Premium Pay for Meal and Rest Break Violations IS “Wages” for Purposes of Employers’ Wage Statement and Waiting Time Penalty Obligations
On May 23, 2022, the California Supreme Court held that the extra hour of pay (“premium pay”) owed to an employee who misses a rest or meal break is “wages.” This means that premium pay must be reported on the employee’s wage statements under Labor Code section 226(a), and if such payments are outstanding at the time the employee separates from employment, the employer may be subject to "waiting time penalties" under Labor Code section 203 for failure to pay all wages due at discharge.
Prior to the decision, it was unsettled whether missed-break premium pay constituted "wages" under sections 226(a) and 203. The Supreme Court reasoned that, although premium pay for missed rest and meal breaks is intended to compensate the employee for the missed break, it is also meant to compensate for work the employee performed during the break period, and thus it qualifies as "wages." Under the decision, an employer’s failure to report premium pay accurately on wage statements may give rise to statutory penalties under Labor Code section 226(e), and an employee who has not received all premium pay owed at the time of discharge may be able to recover waiting time penalties under Labor Code section 203.
Additionally, the Supreme Court confirmed that meal and rest break violations are subject to a prejudgment interest rate of 7 percent.
The decision, Naranjo v. Spectrum Security Services, Inc., No. BC372146 (May 23, 2022), is available here.
Posted by Ally Girouard
On March 3, 2022, President Biden signed into law the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021. The law, which passed with broad bipartisan support, will have a major impact on the field of sexual harassment litigation, ensuring that such cases can be brought in public court proceedings, rather than being forced into private arbitration.
Many employees are required to sign “arbitration agreements” as a condition of employment. Until now, such agreements have largely prevented employees from pursuing public lawsuits alleging that they have been sexually harassed. By forcing such claims into private arbitration, employers have been able to prevent the employee from bringing a public proceeding and to deprive the employee of the right to a jury trial. Arbitration also may carry limitations on discovery that would not exist in court, and generally deprives the parties of a right to appeal the arbitrator’s decision. The new law ends the practice of forcing claims of sexual harassment or sexual assault into arbitration.
The new law also ends the practice of allowing arbitration agreements to prohibit class actions involving sexual harassment and sexual assault claims. Arbitration agreements have been a central tool for employers to restrict the right of employees to bring class actions in recent years.
Under the new law, courts, not arbitrators, will decide whether the new law applies in a given case (i.e., preventing an arbitration agreement from “delegating” that threshold question to an arbitrator).
Courts may soon flesh out questions raised by the law. For example, when a case involves allegations of sexual harassment as well as other allegations (e.g., harassment based on a different characteristic, or wage and hour violations), will the whole case remain in court, or will some cases be subject to proceeding partly in court and partly in arbitration? Questions may also arise concerning the effective date of the Act; the Act states that it applies to any dispute or claim that “arises or accrues” after the date of the enactment of the Act (March 3, 2022) – how will this apply to allegations of sexual harassment that (in whole or part) occurred prior to the date of the Act, but are not framed as a ”dispute” until after the Act was passed? Could employers attempt to invoke this new federal law as a basis for removing cases to federal court?
Regardless of the outcome of these questions, the new law is a landmark development, restoring the benefits of the judicial process to individuals whose sexual harassment claims might otherwise have been forced into private arbitration.
A copy of the law is available here.
Posted by Stanton Baker
On January 27th, the California Supreme Court clarified the proper method for presenting and evaluating whistleblower retaliation claims under Labor Code § 1102.5. It held that once an employee demonstrates by a preponderance of the evidence that the employee’s protected whistleblowing was a “contributing factor” in an adverse employment action, the burden shifts to the employer to demonstrate by clear and convincing evidence that the alleged adverse employment action would have occurred anyway for legitimate, independent reasons. The Court rejected the employer’s argument that the McDonnell Douglas burden-shifting test applied. The case, Lawson v. PPG Architectural Finishes, Inc., S266001, is available here.
Plaintiff Wallen Lawson was responsible for stocking and merchandising paint products in stores in Southern California. He alleged that his supervisor instructed him to incorrectly mix customer orders of less popular paint types so that the stores would have to offer them at a discount, and they would subsequently be sold, instead of being returned to his employer. Lawson complained to his company’s central ethics hotline twice about this practice. Lawson’s performance approval ratings were already low, and Lawson was subsequently fired, with the Company asserting that the termination was based on low performance ratings. Lawson brought a claim for retaliation against his employer in federal court in Los Angeles, and the court applied the McDonnell Douglas burden-shifting test, finding that Lawson could not demonstrate that his employer’s proffered legitimate reason for firing him was a pretext for retaliation. On appeal, the Ninth Circuit found that the case would likely turn on the issue of which test to apply, and certified the question to the California Supreme Court.
The California Supreme Court sided with Lawson, finding that the district court should have applied the "contributing factor" test outlined in Labor Code § 1102.6. This test is more plaintiff-friendly, and recognizes that there may be multiple reasons for a termination, rather than viewing a termination as wholly legitimate or illegitimate. It allows for a more nuanced consideration of the motives of an employer, requires a heighted “clear and convincing” showing by the employer, and does not require the employee to show pretext. The court stated that McDonnell Douglas contains a presumption of “exclusive cause” for firing, which makes it particularly unsuitable for a mixed-motive standard like that outlined in 1102.6.
Posted by Stanton Baker (Law Clerk)
See our article about SB 331, published in Law 360, available here.
On Monday, the California Supreme Court held that when an employee claimed she was denied a promotion for turning down sexual advances, the statute of limitations began to run when she knew or reasonably should have known that the promotion was denied, not when the promotion was given to someone else.
Plaintiff Pamela Pollock alleged that her employer passed her over for a promotion because she refused to have sex with an executive vice president. The promotion went to another employee, who received and accepted the offer in March 2017, with the promotion taking effect in May 2017. In April 2018, Ms. Pollock filed a claim with the Department of Fair Employment & Housing ("DFEH"), the agency that enforces California's discrimination laws ("Fair Employment and Housing Act," or "FEHA"). At the time, an employee seeking relief under FEHA had one year from the date when the unlawful practice “occurred” to file a claim with the DFEH (the Legislature has since extended that time-period to three years). For Ms. Pollock, this meant that if the failure to promote her had “occurred” in May 2017, as she argued, her claim was timely, but if it occurred in March 2017, as the employer argued, then the claim was time-barred. The state trial and appeals courts held that the claim was time-barred, concluding that the failure to promote “occurred” in March 2017 when the promotion was offered to and accepted by another employee.
The California Supreme Court disagreed with the lower courts’ and the parties’ framing of the issue. The Court held that the statute of limitations begins to run when an employee knows or reasonably should know of the employer’s refusal to promote the employee. The Court noted that its holding supports the purpose of FEHA, “to promote the resolution of potentially meritorious claims on the merits,” and that this approach “protect[s] defendants from the necessity of defending stale claims and require[s] plaintiffs to pursue their claims diligently.”
Because the record contained no evidence about the timing of Ms. Pollock’s knowledge of the promotion, the Court reversed and remanded the case for further proceedings. The decision, Pollock v. Tri-Modal Distribution Services, Inc., No. S262699 (July 26, 2021), is available here.
Posted by Ally Girouard
Employers’ “Rounding” of Time Entries Resulting in Shortened Meal Breaks Requires Premium Pay to Employees
On February 25, 2021, the California Supreme Court issued an important decision holding that employers cannot use “rounding” of time entries when providing mandatory meal breaks if the rounding results in less than the required break period. In California, employers generally must provide non-exempt employees with a 30-minute meal period for any work period of more than five hours. If the employer fails to do so, the employee is entitled to an additional hour of pay for each workday that a meal period is not provided. The Court's decision, Donahue v. AMN (available here), may require employers to change their use of rounding.
Plaintiffs filed a class action lawsuit against AMN, a healthcare services and staffing company, alleging meal break violations under California law. Defendant had a time-keeping policy of rounding to the nearest 10-minute increment when employees clocked in and out for their shifts and lunch breaks. For example, if an employee clocked out for lunch at 12:04PM and clocked back in at 12:25PM, the entries would adjust to 12:00PM and 12:30PM, such that a 21-minute lunch would appear in the employer’s records as a 30-minute lunch not triggering a missed break premium.
The California Supreme Court held that rounding practices that deny an employee a full and timely meal break are inconsistent with legislative intent. The Court reasoned that the precision of the time requirements in California’s meal break laws – “not less than 30 minutes” and “five hours per day” or “ten hours per day” – is at odds with the imprecision of rounding. The Court noted that even small rounding errors are a “significant infringement” on the right to a 30-minute meal period.
Additionally, the Court held that records showing non-compliant meal periods raise a rebuttable presumption of meal period violations, applying to records that show missed meal breaks as well as shortened or delayed meal breaks. The presumption goes to the question of liability and applies at the summary judgment stage, not only at the class certification stage as Defendant had argued. The Court emphasized that uncertainty of proof caused by an employer’s failure to keep accurate records is a burden that falls on the employer, not the employee. Posted by Ally Girourd
On February 23, 2021, the Ninth Circuit tackled the difficult issue of when California’s labor laws apply to employees whose duties take them into other states. The case involved a class of California-based flight attendants alleging that Virgin had failed to pay them minimum wage and overtime, provide them with meal and rest breaks, and provide them accurate wage statements and pay them all wages due at the time of discharge. Although class members spent only an average of 31.5% of their time in California, the vast majority of Virgin’s flights (as high as 99% in some years) either took off from or landed in California, and the Company is based here. Defendant took the difficult position that California labor law did not apply, but that no other state’s law did either. The trial court certified the class, held that California law applied, rejected the argument that the Federal Aviation Act preempted the claims, and granted summary judgment in favor of the class.
The Ninth Circuit’s ruling was generally but not entirely favorable to the class. After affirming on the preemption issue, the Court applied a recent California Supreme Court decision involving United Airlines flight attendants and noted that each of the class’s claims had to be examined separately to determine whether California law applies. (This seems to present employers with the same daunting task in attempting to comply with the law.)
With respect to the minimum wage claim, the Court applied California law but held that Virgin’s pay methodology did not necessarily result in minimum wage violations, and reversed the grant of summary judgment. With respect to overtime and meal and rest breaks, the Ninth Circuit held that California law applied, given Virgin’s status as a California employer and “the circumstances of this case.” Citing the landmark decision in Sullivan v. Oracle Corp., 51 Cal. 4th 1191 (2011), the Court held that the public policy goals behind the overtime and break laws would be thwarted by holding that Virgin was not required to comply when sending its workers across the border. The Court also found that California’s law governing wage statements and payment of wages owed at time of discharge applied, noting that the connections between the class’s work and California sufficed under the prior United Airlines case.
Lastly, in a potentially important win for employers, the Ninth Circuit weighed in on the calculation of penalties under the Private Attorneys General Act (“PAGA”). PAGA, which allows employees to recover penalties on behalf of the state, couches penalties in terms of a smaller penalty (often $100) for each “initial violation” and a larger penalty (often $200) for each “subsequent violation.” The California Supreme Court has yet to rule on what constitutes an “initial” versus a “subsequent” violation. The Ninth Circuit held that because Virgin had not been found by a court or the Labor Commissioner to be subject to California law prior to the district court’s decision, all of the PAGA violations were “initial” violations. This potentially has a large impact on penalty exposure in PAGA cases generally, although in other factual circumstances there will be room to argue that employers were on notice of violations even if they had not been held to be in violation by a court or the Labor Commissioner.
The decision, Bernstein v. Virgin America, No. 19-15382 (9th Cir. 2021), is available here.
Posted by Ally Girouard
New California Laws: DFEH Exhaustion Deadline Extended to Three Years, and a Landmark (Maybe?) Ban on Forced Arbitration
Two important new employment laws will hit the books in California on January 1, 2020.
Two Additional Years to Exhaust Discrimination-Based Complaints. First, the time limit for filing a claim of discrimination, harassment, and retaliation with the Department of Fair Employment and Housing ("DFEH"), which is a prerequisite to filing such a claim in court, has been extended from one year to three years. The one-year deadline was unusually short among deadlines for legal claims (for example, California wage claims typically go back at least three years, and breach of written contract claims go back four years). The amendment will allow employees more leeway to decide whether, how, and when to enforce their rights when they experience unlawful discrimination or harassment. What will happen to claims that are currently time-barred but would be timely under the new law? The act states that it "shall not be interpreted to revive lapsed claims." This appears to mean that any claim accruing less than a year prior to the law taking effect will have another two years in which it can be brought; and any claim accruing more than a year before the law takes effect will be time-barred if a DFEH complaint has not already been filed (whether that reading is correct will likely be taken up by the courts after this law goes into effect). The law also helpfully states that the filing of an intake form with the DFEH stops the clock from running (under prior law, the clock ran until the DFEH issued a "complaint," which sometimes put employees in the hazardous position of relying on DFEH employees to move quickly to ensure that the deadline was met). The bill, AB-9, is available here.
A Ban on Forced Arbitration Agreements... Maybe? Second, the Legislature has limited the ability of employers to require employees to arbitrate disputes (with a major caveat set forth below). The new law will add section 432.6(a) of the Labor Code, which reads: "A person shall not, as a condition of employment, continued employment, or the receipt of any employment-related benefit, require any applicant for employment or any employee to waive any right, forum, or procedure for a violation of any provision of [the non-discrimination provisions of the Fair Employment and Housing Act ("FEHA")] or [the Labor Code], including the right to file and pursue a civil action...." This provision is also incorporated into FEHA by reference, and violation of it now constitutes an unlawful employment practice under FEHA. The law goes further to prevent a technique known as "opt-out" provisions in arbitration agreements, which allow the employee to take affirmative steps to "opt-out" of the arbitration provision within a specified period, such as the first 30 days of employment, by for example sending a letter to the company's legal department saying that they wished to opt out. Such "opt-out" provisions, which employees could be expected almost never to exercise, allowed employers to argue that the arbitration provision was not "mandatory" because the employee had voluntarily chosen not to opt out. This loophole is closed by new Labor Code section 432.6(c): "For purposes of this section, an agreement that requires an employee to opt out of a waiver or take any affirmative action in order to preserve their rights is deemed a condition of employment." The law also provides for attorneys' fees. The new law applies to "contracts for employment entered into, modified, or extended on or after January 1, 2020."
However, the law includes an exception that may swallow the rule. In an effort to head off preemption by the Federal Arbitration Act ("FAA"), which has repeatedly been used over the past decade to shut down efforts by California and its courts to preserve access to certain types of class actions, the law states: "Nothing in this section is intended to invalidate a written arbitration agreement that is otherwise enforceable under the Federal Arbitration Act." This may succeed in avoiding preemption, but will the effect be that most arbitration agreements are untouched by the new law? Time will tell, but in the meantime, employers in California will have to decide whether to keep arbitration agreements in place in reliance on this exception. The bill, AB-51, is available here.
Today the Department of Labor (DOL) increased the minimum salary that employees must make in order to be exempt from overtime requirements under federal law. The increase -- to $35,568 in annualized salary -- is significantly lower than the minimum that the Obama DOL attempted to adopt several years ago.
Federal overtime and minimum wage protections in the Fair Labor Standards Act presumptively extend to all employees. Thus, when an employee is told, "we're going to need you to come in and work on Saturday," the default rule is that those hours will be tracked, extra payment will be made for them, and hours worked over forty in a week (under federal law) will be paid at the overtime rate. There are several so-called "white collar" exceptions to this rule -- one for "professionals" who must undergo significant schooling or training (e.g., doctors and lawyers), one for "executives" with a certain degree of managerial responsibility, and one for "administrative employees" who have discretion to make key decisions for the business. To qualify for those exemptions, an employee must (a) make a minimum salary, and (b) have the type of job duties specified for the exemption in question. The general idea behind the salary requirement is that if an employee may be asked to work increased hours without any corresponding increase in pay, he or she should be making a relatively high amount to begin with.
From 2004 to 2016, the minimum salary was only $23,660. In 2016, the Obama DOL raised the minimum to about $47,000. Just before the rule went into effect, a judge in Texas struck it down, criticizing the process by which it had been adopted (even though the Department of Labor had spent two years working on it and reviewed nearly 300,000 public comments before adopting it).
Now, the Trump DOL has issued a new rule setting the minimum at $35,568. As a matter of policy, this is an improvement, but query whether someone making only $36,000 is paid so well that he or she can be required to work unlimited hours without any increase in pay.
In California, workers are also protected by state wage laws. The minimum salary for overtime exemptions in California is just under $50,000.
Today, Governor Newsom signed a bill that strengthens protection against misclassification of California workers as independent contractors. The bill - AB5 (available here) - will be codified as Labor Code 2750.3, among other amendments, beginning January 1, 2020. The effect of the bill is to expand the use of the so-called "ABC test" or "Dynamex" test for distinguishing an employee from an independent contractor. Under the ABC test, a person providing labor or services for pay (with narrow exceptions) is considered an employee, not an independent contractor, unless the hiring entity proves all of the following:
From the perspective of worker protection, AB5 was a necessary step to keep up with changes caused by smartphone technology. Smartphones and algorithms now allow companies to manage workforces remotely and allow workers to sign in and out of work at irregular, flexible intervals in a way that was not possible when most of the Labor Code was conceived of. That added degree of freedom does not change the fact that so-called "gig workers" are company workforces, and as such, they are meant to be protected by the Labor Code.
AB5 completes a job that the California Supreme Court started in its Dynamex decision, discussed previously in this blog. There, the Court adopted the ABC test for purposes of California's "wage orders," which contain requirements such as minimum wage, overtime, and meal- and rest-break requirements. However, the Dynamex decision did not adopt the ABC test for any other purpose, such as for provisions of the Labor Code not found in the Wage Orders, or for purposes of workers' compensation law. Therefore, a single worker's claim for overtime based on misclassification as an independent contractor would depend on the outcome of the ABC test, while the same worker's claim for unreimbursed business expenses would depend on the outcome of a different test. AB5 resolved these inconsistencies and provided Legislative confirmation of the Supreme Court's adoption of the ABC test. AB5 states that it generally applies retroactively to the maximum extent permitted by law.
AB5 has been strongly opposed by Uber and Lyft, which still classify their workers as independent contractors notwithstanding the Dynamex decision. How these companies, and other gig economy companies that rely on workforces made up of independent contractors, will react to the signing of AB5 remains to be seen.
William Jhaveri-Weeks is the founder of The Jhaveri-Weeks Firm, a San Francisco-based civil litigation practice for individuals and organizations.