Today, the California Supreme Court settled a split of appellate court authority by concluding that trial courts in California do not have the authority to strike PAGA claims on manageability grounds, including based on class action manageability requirements. The ruling is a positive development for employees seeking to enforce the Labor Code through PAGA. The opinion, Estrada v. Royalty Carpet Mills, Inc. (January 18, 2024) (S274340) is available here.
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.
The Lamps Plus Decision: U.S. Supreme Court Closes Another Door for Class Challenges to Employment Practices
Today the Supreme Court in Lamps Plus v. Varela, a 5-4 decision along partisan lines, again interpreted the Federal Arbitration Act (FAA) to limit the ability of employees to pursue legal grievances as a group. The case holds that when an arbitration agreement is ambiguous about whether or not the employee has the right to bring class claims in arbitration (i.e., some language in the agreement suggests that class proceedings are available, but other language suggests the contrary), the employee is prohibited from bringing class claims. The Ninth Circuit Court of Appeals had reached the opposite conclusion.
The Supreme Court’s stated rationale was that although the corporate defendant's arbitration agreement had required its employee to bring all claims in arbitration, the agreement had been ambiguous about whether the employee would have the right to bring class claims in arbitration; therefore, the Court could not be certain that the defendant had intended to consent to the employee having the right to bring anything other than individual claims in arbitration. Thus, the employee was foreclosed from bringing a class claim in any venue -- court or arbitration. Although the employee was challenging a single action by the Company that had allegedly harmed 1,300 employees, under the Court's ruling, every employee who had signed the arbitration agreement would be able to challenge the action only if he or she was willing to pursue an individual arbitration against the Company.
The practical impact of this particular decision may be limited because arbitration agreements drafted since 2011, when the Supreme Court decided AT&T Mobility v. Concepcion, tend to explicitly prohibit class proceedings in arbitration, rather than being ambiguous on that point. The Concepcion decision -- also a 5-4 decision along partisan lines -- struck down the ability of states to preserve access to class actions for their citizens in certain contexts.
From the perspective of defendants, the Lamps Plus ruling further cements the ability of arbitration agreements to eliminate class challenges by employees in any forum – even ambiguous agreements that some courts had previously held allowed class arbitration claims. From the perspective of employee advocates, the conservative majority of the Supreme Court has, over the past decade, expanded the FAA beyond Congress’s purpose in enacting that law in 1925, and in doing so has created a major barrier to enforcement of the laws protecting employees. Justice Ginsburg’s dissents in recent arbitration cases, including Lamps Plus, have called for legislative action: “Congressional correction of the Court’s elevation of the FAA over the rights of employees and consumers to act in concert remains urgently in order.”
CALIFORNIA SUPREME COURT: EMPLOYEES GENERALLY ENTITLED TO PAY FOR EVEN SMALL AMOUNTS OF OFF-THE-CLOCK WORK
The California Supreme Court recently addressed whether employers are on the hook for small amounts of unpaid work that employees perform at the end of their shifts. The Court concluded that the plaintiff, a Starbucks shift supervisor, was entitled to be paid for tasks that required him to work between 4 and 10 minutes each day after clocking out. See Troester v. Starbucks Corp., S234969 (Cal. July 26, 2018), available here.
The legal question for the Court was whether there is a so-called "de minimis" exception (i.e., an exception for very small amounts of time) to California's rule that employees must be paid for all time worked. The federal law governing overtime pay – the Fair Labor Employment Standards Act – includes such a de minimis exception.
The Court held that California’s laws are stricter, requiring payment for the type of post-clock-out work that the Starbucks employee performed, even though the unpaid time was as brief as four minutes per day. The Court left open the question of whether unpaid work activities in other cases might be “so irregular or brief in duration” that it would be reasonable to require employers to compensate for them.
The Court offered several reasons for its decision: First, it noted that statutory wage-and-hour protections for employees in California are “scrupulously guarded against encroachment." Compare Augustus v. ABM Security Servs., Inc. (2016) 2 Cal.5th 257, 262 (strictly enforcing right to ten-minute rest periods). Second, the Court pointed out that when unpaid work is being performed but the working time is difficult to track, there is little reason why “the employee alone should bear the burden of that difficulty.” Third, the Court pointed out that class action procedures are premised upon the ability to challenge violations that are small as to a particular individual but are significant in the aggregate. And fourth, the Court noted that new technologies make it easier to track employee work time today than was the case in 1946, when a key federal case on the de minimis issue was decided.
The case provides helpful guidance concerning when employers in California may be held liable to employees who have routinely performed small amounts of unpaid work.
Employee or Independent Contractor? New Dynamex Test from California Supreme Court Provides Needed Clarification
In a landmark decision, the California Supreme Court has adopted a new test for whether a worker is an employee or an independent contractor under the California Wage Orders governing entitlement to minimum wages and overtime pay, the right to meal and rest breaks, and many other aspects of employment. See Dynamex Operations W., Inc. v. Sup. Ct. of L.A. Cnty., S222732 (Cal. Apr. 30, 2018).
Prior law provided several definitions of "employee" under the Wage Orders, including a broad but cryptic definition stating that anyone who was "suffered or permitted to work" was an employee. Interpreted literally, this definition made little sense, because it would cover even a quintessential independent contractor, such as the plumber who comes to fix your sink. For that reason, the "suffer or permit" standard had been a looming uncertainty for years. The Dynamex decision ends the uncertainty by adopting the so-called "ABC Test" for when a worker has been "suffered or permitted" to work such that she or he is an employee under the Wage Orders. Under Dynamex's ABC Test, a worker is not an independent contractor under the California Wage Orders unless the hiring entity proves: "(A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity."
From the perspective of the plaintiffs' bar and workers' rights community, the adoption of the ABC test will be a welcome development in countering what felt to many to be flimsy efforts to disguise employee workforces as collections of independent business owners. The facts of the Dynamex case involved delivery drivers who had been classified as employees, but who were then reclassified as independent contractors doing the same delivery work but with fewer protections and at less cost to the defendant.
The Court's newly adopted test should make class certification more likely in independent contractor misclassification cases: Because each prong of the ABC test must be satisfied by the employer, if even a single prong will stand or fall on a classwide basis, a strong argument for commonality will exist.
In addition to protecting employees, the Court expressed a desire to ensure that employers would understand in advance how to classify their workers. Clarification of the standard should be a welcome development for all stakeholders, although the ruling may result in some employers' current policies falling out of an arguably grey area and into the realm of clear misclassification. The Court also expressed a desire to level the playing field by ensuring that companies that classify their workers as employees will not be at a disadvantage to competitors who might otherwise have taken an aggressive view of the vagueness of the law to classify similar workers as independent contractors.
The Court's holding was limited to the context of the California Wage Orders, with the Court specifically declining to rule on the employee--independent contractor distinction under California Labor Code provisions that are not part of the wage orders. However, similar developments under those laws seem likely in the wake of Dynamex.
William Jhaveri-Weeks is the founder of The Jhaveri-Weeks Firm, a San Francisco-based civil litigation practice for individuals and organizations.