that employees must be relieved of all duties during rest periods from analyzing the definition of “rest.” The court also looked at Labor Code §226.7, which prohibits employers from requiring employees to work during rest periods. Finally, the court focused on the fact that the Wage Orders make provisions for on-duty meal periods, but not for on-duty rest periods. That being the case, it reasoned, on-duty rest periods must not be allowed.

Copyright: twinsterphoto / 123RF Stock Photo
Copyright: twinsterphoto / 123RF Stock Photo

All of this begs the question whether being required to carry a radio or pager constitutes work. The majority opinion states that employees are not relieved of all duties if they’re required to be on call. This conclusion, it notes, is the most consistent with its interpretation of the Wage Orders and Labor Code and with the axiom that those sources should be construed in a manner to protect employees.

A two-justice dissenting opinion explained that the “the bare requirement to carry a radio, phone, pager, or other communication device in case of emergency does not constitute ‘work’ in any relevant sense of the term.” This was especially true, the dissent noted, given the lack of any evidence that any guards’ rest breaks ever were, in fact, interrupted. The dissent also explained that the majority opinion creates further ambiguity by saying that the employees in question were deprived of their rest periods where they were required to “remain on call, vigilant, and at the ready during their rest periods.” If requiring employees to be “vigilant” and “at the ready” is part of what made these rest periods inadequate, the dissent asked, shouldn’t the court explain what that means? Or do we need another decade’s worth of class-action litigation to sort that out, too?

Here are steps employers should take now to comply with this decision:

  • Prohibit employees from carrying employer-provided pagers, radio phones, or similar communication devices at work.
  • In most situations, you should not prohibit employees from using their personal mobile phones on rest breaks, since the time is their own and they must be free from employer control. But you should not require them to monitor their phones.
  • If an employee’s rest period is interrupted with work requirements, either provide a different uninterrupted 10-minute rest period (you could start the 10 minutes running again after the interruption) or pay the penalty.
  • If, as the employer, you exercise any control over what employees can do during their rest periods, consult counsel as to whether that practice is still defensible.

On January 1, 2017, the California minimum wage will increase for businesses with more than 25 employees from $10 per hour to $10.50 per hour. This is another step toward a $15 per hour minimum wage on January 1, 2022. You can see a schedule of the planned increases here. The legislation allows the governor to pause increases for a year if budget or economic factors dictate.

Copyright: svlumagraphica / 123RF Stock Photo
Copyright: svlumagraphica / 123RF Stock Photo

In addition, more than 20 cities and counties, three ports, and various business zones have their own minimum wage/living wage ordinances (which the good folks at UC Berkeley (Go Bears!) have been kind enough to track for you here).

Businesses subject to the state increase (i.e. those with more than 25 employees) will see a corresponding increase in the minimum salary required for the executive, administrative, and professional exemptions to $43,680. That’s not so bad considering that, up until last week, we thought that number would be $47,476 under federal legislation that would have taken effect tomorrow but for a Texas judge granting a temporary injunction.

What will the end result be? Over-priced burritos? Robots taking over entry level jobs and developing the skills that will ultimately lead to cyborg attacks? Or just a constantly changing mishmash of laws so confusing that full compliance is all but impossible?

Many employers have taken steps to comply with the US Department of Labor’s Final Overtime Rule that was set to take effect on December 1st. But yesterday, a District Court judge in Texas issued a temporary injunction barring the rules from taking effect nationwide. You can read our take on the issue here.

Copyright: rangizzz / 123RF Stock Photo
Copyright: rangizzz / 123RF Stock Photo

Here’s your annual roundup of new California employment laws. Since we’ve discussed many of these laws when they were enacted, I’m including links to those earlier discussions.

In addition to statewide legislation, local ordinances continue to proliferate. These include paid parental leave in San Francisco and numerous cities that have enacted their own minimum wage and paid sick leave requirements.

Copyright: alexraths / 123RF Stock Photo
Copyright: alexraths / 123RF Stock Photo

What can employers do to get ready?

  • Review pay practices to identify potential disparities based on race and ethnicity, as well as gender.
  • Ensure that applications do not elicit information on prior salary or juvenile convictions.
  • Obtain and install appropriate signage for single-user restrooms.
  • Make sure that human resources staff, hiring managers, and supervisors understand the changes affecting them.
  • Wonder what surprises the legislature has for us in the year ahead!

With briefs due next week, we anxiously await the California Supreme Court’s review of the de minimus doctrine.  Under the doctrine, employers are not obligated to pay employees for small increments of off-the-clock time spent preparing for or ending a shift, provided such time amounted to approximately 10 minutes or less of work.

12350701 - blue clock face, close upWhile we wait to hear the CA Supreme Court’s take on this, it’s worth noting that even under the FLSA, courts nationwide have had varied results on what constitutes non-compensable time under the de minimus doctrine. Many of the recent cases involve minimal time spent checking e-mails or texts that are work related. And while courts employ a fact-specific analysis of employment policies and practices, the following factors will weigh against a finding that the time is de minimus:

  1. If the time is a regular and necessary component of the work day or work week;
  2. Employer compulsion to complete the tasks at issue; and
  3. If the time can be recorded easily for payroll purposes

 My colleague Mark Tabakman spoke about this topic today and offered the following advice to employers:

-Consider eliminating or limiting access to work-related email and systems for non-exempt workers during non-work hours

-Develop a comprehensive policy requiring non-exempt employees to record their after-hours time with a clear process for reporting such time

-Train managers on how and when to communicate with non-exempt staff after hours

-Pay for after-hours work performed, while utilizing disciplinary measures if the after-hours work was unauthorized

Until we have more consistent application from the courts, this issue continues to be a ticking time bomb for employers.