Two recent class action lawsuits illustrate an emerging trend in wage and hour class action litigation, namely, claims for failure to pay overtime wages based on the improper calculation of the employees’ overtime rates.
The first lawsuit, filed against clothing retailer Forever 21 by a former 13-year employee, alleges that employees were not paid all of their overtime wages due to Forever 21’s failure to take into account non-discretionary bonuses and incentive pay when calculating the employees’ overtime rates. Juana Diaz, the plaintiff in this lawsuit, seeks to represent all of Forever 21’s hourly warehouse employees in the State of California. This lawsuit was filed May 24, 2013 in the Los Angeles County Superior Court.
In the second lawsuit, plaintiff William Sullivan seeks to represent non-exempt employees of Lyon Management Group, a property management company, in a similar claim. Sullivan alleges that Lyon failed to include the employees’ commissions and bonuses when calculating their overtime rates. This lawsuit was filed May 8, 2013 in the Orange County Superior Court.
Although the outcome of these cases remains to be seen, two recent decisions finding such claims suitable for class certification confirm the viability of class certification of claims based on the improper calculation of overtime rates. In a May 10, 2013 decision in the case of Faulkinbury v. Boyd & Associates, Inc., a California appellate court ruled that the question of whether annual bonuses must be included in calculating the overtime rates of the proposed class was appropriate for class certification. On May 28, 2013, the federal Court of Appeals for the Ninth Circuit overturned a lower court decision denying class certification in Levya v. Medline Industries, Inc. The plaintiffs in that action sought to represent over 500 employees on a number of claims, including a claim that nondiscretionary bonuses had been improperly excluded from overtime rates. The federal court ordered the proposed class certified.
The calculation of an employee’s overtime rate varies from case to case. Federal and California laws state that an employee’s overtime rate is based on that employee’s “regular rate of pay,” which includes all of the compensation the employee normally receives for the work performed for the employer. In many cases, it is not enough to look only at the employee’s hourly rate. The employer must also include any other compensation normally paid to the employee for their work including salary, piecework earnings, non-discretionary bonuses, and commissions in the regular rate of pay. Conversely, discretionary bonuses, payments in the nature of gifts on special occasions, and contributions by an employer to certain welfare plans generally are not included in the calculation of the “regular rate of pay.” Whether a particular type of compensation should be included in the regular rate of pay is a very fact-specific determination. The cases above make clear that employers of all sizes should review their practices to ensure that the regular rate is being properly calculated. As cases have illustrated, this is an issue that lends to class certification, which greatly increases the risk and exposure of a potential claim.
California’s newest regulations pertaining to the rights of the disabled in the workplace require employers to allow “assistive animals” in the workplace as a reasonable accommodation to certain disabled employees. See CCR 7293.6 & 72940(k).
While service dogs for the visually and hearing impaired have become a more common sight in California’s workplaces, the regulations specifically permit other animals that provide “emotional or other support to a person with a disability….”
An employer need not play “possum” when confronted with an employee’s request to bring an assistive animal to the office. First, an employer may require the employee to provide medical certification from the employee’s health care provider (which, broadly defined, now includes therapists, acupuncturists, dentists, physicians, clinical social workers, nurse practitioners, midwives, chiropractors, optometrists, psychologists, and podiatrists) certifying that the employee has a disability and that explains why the assistive animal provides an accommodation.
Still got your goat? An employer may also require a certain level of training, namely that the assistive animal
- is free from offensive odors and displays habits appropriate to the work environment, for example, the elimination of urine and feces;
- does not engage in behavior that endangers the health or safety of the individual with a disability or others in the workplace; and
- is trained to provide assistance for the employee’s disability.
But an employer must act jackrabbit quick, because it is only within the first two weeks that the assistive animal is reporting to the workplace that an employer is expressly permitted to challenge the animal, based on objective evidence of offensive or disruptive behavior. (It is not clear what happens if an animal becomes violent, dangerous or its toilet training breaks down after the first two weeks). Thereafter, annually, the employer may (and should) require annual recertification of the employee’s continued need for the support animal.
As assistive animals become more common in the workplace, employers will increasingly be confronted by the potential conflict and disruptions that service animals will provide. Not only the distraction from the getting the job done, but other employees’ claims of allergy and other reactions to the animals which may then require additional accommodations. It is not clear how the courts will react to these cases as there is no precedent.
Two steps forward, one step back. That seems to be the pace of wage and hour class certification decisions for California employers these days. In recent months, both the Ninth Circuit and some California Courts of Appeal have issued employer-friendly decisions holding that class certification is not proper on the facts of the wage and hour claims before them (see, e.g. Wang v. Chinese Daily News (9th Circuit) and Dailey v. Sears Roebuck (California court of appeal). However, over the past week, two new decisions have been issued reminding California employers that class certification is far from dead in the wage and hour context.
Yesterday, the Ninth Circuit issued its decision in Leyva v. Medlin Industries, Inc., reversing a district court’s denial of class certification and ordering that class certification be granted. The plaintiff in the case sought to represent a class of 538 hourly employees of Medline, alleging that the employer engaged in improper time rounding practices that resulted in employees performing work “off the clock” and without pay, and that the employer also failed to include bonus compensation in calculating the overtime rate. The district court denied class certification, holding that individual damage issues predominated over any issues common to the class and that litigating the case on a class basis would be unmanageable. The Ninth Circuit, without much factual discussion, held that the district court abused its discretion in denying class certification. More specifically, the Ninth Circuit held that the district court erred in relying almost exclusively on individual damage issues as the basis for denial of class certification. The Ninth Circuit held that the need for individual damage determinations does not defeat class certification and does not render a class proceeding unmanageable. In so holding, the Ninth Circuit made clear that it does not believe the United States Supreme Court’s recent decision in Comcast v. Behrend, suggests otherwise. According to the Ninth Circuit, Comcast v. Behrend simply held that the proponent of class certification must demonstrate a model of proving damages attributable to the theory of liability. In Comcast, the proposed model did not isolate damages flowing from one theory of liability versus others. The Ninth Circuit contrasted the case before it and held that if liability was proven for rounding violations and/or improper overtime rate calculations, the damages sought would all flow from the same theory of liability. Furthermore, the employer had apparently demonstrated that classwide damages could be fairly easily calculated from the employer’s payroll database (the employer had filed a notice of removal early in the case, which included the employer’s own damages calculations). The Ninth Circuit emphasized that individual damage issues, almost categorically, are not enough to defeat class certification in any wage and hour case.
The Ninth Circuit mentioned but provided no real discussion of facts or evidence in the case proffered by the employer to demonstrate that individual issues predominate. For example, the employer apparently argued and/or submitted evidence that different employees had different types of bonuses—some being discretionary and some non-discretionary, which might impact whether such compensation even needed to be included in the overtime rate calculation. Additionally, it is unclear how it could be determined on a classwide basis whether any particular class member actually performed work that was uncompensated (regardless of any rounding practice) without individually questioning each class member. In any event, the Ninth Circuit’s view on individual damages issues was certainly made clear. The full decision is here.
In another unfavorable class certification ruling, a California Court of Appeal issued its decision last week in Bluford v. Safeway Stores, also reversing a trial court’s denial of class certification, this time in a meal break case. On the meal break claim, the employer’s policy apparently did not specifically mention the employee’s entitlement to a second meal break if the employee worked in excess of 10 hours per day. There was evidence, however, that some employees indeed knew they could take second meal breaks and did take such breaks. The trial court denied class certification, finding that individual issues predominated because a determination of liability would require questioning of the individual employees as to whether they were permitted to take such breaks and if they did not take them, why that was. The court of appeal disagreed, holding that class certification could properly be based on the employer’s lack of a proper policy clearly authorizing and permitting second meal breaks for shifts in excess of 10 hours. In other words, the lack of a fully compliant policy supported class certification, regardless of evidence that at least some employees knew by unwritten policy that they were in fact entitled to such breaks.
There was also a rest break claim at issue in the Bluford case, but it was premised on unique facts different that rest break claims in typical cases (i.e. employees were not permitted to take rest breaks). Specifically, the rest break claim challenged whether Safeway provided paid rest breaks to its employees. Safeway paid these employees based on a piece rate formula utilizing mileage rates applied according to number of miles driven, the time when the trips were made and the locations where the trips began and ended. Pay was also based on fixed rates for certain tasks and hourly rates for other tasks and delays. According to the court, neither the mileage rate compensation formula nor the fixed rate formula compensated employees for rest period time. Safeway argued that the mileage and activity rates were designed to include compensation for rest periods. The court rejected this theory, holding that averaging pay is not allowed under California law as a means for complying with minimum wage obligations.
Notably, the driver employees at issue in the Safeway case were covered by a collective bargaining agreement that had meal and rest break provisions. The court rejected the argument that the claims were preempted by the Labor Management Relations Act. The Bluford case is available here.
These two cases serve as an unfortunate reminder that wage and hour class actions remain alive and well in California, and will continue to so remain. It is imperative that employers ensure that they have compliant wage and hour policies for California employees, as this remains one of the best tools for defeating class certification. In the meantime, it remains to be seen how other courts (besides the Ninth Circuit) will interpret Comcast v. Behrend and its impact on class certification in wage and hour cases, where damages issues are often highly individualized.
In order to be properly classified as an exempt employee in California, the employee must spend the majority of his or her weekly work time performing exempt tasks. Thus, California's test for exemption has a very quantitative focus, a focus that is materially different than the "primary duty" test under the federal FLSA. One question that commonly arises in lawsuits challenging exempt status of managers in California is whether time spent by those managers concurrently performing exempt and non-exempt tasks qualifies as exempt work for purposes of the quantitative analysis. Take, for example, a retail manager who assists customers during a rush but continues oversight of the store and coaching and direction of subordinate employees at the same time. Is such concurrent work exempt, non-exempt or both? Yesterday, a California court held that the work cannot be both exempt and non-exempt nor partial time credit given to the exempt and non-exempt sides of the ledger. Instead, the court held that the trier of fact must determine the "primary purpose" of the work and consider whether that primary purpose falls on the exempt or non-exempt side of the ledger. The case is Heyen v. Safeway, Inc. and the decision is here.
In the Heyen case, the court's analysis led to an adverse decision for the employer. The plaintiff, a grocery store manager, claimed she spent the majority of her time on non-exempt work (cashiering, etc.) instead of management duties. Following trial, the court found liability and awarded the plaintiff overtime compensation. The employer said that the trial court erred in failing to consider time spent by the plaintiff concurrently managing while performing non-exempt tasks. The appellate court found no erro and held that based on the evidence, the trier of fact properly concluded that the work was for a primarily non-exempt purpose and thus, the employer did not get time credit for the employee's concurrent management duties.
This case serves as a reminder to California employers about the need to carefully review exempt classifications to ensure that exempt employees truly spend the majority of their work time on exempt tasks.
There has been a lot of litigation in California concerning the exempt status of various categories of employees, with plaintiffs’ attorneys filing class action after class action seeking to recover four plus years of overtime compensation stemming from employers allegedly misclassifying employees as exempt from overtime compensation. Typically, these claims are premised on an argument that the employees’ job duties (as opposed to the amount or manner of compensation paid to the employees) do not meet the test for exemption. A decision hand down today by a California Court of Appeal serves as a reminder that failure to pay exempt employees on a salary basis also destroys exempt status, even if the employees’ job duties satisfy the test for exemption.
In Negri v. Koning & Assoc., the plaintiff was an insurance adjuster who was paid $29 per hour for his work. He did not have any guaranteed and predetermined minimum salary that he would be paid regardless of hours worked. In actual practice, the plaintiff always worked at least 40 hours per week and was paid $29 per hour for each of those hours worked (and more if he worked more than 40 hours). Thus, the employee’s total compensation each week was far more than double the minimum wage (the minimum threshold amount of compensation to qualify for exempt status generally in California). Nonetheless, the employee sued his employer, claiming he was improperly classified as exempt and was owed overtime compensation. [He alleged he typically worked over 60 hours per week.] The employer argued the employee was properly classified as exempt based on his job duties and compensation. The trial court ruled in favor of the employer, citing federal authorities generally determining that insurance adjusters are exempt administrative employees. The employee appealed.
The appellate court reversed, but wisely did not want to touch the issue of whether the employee’s job duties met the test for the administrative exemption in California. [California courts have been all over the map on interpretation and application of the administrative exemption as to claims adjusters and as to many other categories of employees.] Instead, the court analyzed whether the employee’s compensation met the salary basis test necessary for exempt status. The court explained that payment on a salary basis requires that an employee be paid a guaranteed predetermined amount (of at least twice the minimum wage) that is not subject to reduction based on quantity or quality of work. The court held that the employer’s method of paying this employee did not meet this salary basis test because the employee was simply paid hourly without any guaranteed minimum salary. Thus, hypothetically, if the employee worked only a few hours in a week, his total compensation would be less than double the minimum wage because there was no guaranteed minimum salary in place. The employer argued that this hypothetical scenario never happened and that the employee always worked and was paid for at least 40 hours and so there was no “actual reduction” based on quantity worked. As such, the employer argued that the salary basis test was still satisfied as to this employee. The court disagreed and held that there must be a guaranteed minimum salary in place in order for an employee to be deemed paid on a salary basis and qualify for exempt status. The court clarified that it is permissible for an employer to pay an employee compensation over and above the guaranteed minimum without destroying exempt status, but there must at least be a guaranteed minimum in place in the first instance. The full decision is available here.
This case serves as a cautious reminder for employers who pay exempt employees using hourly forms of compensation. While this is generally permissible, there must be an agreement in place that the employee will receive a guaranteed minimum salary of at least double the minimum wage (California employees) for full-time employment. Otherwise, exempt status can be successfully challenged, with back overtime owed (typically at an alarming overtime rate given the higher rate of compensation paid to employees classified as exempt).
This week the D.C. Circuit Court of Appeals issued its ruling in a case brought by several employer groups seeking to challenge the legality of the NLRB rule requiring employers to post an employee rights poster informing employees of their rights under the NLRA to unionize, among other things. As employers will recall, the NLRB had postponed the effective date of the posting requirement several times pending various court challenges to the legality of the required poster. The NLRB then gained a victory before a District of Columbia district court, which held that the poster was lawful. Employer groups appealed to the D.C. Circuit Court of Appeals, which temporarily enjoined the NLRB from implementing the posting requirement until a ruling on the merits of the appeal. This week, the Court of Appeals reversed the district court decision and held that the NLRB’s posting rule violated employers’ free speech rights and was, therefore, unlawful. The full decision is here. Our prior posts on this subject are here. For now, employers remain free of any obligation to post the NLRB employee rights poster.
California employers should all be aware that California law requires employers to pay out all accrued, but unused, vacation pay immediately upon termination of employment. In other words, use it or lose it policies and/or policies that provide for forfeiture of vacation on termination of employment are illegal in California. Employers who fail to timely pay vacation wages on termination of employment are liable not only for the actual amount of unpaid vacation wages, but also for "waiting time penalties" of a full day's regular wages for each day the payment is late, up to 30 days. There is, however, an exception to the rule prohibiting a forfeiture of vacation wages for unionized employees if the collective bargaining agreement "otherwise provides" (meaning it provides for something other than full payment of all vested vacation upon termination of employment). Today, a California court interpreted this exception narrowly to hold that a collective bargaining agreement ("CBA") must "clearly and unmistakeably" specify that vested vacation does not need to be paid in order for a waiver to be found. In other words, an implied waiver or a waiver inferred from the totality of the circumstances (such as the past mutual practice of the union and the employer) is not good enough. The case is Choate v. Celite Corp. and the decision is here.
In the Choate case, the employer granted its employees between one and five weeks of vacation annually. At the beginning of each year, the employer calculated the yearly vacation allotment based on an employee's length of service and the number of hours the employee worked the year before. Under the CBA, employees terminated from employment were entitled to "receive whatever vacation allotment is due them upon separation." Both the union and the employer understood this provision to mean that employees were entitled to be paid for the vacation time already allotted to them for the year of their termination, but not for any vacation time they had accrued toward the next year's allotment by virtue of having performed a certain number of hours of work. The employer paid out vacation in accordance with this understanding. Notwithstanding the apparent agreement of the union and the employer as to the interpretation of the CBA's vacation provision, a group of terminated employees sued for unpaid vacation wages and waiting time penalties.
The court held that the employer owed the pro rata vacation wages earned during the termination year because the CBA did not "clearly and unmistakeably" waive employees' right to receive those vacation wages. The court held that it was not sufficient that the union had for years agreed with the employer's interpretation of the vacation provision. Although the court held that the vacation wages were owed, the court held that the employer did not owe waiting time penalties because the employer's failure to pay was not "willful." The court held that the employer reasonably believed that the wages were not owed based not only on the union's agreement but also on conflicting case law, some of which suggested that an implied waiver standard was proper.
As a side note for litigators, the employer in this case also argued that the employees' vacation claim was preempted by the Labor Management Relations Act. The court rejected this argument and held that the claim was not preempted because the claim did not really require "interpretation" or "analysis" of the CBA.
Employers with unionized employees who do not pay out all accrued, unused vacation on termination of employment should ensure that the applicable CBA clearly and unmistakeably waives this entitlement.
Recently we reported on the federal D.C. Circuit Court of Appeals’ decision in Noel Canning v. NLRB, holding that certain of President Obama’s recess appointments to the NLRB were invalid. That decision calls into question the validity of numerous NLRB decisions made by a panel including these recess appointees. The court held that the appointments were invalid because they were not made during a “recess” and because the vacancies did not arise during a recess.
Last week, the Justice Department petitioned for review of the Noel Canning v. NLRB decision before the United States Supreme Court. The Justice Department asks the high Court to decide the meaning of a “recess” for purposes of the President’s appointment power (whether it has to be an inter-session recess or whether it can be an intra-session recess, as was the case when President Obama made the NLRB recess appointments) and also asks the Court to decide whether the vacancy has to arise during the recess or whether it can arise prior to the recess but be filled during the recess.
The opposition to the petition for certiorari is due May 28, 2013. The Supreme Court is not likely to issue a decision on whether or not it will grant review until after its summer recess. We will keep you posted.
May 1, 2013
Posted by Cal Labor Law in New Laws & Legislation
California's Legislature is considering AB10 this session, which would increase California's minimum wage from the current $8 per hour to $8.25 per hour next year, to $8.75 per hour in 2015, and to $9.25 per hour in 2016. Beginning in 2017 and thereafter, the minimum wage would be automatically adjusted upward based on the state's inflation rate. Recent legislative efforts to increase California's minimum wage rate have failed and it is not clear whether this bill will fare differently. However, the bill did recently pass the Assembly Labor and Employment Committee. California's minimum wage is already one of the highest in the country. Only a handful of states have minimum wage rates higher than California's.
On the federal level, legislation has also been introduced to raise the federal minimum wage from the current $7.25 per hour to $8.20 per hour three months after the legislation is passed, to $9.15 per hour one year after the legislation is passed, and to $10.10 per hour two years after the legislation is passed. Starting the third year after the legislation is passed, the federal minimum wage would be automatically adjusted upward based on teh Consumer Price Index. The federal legislation, known as the Fair Minimum Wage Act of 2013, would also increase the minimum wage for tipped employees over the next three years from $2.13 per hour to 70% of the minimum wage.
We will post developments on this and other employment-related legislation here.
Earlier this week, a California court issued a published decision holding that an employer who employs piece rate employees must compensate those employees at the piece rate for all piece rate work and at a rate of at least the minimum wage for each hour of non-piece rate work. It is not sufficient that an employer simply look backward at the pay period to determine if the total piece rate compensation divided by total hours worked (piece rate time and non-piece rate time) equals at least the minimum wage and then make up the difference only where the total falls below the minimum wage. The case is Gonzalez v. Downtown LA Motors and the decision is here.
The decision rests on uncertain footing, relying on a prior California Court of Appeal decision in Armenta v. Osmose, 135 Cal.App.4th 314 (2005). In turn, the Armenta decision relied on a 2002 DLSE opinion letter, in which the DLSE opined that piece workers must be paid at least minimum wage for all non-piece rate hours worked and that the employer may not satisfy this obligation by simply looking back at the end of the pay period at the total piece rate compensation earned and ensuring that it is equal to at least minimum wage for all hours (piece rate and non-piece) worked. In that opinion letter, however, the DLSE acknowledged that California minimum wage law is susceptible to a divergent interpretation that the backward-looking/averaging approach is permissible. Some California federal courts have also held that the backward-looking/averaging approach is proper. To add to the confusion, the DLSE itself flip-flopped on its own interpretation of what is required in this situation. In an earlier DLSE Interpretive Bulletin, the DLSE endorsed the backward-looking/averaging method. See DLSE Interpretive Bulletin No. 84-3 (Feb. 1, 1984). However, without explanation, the DLSE reversed its position several years later, explaining in its Operations and Procedures Manual that piece rate workers, in addition to their piece rate compensation, separately must be paid at least minimum wage for all non-piece rate hours worked.
Of course, the employer in the Gonzalez case did not get any break from interpreting the law the same way the DLSE has at times interpreted it. Instead, the employer was found liable to a class of piece rate employees for minimum wage violations and was ordered to pay the class for all unpaid minimum wages, as well as penalties for “willful” violation of the law. Apparently, it’s only okay for the DLSE to get it wrong when trying to interpret the exact requirements of California wage and hour law.
Unless and until there is a positive change in legal authority on this issue in California, employers who pay workers on a piece rate basis may want to take a cautious approach and pay these workers not only their piece rate for piece rate work, but also minimum wage for non-piece rate work hours.