California Labor & Employment Law Blog

By Alison Tsao

The Ninth Circuit recently revisited its prior decision in Rutti v. Lojack Corp., regarding compensability of commute time and preliminary and postliminary work.  The Ninth Circuit altered its prior decision in some respects.  Our prior post on the Rutti case is here.  On rehearing, the Ninth Circuit ruled that an employee may seek wages for time spent commuting to and from work in a company car he is required to use when he is “effectively subject to the control of the employer,” as well as time spent on the “postliminary” activity of transmitting required daily portable data transmissions to his employer from home.

Specifically, the Ninth Circuit considered Rutti’s claims for compensation for commuting in a car which use was mandated by his employer, and for certain “off-the-clock” work he performed both prior to and after his commuting time.  Rutti brought a putative class action for unpaid wages on behalf of all technicians employed by Lojack to install and repair alarms in customers’ cars.  Most, if not all of the installations and repairs are done at the clients’ locations. The technicians were required to travel to the job sites in a company-owned vehicle.  Rutti was paid on an hourly basis for the time period beginning when he arrived at his first job location and ending when he completed his final job installation of the day.  In addition to the time spent commuting to his first job assignment and from his last assignment to home, Rutti also sought compensation for “off-the-clock” activities he performed before he left the house and after he returned home.  Rutti alleged he spent time in the morning receiving assignments for the day, mapping his routes to assignments, prioritizing jobs for the day, and minimal paperwork.  Rutti further alleged that he spent time after he returned home in the evenings to upload data to his company from a portable data terminal (“PDT”) from which his work activities were recorded during the day.

Although Rutti filed a motion for class certification at the same time Lojack filed a motion for partial summary judgment, the district court only ruled on the summary judgment motion in disposing of Rutti’s federal claims and state law claim for commuting compensation, and later dismissed the remaining state law claims for lack of subject matter jurisdiction.

The Ninth Circuit affirmed the district court’s ruling that Rutti’s commute time was not compensable under federal law pursuant to the Employee Commuter Flexibility Act (“ECFA,” 29 U.S.C. § 254(a)(2)).  ECFA provides that the use of an employer’s vehicle that is subject to an agreement between the employer and employee and is not part of the employee’s principal activities is not compensable.  This interpretation is consistent with federal authorities that the cost of commuting is not compensable unless employees “perform additional legally cognizable work while driving to their workplace.”  However, the Court ruled that Rutti is entitled to seek compensation for his commute time under California law as compulsory travel time.  Rutti asserts that Lojack restricts him from using the vehicle for personal pursuits and transporting passengers, requires that he drive directly from home to work and from work to home, and requires that he keep his cell phone on during the commute.  The Ninth Circuit, relying on the California Supreme Court’s decision in Morillion v. Royal Packing Co., 22 Cal.4th 575, 578 (2000), held that Rutti was entitled to seek compensation because he was subject to his employer’s control during his commute because he was foreclosed from engaging in personal pursuits that he would otherwise have been able to undertake if he was permitted to travel to the field using his own transportation.

The Court held that Rutti’s preliminary activities (those that take place before he leaves home) of “receiving, mapping, and prioritizing jobs and routes for assignment” are related to his commute and not related to his principal activities.  Moreover, even if they are related to his principal work activities, appear to be de minimis.  As a result, they are not compensable.  In contrast, Rutti’s postliminary activities in performing the PDT transmissions were a regular part of his work duties and necessary to Lojack’s business.  The Court ruled that upon remand, Lojack might still be entitled to summary judgment if the time spent performing such tasks was de minimis.  However, the factual record did not compel this conclusion because, although it may take only five to ten minutes to initiate the transmission, employees were required to come back to see if the transmission was successful and, if not, to send it again.  There was evidence of frequent transmission failures.  In so holding, the Court stated there was no bright-line rule that activities requiring less than ten minutes’ time was per se de minimis.  Rather, courts are to employ a three-prong test as established in Lindow v. U.S., 738 F.2d 1057, 1063 (9th Cir. 1984) and consider:  (1) the practical administrative difficulty of recording the additional time; (2) the aggregate amount of compensable time; and (3) the regularity of the additional work.  Because there was evidence that Lojack paid one technician 15 minutes a day to cover PDT transmission time, and Rutti testified that he spent about 15 minutes a day performing such tasks (which, over the course of one week was substantial enough to warrant compensation), the Court reversed the grant of summary judgment and remanded for reconsideration in light of these factors.

Employers who require employees to use company vehicles for commuting purposes should carefully review their policies to see whether they are exerting sufficient “control” over the time and manner in which employees are commuting to determine whether that time needs to be compensated.  Employers should also determine whether employees’ preliminary and postliminary activities are integral to the employees’ principal job duties and, if so, whether that work required more than de minimis time to determine whether additional compensation should be paid.

The Ninth Circuit's new opinion in Rutti v. Lojack Corp. is here.

By John Anthony

In Cumbie v. Woody Woo, Inc., the Ninth Circuit recently ruled on whether a restaurant violates the Fair Labor Standards Act when, despite paying a cash wage greater than the minimum wage, it requires its wait staff to participate in a "tip pool" that redistributes some of their tips to kitchen staff.

In the Cumbie case, the Plaintiff worked as a waitress in a restaurant.  The restaurant paid its servers a cash wage exceeding the federal minimum wage.  In addition to this cash wage, the servers received a portion of their daily tips.  The restaurant required its servers to contribute their tips to a "tip pool" that was redistributed to all restaurant employees including kitchen staff that did not wait on customers.  Neither the owners nor management participated in the tip pool.

The Court held that the restaurant's tip pooling policy did not violate the FLSA because the FLSA only restricts tip pools to employees who are customarily tipped when the employer takes a tip credit.  A tip credit occurs when an employer pays a cash wage below the minimum wage and then supplements the minimum wage with tips.

Notwithstanding the Ninth Circuit's decision upholding a tip pooling practice in these circumstances, California employers must be mindful that such a tip pooling practice would not be lawful under California law.  California does not allow payment of subminimum wage, and generally does not allow tip pooling participation by employees who do not provide direct table service to customers.

By Greg Berk and Suzanne Brummett

The U.S. Attorney in Boulder, Colorado has filed a criminal indictment against the owner of several Thai restaurants for various employment tax and immigration violations.

The owner brought in workers from Thailand on employment visas to work at his restaurants. However, he denied them overtime pay and insisted on paying part of their wages in cash.  He then intentionally under-reported their pay to the IRS to avoid paying increased payroll taxes.  If convicted, he faces up to 20 years in prison and $250,000 in fines for each criminal count.

Foreign nationals working in the U.S. are entitled to the same statutory employment protections as U.S. workers.  Any conduct by an employer to exploit an individual based on immigration status is a violation of both federal and state employment and criminal laws.

Carlton DiSante & Freudenberger's immigration practice group is available to assist employers with questions that may arise regarding the employment of foreign nationals on work visas as well as I-9 compliance.  In addition, our employment law attorneys are available to assist employers in making sure that their compensation practices can withstand state and federal scrutiny.  Employers who are uncertain whether their employment practices are fully compliant with all federal and state laws may want to consider having an audit conducted by counsel.  The consequences of non-compliance can be enormous.

To see the full press release regarding the indictment of the restaurant owner by the U.S. Attorneys Office, click here.
 

By Marie DiSante

The alleged failure to provide legally mandated meal breaks has been one of the most common claims raised against California employers in the recent past.  The lack of agreement as to what it means to "provide" a meal break has allowed the number of these cases to explode.  As any employer who has faced a meal break claim knows, the California Supreme Court granted review of a case entitled Brinker Restaurant Corp. v. Superior Court (Hohnbaum).  (The Court also granted review of Brinkley v. Public Storage, another case raising similar meal break issues.)  The Supreme Court's decision in the Brinker case is expected to provide some much needed clarity with respect to the obligation of employers to "provide" meal breaks, including whether the employer must ensure that the meal breaks are taken, or whether the employer simply needs to make those breaks available for employees, to be taken or skipped at the employee's discretion.

The Supreme Court granted review of Brinker in October 2008.  The case has been fully briefed by the parties, and the deadline for filing amicus briefs has passed.  (There were more than 20 such briefs filed.)  The ball now is in the Supreme Court's hands.  The next step is for the Court to schedule a date for oral argument.  There is no deadline by which the Court needs to schedule this argument, so we do not know how quickly it will take place.  So far the Court has given no indication of when the argument will occur, although many expect it to occur in the first half of 2010.  Once the Court conducts the oral argument, it has 90 days in which to issue its decision.

The Court issues its monthly oral argument calendar on the 10th of each month for the following month.  The Brinker case is not listed on the Court's March calendar, so oral argument will not take place until April at the earliest.  We will keep you posted on the status.

By Leigh A. White

In an unfortunate case for employers, the Second Appellate District, Division One, reversed a trial court’s denial of a motion for class certification in Jaimez v. Daiohs USA, Inc., an exemption and meal and rest break case.

In this case, the proposed class representative worked as a Route Sales Representative (“RSR”) for Daiohs First Choice Services (“First Choice”).  RSRs spent almost all of their workday on the road or at customers’ locations, delivering, servicing, and up-selling bottled water products or coffee products.  In the 2003 to 2004 time frame, First Choice reclassified most of the RSR positions to non-exempt, and by October 2007, all RSR had been reclassified.  In mid-2007, however, Jaimez filed a putative class action, alleging that the RSRs had been misclassified, that they had been denied meal and rest breaks, and related claims.

 Jaimez moved for class certification, submitting 9 putative class member declarations (including his own) in support.  First Choice opposed the motion with 25 putative class member declarations, all of whom were current employees.  The trial court denied class certification, without prejudice, finding that Jaimez’s claims were not typical of the proposed class as demonstrated by First Choice’s declarations, that commonality was lacking because First Choice’s evidence demonstrated a “strong indication of conflicting testimony” at trial, and that because of the need for individualized inquiry, a class action was not the superior method for resolving the dispute.  The trial court also found that Jaimez was not an adequate class representative because of his deposition testimony, including the fact that he lied on his employment application by failing to disclose his felony conviction.

The Court of Appeal reversed, holding that the trial court “misapplied the criteria” for class certification by focusing on the potential conflicting issues of fact or law on an individual basis instead of determining whether the “theory of recovery” advanced by the plaintiff was likely to be amenable to class treatment.

The appellate court found that plaintiff submitted evidence that First Choice had uniform corporate practices applicable to the class claims, which were that RSRs performed the same duties every day; First Choice failed to properly pay overtime even after RSRs were reclassified; First Choice created delivery schedules which it pressured RSRs to complete in 8 hours, making it difficult to take meal and rest breaks; and First Choice failed to compensate RSRs for missed, late or interrupted breaks.  Regarding meal breaks, the Court of Appeal noted that the issue of what it means to “provide” meal breaks is pending before the California Supreme Court, but determined that there were common factual issues of whether First Choice had a practice of requiring RSRs to sign a manifest stating that they took a meal break in order to receive their paycheck and of First Choice’s pre-2006 practice of deducting 30 minutes per shift regardless of whether the RSR actually took a 30-minute meal break.

Based on these facts, the appellate court found that the plaintiff’s theory of recovery focused on uniform policies and practices applicable to the class, and was therefore more amenable to class treatment than individual disposition.  The Court of Appeal determined that the trial court improperly focused on the “merits of the declarations, evaluating the contradictions in the [declarants’] responses to the company’s uniform policies and practices, not the policies and practices themselves.”  The Court of Appeal concluded that had the trial court focused on the plaintiff’s theory of recovery, “it would have necessarily found the First Choice declarations, while identifying individual effects of policies and practices that may well call for individual damages determinations, nevertheless confirm the predominance of common legal and factual issues that make this case more amenable to class treatment.”  The Court of Appeal reversed the denial of class certification, except for the finding that Jaimez was not an adequate class representative, and directed the trial court to certify the case upon the court’s approval of a new class representative.

The Jaimez decision is here.

 

By Jennifer D. Barrera

A recent opinion from the Fourth Appellate District Court of Appeal emphasized that employers cannot by agreement limit the time period in which an employee can file a lawsuit for wage and hour issues.  The opinion also exemplifies the difficulty associated with satisfying the requirements of the administrative exemption. 

In Pellegrino v. Robert Half International, Inc., six former employees of a temporary staffing company sued their employer under Business and Professions Code section 17200 as well as various Labor Code sections on the grounds that the employer failed to properly compensate them for overtime worked, pay proper commissions, provide meal periods, or provide itemized wage statements.  The employer asserted two main defenses to the employees’ claims:  (1) the employees were properly classified as exempt under the administrative exemption; and (2) the employees’ claims were barred by the “Limitation on Claims” provision in their employment agreement that shortened the statute of limitations for such claims to six months.  The plaintiff filed a motion for summary judgment on the grounds that the shortened time frame to file these claims was unenforceable because it violated public policy, and that they were not properly classified as exempt under the administrative exemption.  The court granted the motion with regard to the shortened time frame, but found there was a triable issue of fact as to whether the employees were properly classified as exempt. 

At trial, the issue of the administrative exemption was tried first.  After all evidence was presented, the Court granted the employees’ motion for judgment and ruled that the employees were not properly classified as exempt as a matter of law.  The employer appealed the ruling on the motion for judgment at trial and the prior motion for summary judgment.

On appeal, the court affirmed both rulings.  With regard to the ruling concerning the shortened time frame to file the claims, the Court agreed that statutory wage and hour rights cannot be waived.  To support this conclusion, the Court cited to Labor Code section 219 that provides “Nothing in this article shall in any way limit or prohibit the payment of wages at more frequent intervals, or in greater amounts, or in full when or before due, but no provision of this article can in any way be contravened or set aside by a private agreement, whether written, oral, or implied.”  The Court also relied on prior cases, such as Gentry v. Superior Court, 42 Cal.4th 443 (2007), Franco v. Athens Disposal Co,. Inc., 171 Cal.App.4th 1277 (2009), and Zavala v. Scott Brothers Dairy, Inc., 143 Cal.App.4th 585 (2006), that previously determined certain wage and hour issues under the Labor Code, including the right to minimum wage, overtime compensation, meal and rest breaks, and itemized wage statements, could not be waived.  The Court additionally referenced Martinez v. Master Protection Corp., 118 Cal.App.4th 107 (2004), which determined an arbitration agreement that required an employee to file any employment related claims within six months of the date the claim arose was unenforceable.  The Court agreed with Martinez’s holding that “the enforcement of a provision in an employment agreement, which serious truncates the time period in which an employee may assert any claim, unlawfully restricts the employee’s ability to vindicate his or her statutory rights.”

With regard to the issue of whether the employees were properly classified as exempt under the administrative exemption, the Court agreed they were not.  The employees had presented evidence at trial that they did not perform work “directly related to the management policies or general business operations” of the company, as required to fall under the administrative exemption.  Rather, the employees performed duties that constituted sales work such as placing a candidate with a client, selling the services of the company to clients, and soliciting potential clients for sales.  The employees’ performance was evaluated on how well they met or exceeded their sales goals.  They had no supervisory duties and did not form any company policy.

The Pellegrino decision is here.

By Jeremy T. Naftel

Non-exempt hourly employees in California must be paid at an overtime rate of pay for overtime hours.  The overtime rate is calculated by applying a multiplier of 1.5 or 2.0 to the employees' "regular rate of pay."  The regular rate of pay is often the employees' straight time rate of pay, but not always.  Many employers unwittingly fail to include other types of compensation when calculating the regular rate of pay, which can result in significant liability. Recent class action filings demonstrate the risk of these miscalculations.

The rule in California is that the regular rate of pay must include all remuneration from the employer.  Take for example, restaurant employees who receive a free lunch and dinner during their shifts.  If their rate of pay is $10 per hour, in an eight hour shift they will be paid $80.  However, their regular rate of pay must be calculated by adding $80 to the cost of the meals (figured as the lesser of their actual cost to the employer or the fair market value).  If each meal costs the employer $7, that is the equivalent of an extra $14 per day in compensation.  The employees are therefore receiving a total of $94 per day in compensation, or a "regular rate of pay" of $11.75 per hour.  Accordingly, the employees' overtime rate would be $17.63, not the $15 that might be expected for a $10 per hour employee.

In this example, failure to properly calculate the regular rate of pay would result in a shortfall of $2.63 for every overtime hour worked, leading to potential liability for penalties under PAGA and Labor Code Section 203, liquidated damages under the FLSA, interest, and attorneys' fees.  These shortfalls are more common than is often realized and can result from payment of many kinds of bonuses or incentives, mandatory gratuities (such as a mandatory 15% tip for groups of 5 or more at a restaurant), free or subsidized lodging, or winning a free trip or prize for hitting a sales target.  If you offer any kind of discount, bonus, incentive, reward, or anything of any kind of value to your hourly employees beyond their base wages, we recommend that that you include it in your regular rate of pay calculations or ensure that an exception applies.  Although exceptions do exist for certain categories, the exceptions are limited and highly fact-specific.

By Robin E. Weideman

The California Supreme Court issued its decision in Schachter v. Citigroup, Inc. today, upholding the legality of an incentive compensation plan provision providing for forfeiture upon an employee’s resignation or termination for cause.  The plan at issue allowed employees to elect to receive shares of restricted stock at a reduced price in lieu of a portion of their annual compensation.  Title to the shares vested two years after the purchase date.  However, the plan provided that if the employee voluntarily resigned or was terminated for cause prior to the two-year vesting date, the employee forfeited his or her stock as well as the portion of annual income designated by the employee to be paid as shares of stock.  (If an employee was involuntarily terminated without cause prior to vesting, the employee still forfeited the stock but was paid for the percentage of annual income the employee had directed be used to purchase stock.)

Plaintiff Schachter enrolled in the plan and elected to receive about 5% of his annual compensation in the form of restricted stock.  Schachter voluntarily resigned prior to his shares vesting and, as a result, forfeited his shares as well as the amount of annual compensation that had been used to purchase the shares.  Schachter filed a class action lawsuit against Citigroup alleging that the forfeiture provisions in the incentive compensation plan violated certain provisions of the California Labor Code prohibiting the forfeiture of earned but unpaid wages.  The trial court granted summary judgment in favor of Citigroup and rejected Plaintiff’s claims.  A California Court of Appeal agreed.

Schachter petitioned for review by the California Supreme Court, which also agreed with the lower court rulings.  The Court rejected Schachter’s argument that Citigroup should have paid him, upon his resignation, cash for the amount of his annual income he had directed be used to purchase shares of stock.  The Court reasoned that an employer and an at-will employee are free to renegotiate the terms of the employee’s straight-time compensation at any time during employment.  Schachter’s election to participate in the incentive compensation plan, understanding its terms and its forfeiture provision, constituted Schachter’s agreement to a restructured compensation package.  Under the specific terms of the plan, Schachter’s interest in the shares he purchased did not vest (and hence was not “earned”) unless he remained employed for two years.  Because Schachter voluntarily resigned prior to the two-year mark, he had not “earned” and had no right to receive either the shares or the money used to purchase the shares. 

The Court also rejected Schachter’s argument that at least a portion of his incentive compensation should have vested on a pro rata basis, much like vacation wages.  The Court explained that unlike vacation, which is compensation for past services, an incentive compensation plan is inducement for continuing future service.  As a result, the Court held that rules prohibiting forfeiture of accrued vacation do not apply to incentive compensation plans.

Although the Schachter case is an employer-friendly decision that allows employers more control and flexibility in structuring incentive compensation plans, employers should note that the California Supreme Court placed some emphasis on the fact that Schachter had voluntarily resigned and, therefore, it was Schachter’s own actions that caused him to lose his contingent incentive compensation.  Although the Court did not say that a forfeiture provision tied to involuntary terminations would per se violate California law, employers should be mindful that forfeitures in the case of involuntary terminations frequently give rise to a claim that the employer terminated the employee as a pretext to avoid payment of the incentive compensation.  Therefore, particular care should be taken in drafting forfeiture provisions tied to involuntary terminations.

 

By Robin E. Weideman

The Ninth Circuit recently issued an employer-friendly ruling holding that an employer could lawfully reduce employees’ base hourly rate in connection with allowing employees to work an alternative schedule of 12-hour shifts instead of 8-hour shifts.  The employer was covered by an FLSA provision requiring payment of overtime for hours worked in excess of eight per day.  In order to neutralize the additional costs associated with payment of an overtime rate for employees desiring to work 12-hour shifts, the employer and the affected employees agreed to a lower base hourly rate, with the effect being that the employees would earn about the same amount per pay period regardless of whether they worked a normal 8-hour shift schedule or the alternative 12-hour shift schedule.

 

Some of the employees later filed a class action alleging that the employer’s reduction of their hourly rate was a subterfuge to avoid payment of mandated overtime premiums and thereby violated the federal Fair Labor Standards Act (FLSA).  A federal district court disagreed and found that the employer’s practice did not violate the FLSA.  The employees appealed to the Ninth Circuit, but the Ninth Circuit agreed with the district court, concluding that an employer “may alter the ‘regular rate’ of pay in order to provide employees a schedule they desire” without violating the FLSA.

 

Although the Ninth Circuit’s decision provides employers with much needed flexibility in considering whether to implement alternative workweek schedules, California employers are cautioned that the decision is based solely on federal law.  The decision does not address California law, and it is not clear whether California’s Department of Labor Standards Enforcement or a California court would find such a practice legal under California law.  Notably, California’s DLSE has previously issued at least one opinion letter disagreeing with some caselaw (the Belo case) on which the Ninth Circuit’s decision is based.  In addition, California Labor Code section 511(c) prohibits an employer from reducing an employee’s regular rate of hourly pay as a result of the adoption, repeal or nullification of an alternative workweek schedule.  As a result, California employers considering this type of pay reduction should consult counsel.

 

The Ninth Circuit decision is Parth v. Pomona Valley Hospital Medical Center and may be accessed here.

 

By Robin E. Weideman

Yesterday the California Supreme Court heard oral argument in three employment cases:  Roby v. McKesson HBOC, Schachter v. Citigroup, Inc., and Costco Wholesale Corp. v. Superior Court.  The Roby case addresses the following issues:  (1) can a supervisor’s management and personnel actions be considered in determining whether an employee has been subjected to hostile work environment harassment? and (2) may an appellate court determine the maximum constitutionally permissible award of punitive damages when it reduces a compensatory damage award, or must the appellate court remand the issue to the trial court for a new determination of punitive damages?

 

The Schachter case addresses the following issue:  Does the forfeiture provision of a voluntary incentive compensation plan, which gives employees the option of using a portion of their earnings to purchase shares in the company’s stock below market price but provides that employees forfeit both the stock and the money used to purchase it if they resign or are terminated for cause within a two-year period, violate Labor Code sections 201 or 202?  Our previous post on the Schachter case is here.

 

The Costco case addresses the following issues relating to application of the attorney-client privilege to advice provided by outside counsel to in-house counsel in a wage and hour misclassification action:  (1) does the attorney-client privilege protect factual statements made by outside counsel in a legal memorandum to in-house counsel? and (2) is a trial court prohibited from conducting an in camera review of the legal memorandum to determine whether the attorney-client privilege applies?  Our previous post on the Costco case is here.

 

Each of these three cases has important implications for many California employers.  The California Supreme Court is expected to issue decisions in these cases in the next 90 days.  We will continue to monitor the cases and post significant developments.

By Nancy Berner

In a positive development for employers and their defense counsel alike, the Fourth District Court of Appeals upheld the San Diego trial court’s denial of class certification in Ali v. U.S.A Cab.  The putative class maintained that cab drivers were misclassified as independent contractors and denied, among other things, meal and rest breaks, workers’ compensation coverage and payment of the minimum wage.  Of particular note is the appellate court’s analysis of the often tricky interplay between class certification issues and issues that speak to the merits of the case.

In U.S.A. Cab, plaintiffs sought certification of a class of drivers allegedly misclassified as independent contractors, and therefore denied the protections afforded to employees but burdened with the fees and deposits assessable to independent contractors.  The putative class consisted of cab drivers who leased cabs from USA Cab, a radio dispatch company that provided a lease agreement designating the leasee as an independent contractor, and setting forth the conditions under which USA Cab provided a taxi at a rate dependent on the leasee’s driving record, and additionally provided insurance, maintenance and use of a radio dispatch service for contacting potential customers.  In return, the leasee paid a security deposit, and could collect fares from passengers which he or she was not required to share with the company.  USA Cab also provided drivers with a training manual that instructed drivers on the use of the company’s dispatch system, on procedures to use when arriving at a passenger’s address, and on state and local rules regulating cab drivers.

In opposition to the class certification, the trial court considered 36 declarations of taxi drivers testifying not only to variation in individual conduct, but to conduct at variance with Plaintiffs’ allegations of pervasive employer control by USA Cab of the drivers’ activities.  The trial court considered evidence that the drivers “promoted their services in Web sites and phone books, and by giving out business cards and their personal cell phone numbers; provided some of their own work tools, such as map books, cell phones, flashlights, computers and credit card machines; set their own rates, such as flat rates per trip or rates below the standard metered rate; did not accept USA Cab's credit card system; obtained fares from sources other than USA Cab's dispatch service; refused fares at their discretion; had other drivers fill in for them, or filled in for other drivers; and used their taxis for personal reasons.”  In other words, the trial court’s denial of class certification rested at least in part on consideration of the legal merits of Plaintiffs’ underlying allegation that they were treated as independent contractors rather than employees.  The court denied certification because individual issues predominated and because the lack of common issues meant class treatment was not a superior method of litigation and would render a class unmanageable.

Plaintiffs sought review, contending that the trial court’s reliance on the declarations submitted by Defendant was an erroneous ruling on an ultimate issue in the case, namely that the drivers were independent contractors.  The Court of Appeals disagreed. Citing to and emphasizing language from a California Supreme Court case relied upon by Plaintiffs, the Court noted that “issues affecting the merits of a case may be enmeshed with class action requirements, such as whether substantially similar questions are common to the class and predominate over individual questions or whether the claims or defenses of the representative plaintiffs are typical of class claims or defenses.”  In U.S.A. Cab, the trial court used the declarations to decide the certification issues of commonality, manageability and predominance of individual issues.  The appellate court agreed, for example, that the declarations supported the trial court’s conclusion that a class action trial would lead to “a parade of drivers” presenting testimony on individual issues such as the fact of damages, rather that simply the amount of damages. 

This appellate decision sounds an encouraging note for those fighting to defeat class certification. As the Court noted in conclusion, “there is no precise test for determining whether common issues predominate, and thus “the court must pragmatically assess the entire action and the issues involved.”  Evidence as to the underlying merits of the case may well be persuasive if the evidence speaks pragmatically to the class certification issues as well. 

By Robin E. Weideman

Last week, the Ninth Circuit issued its decision in Rutti v. Lojack Corp., holding that a technician who installed vehicle recovery systems at customer locations was not entitled to compensation for time spent commuting from home to the first job site (and back home after the last job site) each day in a company vehicle.  The court further held that the employee was not entitled to compensation for time he spent performing preliminary activities at home (e.g. reviewing assignments and mapping his route for the day) prior to leaving for the first job site.  The court reasoned that the time spent performing this preliminary work was "de minimis" and, therefore, not compensable.

Although the court came down in favor of the employer on the issues of commuting time pay and pay for preliminary work, the court refused to find in the employer's favor on the issue of pay for postliminary work (work performed at home at the end of the day).  The trial court had ruled in favor of the employer on this issue by granting the employer summary judgment based on a finding that the employee's postliminary work (which consisted of transmitting a report of the day's activity to the employer) was also de minimis and, therefore, not compensable.  The Ninth Circuit reversed reversed, holding that there was a factual dispute regarding the amount of time spent by employees on postliminary work (ranging from 1-2 minutes per day to 15 minutes per day) and that this dispute precluded a finding on summary judgment that the work was de minimis and not compensable.  The court remanded that issue for further trial court proceedings.

The Lojack decision, including some interesting dissenting opinions, provides further guidance for employers on how courts analyze the compensability of commute time and off the clock time spent on preliminary and postliminary work. 

By Robin E. Weideman

Reversing one of its earlier opinion letters from 2002, California’s Department of Labor Standards Enforcement issued a new opinion letter on August 19 stating that employers may implement a pro-rata reduction of exempt employee salaries, in exchange for a shortened workweek. Specifically, the opinion letter addresses whether an employer may shorten the workweek from five days to four days and reduce salaries by a proportionate 20%.  The DLSE opined that an employer could properly do this, without violating the salary basis test and without jeopardizing the exempt status of its employees under federal or California law.  The DLSE relied on several federal Department of Labor opinion letters and related federal caselaw upholding the lawfulness of a pro rata salary reduction in circumstances where an employer shortens its employees’ workweek due to economic necessity.

As many California employers know, the DLSE’s new opinion letter flatly contradicts a prior opinion letter on the same subject, in which the DLSE concluded that employers could not reduce an exempt employee’s salary in exchange for a commensurate reduction in the hours of work, without violating the salary basis test and jeopardizing the employee’s exempt status.  In the DLSE’s prior opinion letter, the DLSE reasoned that tying an employee’s compensation to the amount of hours or days the employee works is inconsistent with the notion of being a salaried employee and, therefore, violates the salary basis test.

The DLSE’s new guidance on the subject is consistent with federal law and provides employers more flexibility in making necessary reductions in exempt salaries during tough economic times, by allowing employers to provide affected employees with a reduced workload in exchange for the salary reduction.  That being said, the DLSE’s shifting positions on the requirements of California’s wage and hour laws (shifts that are notable not only in this area, but also in many others, including the subject of meal period requirements) begs the question:  if the agency charged with the responsibility of interpreting California’s wage and hour laws cannot seem to decide what the laws require, how is it fair to hold California employers strictly responsible for understanding the specific requirements on threat of having to defend costly class action litigation and potentially pay a judgment for getting it wrong based on the interpretation of the day?
 

By Alison Tsao

The Fifth Appellate District recently confirmed that unless a statute specifically provides otherwise, public agencies are exempt from wage and hour provisions of California’s Labor Code.  In Johnson v. Arvin-Edison Water Storage District, Plaintiff Randell Johnson filed a putative wage and hour class action against the Arvin-Edison Water Storage District (“District”), a public agency, alleging violations of various provisions of the California Labor Code, including failure to pay overtime, failure to provide proper meal breaks, and failure to provide all wages due upon termination.  The Court of Appeal upheld the trial court’s granting of the District’s demurrer that public agencies are exempt from the provisions of the Labor Code alleged by Plaintiff in the Complaint.

The Court of Appeal held that absent express statutory authorization, governmental agencies are not subject to a general statute like the Labor Code.  For example, in Labor Code Section 555, the Legislature specifically stated that provisions of that chapter (sections 550-552 and 554) pertaining to maximum consecutive working days (generally stating that employees are entitled to one day of rest in seven days of work),“ are applicable to cities which are cities and counties and to the officers and employees thereof.” Because Labor Code sections 510 and 512 pertaining to overtime and meal periods do not expressly contain language applying these statutes to public agencies, they are held to apply only to the private sector.  Moreover, Labor Code section 220(b) states that provisions in that chapter (including final pay provisions under Labor Code sections 201 and 202) do not apply to “employees directly employed by any county, incorporated city, or town or other municipal corporation.”  The Court held that the District exercises a governmental function and therefore qualified as an “other municipal corporation.”

The Court of Appeal further noted that the District is also exempt under the “sovereign powers” maxim.  Under the “sovereign powers” maxim, a statute infringes upon a public entity’s sovereign powers if it affects the entity’s governmental purposes and functions, and the Court held that setting employees’ compensation was a fundamental function of the District.  While public agencies like the District must still comply with the wage and hour laws set forth in the federal Fair Labor Standards Act (“FLSA”), this decision confirms that absent specific statutory authorization, most public agencies will not be subject to provisions of the California Labor Code.

By Chris Robertson

On June 3, 2009, a California Court of Appeal issued a favorable decision for employers regarding post-termination commission claims.

The plaintiff was a salesman who suggested a transaction to his employer that was not consummated until a month after the employer terminated the plaintiff's employment.  The plaintiff sued his former employer for failure to pay him any commission on the transaction.

The plaintiff's employment contract stated that he "will be eligible for commission pay … so long as he remains employed with the Company."  The Court of Appeal ruled that this language "is reasonably susceptible to only one interpretation - that once plaintiff ceased to be employed by defendant, he would no longer be eligible for commission pay."  Consequently, the Court of Appeal affirmed summary judgment in favor of the employer because "pursuant to the plain language of the written employment agreement, plaintiff was not entitled to any further commissions after he was terminated."

The Court of Appeal, however, made clear that the outcome would not necessarily be so favorable for employers in other cases because "there is an exception to this principle when a contract provision is unconscionable," which the Court of Appeal did not consider in this case because the plaintiff did not make that argument.  The Court of Appeal gave as an example a previous case where a provision in an employment agreement that a salesman forfeited his right to a commission if he terminated his employment before his employer received payment for the sale was found to be unconscionable and therefore unenforceable.

Accordingly, commission agreements need be carefully analyzed and drafted to maximize the likelihood that a court will uphold the language on which the employer bases its decisions regarding commission payments.  The case is Nein v. Hostpro, Inc. and can be found here.

By Robin E. Weideman

Earlier today, a California Court of Appeal overturned a recent trial court verdict awarding a class of current and former Starbucks baristas $86 million in tips they were required to share with shift supervisors.  The Court of Appeal held in Chau v. Starbucks that the trial court erred in ruling that Starbucks’ tip allocation policy violated California law.  More specifically, the court explained:

 

“The applicable statutes do not prohibit Starbucks from permitting shift supervisors to share in the proceeds placed in collective tip boxes.  The court’s ruling was improperly based on a line of decisions that concerns an employer’s authority to mandate that a tip given to an individual service employee must be shared with other employees.  The policy challenged here presents the flip side of this mandatory tip-pooling practice.  It concerns an employer’s authority to require equitable allocation of tips placed in a collective tip box for those employees providing service to the customer.  There is no decisional or statutory authority prohibiting an employer from allowing a service employee to keep a portion of the collective tip, in proportion to the amount of hours worked, merely because the employee also has limited supervisory duties.”

 

The Court of Appeal further explained that it did not matter whether or not the shift supervisors qualified as “agents” of Starbucks under California Labor Code section 350.  “Even if shift supervisors can be considered ‘agents’ within the meaning of section 350, subdivision (d), Starbucks did not violate section 351 by permitting shift supervisors to share in the tip proceeds that were left in a collective tip box for baristas and shift supervisors.”  According to the court, the evidence established that shift supervisors spent the majority of their time performing the same service tasks as the baristas, and that customers would not be capable of distinguishing between an employee who was a barista and one who was a shift supervisor.   "Thus, customers who place money in the tip box understand and intend that the money will be shared by the entire team, including baristas and shift supervisors.”

 

Based on this reasoning, the Court of Appeal reversed the trial court judgment against Starbucks and ordered the trial court to enter judgment in Starbucks’ favor.  This is a very positive decision for California businesses that have tip allocation policies based on the use of collective tip jars similar to those used by Starbucks.  However, businesses with mandatory tip pooling policies involving customers who leave personal tips for a specific employee (as is often the case in restaurants with direct table service) must continue to be mindful of the general restriction against permitting “agents” of the employer to share in pooled tips.

By Robin E. Weideman

California's Department of Labor Standards Enforcement has published a new manual governing wage and hour issues, including prevailing wage requirements, for employees on public works contracts.  California employers with such contracts may find this manual useful as a reference tool.  The manual is available here.

By Robin E. Weideman

Several class action lawsuits are pending before the Ninth Circuit and federal district courts in California challenging the exempt classification of pharmaceutical sales representatives under the outside salesperson exemption and administrative exemption.  One of these cases, D’Este v. Bayer Corporation is currently before the Ninth Circuit. Earlier this week the Ninth Circuit certified questions of California law to the California Supreme Court regarding the scope of these exemptions, reasoning that it is unclear under California law whether these exemptions apply to pharmaceutical sales representatives and the outcome of several pending cases depends on clear guidance on these issues.  The specific questions certified to the California Supreme Court are as follows:

1. The Industrial Welfare Commission’s Wage Orders 1-

2001 and 4-2001 define “outside salesperson” to mean

“any person, 18 years of age or over, who customarily

and regularly works more than half the working time

away from the employer’s place of business selling tangible

or intangible items or obtaining orders or contracts for

products, services or use of facilities.”  8 Cal. Code Regs.,

tit. 8, §§ 11010, subd. 2(J); 11040, subd. 2(M).  Does a

pharmaceutical sales representative (PSR) qualify as an

“outside salesperson” under this definition, if the PSR

spends more than half the working time away from the

employer’s place of business and personally interacts

with doctors and hospitals on behalf of drug companies

for the purpose of increasing individual doctors’ prescriptions

of specific drugs?

 

2. In the alternative, Wage Order 4-2001 defines a person

employed in an administrative capacity as a person whose

duties and responsibilities involve (among other things)

“[t]he performance of office or non-manual work directly

related to management policies or general business opera-

tions of his/her employer or his employer’s customers”

and “[w]ho customarily and regularly exercises discretion

and independent judgment.”  Cal. Code Regs., tit. 8

§ 11040, subd. 1(A)(2)(a)(I), 1(A)(2)(b).  Is a PSR, as

described above, involved in duties and responsibilities

that meet these requirements?

 

The California Supreme Court has discretion whether to accept the Ninth Circuit's request for certification.  We will continue to monitor and post any developments. 

By Robin E. Weideman

In Budrow v. Dave & Buster’s of California, Inc., the court upheld summary judgment for Dave & Buster’s and rejected the plaintiff’s claim that the restaurant’s tip pooling policy was unlawful.  The plaintiff in the case argued that the restaurant’s tip pooling policy violated California Law because servers were required to share a percentage of their tips with bartenders who did not provide “direct” table service.  The court rejected the plaintiff’s argument and held that California law does not distinguish between “direct” and “indirect” table service for purposes of determining which employees can share in a tip pool.  Instead, the proper inquiry is determining which employee or employees the tip was left for.  According to the court, there is no bright line rule for answering this question and the answer may vary from restaurant to restaurant, depending on the nature of the service provided.  In this case, the court held that it did not matter whether or not bartenders actually brought drinks to customers’ tables.  Even if they did not, the fact that the bartender mixes and/or pours drinks that are delivered to customers is sufficient to permit the bartender to share in the tip pool.  The court rejected categorical exclusions on the types of employees that may participate in a tip pool, reasoning:  “Given that restaurants differ, there must be flexibility in determining the employees that the tip was ‘paid, given or left for.’”  “Ultimately, the decision about which employees are to participate in the tip pool must be based on a reasonable assessment of the patrons’ intentions.”  The decision is here.
 

By Jeremy T. Naftel

Ever since the California Supreme Court issued its decision in Reynolds v. Bement, 36 Cal.4th 1075 (2005), it has been fairly well settled that individuals cannot be personally liable for their corporate employer’s violation of state wage and hour laws.  However, creative plaintiff attorneys have found a way to use the Private Attorneys General Act (PAGA) to reinstate the specter of personal liability.

 

On Friday, Judge Karlton in the Eastern District federal court in Sacramento, California ruled on a defendant’s motion for judgment on the pleadings in Ontiveros v. Zamora, et al.  The plaintiff had alleged wage and hour violations against both his corporate employer and an individual officer of the company.  The plaintiff bolstered his claims against the individual defendant by describing a high degree of control exercised by the individual, and attributed the wage and hour violations to actions and decisions by the individual.  The defendants filed a motion for judgment on the pleadings, arguing that the individual defendant should be dismissed because Reynolds did not permit individual liability.

 

The Court denied the motion as to the individual, holding that the plaintiff had stated a viable theory supporting personal liability against the corporate officer.  Specifically, Judge Karlton pointed to Labor Code Section 558, which prohibits any employer “or any other person acting on behalf of an employer” from violating or causing to be violated certain Labor Code Statutes and IWC Wage Order provisions.  Violators of Section 558 (or the underlying Labor Code statutes or Wage Order provisions) are subject to a civil penalty.  This civil penalty can be collected by an aggrieved employee pursuant to PAGA.  Since the plaintiff alleged that the corporate officer had “caused” the violation of numerous Labor Code and Wage Order provisions, he could proceed with his claims against that officer.  The Court also held that claims against the individual could be pursued under a joint employer theory, because the plaintiff had alleged that the corporate employer and the officer were joint employers.

 

Although California courts are not bound to follow this federal decision, reinstatement of personal liability against individuals for wage and hour violations is a troubling development for employers, supervisors, and corporate officers.

By Robin E. Weideman

With the tough economic climate employers continue to face, we have received a number of inquiries regarding the circumstances under which an employer can reduce the salary of an exempt employee without destroying the employee’s exempt status under California law.  As a general rule, an employer may lawfully reduce an exempt employee’s salary, on a prospective basis, so long as the employee’s guaranteed salary does not drop below two times the California minimum wage (currently equating to a minimum salary of $33,280 annually).  Where the reduction becomes problematic is a situation where the reduction is tied to the employee’s hours/days of work and/or to some measure of production.  Many times this arises where the employer tries to give the employee something positive to “offset” the reduction in salary and negative morale that flows from the reduction.  For example, an employer might consider reducing exempt employees' salaries by 20% in exchange for giving the employees Fridays off.  California’s Department of Labor Standards Enforcement takes the position that this type of salary reduction violates the salary basis test and destroys exempt status (meaning that meal and rest breaks and daily/weekly overtime rules would apply to the affected employees).  The DLSE reasons that exempt employees are paid for the value of their work, not for the number of hours or days they work, and it is generally up to the exempt employee to determine the number of hours to work to accomplish his or her job duties.  Tying the amount of an employee’s compensation to the quantity of work the employee performs is at odds with the notion of being a salaried employee.  Any California employer considering salary reductions for exempt employees should review the following opinion letter issued by the DLSE on the subject: DLSE Opinion Letter.

The bottom line is that if you are considering salary reductions for exempt California employees, the reductions can be made, but the reduction should not be linked to any corresponding change in days or hours worked.  In addition, the employees’ salary must not fall below twice the minimum wage, and the employees’ job duties must still meet the test for exempt status.

On a final note, the foregoing applies to circumstances under which employers reduce salaries as a result of the operational requirements of the business.  Different rules apply where an exempt employee voluntarily seeks to work a reduced schedule for personal reasons.
 

By Robin E. Weideman

In Pineda v. Bank of America, a California Court of Appeal held that waiting time penalties under Labor Code section 203 cannot be recovered as restitution under California’s Unfair Competition Law.  The plaintiff, seeking to represent a class of former employees, alleged that he had not been timely paid his final wages following his resignation of employment.  (His last day was May 11 and he was paid on May 15.)  He alleged a claim for waiting time penalties under Section 203 and a claim for restitution under the UCL (Business and Professions Code section 17200).  The trial court granted Bank of America’s motion for judgment on the pleadings, holding that the Labor Code claim was barred by the statute of limitations and that penalties could not be recovered as “restitution” under the UCL.

On appeal, the First District Court of Appeal agreed with the trial court.  In an unpublished portion of the decision, the court held that a one-year statute of limitations applies to a claim for waiting time penalties where there is no underlying claim for unpaid wages.  (The court suggested that if there is an underlying claim for unpaid wages, the statute of limitations for both claims is three years.)  In this case, the plaintiff did not allege that Bank of America failed to pay him wages; he simply alleged that his final wages were paid 4 days late.  Because the plaintiff did not have an underlying claim for unpaid wages, a one-year statute of limitations applied.  The plaintiff filed his action more than one year after his resignation and the Labor Code claim was, therefore, time-barred.

 Also in an unpublished portion of the decision, the court interestingly held that leave to amend to substitute a suitable class representative as plaintiff, was properly denied by the trial court.  The court held that plaintiff’s counsel had several months to find a suitable class plaintiff through discovery and had failed to do so due to a lack of diligence.  As a result, the court held that the trial court did not abuse its discretion in denying leave to amend.

Finally, in the published portion of the decision, the court held that the plaintiff’s UCL claim was properly dismissed because Section 203 penalties cannot be recovered as restitution under the UCL.  The court rejected the plaintiff’s argument that waiting time penalties are a “vested property interest” that arises upon an employer’s failure to timely pay wages.

Although this case was a victory for the employer, it is also a reminder of the litigation that can, and often does, follow when final wages are not paid in accordance with California’s strict statutory time requirements.  As a reminder, if an employee is involuntarily terminated, final wages (including accrued, unused vacation) must be paid at the time of termination (on the employee’s last day).  If an employee resigns and gives at least 72 hours notice, final wages must be paid on the employee’s last day.  If an employee resigns with less than 72 hours notice, final wages must be paid within 72 hours.
 

By Robin E. Weideman

As anticipated, a petition for review before the California Supreme Court was filed last week in Brinkley v. Public Storage, the most recent published decision by a California State court holding that an employer need only make meal periods available to employees, not ensure that the meal periods are actually taken.  The California Supreme Court has 60 days to decide whether or not to grant review.  In light of the Court's recent grant of review in Brinker v. Hohnbaum, involving the same issue, it is anticipated that the Court will grant review of Brinkley but issue a hold order delaying briefing pending resolution of the Brinker case.  If the Court grants review, Brinkley will no longer be citable precedent pending review.

By Alison L. Tsao

Employers sometimes overcompensate their employees due to pre-determined payroll practices that pay employees for an assumed number of work hours before actual timesheets are submitted or processed.  California law generally prohibits an employer from making deductions from an employee’s wages except as required by state and federal law for certain withholdings (eg. taxes) or as authorized by the employee for medical/health benefits or pension plan contributions. However, the Department of Labor Standards Enforcement (DLSE) recently issued an Opinion Letter that concludes that employers may generally recoup these overpayments provided these conditions are met: (1) the deduction cannot cause the employee to earn less than the Minimum Wage; (2) the deduction is expressly authorized by the employee in writing; and (3) the deduction cannot be taken out of an employee’s final paycheck.

In coming to its conclusions, the DLSE analogized the situation of a deduction due to an overpayment as a result an employer’s regular payroll practice that pays a predetermined amount to an employer’s recoupment of commission advances.  In both situations, the subsequent recovery was for “‘advances’ for hours not worked.”  Moreover, the employees of the employer requesting this opinion letter saw the wage recoupment in the next payroll period based on the employee’s submitted timesheets showing he or she did not work all hours for which he or she was paid.  As a result, the overpayment recovery was both predictable and proper.
For the overpayment recovery to be valid, it must be authorized in writing by the employee.  The DLSE opined that the submission of timesheets showing he or she worked fewer hours than he/she was paid is insufficient, unless it “expressly and voluntarily authorizes a specific prospective deduction.”

The DLSE also stated that no deductions of any sort may be taken from an employee’s final paycheck, and doing so would subject the employer to waiting time penalties of up to 30 days’ wages under Labor Code Section 203, referencing the decision of Barnhill v. Saunders, 125 Cal.App.3d 1 (1981) (employer may not deduct balance of employee loan in “balloon type payment” from final paycheck even with prior authorization).  Note, however, that language in the Barnhill decision suggests that the Court was more concerned with the “balloon type” payment required by the employer.  Other case authority on this subject suggests that it may be permissible for an employer to make deductions from a final paycheck if the employee voluntarily signs a new writing authorizing the specific deduction, again, assuming doing so does not cause the employee to earn less than the minimum wage or result in a “balloon type” payment.

The DLSE’s Opinion Letter on this subject was limited to the situation where the overpayment resulted from a regular payroll practice where overpayment was both predictable and expected, as opposed to situations where employers overpaid employees due to clerical, accounting, or administrative error.  Accordingly, employers are cautioned to consult with legal counsel before attempting to recover wage overpayments.
 

By Connor Moyle

The Court of Appeal for the Fourth Appellate District issued a decision last week clarifying that punitive damages are not available for violations of the California Labor Code statutes regulating meal and rest breaks, pay stubs, and minimum wage laws.  In Brewer v. Premier Golf Properties,  the court reversed a jury’s award of $195,000 in punitive damages (subsequently reduced to $75,000 by the trial court’s conditional new trial order) based on the jury’s determination that the employer acted with malice in relation to its alleged Labor Code violations.

Brewer, a waitress at a golf course restaurant, sued her employer (“Cottonwood”) alleging age discrimination, meal and rest break violations, and other violations of the Labor Code including failure to pay the minimum wage and failure to provide accurate itemized wage statements.  After a bifurcated trial, the jury found for the defendant on Brewer’s age discrimination claim.  However, during the same phase of trial, the jury returned a verdict in favor of the plaintiff on her Labor Code claims, finding that Cottonwood (1) failed to provide meal and rest periods as required by law, (2) failed to pay wages at the required minimum rate, and (3) failed to provide accurate itemized wage statements.  When the jury also returned a finding that Cottonwood had acted with “oppression, fraud or malice,” the court submitted a supplemental special verdict to the jury that sought to determine whether the jury found malice based on conduct relating to (1) the age discrimination on which Cottonwood prevailed or (2) the Labor Code violations on which Brewer prevailed.  The jury’s supplemental special verdict clarified that its malice conclusion stemmed from conduct related to the Labor Code violations.

Based on the verdicts, the court entered a judgment awarding $956.10 in unpaid wages and $195,000 in punitive damages.  The judgment also included approximately $6,000 in wages due for meal and rest period violations, $4,000 as penalties relating to the missed meal and rest periods, and $15,300 in penalties pursuant to Labor Code § 1197.1.  Brewer later accepted a reduction of the punitive damages to $75,000 on the court’s order that Cottonwood’s motion for a new trial based due to excessive damages would be granted absent such a reduction.

Both parties raised various purported errors on appeal.  Most notably, Cottonwood challenged the jury’s award of punitive damages on several grounds, including that such damages were simply unavailable for the pleaded Labor Code violations.  In the published portion of its opinion, the court agreed with Cottonwood, stating its holding as follows:  "We are convinced . . . punitive damages are not recoverable when liability is premised solely on the employer’s violation of the Labor Code statutes that regulate meal and rest breaks, pay stubs, and minimum wage laws."

The court provided two distinct justifications for its determination that Brewer could not recover punitive damages on her Labor Code claims.  First, the court determined that the “new right-exclusive remedy” doctrine operated as a bar to such recovery.  This doctrine provides that “[w]here a statute creates new rights and obligations not previously existing in the common law, the express statutory remedy is deemed to be the exclusive remedy available for statutory violations, unless it is inadequate.”  The court determined that the Labor Code statutes regulating pay stubs (§ 226) and minimum wages (§ 1197.1), as well as the regulations requiring employers to provide meal breaks (§ 512) and rest breaks (Cal. Code Regs., tit. 8, § 11090, sudb. 12(A)), all “create new rights and obligations not previously existing in the common law.”  Furthermore, these provisions provide their own remedial schemes, including damages and penalties, and the “new right-exclusive remedy” doctrine therefore applies.  The court rejected the plaintiff’s argument that punitive damages should be allowed because some of the relevant Labor Code sections, including section 226.3 and 1197.1, state that the penalties provided are “in addition to any other penalty provided by law.”  The court determined that, instead of authorizing punitive damages for Labor Code violations, this language insures that the recovery of civil penalties under the relevant provisions does not function to preclude recovery of other statutory penalties provided in the Labor Code.

Second, the court held that recovery of punitive damages was also prohibited by the more general principle that punitive damages are ordinarily limited to actions for the breach of an obligation not arising from contract.  See Cal. Civ. Code § 3294.  The court reasoned that “when a statute imposes additional obligations on an underlying contractual relationship, a breach of the statutory obligation is a breach of contract that will not support tort damages beyond those contained in the statute.”  Consequently, the court disagreed with Brewer’s position that the alleged Labor Code violations constituted a breach of an obligation not arising from contract.  Instead, the court found that the relevant Labor Code requirements were obligations arising from Brewer’s employment contract because those obligations only apply once the parties have entered into an employment contract.  The court therefore concluded that the Labor Code violations for which Cottonwood was found liable did not support an award of punitive damages under Civil Code section 3294.

The Brewer decision provides some comfort to employers faced with allegations of Labor Code violations by clarifying that such allegations do not carry with them the large increase in potential exposure that results in any case where punitive damages may be recoverable.  As the facts of Brewer indicate, the presence of punitive damages in such claims would greatly increase the amount at risk since a jury may decide to award punitive damages that greatly exceed the amount of any unpaid wages and applicable statutory penalties.  However, employers should bear in mind that the Brewer decision’s precise holding is limited to the specific Labor Code violations analyzed in that case (meal and rest periods, minimum wage, and itemized wage statements), and the decision is not clear on the extent to which its reasoning would necessarily apply to other similar Labor Code provisions. 
 

By Robin E. Weideman

Today California’s Second Appellate District, Division Three, issued its decision in Brinkley v. Public Storage and held that California law only requires employers to make meal periods available to employees, not to ensure that the meal periods are actually taken.  This newly published decision is good news for California employers, given that Brinker is no longer citable precedent pending review by the California Supreme Court.

In holding that an employer need not ensure that meal breaks are taken, the Brinkley court relied on the reasoning of the recent federal court decisions reaching the same conclusion, including Brown v. Federal Express Corp. and White v. Starbucks.  The court held that the employer was entitled to summary adjudication of plaintiff’s meal period claim (which was brought as a class action) because there was no evidence that plaintiff or the class members were deprived of the opportunity to take meal breaks.  To the contrary, the evidence showed that the employer had a policy allowing for meal breaks, plaintiff and other class members were aware of the policy, and the employer reprimanded employees for not taking meal breaks.  The employer also submitted 21 declarations of class members indicating that they were allowed to take meal breaks at their discretion.  Although plaintiff submitted evidence that he and other class members at times missed meal breaks, the court held that this evidence did not support a finding that plaintiff or the class members were denied the opportunity to take meal breaks.

In addition to holding that employers need only provide employees the opportunity to take meal breaks, the court also held that there is no requirement that meal breaks be provided within the first five hours of work, finding that “nothing in the applicable statutes or wage orders supports [this] position.”  (Notably, the DLSE currently appears to be taking the contrary position that meal periods must be provided within the first five hours of work, according to the DLSE's most recent memo on the subject.  See our October 27 blog entry regarding the DLSE's memo.)

 
 

By Robin E. Weideman

On October 23, 2008, the DLSE withdrew its July 22, 2008 memo directing all DLSE staff to follow the Brinker decision, and issued a new memo setting forth its enforcement policy in light of the California Supreme Court’s recent grant of review of Brinker.  The new memo seems to suggest that the DLSE will still follow the reasoning and holding of Brinker, even though Brinker is under review.  The memo cites with approval the numerous federal court decisions holding that an employer need only provide meal breaks, not ensure that they are taken.  The memo also disapproves of the Cicairos v. Summit Logistics case, to the extent that case may be interpreted to hold that employers have an affirmative obligation to ensure that meal periods are taken.  To review the entire memo, click here.
 

By Kent J. Sprinkle

Today the California Supreme Court granted Plaintiff Adam Hohnbaum’s petition for review of the Court of Appeal's decision in Brinker Restaurant Corp. v. Superior Court (Hohnbaum).  We have followed the developments in this case dealing with the dispute on what it means to "provide" employees with meal and rest breaks.  The Court of Appeal in Brinker had resolved this issue favorably for employers, reversing the trial court's class certification order (which included meal and rest break claims and off-the-clock claims), concluding that, among other things, "while employers cannot impede, discourage or dissuade employees from taking meal (and rest) periods, they need only provide, not ensure, meal (and rest) periods are taken."

With the Brinker case now pending review by the Supreme Court, the decision by the Court of Appeal is no longer considered citable or binding on California courts.  However, the federal district court decisions addressing the same issue, two of which were cited favorably in the Brinker decision itself, remain good law that may be cited as persuasive authorities, though the federal decisions are not binding on state courts.  The federal district court cases include White v. Starbucks Corp., Brown v. Federal Express Corp., and Kenny v. Supercuts, Inc., each of which were discussed in prior blog entries.  Also, as discussed in our July 29, 2008 blog posting, the DLSE issued a memo dated July 25, 2008 directing its staff to follow the Brinker holding for all matters pending with the DLSE.  It remains to be seen whether the DLSE will adjust its position with Brinker pending review by the Supreme Court.

We will continue to monitor and post any further developments on this important issue, including any further information concerning the DLSE's position, as well as any proposed legislative action concerning the interpretation of "providing" breaks.  If you have any questions regarding drafting policies or the implications of this decision for your business, please contact us directly.
 

By Robin E. Weideman

On August 29, Plaintiff Adam Hohnbaum’s counsel filed the much anticipated petition for review before the California Supreme Court in the well-publicized meal period case Brinker v. Hohnbaum. The California Supreme Court has 60 days to decide whether to grant review, which  means that employers should know by late October whether the Brinker decision will remain citable precedent. In some instances, the Court extends the time period for determining whether to grant review by 30 days. If that happens, a decision should issue by November at the latest. We will continue to monitor the progress of the petition and post updates here.

This is a reminder that the federal minimum wage increased last month to $6.55 per hour.  The next increase is scheduled for July 24, 2009 when it will increase to $7.25 per hour. 

This does not mean much to California private sector employers because the state minimum wage remains at $8.00 an hour.  There are currently no scheduled increases for the California minimum wage.  However, certain California municipalities have enacted higher minimum/living wage ordinances.

 

Public sector employers are not covered by the state minimum wage order and therefore do need to pay attention to the FLSA federal minimum wage.  With our budget stalemate, Governor Schwarzenegger is still attempting to implement a temporary decrease of pay for most non-exempt state workers equal to the current federal minimum wage ($6.55).

On July 25, California's Labor Commissioner, Angela Bradstreet, issued a memo to all Department of Labor Standards Enforcement staff regarding the recent California Court of Appeal decision in Brinker v. Superior Court (Hohnbaum).  The Labor Commissioner specifically instructed, "All staff must follow the rulings in the Brinker decision effective immediately and the decision shall be applied to pending matters."  As a result, the DLSE will apply the following rules regarding meal and rest breaks:

1.  Employers must provide meal periods by making them available, but need not ensure that they are taken.  Employers, however, cannot impede, discourage or dissuade employees from taking meal periods.

2.  Employers are not required to provide a meal period for every five consecutive hours worked.  There is no "rolling five-hour" meal period requirement.  Instead, employers simply must make a 30-minute meal period available to an employee who is permitted to work more than five hours per day (unless a valid waiver is in place for an employee whose shift is six hours or less).  If the employee takes a meal period early in his/her shift and then works an additional five hours, there is no requirement to provide the employee with a second meal period (unless the employee works more than 10 hours per day, in which case a second meal period must be made available absent a valid waiver).

3.  Employers must provide rest breaks, but need not ensure that they are taken.  Employers, however, cannot impede, discourage or dissuade employees from taking rest periods.  Rest periods must be authorized and permitted every four hours or major fraction thereof.  "Major fraction thereof" means the time period between three and one-half hours and four hours.  Therefore, if an employee works between three and one-half hours and four hours, a rest period must be provided.  However, if the employee works more than four hours, a rest period must be provided only every four hours, not every three and one-half hours.

4.  Employers are not required to authorize and permit a first rest period before the first meal period.  As long as employers make rest periods available to employees and strive, where practicable, to schedule them in the middle of the first four-hour work period, employers are in compliance with the Wage Orders.

Employers with pending or future meal and rest break claims before the DLSE will want to review both the Labor Commissioner's July 25 memo, as well as the Brinker decision.  To review the full text of the Labor Commissioner's memo, click here: http://www.dir.ca.gov/DLSE/Brinker_memo_to_staff-7-25-08.pdf

Following the Fourth District Court of Appeals' issuance of its decision in the Brinker case yesterday, Governor Arnold Schwarzenegger released the following statement regarding the decision:

"We are pleased that the California Court of Appeal issued today a decision squarely addressing many of the central issues in dispute concerning meal and rest periods.  The confusing and conflicting interpretations of the meal and rest period requirements have harmed both employees and employers.  Today's decision promotes the public interest by providing employers, employees, the courts and the labor commissioner the clarity and precedent needed to apply meal and rest period requirements consistently."

In today's decision, the court held that employers must make meal periods available to employees and cannot impede, discourage or dissuade employees from taking meal periods.  However, once made available, the employer is not obligated to police the employee's use of that time by ensuring that the employee takes the meal period." 

(http://gov.ca.gov/press-release/10273/)

By Kent J. Sprinkle

Today a California Court of Appeal finally resolved the dispute regarding what it means to "provide" employees with meal breaks.  Following some unusual transitions between being an unpublished opinion, a vacated opinion, an appealed opinion, and a transfer back to the Court of Appeal for reconsideration, the Court of Appeal today issued a new published decision in Brinker Restaurant Corp. v. Superior Court, previously discussed in our October 23, 2007 and November 12, 2007 postings. 

Resolving this issue favorably for employers, the California Court of Appeal in Brinker reversed the trial court's class certification order (which included meal and rest break claims and off-the-clock claims), concluding that the trial court "failed to properly consider the elements of plaintiffs' claims in determining if they were susceptible to class treatment."  A primary highlight of this reversal includes the Court of Appeal's analysis of the issue of what it means to "provide" meal breaks.  The Brinker court held that the class certification order was erroneous and had to be vacated based on the following conclusions:

"Specifically, we conclude that (1) while employers cannot impede, discourage or dissuade employees from taking rest periods, they need only provide, not ensure, rest periods are taken; (2) employers need only authorize and permit rest periods every four hours or major fraction thereof and they need not, where impracticable, be in the middle of each work period; (3) employers are not required to provide a meal period for every five consecutive hours worked; (4) while employers cannot impede, discourage or dissuade employees from taking meal periods, they need only provide them and not ensure they are taken; and (5) while employers cannot coerce, require or compel employees to work off the clock, they can only be held liable for employees working off the clock if they knew or should have known they were doing so.  We further conclude that because the rest and meal breaks need only be "made available" and not "ensured," individual issues predominate and, based upon the evidence presented to the trial court, they are not amenable to class treatment.  Finally, we conclude the off-the-clock claims are also not amenable to class treatment as individual issues predominate on the issue of whether Brinker forced employees to work off the clock, whether Brinker changed time records, and whether Brinker knew or should have known employees were working off the clock.  Accordingly, we grant the petition and order the superior court to vacate its order granting class certification and enter a new order denying certification of plaintiffs' proposed class."

In Brinker, a group of restaurant employees sued their employer for alleged failure to provide certain rest breaks and meal breaks, or compensation in lieu of such breaks, and also claimed that the restaurant required them to perform "work off the clock" during meal periods.  The decision contains substantially positive analysis concerning these claims as well as their amenability to class treatment, including a discussion of when breaks must be provided in terms of timing during the workday and that rest periods may be waived.  However, still the most notable feature of the opinion is that it now expressly endorses the interpretation that an employer's obligation to "provide" employees with a meal break merely means to "offer" meal breaks or to make such breaks available. 

The Brinker Court favorably cites White v. Starbucks Corp., a positive published federal decision which held that "provide" requires only that employers "offer" meal breaks.  The Brinker Court also cites the district court's reasoning and conclusions in Brown v. Federal Express Corp., in support of its determination of what it means to "provide" meal breaks.  The Court noted that the plaintiffs in Brown, as in Brinker, asserted that "California law requires employers to ensure that meal breaks are actually taken."  The district court in Brown rejected this argument, holding that section 512 and the applicable wage order did not support plaintiff's position.  The court explained that section 512's statement that employer must "provide" meal periods "does not suggest any obligation to ensure that employees take advantage of what is made available to them."  The court also noted that the California Supreme Court "in characterizing violations of California's meal period obligations...repeatedly described it as an obligation not to force employees to work through breaks."  The court also noted that "[r]equiring enforcement of meal breaks would place an undue burden on employers whose employees are numerous...it would also create perverse incentives, encouraging employees to violate company meal break policy in order to receive extra compensation under California wage and hour laws."  The Brinker Court found the reasoning in Starbucks and Brown persuasive and concluded that employers need not ensure meal breaks are actually taken, but need only make them available. 

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This month, California’s Department of Labor Standards Enforcement (“DLSE”) posted on its website a report on the public forums held last summer regarding California’s meal period rules and their effect on the workplace.  To view the report and related information, click here:  http://www.dir.ca.gov/dlse/mealandrest/MRForumReport.pdf; http://www.dir.ca.gov/dlse/mealandrest/MRsummaryComments.pdf; http://www.dir.ca.gov/dlse/mealandrest/MRForumTranscript.pdf.  The timing of issuance of the report is interesting, given that California’s Fourth District Court of Appeal is expected to issue a decision in the near future on what it means to “provide” a meal period under California law.  Oral argument before the Court of Appeal was held in mid-May in the Brinker v. Hohnbaum matter and a decision should issue by August.  The DLSE reportedly sent a letter to the Brinker court late last year urging the court to decide this unsettled issue in a published decision.  For more information on the Brinker v. Hohnbaum case, see our prior posts of October 23, 2007 and November 12, 2007.

By Mark S. Spring

July 1 will be a day of change for California employers with employees who drive as part of their duties.  Not only will such employees be required to utilize hands free devices when operating cell phones while driving (see our June 20 post on this subject), employers will also have to pay more to employees to properly reimburse them for their driving costs. 

Section 2802 of the California Labor Code requires all California employers to reimburse their employees for all costs incurred in performing their duties, including driving and transportation costs (other than regular commuting).  The California Labor Commissioner has taken the position that any employer who reimburses at less than the IRS mileage rate will have to prove that the actual expenses are less than the going rate or be subject to liability for the difference.  In almost all cases, we recommend that California employers reimburse at the standard IRS mileage rate to minimize liability under section 2802 for driving expenses. 

The IRS just announced that it will increase the standard mileage reimbursement rate to 58.5 cents per mile for the period July 1 through Dec. 31.  The current mileage rate is 50.5 cents per mile.  This eight cent increase represents an increase of almost sixteen percent (16%) and is the largest jump in mileage rates in recent history.  Obviously it is fueled by the increasing cost of gasoline. 

California employers should review their expense reimbursement policies and consider making modifications before the end of the month.  

By John Anthony

On June 25, 2008, The California State Senate Committee on Labor and Industrial Relations will hold hearings on Assembly Bill 1711.  Assembly Bill 1711 proposes a number of changes to sections of the California Labor Code regulating, among other rules, the meal break requirements imposed on the state’s employers as part of AB 1711.  Some of the bill's more important provisions are summarized below.

Meal Break Timing and On Duty Meal Periods

The proposed legislation requires that the meal period shall be completed before the end of the sixth hour of work.  The current interpretation is that the meal period must be commenced before the end of the fifth hour, so this bill would provide greater flexibility in the scheduling of meal breaks if enacted.

The bill also contains significant modifications to Labor Code section 512(b), regulating provision of an on-duty meal period.  Current regulations are vague about when an on-duty meal period is permitted.  The proposed amendments clarify that on-duty meal periods are permissible when the “nature of the work” prevents an employee from being relieved of all duties, namely when the employee works alone, or “is the only person in his or her job classification who is on duty and there are no other employees who can reasonably relieve him or her of all duties.”  Another condition is when the work requires a licensed employee, and the employee in question is the only licensed person on duty.  These proposed changes clarify when an on duty meal period would be permitted, but do not expand such meal periods in a way likely to be useful for most employers. 

Collective Bargaining Agreements

Under the proposed changes, the meal period requirements of Labor Code section 512 will not apply to employees covered by a collective bargaining agreement if the agreement expressly provides for meal periods and provides final and binding arbitration of disputes concerning application of its meal period provisions.  This would lead to much greater flexibility for unions and employers to negotiate their own meal and rest period provisions, and would likely be very helpful to unionized employers and their employees.  

What Next?

At some point after the scheduled hearing, the Senate Committee will vote on whether the bill should be sent to the Senate floor for a vote.  If the bill is passed by the Senate without amendment, the bill will be sent to Governor Schwarzenegger for his signature to become law.  If the bill is amended by the Senate, it will be sent back to the Assembly and if the Assembly concurs with any amendments, the bill will likewise be sent to the Governor.  We will continue to follow the progress of this bill. 

By Marie D. DiSante and Conner J. Moyle

On April 16, 2008, we posted information regarding Senate Bill 1539, which expressed the legislative intent to clarify the requirements of California law as they relate to employee meal periods.  See April 16, 2008 Blog Post.  Since that time, many clients and friends of the firm have requested that we prepare a sample letter that they may send to various legislative representatives showing their support for additional clarity and flexibility in the meal period rules.  We have prepared such a sample, and you may access the sample letter by clicking here.  We encourage you to modify the letter as necessary so that it reflects your own particular beliefs about the manner in which the meal period rules should be clarified or changed.

Please note that SB 1539 originally was sent to the Senate Appropriations Committee for further action.  Since that time, SB 1539 has been withdrawn from hearing before the Senate Appropriations Committee and re-referred to the Rules Committee.  See http://www.leginfo.ca.gov/pub/07-08/bill/sen/sb_1501-1550/sb_1539_bill_20080421_history.html.  The Rules Committee most likely will refer the bill back out to an appropriate policy committee prior to further substantive action.  Because the bill is not yet sitting before a particular policy committee for substantive action, we recommend sending letters in support of SB 1539 either to the Rules Committee or to the State Senator and/or Assemblyperson for the geographic area in which your business is located.  As an alternative, once the bill makes its way to a particular policy committee for substantive action, letters may be sent directly to that committee.  We will keep you posted on further developments in connection with SB 1539.

For more information on how you can get involved in helping to ensure that the legislature makes appropriate changes to California's meal period regulations, please contact Marie DiSante or Connor Moyle

By Mark S. Spring

As previously posted on this blog, in March a San Diego judge awarded over $85 million dollars to a California class of Starbucks employees who successfully argued that Starbucks had improperly allowed shift supervisors to share in the employee tip pool and thereby denied other non-supervisory employees their fair share of the tips.  Starbucks' position is that the shift supervisors did not have the necessary supervisory responsibilities to be considered "supervisors," as the law defines that term, and that because of their customer service responsibilities, they were properly allowed to share in the tip pool.  Starbucks is expected to appeal the verdict and it has recently made public statements and statements to its employees supporting its position and its confidence in the appeal.  Even if Starbucks does succeed on appeal, the superior court decision is already producing ramifications for employers with tipped employees. 

Within weeks of the decision, separate similar lawsuits were filed against Starbucks in Massachusetts, New York and Minnesota by two different law firms.  Other industries are also being adversely affected.  Baggage handlers have brought tip pooling lawsuits against the struggling airline companies.  Casinos, restaurants, and other hospitality and service industry employers are also seeing more and more of these claims.  As news of the Starbucks decision and wave of tip pooling lawsuits continues to circulate and be discussed by the plaintiffs' bar, a snowball effect is likely to ensue.  Employers who have mandatory tip pools in their workplaces should not sit back waiting to be the next victim.  In California, damages for an improper tip pool can be awarded to all current and former employees who were improperly denied a fair share of the tip pool over the last four years. 

At-risk employers should consider auditing their tip pooling practices to make sure that they are in compliance with both state and federal law.  To review a very basic discussion of the general guidelines on tip pooling regulations applicable to California employers, click here  http://www.cdflaborlaw.com/view_article.php?id=108&s=0.  Employers who seek more information on this topic can also contact Kendra Miller at kmiller@cdflaborlaw.com in Southern California or Jeremy Naftel at jnaftel@cdflaborlaw.com in Northern California.   

By Connor Moyle

A recent decision by California's Fourth District Court of Appeal analyzed the administrative exemption from overtime compensation and found that an employer was entitled to summary judgment because its network operations director qualified for the administrative exemption.  Significantly, in reaching its conclusion in Combs v. Skyriver Communications, Inc., 159 Cal.App.4th 1242 (2008), the court held that it was not necessary to apply the administrative/production worker dichotomy and that the employee qualified for the exemption without regard to that test. 

Background

Plaintiff Mark Combs sued his former employer Skyriver Communications seeking recovery of unpaid overtime.  Skyriver is a high-speed wireless broadband internet service provider.  Combs worked for Skyriver starting in 2001, first as manager of capacity planning, and then as director of network operations.  Combs’ duties were largely undisputed.  A resume Combs prepared after leaving Skyriver indicated that he was responsible for project management, budgeting, vendor management, purchasing, forecasting, employee management, management of overseas deployment of wireless data network, management of the integration and standardization of three networks into the Skyriver architecture, and the overseeing of day to day network operations.  At trial, Combs testified that he spent 60-70% of his time on his “core” responsibility of maintaining the well-being of Skyriver’s network.  This responsibility included high-level problem solving and “troubleshooting,” as well as planning to integrate acquired networks into Skyriver’s network.  Combs also prepared reports for Skyriver’s board of directors and conducted lease negotiations and equipment sourcing and purchasing.  The trial court granted Skyriver’s motion for judgment on the ground that Combs was exempt from overtime under the administrative exemption. 

On appeal, Combs claimed that the court should have applied the “administrative/production worker dichotomy” as set forth in Bell v. Farmers Insurance Exchange, 87 Cal.App.4th 805 (2001) (“Bell”), and that application of the dichotomy would have led to a determination that he was a nonexempt production worker.  Combs also claimed that, apart from the administrative/production worker dichotomy, application of the proper test for the administrative exemption under IWC Wage Order No. 4-2001 would have resulted in summary judgment in his favor because his job duties did not meet the requirements of the exemption.

Appellate Court Analysis

1.  Administrative/Production Worker Dichotomy Did Not Apply

The court first addressed the issue of whether the trial court should have applied the administrative/production worker dichotomy to determine whether Combs was an exempt or nonexempt worker.  The court explained that in some cases, such as Bell, a distinction was drawn between 1) administrative employees, who are usually described as employees performing work directly related to management polices or general business operations and 2) production employees, whose primary duty is producing the commodity or commodities that the enterprise exists to produce.  Employees falling into the first category are more likely exempt from overtime compensation requirements while employees in the second category are more likely nonexempt.  Combs claimed that he fell into the second category because Skyriver’s product for purposes of the administrative/production worker dichotomy was its network because the network provided the internet connectivity that Skyriver marketed.  Combs accordingly claimed he was a production worker who provided the network that provided the connectivity.

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By Anthony B. Lewis

The California First District Court of Appeal has decided that individual owners of defunct corporations were not the employers of, and did not owe restitution for unpaid wages to, the employees of the defunct corporations.  The decision, Bradstreet v. Wong (April 16, 2008) affirmed a trial court’s decision that the individual owners of the garment manufacturers known as the Wins corporations were not liable for wages the corporations owed to their employees.  The Wins corporations employed garment workers for more than a decade.  They experienced financial difficulty and closed without sufficient funds to pay all wages owed to their employees.  In this case, the California Labor Commissioner, on behalf of the employees, attempted to recover the wages from the individual owners of the Wins corporations.  The Labor Commissioner lost at the trial court level and appealed, along with an intervening party.  The appeal asserted several arguments that the individual owners should be held liable for the unpaid wages, but the appellate decision rejected those arguments.

First, the decision explained that a limited, common law definition of “employer” (instead of a broader Industrial Welfare Commission definition found in its Wage Order for the garment industry) applies to actions brought pursuant to California Labor Code section 1193.6, which is the law authorizing the Labor Commissioner to file lawsuits against employers to recover unpaid wages on behalf of employees.  Under the common law definition of employer, owners of corporate employers are not ordinarily considered employers in their individual capacity, and thus are not generally liable for wages owed by the corporate employer.

Second, the decision addressed California Labor Code section 2677, a statute that is specific to the garment manufacturing industry.  This statute provides that parties other than the corporate employer can be held liable for unpaid wages as “deemed employers” in some circumstances, mostly relating to problems that arise from doing business with unregistered garment manufacturers.  The appellate court held the plaintiffs did not establish the necessary facts to prove the individuals in this case should be deemed employers under this statute.

Third, the decision held that the individual owners were not liable for restitution of the employees’ unpaid wages under California’s Unfair Competition Law, Business and Professions Code section 17203.  In this case, the individual owners did not require any employee to work for them personally and did not misappropriate to themselves any of the wages owed to the employees.  If the plaintiffs had proven otherwise, the individual owners may have been liable for restitution.

This case is important for all individual owners of corporations that are employers.  The decision respects the legal significance of incorporating a business and the protection that the corporate entity provides its owners and agents when corporate formalities are followed (this protection is know as the “corporate veil”).  Still, if you are an individual owner of a corporation that may be unable to pay wages owed to its employees, you should consult with a qualified attorney to help insure that you do not become liable in your individual capacity.

By Alison L. Tsao

On April 15, 2008, the California Senate Labor and Industrial Relations Committee unanimously approved SB 1539 as amended to “declare the intent of the Legislature to enact legislation to address issues related to meal periods in employment.”   SB 1539, authored by Senator Ron Calderon (D-Montebello), sponsored and supported by the California Chamber of Commerce, California Restaurant Association, and approximately 40 trade and professional organizations, was introduced to provide a comprehensive solution to compliance with and enforcement of California’s meal period laws.

SB 1539 has generated bipartisan support from Committee members who have expressed concern over the inflexibility and ambiguity of meal period laws in California that have spawned a tidal wave of expensive litigation and liability for California employers.  As a result, Committee members have recognized the need for clarity and greater flexibility to meet the needs of both employers and employees.  SB 1539, as originally drafted, would have provided for the following changes to existing meal period law (among others):  (1) allowing the employee to waive either the first or second meal period if the employee is otherwise entitled to two meal periods in a day; (2) expanding conditions for employees to take on-duty meal periods; (3) allowing collective bargaining agreements to override provisions of the meal period rules; and (4) defining “providing an employee with” a meal period to mean “giving the employee an opportunity to take” a meal period.  The Committee amended SB 1539 to delete all of the substantive changes to the meal period laws, and amended the bill to simply declare the intent of the Legislature to enact legislation to address issues related to meal periods in employment.  While the meal period laws have not been changed, the Legislature’s declaration of intent is a good sign that lawmakers recognize the need for change and will continue to have further discussions to try to find consensus on a solution that contains adequate protections for employers and employees.  SB 1539 has been referred to the Senate Appropriations Committee.  Employers and employees are encouraged to contact the Senate Appropriations Committee to voice their opinions regarding SB 1539 to continue to build the momentum for change in meal period laws.  We will continue to monitor this legislation and apprise you of any developments.

By Kent J. Sprinkle

A federal district court recently addressed the ongoing debate in California regarding what it means to "provide" employees with meal breaks under California law.  California's Department of Labor Standards Enforcement takes the position that employers have an affirmative obligation to ensure that employees take their meal breaks and that employers are liable for one hour of premium pay for each meal period that is not taken (or that is not timely taken), regardless of the reason.  Plaintiffs' attorneys often cite to Cicairos v. Summit Logistics, 133 Cal.App.4th 949 (2005), as endorsing the DLSE's interpretation of the law.  In contrast, as discussed in a prior post on July 22, 2007, at least one federal district court rejected the DLSE's interpretation and instead determined that an employer complies with its obligation to "provide" meal periods if the employer makes the meal periods available to employees and provides the opportunity for employees to take them.  (White v. Starbucks, 497 F.Supp.2d 1080, 1088-89 (N.D. Cal. 2007)).  In White, the court held that in order to prevail on a meal period claim, the plaintiff would have to show that he was "forced to forego" meal periods, not simply that he did not take them. 

Another federal court has now weighed in on the subject and agreed with White v. Starbucks. In Brown v. Federal Express Corporation, et al., 2008 WL 906517 (C.D. Cal. Feb. 26, 2008), District Judge Dale Fischer denied class certification to a subclass of driver employees that were allegedly denied meal and rest breaks.  The plaintiffs and putative class members were current and former non-exempt hourly drivers employed by Defendant Federal Express Corporation.  The plaintiffs claimed that the putative class of drivers, who performed a variety of delivery and hauling duties with varied types of work and distances driven, were allegedly put under excessive pressure to make deliveries as quickly as possible, such that they were unable to take meal and rest breaks within the time required by law.  They also alleged that FedEx failed to pay an additional hour of pay to putative class members who missed their meal and/or rest breaks.  In denying class certification, the court held that FedEx's requirement to "provide" meal periods only meant making meal periods available to employees.  "It does not suggest any obligation to ensure that employees take advantage of what is made available to them."  Brown, 2008 WL 906517 *5.  Citing White v. Starbucks, Judge Fischer held that "[r]equiring enforcement of meal breaks would place an undue burden on employers whose employees are so numerous or who, as with Plaintiffs, do not appear to remain in contact with the employer during the day.  It would also create perverse incentives, encouraging employees to violate company meal break policy in order to receive extra compensation under California wage and hour laws.  In the absence of California Supreme Court precedent, this Court must apply the rule it believes the court would adopt under the circumstances. (internal citations omitted).  The court does not believe that the California Supreme Court would adopt the enforcement rule advocated by Plaintiffs."  Brown, 2008 WL 906517 at *6.

The court in Brown  also relied on language in the California Supreme Court's decision in Murphy v. Kenneth Cole Prods., Inc., 40 Cal.4th 1094, 1104 (2007), as supporting its interpretation of "providing" meal breaks.  "The California Supreme Court has described the interest protected by meal break provisions, stating that '[a]n employee forced to forgo his or her meal period . . . has been deprived of the right to be free of the employer's control during the meal period.' (citing Murphy, 40 Cal.4th at 1104).  It is an employer's obligation to ensure that its employees are free from its control for thirty minutes, not to ensure that the employees do any particular thing during that time.  Indeed, in characterizing violations of California meal period obligations in Murphy, the California Supreme Court repeatedly described it as an obligation not to force employees to work through breaks."  (internal citations omitted).

Notably, the Brown court rejected Plaintiffs' argument that Cicairos v. Summit Logistics, Inc. compelled a contrary conclusion.  In addition to rejecting the notion that Cicairos mandates that "employers have 'an affirmative obligation to ensure that workers are actually relieved of all duty,'" the court in Brown also distinguished the decision, pointing out that in Cicairos, "the court found liability where an employer simply assumed breaks were taken, despite its institution of policies that prevented employees from taking meal breaks."  2008 WL 906517 at *6.  Though not discussed in such detail by the court in Brown, it is notable that a distinguishing fact (the policy that was considered to prevent employees from taking breaks) in Cicairos was the absence of a code for meal or rest breaks whereas the driver employees were required to enter codes for all sorts of other activities conducted during the work day.

After articulating the legal standard for what it means to "provide" meal periods, the Brown court found that there was no evidence of any particular policy at FedEx susceptible to common proof to show that drivers were affirmatively prevented from taking required breaks.  As a result, the court found that individual issues predominated on the meal period claims, and denied class certification.

While federal district court decisions are not binding on state courts or on the Ninth Circuit, the growing acceptance of the reasoning in White v. Starbucks is a good sign for employers.  The extended discussion in Brown regarding the Supreme Court's comments in Murphy is also a good sign, since the Murphy case, while not squarely addressing the standard for "providing" breaks, certainly provides a sound basis for the reasoning in Brown.  We will closely monitor further developments on this important issue and will post any news. 

By Nancy Berner

As has been widely reported in the news, Starbucks’ baristas have scored an apparent victory in California, as a San Diego Superior Court judge recently determined the company violated Business and Professions Code section 17200 (Unfair Competition Law) when it allowed shift supervisors to share the proceeds of the tip jar with the baristas.  (Chou v. Starbucks, GIC 836925.)  Originally pled as a violation of both the Unfair Competition Law and the California Labor Code, the class action plaintiffs made the strategic decision to dismiss their legal Labor Code claims and proceed to trial (without a jury) solely on their equitable unfair competition claim (and its four-year statute of limitations).  Plaintiffs successfully argued that 120,000 California-based baristas are owed restitution in the amount of $86 million dollars plus interest, for a final sum exceeding $100 million.  Plaintiffs will also seek to recover attorneys’ fees.  Starbucks has reported that it intends to “vigorously” appeal the decision, but in the meantime, restaurateurs are well advised to review their own tip pooling policies.

Tip pooling arrangements are not per se illegal.  Indeed, according to California’s Department of Labor Standards Enforcement (DLSE), restaurants can implement mandatory tip pooling policies requiring tips to be shared with employees who provide direct table service, provided that the pooling arrangement is fair and equitable.  Tip pooling policies whereby the servers receive 80% of the tips and the remaining 20% is shared with other direct table service employees, have been found fair and equitable.  The tips may not be shared with employees, such as cooks and dishwashers, who do not provide direct table service. 

The Starbucks case highlights another important limitation on tip pooling policies.  The California Labor Code prohibits employers “or their agents” from sharing in the tips left for employees.  Therefore, owners, managers or supervisors may not share in the tips, even if they share in the table waiting duties.  It is important to note that the DLSE takes a broad view of the range of employees who qualify as “supervisors.”  According to the DLSE, a supervisor is anyone “with the authority to hire or discharge any employee or supervise, direct, or control the acts of employees."  (September 8, 2005 Op. Letter of Donna M. Dell.)  

Tip pooling lawsuits appear to be the flavor of the month.  In fact, in the wake of the recent San Diego Superior Court ruling, Starbucks was hit with similar class action lawsuits in Massachusetts and Minnesota.  All employers who utilize tip pooling should review their policies to ensure compliance with the law.  For further guidance on the legal requirements for tip pooling policies, please see our previous post on this subject.

 

By Robin E. Weideman

In Costco Wholesale Corp. v. Superior Court, a putative class action alleging misclassification of certain Costco managers, California’s Second Appellate District held that the trial court did not err by ordering Costco to produce portions of a pre-litigation attorney-client memorandum prepared for Costco by its outside counsel.  Specifically, in 2000, Costco retained outside counsel to analyze whether its department managers (including those at issue in this class action) qualified for exempt status.  Outside counsel conducted interviews, reviewed job descriptions, and prepared an in-depth 22-page memorandum to Costco’s in-house counsel, analyzing the exempt status of these managers.  Costco unsurprisingly refused to produce this memorandum to plaintiffs in discovery, asserting the memorandum was protected from disclosure by the attorney-client privilege and work product doctrine.  The trial court ordered Costco (over Costco’s objections) to produce the memorandum for an in camera review by a referee.  The referee determined that portions of the memorandum summarizing the managers’ job duties were not privileged and should be produced.  Costco petitioned for a writ of mandate.

On review, the Second Appellate District affirmed the trial court’s order, based on its determination that Costco has not proven the need for “extraordinary” writ relief. According to the court, Costco had not demonstrated that it would be “irreparably harmed” by disclosure of portions of the memorandum describing managers’ job duties because, according to the court, this information “came from job descriptions and interviews with two managers,” was “inconsequential,” and did not “infringe on the attorney-client relationship.”  The court rejected Costco’s argument that the factual portions of the memorandum were work product in that they necessarily reflected counsel’s legal impression of the facts.  The court also concluded that Costco would not be harmed by the disclosure because the information was readily available through other sources anyway, i.e. depositions, interrogatories, requests for production of job descriptions.

Assuming the Costco decision withstands further appeal, it should be expected that plaintiffs’ attorneys will heavily rely on this decision going forward as a means of trying to obtain in camera review and possible production of legal memoranda and other communications between counsel and their clients, analyzing the propriety of exempt classification.

Posted by Brent M. Giddens

Last week, a California Court of Appeal issued its decision in Isner v. Falkenberg, a case addressing whether and to what extent time spent by employees living on the employer's property was compensable hours worked.  The Isners were required, along with other resident employees, to remain within earshot of the Company's emergency alarm system during off duty hours.  Although the case is limited to the relatively rare instance of resident employees, it does underscore the general rule regarding whether "on call" time constitutes compensable "hours worked."  As often described, if employees are "engaged to wait," meaning their personal freedom to pursue private interests is substantially restricted, then such time is considered hours worked.  Conversely, if employees are "waiting to be engaged," meaning they can go about their usual business without substantial restriction, such time is not hours worked despite the potential obligation to be prepared to work.  The Isner court found that since the employees were permitted to engage in personal interests and activities without material limitation, such time spent "within earshot" of the employer's emergency alarm system was not "hours worked."

Employers would be well advised to carefully review any "on call" requirements for non-exempt employees to ensure such time is being properly treated from an hours worked perspective.

Posted by Jennifer Barrera

A judge in the Northern District of California recently ruled that an on-duty meal period is not equivalent to a “waived” meal period.  In McFarland v. Guardsmark, LLC, the employee (a security guard) worked shifts in excess of ten hours, thereby entitling him to two meal periods under California's Labor Code.  The employee later filed a lawsuit against his employer, claiming the two on-duty meal periods in one shift were essentially two waived meal periods, and therefore violated his right to a duty-free meal period.  The employee relied upon an excerpt from the Department of Labor Standards Enforcement (“DLSE”) Operations Manual that implied the DLSE considers an on-duty meal periods as a “waived” meal period and that an employee cannot waive two meal periods in one shift.  The employer filed a motion for summary judgment and argued that an on-duty meal period is a type of paid meal period, not a waived meal period. 

In her ruling, the judge rejected the DLSE’s interpretation of on-duty meal periods and stated that courts are not required to defer to the DLSE’s manual.  The judge agreed with the employer and held that an on-duty meal period is not a waived meal period and, therefore, the employee may take two on-duty meal periods in one shift, assuming the other requirements for an on-duty meal period are satisfied. 

The employee’s attorneys have indicated that they are planning to appeal this ruling, and we will provide updates if the court's decision is ultimately reviewed on appeal.  In the interim, please contact us with any questions on this issue or to discuss the requirements an employer must satisfy to establish an on-duty meal period. 

Posted by Jeremy T. Naftel

California employers are very familiar with the negotiating leverage afforded to employees by the state's wage and hour laws.  Last week, a California Court of Appeal took a step towards leveling the playing field in Harrington v. Payroll Entertainment Services, Inc. 

In that case, the plaintiff -- who had admittedly been underpaid $44.63 in overtime -- filed a lawsuit on behalf of himself and all similarly situated employees.  The court denied class certification and the case ultimately settled for $10,500.  The parties agreed that plaintiff was the “prevailing party” for purposes of an attorney fee award, and agreed that the trial court would determine the reasonableness of the fee claimed by plaintiff’s lawyers.

The fee request submitted by the plaintiff’s lawyers totaled $46,277.  Defendant opposed the application, and the trial court denied it in its entirety.  On appeal, the court agreed with plaintiff that “reasonable” attorneys fees were mandated by statute.  However, the court characterized the $10,500 settlement of a $44.63 claim as a “windfall” and refused to work a still greater injustice by awarding tens of thousands of dollars in attorney's fees.  The court reasoned that such an award would not meet the “reasonableness” standard of the statute.  Instead, the court awarded a total of $500 in fees, and encouraged the plaintiff to share his windfall with his attorneys.

This ruling recognizes that California’s strict wage and hour laws can result in injustice if applied blindly, and may be helpful in injecting an element of reasonableness into future employee-employer negotiations.  Please contact us directly to discuss any questions you may have relating to the impact of this decision as it relates to your business.

Posted by Ursula R. Kubal

A federal court recently determined that an employer's issuance of paychecks drawn on non-California banks warrants the imposition of sizable penalties.  Specifically, in Solis v. Regis Corporation, plaintiff filed a putative class action lawsuit alleging that by issuing paychecks drawn on an Illinois bank, Regis violated Labor Code section 212, which requires that California paychecks be "payable in cash, on demand, without discount, at some established place of business in the state, the name and address of which must appear on the instrument."  Plaintiff sought penalties pursuant to Labor Code section 225.5 (authorizing a civil penalty against any person who unlawfully withholds wages due to a violation of Section 212) because some of them had been forced to pay additional fees to cash these out-of-state payroll checks.

Although Regis admitted a technical violation of Section 212, it argued that it did not owe penalties for those employees who had been able to cash their paychecks for no charge -- in other words, employees who did not pay a check-cashing fee had no wages withheld and, therefore, no penalty should be imposed.

The U.S. District Court for the Northern District of California disagreed, holding that regardless of whether an employee had been injured, Regis technically violated the statute by paying employees with checks that did not comply with Section 212.  The court recognized that Section 225.5 penalties apply only when workers have to pay a fee, but noted that even if penalties are not available under Section 225.5 for those employees who did not pay such fees, penalties are available to them under California's Private Attorneys General Act. 

The Solis decision is a harsh reminder to employers of the importance of periodically having their employment policies and practices audited to ensure that they are in full compliance with California's intricate maze of labor laws.  If you have any questions regarding the Solis decision or your company's pay practices, please contact us directly.

Posted by David V. Greco

Employers facing class actions for failure to provide employees with meal and rest breaks received a bit of good news from a California appellate court when it denied class certification on such claims because it determined that common questions of law and fact did not predominate. 

Specifically, in Bell v. Superior Court, plaintiffs were drivers who claimed, among other things, that their employer failed to provide them meal and rest breaks as required by law.  Plaintiffs contended that the company had an unwritten policy of scheduling too much work to allow drivers to take their breaks and submitted declarations to support their claims.  In response, the company submitted evidence demonstrating that meal and rest breaks were provided, including personnel handbooks and manuals that set forth policies for meal and rest breaks and declarations confirming that drivers were trained to take breaks and that at least some drivers did so.  The court denied class certification, finding that individual issues predominated over common issues, based in part on its determination that there was no evidence of a company-wide policy prohibiting meal and rest breaks. 

What this means for California employers is that the existence of written policies directing employees to take meal and rest breaks (including those in employee manuals) is something that courts consider when determining whether or not to certify a class.  Drafting and implementing such policies is a relatively simple process, and one which – as shown by this case – can have significant positive repercussions at a later date. If you have any questions regarding drafting such policies or the implications of this decision for your business, please contact us directly.

Posted by Nancy G. Berner

New Year's Day also brought with it minimum wage increases in California.  As of January 1, 2008, employees in California must be paid no less than $8.00 per hour. However, employees working in San Francisco must be paid at least $9.36 per hour. New posters, advising employees of these change, are available at: http://www.sfgov.org/site/uploadedfiles/olse/mwo/2008_MWO_Poster.pdf and http://www.dir.ca.gov/IWC/Minwage2007.pdf. 

 

 

Posted by Jennifer Barrera

On November 28, 2007, the Supreme Court granted review of Harris v. Superior Court, 154 Cal.App.4th 164 (2007). The issue in Harris that the Supreme Court will review is whether insurance claims adjusters were properly classified by their employer as exempt under the administrative exemption. Specifically, the Court will analyze whether the claims adjusters were engaged in work that was “directly related to management policies or general business operations,” commonly referred to as the administrative/production dichotomy, and whether this analysis is dispositive of the issue regarding whether an employee is properly classified under the administrative exemption.

This case originated in Los Angeles Superior Court. The plaintiffs filed a motion for summary adjudication regarding the defendants’ affirmative defense that the claims adjusters were properly classified under the administrative exemption. The plaintiffs also filed a motion for class certification. The trial court denied the motion for summary adjudication on the grounds that the administrative/production dichotomy was not dispositive of the issue for claims arising after October 2000, because of federal regulations that indicated claims adjusters and the work they perform qualifies as exempt work under the administrative exemption. Based upon the regulations, the court determined the administrative/production dichotomy was essentially irrelevant. The trial court initially granted the plaintiffs’ motion for class certification, but later partially decertified the class for claims arising after 2000 on the same grounds. 

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Posted by Kent J. Sprinkle

The recent Court of Appeal decision in Brinker Restaurant Corp. v. Superior Court, discussed in our October 23, 2007 posting, has gone from being merely an unpublished opinion to being vacated and transferred back for reconsideration following a petition for review to the California Supreme Court. 

Specifically, at the request of the appellate court, the California Supreme Court – in a highly unusual move – granted review and then transferred the case back to the Court of Appeal to be reconsidered, at which point the parties may submit additional briefing (although briefing is limited to discussion of any issues that could have been raised in a petition for rehearing).  According to the California Supreme Court's docket, review was granted on the appellate court's own motion, the cause was transferred back to the Court of Appeal, and the petition for review and requests for publication were both denied as moot.

A relevant excerpt from the Court of Appeal docket explained: ". . . [t]his court requested that the California Supreme Court grant review and transfer the matter back to this court based upon the fact that the disposition in the original opinion stated that it was 'final as to this court immediately,' and the fact that statement was a clerical error.  In an order dated October 31, 2007, the Supreme Court did so, ordering that this court 'vacate its opinion and reconsider the matter as it sees fit.'  Therefore, the real parties in interest's supplemental letter brief, and any response thereto, shall be limited to a discussion of any issues that could have been raised in a petition for rehearing had the decision not become final immediately upon its issuance.  This supplemental letter brief should be filed on or before Monday, December 17, 2007."

The open question is whether the "reconsidered" opinion will include any new or changed substantive discussion on the meal and rest break and class certification issues.  In the meantime, employers must wait for further developments in this potentially critical decision.     

Posted by Kent J. Sprinkle

There have been few decisions dealing with the question of whether employers are merely obligated to "provide" meal breaks to employees simply by making such breaks available or – as many plaintiffs have argued – whether the obligation to "provide" meal breaks in fact carries with it an obligation for employers to forcefully ensure that employees are actually taking such breaks, e.g., to actively police employees to ensure meal breaks are both offered and taken.  The answer to this question will clearly have a significant impact on whether such claims are amenable to class treatment in class actions. 

Appearing to address this issue favorably for employers, a California Court of Appeal in Brinker Restaurant Corp. v. Superior Court, 2007 WL 2965604 (Oct. 12, 2007) – a recent but as yet unpublished decision – reversed a trial court's class certification order (which included meal and rest break claims), stating that the trial court's order relied on improper criteria and incorrect assumptions, including its failure in deciding the issue of what it means to "provide" meal breaks.  The Brinker court held that the class certification order was erroneous and had to be vacated because, among other reasons, "the class certification order rests on an incorrect assumption with respect to the meal period claims to the extent those claims are based on the theory that [the employer] had a duty to ensure that its hourly employees took the meal periods it provided to them, and thus the court abused its discretion in finding that these claims are amenable to class treatment." 

Specifically, in Brinker, a group of restaurant employees sued their employer for alleged failure to provide certain rest breaks and meal breaks, or compensation in lieu of such breaks, and also claimed that the restaurant required them to perform "work off the clock" during meal periods.  The decision contains substantially positive analysis concerning these claims as well as their amenability to class treatment, including a discussion of when breaks must be provided in terms of timing during the workday and that rest periods may be waived.  However, a most notable feature of the opinion is that it apparently, although not expressly, endorses the interpretation that an employer's obligation to "provide" employees with a meal break merely means to "offer" meal breaks or to make such breaks available.  The Brinker Court cited White v. Starbucks Corp., 497 F.Supp.2d 1080 (N.D. 2007), a positive published federal decision which held that "provide" requires only that employers "offer" meal breaks.  Unfortunately, the Brinker decision avoids a completely clear ruling on this question, instead pointing to the trial court's error in simply failing to decide on the issue of the meaning of "provide," but the cite to White may be indicative of the trend in such cases.  Hopefully, the Brinker decision will ultimately be published and subsequent cases, especially class action cases, will benefit from having a clearer answer to the question of how to "provide" meal breaks once and for all.  

For the purposes of reimbursement of work-related expenses, drivers working for FedEx were employees and not independent contractors, a California Court of Appeal recently affirmed. 

FedEx hired the plaintiff class members as drivers. Upon being accepted for employment, the drivers executed agreements identifying each of them as an “independent contractor, and not as an employee … for any purpose.” FedEx required the drivers to provide their own trucks meeting FedEx specifications, to mark the truck with the FedEx logo, to pay for all costs of operating and maintaining the truck, to wear a FedEx uniform, and to lease a scanner from FedEx.

The court disregarded FedEx's contractual designation of the drivers as independent contractors, stating that the employer’s label will be “ignored if their actual conduct establishes a different relationship.” As has previously been the case, the court focused on the extent that the employer had the right to control the means by which the worker accomplished the work. In finding that the drivers were employees, as opposed to independent contractors, the court noted that FedEx exercised control “over every exquisite detail of the drivers’ performance, including the color or their socks and the style of their hair.” The court also found that the terminal managers were the drivers’ immediate supervisors and were able to reconfigure drivers’ routes without regard to any loss of income by the drivers. Finally, the court rejected FedEx’s argument that an entrepreneurial opportunity existed for the drivers.

The court’s ruling is yet another reminder of the difficulty businesses face in classifying workers as independent contractors and the consequences that can follow if the wrong classification is chosen.  Please contact us directly to discuss any questions relating to the effect this ruling may have on your workplace.

Posted by Candice F. Boyd

MSNBC recently published an article that reports on the onslaught of wage and hour litigation being commenced against employers throughout the nation (click here to review the article).  This article should serve as a reminder to all employers of the potential risks associated with a failure to comply with wage and hour laws (including, but not limited to, those pertaining to overtime and meal and rest periods), particularly if employees pursue their claims via class action litigation.

Please contact us directly to discuss any questions relating to wage and hour compliance in your workplace.

A bill sitting on Governor Schwarzenegger’s desk would create even greater penalties for employees misclassified as independent contractors or exempt employees. SB 622, which was sent to Gov. Schwarzenegger’s desk on September 20, 2007, would assess large civil penalties against employers who: (1) “willfully” misclassify employees as independent contractors; (2) "willfully" pay a non-exempt employee at a fixed salary; or (3) make certain deductions from the pay of an employee "willfully" misclassified as an independent contractor. 

SB 622 would levy large civil penalties of up to $15,000-25,000 against violators. This bill is yet another example of the legislative climate employers now face in California and the importance of making sound and informed determinations when classifying individuals in California as exempt employees or independent contractors.         

Posted by Nancy G. Berner

The California Assembly adjourned the 2007 session without voting on Assembly Bill 1711, a bill that proposes sweeping changes to the Labor Code provisions regulating meal and rest break requirements imposed on California employers.  The Labor Code amendments were proposed by Assembly Member Lloyd Levine on the last day members were permitted to make amendments, and we anticipate that Assembly Member Levine’s proposal will be debated and considered when the Legislature reconvenes in January.  Given the controversial issues addressed in this Assembly Bill, it is likely that other proposals will also be considered in the next legislative session.

Posted by Nancy G. Berner

Last week, California Assembly Member Lloyd Levine proposed broad changes to sections of the California Labor Code regulating, among other rules, the meal and rest break requirements imposed on the state’s employers as part of AB 1711.  The bill’s most important provisions are summarized below. 

Meal Break Timing and On Duty Meal Periods

The proposed legislation requires that the meal period shall be completed before the end of the sixth hour of work.  The current interpretation is that the meal period must be commenced before the end of the fifth hour, so this bill would provide greater flexibility in the scheduling of meal breaks if enacted.

The bill also contains significant modifications to Labor Code section 512(b), regulating provision of an on-duty meal period.  Current regulation leaves employers to guess when an on-duty meal period is permitted, and prudent employers generally guess “very rarely” based on prior opinion letters issued by the Division of Labor Standards Enforcement interpreting the on-duty meal break provisions. 

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Posted by Jennifer D. Barrera

On August 30, 2007 the California Supreme Court issued its decision in Gentry v. Superior Court of Los Angeles, in which it significantly reduced the availability of class-action waivers in arbitration agreements for overtime wage litigation.  In Gentry, a former customer service manager of Circuit City filed a class action lawsuit against Circuit City, his employer, for overtime wages and unfair business practices.  Based upon an arbitration agreement Gentry signed at the beginning of his employment that contained a class-action arbitration waiver, Circuit City compelled Gentry to arbitration to pursue his claims on an individual basis.  On review, the appellate court determined the class action waiver contained in the arbitration agreement was valid and that the agreement was not procedurally unconscionable, as it had a 30-day opt out provision.

The California Supreme Court, however, did not necessarily agree. Although the Court did not conclude that all class action arbitration waivers are invalid, its decision requires trial courts to extensively scrutinize such provisions in arbitration agreements with regards to overtime wage litigation. 

 

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Posted by Brent Giddens

On August 16, 2007, the California Court of Appeal issued Harris v. Superior Court, another in a series of California cases emphasizing the narrow scope of the administrative exemption under California law. In Harris, a class of insurance claims adjusters alleged that they were improperly classified as exempt from California's overtime compensation requirements. The defendant insurance companies contended the adjusters were properly classified as exempt pursuant to the administrative exemption. The Court explored the "administrative/production worker dichotomy." The administrative/production worker dichotomy is a concept which explores the extent to which the employees' performed work generally related to the ongoing operation of the business (administrative), or the day-to-day tasks necessary to operate the employers' business (production work). 

While acknowledging the line between exempt administrative and non-exempt production work is not clear, the Harris decision is yet another that narrowly interprets the exemption. In particular, the Court found that exempt administrative work must be carried out at the general operational or policy making level, and that producing the employer's product is not necessarily a condition for doing production work. That is, day-to-day systematic activities necessary for the employer's business operations may well be non-exempt work even if such activities are not producing the employers' product.   Employers are advised to carefully evaluate those classified as exempt administrators, as the availability of this exemption continues to narrow. To read a copy of Harris v. Superior Court, click here. 

Mark S. Spring, our firm's Managing Partner, was the featured guest expert for the most recent In the Know Podcast series. In this podcast, Mr. Spring discusses the issues related to the California meal and rest break compliance difficulties and the recent waive of class action lawsuits against California employers related to the meal and rest break regulations. You will hear Mr. Spring discuss the ramifications of several recent court opinions and provide some recommendations that California employers can use to try to minimize the risk of being the next defendant in one of these class actions. To listen/download the podcast click here.

Posted by David V. Greco

On August 9, 2007, the Division of Labor Standards Enforcement ("DLSE") held its second public hearing – this one in Los Angeles – to hear comments regarding meal and rest break laws and regulations in California (the first session of the DLSE's public forums was held in Sacramento on August 2, 2007; please see August 3^rd blog entry).  The DLSE held these public hearings to allow both employers and employees the opportunity to explain how California meal and rest break laws affect their day-to-day work lives.  Similar to the Sacramento session, this topic sparked very heated and passionate comments by both employers and employees.

Interestingly, employees in various industries spoke in favor of modifying the laws to provide more flexibility with respect to when they may take their meal breaks during the work day.  Both the healthcare and transportation industries were represented in extremely high numbers.  The majority of the nurses and drivers who spoke expressed their frustration with the current state of the law mandating that they must take their meal breaks at or before the five hour mark during their work day.  Many nurses commented on the impracticality of being forced to immediately stop tending to patients because they must take their breaks or face disciplinary action.  Drivers also expressed their frustration, explaining that it is almost impossible and extremely dangerous to expect them to comply with the law by pulling their vehicles off the road to ensure that they do not violate the five hour requirement.

On the other hand, there were also employees in attendance who voiced their concern that any modification of the current laws would result in employers taking away their right to meal and rest breaks.  Several of the employees who opposed any changes testified about the poor working conditions in their current workplaces, and the fact that they are not permitted to take any breaks.  Representatives of employee advocacy organizations in attendance claimed that any leniency in this area would reduce productivity and increase work-related injuries.

The employers who attended the hearing uniformly testified that they had no interest in eliminating breaks for employees; rather, they simply want some flexibility in this area, both for themselves and their employees.  They complained that the current laws are too confusing, unrealistic, and overly burdensome, and that the DLSE needs to provide greater guidance on these issues.  Many of the employers also stated that the current laws have a detrimental effect on their employees.  For example, some employers testified that their employees sometimes ask to forego meal breaks in order to leave work early to tend to personal matters.  Under the current state of the law, employers cannot consent to this arrangement, which in turn causes friction between employees and management.  Additionally, employers in the restaurant industry indicated that their employees complain that taking breaks has a detrimental effect on their tip income.  The employers who attended this hearing also made reference to the recent increase in litigation for alleged meal and rest break violations, including class actions, which are financially crippling some businesses.

Please note that the DLSE will accept written comments and legal briefs on these issues until August 31, 2007.

Posted by Jennifer D. Barrera

On August 2, 2007, California's newly-appointed Labor Commissioner, Angela Bradstreet, held a public hearing to obtain comments regarding meal and rest break laws and regulations in California.  This public hearing was sparked by recent court decisions concerning the standard for meal and rest breaks, including Murphy v. Kenneth Cole Productions, Inc., 40 Cal.4^th 1094 (2007), White v. Starbucks Corp., 2007 WL 1952975 (N. D. Cal. July 2, 2007), and Brinker Restaurant Corporation et al. v. Hohnbaum et al. which is currently pending before the Fourth District Court of Appeal.  At the hearing, this topic proved to still be a sensitive issue between employers and employees. 

Employees from various industries voiced their concern that any modification of current law regarding meal and rest breaks would provide employers with the opportunity to essentially take away employees' rights to meal and/or rest breaks.  Employees alleged that any leniency in this area would allow employers to pressure them to forego their breaks by praising others who did so and setting higher standards of enforcement.  Moreover, employees claimed that reducing or eliminating the mandatory nature of breaks would reduce productivity and increase work-related injuries. 

Employers, on the other hand, testified that they had no interest in eliminating breaks for employees; rather, they simply want some flexibility in this area.  Employers complained that the current laws are too confusing, unrealistic, and overly burdensome on employers.  For example, employers in the transportation and trucking industry testified that it is impossible to ensure that their drivers who are out on the road are taking a thirty minute meal period at or before five hours of work, as the law currently requires them to do.  Additionally, employers in the restaurant industry stated that the unpredictable nature of their business makes scheduling breaks for employees impossible. Moreover, employees in this industry may resent their employers for forcing them to take meal breaks as it reduces their tip income and extends their workday.  The employers who attended this hearing also referenced the recent increase in litigation for alleged meal and rest break violations, including class actions, which are financially crippling businesses.

The Department of Labor Standards Enforcement is holding another public hearing in Southern California to obtain additional comments regarding meal and rest break laws and regulations on August 9, 2007, from 9:00 to 2:00 p.m. at California State University Northridge.  The DLSE is also accepting written comments and legal briefs on this issue until August 31, 2007.

The Division of Labor Standards Enforcement ("DLSE") has announced that it will be holding two forums to allow members of the public to address newly-appointed California State Labor Commissioner Angela Bradstreet and raise concerns regarding recent changes to meal and rest period enforcement practices in California.

The first forum will be held on August 2, 2007, from 9:00 a.m. to 2:00 p.m. at the Sacramento State Alumni Center located in Sacramento; the second forum will take place on August 9, 2007, from 9:00 a.m. to 2:00 p.m. at the California State University Northridge Student Union.  Specific information can be obtained by clicking here. 

Additionally, the public may submit written comments to the DLSE regarding these issues on or before August 31, 2007.

The U.S. Department of Labor has issued a new poster reflecting the increased federal minimum wage, which goes into effect today.  All employers subject to the federal Fair Labor Standards Act's minimum wage provisions must post this updated notice, available here.

As previously reported, the Fair Minimum Wage Act of 2007 increases the federal minimum wage in three increments over the next two years, with the first increase of $5.15 to $5.85 per hour taking place today (the federal minimum wage will then increase to $6.55 per hour beginning July 24, 2008, and to $7.25 per hour effective July 24, 2009).  California employers should note, however, that this increase in the federal minimum wage will not affect the wages earned by California employees, who are currently entitled to the higher minimum wage of $7.50 per hour ($8.00 per hour effective January 1, 2008).  Additionally, San Francisco employers must pay their employees the city's current minimum wage of $9.14 per hour.

For specific questions regarding the obligation to post the updated notice, please contact us directly.

Posted by Robin E. Weideman

Employers have reason to hope that their liability for missed meal periods may be less than some first thought when the California Supreme Court issued its much-publicized ruling in Murphy v. Kenneth Cole Productions, Inc. Murphy held that that fines arising from meal and rest break violations in California constitute "wages," for which there is a three-year statute of limitations, rather than a "penalty," which would have carried only a one-year statute of limitations. In White v. Starbucks, _ F. Supp. 2d _, 2007 WL 1952975, at *7-*8 (N. D. Cal. July 2, 2007), a federal district court held that California Labor Code § 226 and the IWC Wage Orders’ requirements that employers “provide” employees with meal periods means simply that the employer must offer the employees meal periods; the employer is not required to ensure that the meal periods are taken. 

In White, the court further held that in order to prevail on a meal period claim, a plaintiff would have to show that he or she was “forced to forego” a meal period by the employer. The court reasoned as follows: “The interpretation that [plaintiff] advances -- making employers ensurers of meal breaks -- would be impossible to implement [in industries] in which large employers may have hundreds or thousands of employees working multiple shifts. Accordingly, the court concludes that the California Supreme Court, if faced with this issue, would require only that an employer offer meal breaks, without forcing employers actively to ensure that workers are taking these breaks. In short, the employee must show that he was forced to forego his meal breaks as opposed to merely showing that he did not take them regardless of the reason. . . .[Otherwise,] employees would be able to manipulate the process and manufacture claims by skipping breaks or taking breaks of fewer than 30 minutes, entitling them to compensation of one hour of pay for each violation. This cannot have been the intent of the California Legislature, and the court declines to find a rule that would create such perverse and incoherent incentives.”

The plaintiff admitted that any meal periods he missed were as a result of his own decision to skip the meal periods. There was no evidence that Starbucks had “forced [plaintiff] to forego” meal periods. On these facts, the court held that Plaintiff could not succeed on his meal period claim and summary judgment was appropriate. 

The district court’s ruling in White is significant because it does not place the burden on the employer to force employees to take meal breaks. Rather, it simply requires that the employer provide the opportunity to take the meal break. One cautionary note: in reading White, employers must be mindful the ruling was issued by a federal district court. Although the opinion of a federal district court can be used to persuade other state and federal courts to decide the meal break issue similarly, neither the Ninth Circuit nor California state courts are bound by the district court’s ruling.       

The California Labor Commissioner may not harmonize divergent rulings by local labor commissioners concerning employee claims made under Labor Code § 98 by issuing “precedent decisions.” In Corrales v. Bradstreet (2007) ____ Cal. App. 4th ____, the Court ruled that then Labor Commissioner Donna Dell, overstepped her bounds by issuing a precedent decision declaring money paid on account of Labor Code § 226.7 violations for missed meal or rest periods a penalty rather than wages.  If money paid for Labor Code § 226.7 violations constituted a penalty, then employees could recover for violations going back one year.  If the money paid constituted wages, then employees could recover for violations for the preceding three years.

Despite the fact that the California Supreme Court had earlier ruled that Labor Code § 226.7 payments were wages and not penalties, thus rendering the issue in Corrales v. Bradstreet effectively moot, the Corrales court issued an opinion anyway. The Corrales court held that an opinion was necessary because the question of whether the Labor Commissioner could issue a precedent decision harmonizing inconsistent rulings of local Labor Commissioners’ Offices under Labor Code § 98 was of general public interest and likely to recur.

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On June 12, 2007, the Third District Court of Appeal further narrowed the administrative exemption that employers may use to exempt certain employees from California overtime requirements. In Eicher v. Advanced Business Integrators, Inc., (2007) ____ Cal. App. 4th ______, the plaintiff provided customer service and training concerning the defendant employer’s software. The defendant classified the plaintiff as exempt under the administrative exemption. The Court of Appeal sustained the superior court’s ruling that the plaintiff did not meet the requirements of the administrative exemption. 

To qualify for the administrative exemption, an employee must, among other things, perform “office or non-manual work directly related to management policies or general business operations” of the employer or its customers. In Eicher, the court narrowly interpreted this requirement to insist that the employee have “personal effect on the policy or general business operations” of the employer.  In Eicher, the plaintiff's primary responsibilities consisted of implementing and troubleshooting his employer's software at customer venues, as well as providing on-site and off-site customer support. The court opined that the plaintiff was more akin to a production worker previously found not to qualify for the administrative exemption because he was simply “engaged in the core day-to-day business” of the defendant.  Because the plaintiff had no personal effect on policy or general business operations, the court found that the requirement was not satisfied and, therefore, the administrative exemption did not apply. For more information concerning Eicher v. Advanced Business Integrators, Inc., click here. 

On June 8, 2007, Gov. Arnold Schwarzenegger appointed Angela Bradstreet to serve as labor commissioner for the California Department of Industrial Relations. Bradstreet, a Democrat, must be confirmed by the state Senate. As labor commissioner, Bradstreet will have significant influence over California wage laws and enforcement policies. Bradstreet previously served as managing partner for a Bay Area law firm. For a link to Governor Schwarzenegger’s official announcement, click here.     

President Bush recently signed into law the Fair Minimum Wage Act of 2007.  This legislation is designed to increase the federal minimum wage in three increments over the next two years.  The first increase will be from the current rate of $5.15 to $5.85 per hour beginning July 24, 2007.  The minimum wage will then increase to $6.55 per hour beginning July 24, 2008, and $7.25 per hour effective July 24, 2009.  Employers should ensure that their mandatory postings reflect the newly adjusted minimum wages. 

Note that this increase in the federal minimum wage will not affect the wages earned by California employees, who are currently entitled to the higher minimum wage of $7.50 per hour ($8.00 per hour effective January 1, 2008).  Additionally, San Francisco employers must pay their employees the city's current minimum wage of $9.14 per hour.

The California Division of Labor Standards Enforcement (“DLSE”) is the regulatory agency that enforces California’s wage and hour laws. The DLSE’s enforcement positions are available online in its “Division of Labor Standards Enforcement Polices and Interpretations Manual.” (click here to view the DLSE Manual).   Because these interpretations affect its own enforcement actions and also single plaintiff and class action wage and hour lawsuits, the DLSE Manual should be required reading for all human resource executives and California labor attorneys (even if you don’t agree with it).

On May 2, the DLSE made some very important changes to the Manual to reflect its view of Murphy v. Kenneth Cole Productions, Inc. The two most important changes are: (1) Meal period and rest period pay, split-shift pay, and reporting time pay are wages like overtime and therefore may support claims for statutory attorneys’ fees and interest. DLSE Manual § 2.4.1.1; and (2) California Labor Code section 203 waiting time penalties of up to 30 days of wages may be imposed on employers for failing to provide owed meal or rest period pay, split-shift pay and reporting time pay at termination of employment. DLSE Manual § 4.3.4.1. The DLSE is continuing its position that employers must pay one hour’s wage for any meal period violations in a single day and an additional one hour’s wage for any rest period violations in a single day. DLSE Manual §§ 45.2.8; 45.3.7. This issue (whether a missed meal period and missed rest period in the same day requires one or two hours of pay) has yet to be interpreted by the courts.

While we are on the topic of DLSE Manual revisions, we should note a couple other relatively recent revisions that have not received a lot of press. First, in November 2005, the DLSE revised its position on vacation accrual caps. The DLSE’s position once was that all employers had to give employees nine months after the end of the year to use vacation (without supporting legal authority). This effectively created an accrual cap for vacation equal to 175% of each employee’s annual vacation. Former DLSE Manual § 15.1.4.1 (Revised Nov. 22, 2005) While this requirement has been withdrawn, the DLSE has, unfortunately, not yet provided guidance regarding what cap it views as acceptable.

In December 2006, the DLSE revised section 54.8.1 regarding the professional exemption. The DLSE, without supporting legal authority, formerly had made the “learned” professional exemption only applicable to those individuals who had a degree above a BA or BS. With that requirement deleted, this exemption may now be available to a number of engineers, chemists, biologists, researchers, medical professionals, and other employees who otherwise were previously nonexempt in California. The DLSE also expanded its “artistic” professional exemption to include artistic endeavors using “evolving media such as music synthesizers and computer graphic and art design programs. DLSE Manual § 54.10.1.

Although the DLSE’s interpretation of Murphy adds more disappointment for employers, the DLSE appears to be taking a more reasoned approach to some of its other, more vexing, interpretations. Hopefully, that is a trend that will continue.

Earlier this week, the California Supreme Court issued its long awaited ruling in Murphy v. Kenneth Cole, deciding that fines arising from meal and rest break violations in California constitute "wages," for which there is a three-year statute of limitations, rather than a "penalty," which would have carried only a one-year statute of limitations.  (For your convenience, a link to the decision appears below.)  Not only does this obviously triple the time period for the recovery of such wages, it also triggers potential liability for "waiting time" penalties for employees who have terminated during the prior three years, additional related penalties, and attorneys' fees.  To make matters worse, such claims typically include an allegation of unfair competition (B&P Code Section 17200), which carries a four year statute of limitations.

The California Supreme Court's decision even further underscores the importance of ensuring that employers' meal and rest break policies are compliant with California law, as well as the importance of ensuring those policies are being followed by all employees. In addition, employers may want to consider paying out the extra hour of pay to employees when it is clear that they were denied  a meal break or denied the opportunity to take a rest break.  Unfortunately, we expect this ruling will result in a significant increase in class action filings.

If you have any questions about how this ruling affects you, please do not hesitate to call or write any of the attorneys that you work with at CDF LLP.

Link to decision:  http://www.courtinfo.ca.gov/opinions/documents/S140308.PDF

The recent increase in the California minimum wage to $7.50 per hour currently, and another raise to $8.00 per hour on January 1, 2008, raised the minimum salary requirements for California's exempt executive, administrative and professional employees who must meet minimum salary requirements (in addition to a duties test) that are tied to the state minimum wage. These exempt employees must earn a monthly salary equivalent to no less than two times the state minimum wage for full-time employment. On January 1, 2007, the minimum salary requirement to qualify as an exempt employee increased to $31,200 per year. On January 1, 2008, the amount these exempt employees must earn will increase to $2,773.33 per month, or $33,280 per year.

Employers also need to be aware of the increased base salary for the inside sales exemption provided for in Wage Orders 4 and 7. If an inside sales employee earns more than one-and-one-half times the minimum wage and more than one-half of the employee’s wages are commissions, then the employee may qualify as exempt. With the increase in minimum wage, a commissioned sales person must earn $23,400 per year or $11.25 per hour as of January 1, 2007. Starting on January 1, 2008, exempt commissioned sales person must earn $24,960 per year or $12.00 per hour.

In a unprecedented step last November, the Los Angeles City Counsel passed an ordinance that requires private hotels located on Century Boulevard near LAX to comply with the city’s living wage ordinance (which requires employers pay $10.64 per hour in wages and benefits). Prior to this ordinance, only employers who have contracts to do business with the city had to comply with the city’s living wage requirements. The city argues that it has the power to require these private hotel employers to pay higher wages due to the benefits that the hotels receive due to their proximity to LAX, which is owned by the city.

The ordinance consists of three measures. The first measure extends the city’s living wage requirements of $9.35 per hour for hotel employees who have health benefits or $10.64 per hour if the employees do not have health benefits. The second measure requires new purchasers of the hotels to retain existing employees for at least 90 days after taking control of the hotel. The third measure requires hotels to pass all service charges for banquets and special events on to servers and other line employees.

Los Angeles business leaders have gathered over 100,000 signatures to challenge the ordinance, placing it in a holding pattern for now. If the signatures are verified, the City Counsel will then have to decide whether to repeal the ordinance or to place a referendum on the ballot in the citywide elections in May 2007.

This ordinance poses a threat to businesses not only along the Century Boulevard Corridor, but to all businesses in the state of California. If the ordinance succeeds, it is very likely that cities throughout the state will similarly attempt to regulate private employers. This is simply a backdoor approach by the labor unions and other forces supporting this ordinance to attempt to increase the minimum wage even further, and to overturn the outcome of the voter’s rejection of a referendum in 2004 that would have required businesses to provide health care coverage to their employees. We will continue to monitor the status of the ordinance and publish updates as more information becomes available.

Earlier this month, the IRS announced that beginning Jan. 1, 2007, the standard mileage rates for the use of a car (including vans, pickups or panel trucks) will be:

• 48.5 cents per mile for business miles driven;
• 20 cents per mile driven for medical or moving purposes; and
• 14 cents per mile driven in service to a charitable organization.

The new rate for business miles compares to a rate of 44.5 cents per mile for 2006. The new rate for medical and moving purposes compares to 18 cents in 2006. The primary reasons for the higher rates were higher prices for vehicles and fuel during the year ending in October.

This is important for California employers because the California Labor Code section 2802 provides:

An employer shall 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.

Under this section, a California employer must pay an employee for the cost of the use of his or her vehicle within the course and scope of employment. The Division of Labor Standards Enforcement has stated that use of the IRS mileage allowance for business miles will satisfy the expenses incurred in use of an employee’s car in the absence of evidence to the contrary.

Posted by Kendra D. Miller

Dunbar v. Albertson’s, Inc., _ Cal. Rptr. 3d _, 2006 WL 2025013 (Cal. App. 1st Dist. July 20, 2006)

The Court of Appeal (First Appellate District, Division One) affirmed the trial court’s order denying class certification in an exemption case involving grocery managers (second in command at each store) at Albertson’s. The appellate court “read the court’s decision . . . to conclude[] that 900 individual inquiries – one for each grocery manager – would be required, because findings as to one manager could not ‘reasonably [be] extrapolate[d]’ to others given the significant variation in the work performed by grocery managers from store to store and week to week, as shown by defendant’s evidence,” which included 79 declarations of grocery managers, deposition excerpts, a chart outlining how the deposition testimony and Defendant’s counter-declarations differed from Plaintiff’s declarations, and statistics on varying amounts of time that grocery managers spent working cash registers over a year-long period.

Notably, Plaintiff urged on appeal that the trial court ignored its evidence and argument that individual issues could be effectively managed with the use of exemplar plaintiffs, survey results, subclassing, mini-trials, or special masters. The appellate court found that the record did not show that the trial court failed to consider these proposed methods but rather that the trial court rejected them in concluding that findings as to one grocery manager could not be extrapolated to others given the variations in their work. Although the trial court has an obligation to consider the use of “innovative procedural tools proposed by a party to certify a manageable class,” the party seeking class certification “must explain how the procedure will effectively manage the issues in question,” which the Plaintiff failed to do.

The Estate Tax and Extension of Tax Relief Act of 2006, H.R. 5970, which passed the House on July 29, 2006 and is now in front of the U.S. Senate, proposes to raise the national minimum wage to $7.25 over a three year period.

The provision of the bill that would permit employers across the country to credit tips earned by employees against the minimum wage requirements is one of the many issues that are being debated currently. Below is an explanation of the tip credit and some possible ramifications for California employers and employees.

All But Seven States Permit Tip Credits
All but seven states currently permit employers to count the amount tipped employees earn in tips towards their minimum wage. The seven states that do not allow tip credits are: Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington. H.R. 5970 proposes to bring California and the other six states into conformity with the rest of the country by requiring all states to recognize a tip credit.

What Is a Tip Credit?
Under federal law, employers are allowed to pay a lower hourly wage to employees who qualify as a tipped employee so long as the employee’s total wages (the lower minimum wage paid by the employer and the tips received) equal at least the standard federal minimum wage, currently $5.15 per hour. To qualify as a tipped employee, the employee must earn more than $30 per month in tips. Under current federal law, if the employee meets these requirements, then employers may pay them $2.13 per hour, instead of the $5.15 standard minimum wage per hour. Contrary to many politicized statements on this topic, a tipped employee is still guaranteed to make minimum wage.

Many states have different requirements that are more employee-friendly than the federal tip credit law, and therefore the state law is applicable even if the Senate bill is passed. Click here for a chart describing the state requirements.  Click here for a Department of Labor “Fact Sheet” pertaining to tipped employees.

How Would the Senate Bill Impact California Employers and Employees?
Currently in California, employers must pay tipped employees the full state minimum wage of $6.75 per hour, and cannot offset any of this amount by the employee’s tips. If the bill passes, employees will still be guaranteed to earn at least the state minimum wage. The only difference is that the tips earned by employees could then counted towards the $6.75 per hour minimum wage amount. For example, if the bill passes, California employers could pay tipped employees $2.13 per hour so long as the employee earned at least another $4.62 per hour in tips ($2.13 + $4.62= $6.75). If the tipped employee does not earn enough tips to reach the $6.75 minimum wage threshold, then the employer will have to pay the difference to guarantee that the employee makes at least $6.75 per hour.

“Controversy” Surrounding the Tip Credit Provision
Some politicians, mostly Democrats, oppose the tip credit language in the bill because they argue it constitutes a wage reduction for tipped employees in the seven states that do not have a tip credit. However, the rationale for the minimum wage was to set the minimum that workers earn in the United States, and tipped employees are not minimum wage earners. The U.S. Bureau of Labor Statistics report that “Food Preparation and Serving Related Occupations” nationally earn on average $8.55 per hour as of May 2005, as reported here. 

In California, these same employees earn on average $9.17 per hour as of May 2005, as reported here.  On both the national level and in California, tipped employees who work in restaurants are paid well above the applicable minimum wage. Moreover, tipped employee’s “wages” increase each year when restaurants raise their menu prices because tips left are based on a percentage of the total bill, unlike minimum wage earners who do not receive tips.

Furthermore, employers must pay payroll taxes including FICA (social security tax), SUTA (state unemployment taxes) and FUTA (federal unemployment taxes) on employee tips. Since employers must contribute their share of payroll taxes on these amounts, they should get credit for having paid these amounts towards an employee’s minimum wage. This was the rationale for having a tip credit in the 43 states that recognize a tip credit.

Having a tip credit in California could also help equalize the disparity in wages often seen between the tipped employees and the “back of the house” employees. For example, cooks are often paid much less per hour than servers, and, ironically, are prohibited by California law from participating in tip pools (tip pools are different than the topic of tip credits - click here and here for prior posts on tip pools under California law). So unlike servers, they do not have the benefit of receiving additional income from patrons. If permitted to apply a tip credit to a server’s minimum wage, a restaurant owner would have more resources he or she could redistribute to other staff members who are currently prohibited from participating in tip pools under California state law.

It is uncertain whether this bill will pass the Senate, but whether it does or not, the issue of a tip credit for employers in California will be hotly debated for some time to come.

UPDATE:  The Senate failed to pass the minimum wage increase bill on Thursday, August 3, 2006.  Click here for article. 

Diane Pfadenhauer, over at Strategic HR Lawyer, has a great post reminding employers to think twice about deducting business costs from an employee’s pay check. In her post, she refers employers to review the U.S. Department of Labor’s opinion letter regarding these types of deductions. Click here to read her post.

In California, state courts have clearly held that employers cannot legally deduct costs that result from simple employee negligence, such as shortages and other losses occurring without the fault on the part of the employee. Business must simply write these losses off as business expenses. However, businesses may deduct an employee’s wages for losses that resulted from a dishonest or willful act or through the gross negligence of the employee. The California Division of Labor Standards and Enforcement’s (DLSE) explanation of what types of deductions are permissible under California law can be found here.

Many California companies have recently been sued and had an assessment issued against them by the California Employment Development Department ("EDD") for unpaid payroll taxes because the company allegedly misclassified its California workers as independent contractors rather than employees.

If a company improperly classifies a worker as an independent contractor, it may face liability from an assessment from the EDD for unpaid unemployment insurance, disability insurance, and employment taxes. In addition to the EDD assessment, the misclassified workers could also allege that they are owed unpaid overtime going back four years in addition to seeking reimbursement and for businesses expenses and penalties in violation of Labor Code section 2802.

For guidance on whether employers have properly classified its workers as independent contractors, the California Division of Labor Standards Enforcement ("DLSE") provides an explanation of the "economic realities" test. The DLSE maintains that the most indicative fact determinative of whether a worker is an employee or an independent contractor depends on whether the person to whom service is rendered (the employer or principal) has control or the right to control the worker both as to the work done and the manner and means in which it is performed. The DLSE also sets forth the other factors that are considered when determining an employee's status:

1. Whether the person performing services is engaged in an occupation or business distinct from that of the principal;
2. Whether or not the work is a part of the regular business of the principal or alleged employer;
3. Whether the principal or the worker supplies the instrumentalities, tools, and the place for the person doing the work;
4. The alleged employee's investment in the equipment or materials required by his or her task or his or her employment of helpers;
5. Whether the service rendered requires a special skill;
6. The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;
7. The alleged employee's opportunity for profit or loss depending on his or her managerial skill;
8. The length of time for which the services are to be performed;
9. The degree of permanence of the working relationship;
10. The method of payment, whether by time or by the job; and
11. Whether or not the parties believe they are creating an employer-employee relationship may have some bearing on the question, but is not determinative since this is a question of law based on objective tests.

The DLSE's full explanation of this topic can be found here. The DLSE's information provides a great starting point for employers to audit their classifications of employees, but each case may present different facts, and the economic realities test may change depending on the jurisdiction and whether state or federal law is at issue.

Posted by Nancy G. Berner and Jeremy T. Naftel

Like all California employers, the hotel industry is required to pay employees in accordance with both federal law, in the form of the Fair Labor Standards Act ("FLSA"), and state law, namely the California Labor Code and wage orders promulgated by the California Department of Industrial Relations ("DIR"), and enforced by the Department of Labor and Standards Enforcement ("DLSE"). Employees are generally presumed to be hourly employees, and therefore entitled to overtime and meal and rest breaks, unless one of a few narrow exemptions applies. This article provides some insight into determining whether or not a resident manager in the hospitality industry is exempt from the protections of California's wage and hour laws, and provides guidance on application of the lodging credit.(Note that neither federal nor state law provides a statutory definition of "resident manager." However, both use and inquiry to the DLSE provide the informal, and common sense, definition that a resident manager is an employee provided with full-time lodging at the hotel or apartment dwelling where he or she works.)

California assumes that all employees are protected by the state's wage and hour obligations to, among other things, keep records, pay overtime and minimum wage, and provide required rest and meal breaks. However, there are exemptions from these protections for "white collar" employees, i.e., those who are executive, administrative or professional employees. The state provides an exemption test, under which an employee will only be considered exempt under the executive or administrative categories if he or she (1) spends more than 50% of the work day (2) on tasks that are intellectual, managerial or creative, (3) which require the exercise of discretion and independent judgment and (4) for which the monthly pay is at least twice the minimum wage for one month of full time work. At the current minimum wage rate of $6.75/hour, the monthly salary requirement is $2,340, or $28,080/year. (The professional exemption applies to specific jobs, such as doctors, engineers or lawyers.)

The first question to ask is whether or not your resident manager is an exempt employee. The law takes the view that, unless an employer can show to the contrary, all employees are subject to the wage and hour law protections. Calling an employee a manager and paying a sufficiently high salary are not sufficient to find that an employee is exempt. Rather, the employee must spend more than 50% of his or her work time engaged exclusively in exempt duties to qualify for the exemption. "Exclusively" means that if the employee is performing a non-exempt task and an exempt task concurrently, that time counts as non-exempt time. Careful analysis of the duties performed by that employee is critical. For example, if the manager is giving directions to the hotel on the telephone while providing managerial oversight to other employees, this will be considered time spent on non-exempt work.

If the manager satisfies the requirements to be treated as an exempt employee, the employer receives no particular credit or benefit for providing free or discounted accommodations to the employee. However, if the manager does not satisfy the requirements to be treated as an exempt employee, a portion of the value of the accommodations can be credited against the employer's minimum wage obligations.

Specifically, federal regulations provide that an employer may credit the cost of lodging toward the minimum wage requirement if the lodging is furnished for the benefit of the employee, is accepted voluntarily and without coercion by the employee, and is customarily furnished by other employers in the same industry. California provides additional guidance to hotel employers providing lodging to an employee. First, the lodging provided must be actually received, must be part of the employee's compensation, and the employee must enter into a voluntary written agreement to credit the lodging toward the minimum wage requirement. Second, the lodging must be available to the employee for full-time occupancy, and it must be adequate, decent and sanitary according to the usual and customary standards of the industry. A good rule of thumb would be to provide your resident employee with the same caliber of lodging provided to your guests (although you cannot require employees to share a bed). Finally, the following rates are then creditable toward the employer's minimum wage obligation.

The following list provides the rate credited toward minimum wage based on the type of lodging:
Room Occupied Alone: $31.75/week; Room Shared: $26.20/week; Apartment: 2/3 of the ordinary rental value, up to $381.20/month; Where a couple is employed by an employer: 2/3 of the ordinary rental value, up to $563.90/month.

Determination of whether an employee qualifies as exempt is both critical and complex. Liability for mistakenly classifying a non-exempt employee as exempt can be significant. Employers who wish to treat their resident managers as exempt should consider seeking advice from their employment counsel regarding application of these laws in the hospitality industry.

The California Supreme Court granted review of National Steel and Mills (see below). Click here or here to read prior posts regarding how California courts are ruling on the issue about whether Labor Code § 226.7 penalties for meal and rest break violations are subject to a three year or a one year statute of limitations.

NATIONAL STEEL & SHIPBUILDING v. S.C. (GODINEZ)
Case: S141278, Supreme Court of California

Date (YYYY-MM-DD):2006-04-12
Event Description:Review granted/briefing deferred (rule 29.1) - civil case
Notes:
Petition for review GRANTED. Further action in this matter is deferred pending consideration and disposition of a related issue in Murphy v. Kenneth Cole Productions, Inc., S140308 (see Cal. Rules of Court, rule 28.2(d)(2)), or pending further order of the court. Submission of additional briefing, pursuant to California Rules of Court, rule 29.1, is deferred pending further order of the court. Werdegar, J., was absent and did not participate.
Votes: George, C.J., Kennard, Baxter, Chin, Moreno, and Corrigan, JJ.

MILLS v. S.C. (BED, BATH & BEYOND)
Case: S141711, Supreme Court of California

Date (YYYY-MM-DD):2006-04-12
Event Description:Review granted/briefing deferred (rule 29.1) - civil case
Notes:
Petition for review GRANTED. Further action in this matter is deferred pending consideration and disposition of a related issue in Murphy v. Kenneth Cole Productions, Inc., S140308 (see Cal. Rules of Court, rule 28.2(d)(2)), or pending further order of the court. Submission of additional briefing, pursuant to California Rules of Court, rule 29.1, is deferred pending further order of the court. Werdegar, J., was absent and did not participate.
Votes: George, C.J., Kennard, Baxter, Chin, Moreno, and Corrigan, JJ.

As difficult as it is to comply with California's daily overtime rules, it is easy to forget the one form of flexibility provided to employers -- makeup time. This provision allows employers to avoid paying overtime when employees want to take off an equivalent amount of time during the same work week. There are, however, a few requirements that must be met to ensure that the employer is not required to pay overtime for the makeup time:

1.An employee may work no more than 11 hours on another workday, an not more than 40 hours in the workweek to make up for the time off;

2. The time missed must be made up within the same workweek;

3. The employee needs to provide a signed written request to the employer for each occasion that they want to makeup time (and if employers permit makeup time, they should have a carefully drafted policy on makeup time and a system to document employee requests); and

4. Employers cannot solicit or encourage employees to request makeup time, but employers may inform employees of this option.

Remember, time and a half overtime is due for (1) time over eight hours in one day or (2) over 40 hours in one week or (3) the first eight hours worked on the seventh consecutive day worked in a single workweek; and double time is due for (1) time over 12 hours in one day and (2) hours worked beyond eight on the seventh consecutive day in a single workweek. For more information regarding overtime and related issues, the DLSE provides a good summary here.

The Court's granting of review was likely given the conflicting lower court holdings on whether Labor Code § 226.7 penalties for meal and rest break violations are subject to a three year or a one year statute of limitations. [Click here, or here to read prior posts on Murphy]

The California Supreme Court asked the parties to brief the following issues:

Request for judicial notice granted. Petition for Review GRANTED. The parties are directed to brief and argue the following issues: (1) Is a claim under Labor Code section 226.7 for the required payment of 'one additional hour of pay at the employee's regular rate of compensation' for each day that an employer fails to provide mandatory meal or rest periods to an employee governed by the three-year statute of limitations for a claim for compensation (Code Civ. Proc., §338) or the one-year statute of limitations for a claim for payment of a penalty (Code Civ. Proc., §340)? (2) When an employee obtains an award on such a wage claim in administrative proceedings and the employer seeks de novo review in superior court, can the employee pursue additional wage claims not presented in the administrative proceedings?

On January 27, 2006, the Second Appellate District issued a holding that the payments required under Labor Code section 226.7 are penalties and, therefore, a one year statute of limitations governs the payments, as opposed to a three year statute of limitations if the payments are considered wages. This holding is one of many recent (and conflicting) holdings on this issue as illustrated below.

Cases Holding 226.7 Payments are Penalties (and therefore a one year statute of limitations applies):
1. Mills v. Superior Court (Jan. 27, 2006) ___ Cal.4th __, 2006 [PDF] [WRD]
2. Murphy v. Kenneth Cole Productions, Inc. (2005) 134 Cal.App.4th 728
3. Caliber Bodyworks, Inc. v. Superior Court (2005) 134 Cal.App.4th 35, 381, fn. 16
4. Hartwig v. Orchard Commercial, Inc., Case No. 12-569901RB (This case only binding on any hearing before a Deputy Labor Commissioner or Hearing Officer.) [Click here to read further analysis on Hartwig]

Cases Holding 226.7 Payment are Not Penalties (and therefore a three year statue of limitations applies):
1. National Steel and Shipbuilding Company v. Superior Court (Jan. 20, 2006) __ Cal.4th __, 2006 WL 147520 (with Justice Irion dissenting)
2. Tomlinson v. Indymac Bank, F.S.B. (C.D. Cal. 2005) 359 F.Supp.2d 891 (This case is a federal case and therefore is not binding on California state courts. Indeed, Mills v. Superior Court, above, explicitly rejected Tomlinson's reasoning.)

California law currently requires employers to pay a penalty, measured in the amount of one hour's wages, to any employee who is denied a mandatory meal or rest break. The confusing language of the statute itself (codified at Labor Code Section 226.7) is no doubt partly responsible for the tidal waive of class action lawsuits that followed in the wake of its enactment in 2001. Indeed, the difficulty faced by employers in attempting to interpret and apply its ambiguous requirements was recently on display when two separate appellate courts reached diametrically opposite conclusions on the same question: i.e. is the payment required under the act really a "wage" or a "penalty?"

This seemingly semantic dispute has important real-world consequences. If the payment is a "penalty" then a one-year statute of limitations would apply. On the other hand, if the payment is a "wage," then the three-year statute of limitations would apply.

In December 2005, the First Appellate District held in Murphy v. Kenneth Cole Productions, Inc. that the payment is necessarily a penalty because it "is not compensation for labor performed, but is an arbitrary amount imposed on the employer in addition to the salary already paid during the time the employee was not eating or not resting. It is not overtime pay for an allowed work period, but a penalty for violating the law that prohibits work during those times."

Within barely a month, however, the Fourth Appellate District reached the opposite result, in National Steel and Shipbuilding Company v. Godinez that the payment must be characterized as a "wage" because it believed the objective of the statute was "to pay employees for additional work performed during mandated meal or rest periods and deter employers from requiring employees to work through these periods."

Moreover, on January 13, the Division of Labor Standards Enforcement (DLSE) withdrew its proposed interpretive regulations, which have been winding their way through the public comment process for nearly a year. [See related article]. Ironically, the DLSE claimed in a press release that the regs were withdrawn because the Murphy v. Kenneth Cole decision had rendered further clarification unnecessary. As astute observers have noted, however, the Division may not be keen to stake out a position on a question that has become a high-profile political struggle between pro-business interests and plaintiffs lawyers.

Thus, notwithstanding this recent flurry of judicial and administrative activity, the meaning of the meal and rest period statute is still in legal limbo. The California Supreme Court will ultimately need to provide any definitive interpretation and is expected to grant review of one (or, more likely, both) of the conflicting appellate cases. The Supreme Court is currently averaging one to three years from the grant of review to the issuance of a final opinion.

In December 2005, a jury in Alameda County awarded 116,000 Wal-Mart workers $115 million in punitive damages and $57 million in compensatory damages. The workers alleged that they were denied meal breaks. Click here to view the actual jury award. Three months into the jury trial, another case, Murphy v. Kenneth Cole Productions, Inc., decided in December 2005, held that the amounts recovered under Labor Code section 226.7 for missed meal breaks is a penalty and not a wage.

Wal-Mart argued that the holding in Murphy barred the plaintiffs from recovering punitive damages in addition to the penalty already imposed under section 226.7. The trial judge, Judge Sabraw, was not persuaded by Wal-Mart's argument and allowed the jury to consider, and eventually award punitive damages. Many employment attorneys believe that because Judge Sabraw was already 3 months into the jury trial when the Murphy decision came out he did not want to re-start the trial, but instead left it to Wal-Mart to appeal the case.

Wal-Mart released a statement after the verdict indicating that it will appeal the verdict. The release also stated that Wal-Mart had compliance problems when the meal break statute became effective in 2001, and since that time the company has taken steps to make sure that all employees receive their meal breaks, such as adopting new technology that alerts cashiers when it is time for their meal breaks.

Wal-Mart's appeal will be carefully watched by employers throughout California. In the mean time, employers sued for labor code violations ought to make every effort at the beginning of the case to have any claims for punitive damages barred from the complaint.

The IRS recently announced the 2006 mileage rate is set at 44.5 cents per mile. This rate is important for California employers because the California DLSE has opined that if employers reimburse employees' travel expenses at the IRS rate they will have met their obligations under the California labor code requiring employers to reimburse employees for all expenses incurred on behalf of the employer. (Click here to see a prior post on this topic)

For the first eight months of 2005, the rate was set at 40.5 cents per mile. In September the IRS made a special one-time adjustment for the last four months of 2005, raising the rate for business miles to 48.5 cents per mile in response to a sharp increase in gas prices, which topped $3 a gallon.

"The IRS took the extraordinary step of temporarily increasing the standard mileage rates in the aftermath of Hurricane Katrina," IRS Commissioner Mark W. Everson said. "We promised to continue closely monitoring the situation. The 2006 mileage rates reflect that gas prices have dropped."

The IRS announcement can be found here.

A another example of the hyper-technical rules being developed in the area of employee's breaks, Ford management has recently issued a memo that the 3,500 Wayne, Mich., factory's hourly workers are spending more than the 48 minutes allotted per shift to use the bathroom (click here for article). The 48 minute bathroom break allotment is set by the UAW union contract with Ford.

First, it is astounding that the employees are given a 48 minute allotment to use the bathroom. (And the fact that the contract sets 48 minutes as the magical number illustrates absurd detail surrounding breaks. Why not 45 minutes or 50 minutes?) Second, it is amazing employees are taking more than 48 minutes for bathroom breaks. (If you need a 48 minute allotment to use the bathroom, I would suggest that you should have probably stayed home that day.)

Plaintiff's allegations that they are not receiving their meal and rest breaks and initiating lawsuits over a minute or two missed during breaks, as employers throughout California have been a target of, is leaving companies no alternative but to monitor every minute of the employee's working time. As noted in the article, Ford's management will now be recording the time employee's spend in the bathroom. It is unfortunate, but employers have no other option when put into this situation.

California's employee-indemnification law, Labor Code section 2802, generally requires employers to reimburse any expenses incurred by employees in carrying out their job duties. A California appellate court has ruled, however, that employers may satisfy this obligation by paying increased wages or commissions instead of tracking and reimbursing the actual expenses incurred.

In Gattuso v. Harte Hanks Shoppers, Inc., ___ Cal.App.4th ___ (2005), the plaintiff had sought to certify a class of outside sales people who used their own vehicles to deliver papers. The plaintiffs claimed that the employer had violated California's employee expense reimbursement law because it neither reimbursed their actual out-of-pocket expenses, including gas and maintenance, nor paid a fixed mileage-based reimbursement amount. The employer countered that it had entered into compensation arrangements with individual workers which had been specifically designed to incorporate reasonable amounts for expense reimbursement in the form of increased wages and commissions. After examining the history and purpose of the Labor Code's reimbursement provision, the Court agreed that this was a legitimate method of expense reimbursement.

The court reasoned that "the statute does not specify any particular method by which the employer must indemnify employees for necessary expenditures or losses. And nothing in the statute indicates that the Legislature intended to create one exclusive method for such indemnification." Id. at __. As the Court explained:

[Labor Code] section 2802 does not preclude Harte-Hanks from indemnifying its [employees] for their automobile expenses by paying increased compensation, even if other provisions of law may treat that compensation as taxable wages. A violation of section 2802 would occur only if the increased compensation was insufficient to indemnify the [employees] for the automobile expenses incurred in the discharge of work-related duties. Any taxes the [employees] are obligated to pay on the increased compensation should be taken into account in determining whether Harte-Hanks is indemnifying the [employees] for all of their automobile expenses.

Under the Court's ruling, employers and employees are thus free to work out reasonable compensation arrangements that obviate the administrative burden of submitting time-consuming expense reports and processing frequent expense reimbursement checks.

The Court in Gattuso, however, did not go on to decide whether these special compensation arrangements sufficiently covered each employee's actual automobile expenses (click here for related article on the IRS mileage rate). And employers who want to use this compensation-based reimbursement method will have to be careful to fully document the arrangement and to make certain that it reasonably reflects the expenses actually incurred by each employee.
Notwithstanding these caveats, however, Gattuso is an unusually pragmatic and common sense development. This is a welcome development for employers in the area of California employment -- in which the general historical trend has been toward imposing ever more complicated and burdensome administrative requirements.

In Reynolds v. Bement 36 Cal.4th 1075 (2005), the California Supreme Court recently clarified the standard for determining who is an "employer." (See link to related entry). In doing so, the Court rejected the extremely broad definition of "employer" used under the federal Fair Labor Standards Act ("FLSA"), opting instead to apply only the much the narrower common law definition. This development has import implications for two increasingly common categories of class actions: claims based on theories of "joint employment" and claims based on the alleged mis-clasification of independent contractors.

Under a joint employment theory, plaintiffs may sue a California company for the wage and hour violations of its contractors or suppliers, claiming that the two entities are actually "joint employers" who are jointly and severally liable for wages. In this way, plaintiffs are able to seek liability against a "joint employer" who is a more attractive "deep pocket" defendant than the contractor or supplier who was contractually responsible for paying their wages. Previously, courts had held that any company could be held liable for wages if it received the benefit of the personal services and "directly or indirectly . . . exercises control over the wages, hours, or working conditions of" those workers. See Bureerong v. Uvawas, 922 F.Supp. 1450, 1467-69 (CD Cal. 1996). Under Reynolds, however, it appears that such an "indirect" relationship is no longer sufficient. Rather, under the common law test an entity should no longer be considered an employer for wage payment purposes unless it has the actual "right to control the manner and means" by which the worker performed his job. See Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 323-24 (1992).

By substituting this new common law test, Reynolds should also make it harder for plaintiffs to claim that a company's independent contractors are really misclassified employees. Indeed, for purposes of applying the wage obligations under the Labor Code, the Court explicitly rejected the use of the more liberal "economic reality" test set forth in its prior decision of SG Borello & Sons Inc. v. Department of Industrial Relations, 48 Cal.3d 341 (1989). The Court held that this test liberal test was meant to apply only in the context of applying the workers' compensation laws, but that application of the Labor Code, once again, depends on whether an entity meets the more stringent common law definition of an employer.

In Reynolds v. Bement 36 Cal.4th 1075 (2005), the California Supreme Court held that corporate managers generally cannot be held personally liable for unpaid wages allegedly owed to the company's employees. (See link to related entry)

The plaintiffs in Reynolds had filed a class action lawsuit against their corporate employer, alleging entitlement to unpaid overtime because they had been misclassified as salaried-exempt managers. In addition, they also named the company's individual officers, directors and shareholders as individual defendants in the lawsuit. To justify keeping these individuals in the action, the plaintiffs had relied on the legal theory, based on caselaw interpreting the federal Fair Labor Standards Act ("FLSA"), that any person who merely "exercises control" over the employment relationship may be deemed to be an "employer."

The Court rejected this expansive definition of "employer" for purposes of California law, however. It held instead that the obligations of the California Labor Code apply solely to individuals or entities who fit the traditional common law definition of an employer. "Under the common law, corporate agents acting within the scope of their agency are not personally liable for the corporate employer's failure to pay its employees' wages." Id. at 1169. Thus, the Court concluded that the individual managers could be held liable. Id.

As a result of this decision, the vast majority of individual managers are now shielded from personal liable for unpaid wage payments under California law. But several caveats still apply. First, an individual may still be held personally liable under federal law if he or she exercises sufficient control over the employment relationship. Second, certain California statutes include penalty provisions that explicitly apply to culpable individual managers in addition to corporate employers. And, finally, an individual may still be subjected to personal liability for wages if the corporate employer is found to be a mere "alter ego" of the individual.

Many employment law statutes apply only to those businesses that have a certain minimum number of employees. That minimum number can vary widely depending on the statute at issue. Note that there are additional exceptions that may apply to particular businesses, such as those run by religious organizations or private clubs. Some of the primary statutes are as follows:

1+ Employees - The wage and hour provisions of the California Labor Code, the federal Fair Labor Standards Act ("FLSA"), and federal Equal Pay Act generally apply to any business with even one employee.

1+ Employees - The prohibition against sexual harassment contained in the Fair Employment and Housing Act ("FEHA") apply to any business with one or more employees.

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On September 9, 2005, the IRS announced that it will increase the mileage rate to 48.5 cents a mile for the final four months of 2005. The mileage rate was set at 40.5 cents a mile for the first eight months of 2005, but due to the quickly rising gas prices the IRS took steps to change the rate. The IRS said it will not set the 2006 rate until closer to January and noted that next year's rate could be lower than 48.5 cents. Click here for the IRS announcement.

This is important for California employers because the California Labor Code section 2802 provides:

An employer shall 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.

Under this section, a California employer must pay an employee for the cost of the use of his or her vehicle within the course and scope of employment. The Division of Labor Standards Enforcement has stated that use of the IRS mileage allowance will satisfy the expenses incurred in use of an employee's car in the absence of evidence to the contrary.

Posted by: Mark S. Spring

California employers may now deduct partial-day absences from an exempt employee's accrued vacation without fear of rendering the employee non-exempt. Although partial-day deductions have been permitted under federal law for a number of years, California law had been in limbo since a 2002 opinion letter from the Division of Labor Standards Enforcement (DLSE) suggested that such deductions may jeopardize exemptions under the "salary basis" test and expose employers to significant risks of having to pay overtime to exempt workers. Conley v. Pacific Gas & Electric, decided in July 2005, confirms that employers can now make partial-day deductions from vacation or PTO banks and also suggests employers may have more control over when employees can use vacation time than previously thought.

In Conley, a group of exempt PG & E employees filed a class action, disputing PG & E's classification of all exempt PG & E employees. Arguing that PG & E's express and documented policy of deducting partial-day absences from the banked vacation of exempt employees rendered them non-exempt as a matter of law, the employees claimed years of unpaid overtime. The trial court disagreed and refused to certify the class. The Court of Appeal affirmed and found for the employer.

Although the Court agreed that a reduction in actual compensation for partial-day absences would defeat exempt classification, they found no such reduction in Conley. The Court of Appeal distinguished the Conley situation in stating that by deducting from banked vacation, the employer was not reducing compensation, only requiring that employees use accrued vacation when they were actually on vacation.

For employers ready to implement policies related to this new ruling, a bit of advice:

(1) The ruling applies only to accrued vacation or PTO; employers still may not deduct from an exempt employee's pay for partial-day absences. If the employee has exhausted his or her accrued vacation leave, the employer may be required to give an exempt employee additional time off for partial-day absences.

(2) The Conley court defined "partial-day" as "four hours or more in a single day." Making deductions in smaller increments have yet to be tested in the courts.

(3) Finally, employers should probably wait until September 2005 to make sure that the Conley decision is not further appealed to the California Supreme Court before finalizing and implementing any new policies related to partial day deductions.

In a recent published decision, the California Labor Commissioner held that payments provided for under Labor Code section 226.7 for missed meal and rest breaks is a penalty and not a wage. This is a favorable ruling for employers in California which settles a long undecided issue over Section 226.7, which provides that employees are entitled to one additional hour of pay at the employee's regular rate of pay for each day the employee does not receive a meal or rest period. By holding that the payment provide for under Section 226.7 is a penalty, the Labor Commissioner shortened the time period for which employees can seek Section 226.7 damages from three years to one year. The Code of Civil Procedure section 338 provides for a three year statute of limitations period for the recovery of wages. However, under the Labor Commissioner's recent holding that Section 226.7 damages are a penalty, employees are limited to a one year statute of limitations period under Code of Civil Procedure section 340. The Labor Commissioner's holding effectively reduces a Plaintiff's damages under Section 226.7 by two-thirds.

The case is Hartwig v. Orchard Commercial, Inc., Case No. 12-569901RB. This case has been made public and is binding on any hearing before a Deputy Labor Commissioner or Hearing Officer. To view the Labor Commisioner's ruling, click here.

Question: I understand that employees can, but are not required to, take rest breaks. How can I keep employees who do not take breaks from later claiming that they were not allowed to take them?

Answer: It is not uncommon for employees who occasionally, or even frequently, fail to take advantage of their optional rest breaks to later sue, claiming that they were not permitted to take those breaks. When this occurs, it can be difficult for an employer to prove that it was the employee's choice not to take the breaks. Employers should consider having employees sign a statement acknowledging their right to take breaks, and instructing the employees what to do if they are not able to take their breaks. Such a statement will make it very difficult for a disgruntled ex-employee to later claim he or she was not permitted to take breaks.

SAMPLE MEMO TO EMPLOYEES REGARDING MEAL/REST BREAKS

All non-exempt employees are required to take an unpaid uninterrupted meal break of at least thirty (30) minutes for every five hours of work. Your regular meal break will be made a part of your schedule by your manager and all non-exempt employees are required to take their meal break as assigned. Failure to take an assigned meal break may be grounds for discipline.

All non-exempt employees are authorized and instructed to take an uninterrupted ten (10) minute rest break if they work more than 3½ hours in a day but less than 6 hours, two 10-minute breaks if they work more than 6 hours but less than 10 hours, and three 10-minute breaks if they work more than 10 hours but less than 14 hours. It is each employee's obligation to determine an appropriate time, as close to the middle of each four hour period of work as possible, to take his or her break(s). Failure to take rest breaks may be grounds for discipline. If you have any questions about scheduling your rest break(s) you should contact one of your managers.

Managers have been instructed to make sure that all non-exempt employees are being allowed to schedule and take their meal and rest breaks. If your manager is not permitting you to take your meal or rest breaks or you have any questions regarding your meal or rest breaks that you do not believe are being adequately responded to by your managers, you should contact _______________ immediately.

Answer: No. Neither California nor Federal law require an employer to pay severance to an employee upon termination of employment. This is true regardless of the reason for the termination. Nonetheless, some employers choose to pay severance under some circumstances, or have a handbook or other policy that promises severance. If such a practice or policy creates a contractual obligation to provide severance, then the employer will have to do so.

Question: When might it make sense to pay severance?

Answer: If an employer provides an employee anything more than is legally required (generally just the final paycheck and any accrued vacation), the employer should consider requiring the employee to sign a release in exchange. If the employee does not sign a written release, the severance or other benefit given by the employer becomes a mere gift. The employee may take that gift and still sue the employer later for wrongful discharge, discrimination, etc.

Even when the employee is given severance or another benefit, a release will not be appropriate in every case. For example, the use of releases may be counterproductive where the discharge is for misconduct. Such conduct should not be rewarded, and doing so may send the wrong message to remaining employees. However, when faced with such issues as reductions in force or awkward terminations where the situation may not have been handled as well as it might have been, it may be wise to seek a release.

Question: What is a release?

Answer: A release is a document, signed by an employee, in which the employee releases all claims against the employer and promises not to sue the employer. In order for a release to be valid, there must be "consideration." This means that the release is valid only if the employee receives something more than that to which he or she is already entitled, such as an extra week's pay.

Releases are not standard form documents. A release must be carefully tailored to the particular employee and the individual circumstances in which it will be used. For example, if the worker is 40 years old or older, the release will have to comply with the Older Workers Benefit Protection Act (OWBPA), which provides that an employee may not waive any right or claim under the Age Discrimination and Employment Act of 1967 (ADEA) unless the waiver is "knowing and voluntary," and the employee is provided certain specific periods of time to think about the release before signing it, and even to revoke it after signing it.

For these releases, employment law counsel should be consulted to assist in the preparation of any release.

The Uniformed Services Employment and Re-employment Rights Act of 1994 (USERRA) protects permanent employees (temporary employees are not covered) who serve in the Uniformed Services. USERRA requires employers to allow five cumulative years of military duty. All employers, regardless of size, are required to adhere to the requirements of USERRA.

While an employer does not have to pay an employee for the time spent on military leave, at an employee's request an employer must allow the employee to use any accrued paid vacation time or similar paid time off towards military service. However, the employer may not require an employee use paid leave time.

An employee on military leave must be treated the same an employee on non-military leave. Therefore, the employee may be required to pay the normal employee contribution for benefits if employees on non-military leaves are also required to do so. The employer is relieved of this duty if the employee provides written notice of his or her intent not to return after military service. Employees who are covered by the employer's group health plan may chose to continue coverage for up to 18 months during military leave, similar to COBRA coverage. These employees may not be charged more than 102 percent of the full premium. However, employees on leave for less than 31 days may not be required to pay more than the normal employee share, if any.

Employees must notify their employer of their intent to return to work after completing military service. If an employee fails to properly report or apply for re-employment, he or she does not automatically forfeit his or her entitlement to the rights and benefits protected by USERRA. Rather, that employee is subject to the rules, policies, and practices of the employer with regard to discipline for absence from work. The employer may also require documentation from the employee upon return to establish that the employee is within the five-year cumulative period, that the employee has followed the requirements for returning, and that the employee was not dishonorably discharged.

If the employee has been absent on military service for 90 days or less, he or she is entitled to be re-employed in the position that he or she would have held in the absence of military service. The employer is required to make reasonable efforts at training the employee if he or she is lacking a qualification for this position. If this fails, the employee is entitled to the position that he or she held when military leave began. The employee is entitled to promotions he or she would have received the military leave had never occurred.

If the employee was on military leave for more than 90 days, the employee is entitled to the position he or she would have held if there had been no interruption due to military service, or a position of similar seniority, status, and pay. If the employee is not qualified to hold that position, the employer must reasonably attempt to train him or her. If the employer is unable to qualify the employee, the employee is entitled to the same position the employee held before military leave began or a position of similar seniority, status, and pay.

Employers are required to make reasonable accommodations to return a person, disabled because of military service, to the position that he or she would have held had he or she not had military leave. If this is impossible, even with a reasonable accommodation, the employer must place the employee is a position with equivalent seniority, status, and pay, for which the employee is qualified or could become qualified after reasonable efforts by the employer. Should both of these be impossible, the employee is entitled to a position of lesser status and pay, but with equal seniority.

Additionally, employers may not fire an employee who has returned from military leave for one year if the employee served for more than 180 days, or for 180 days if the employee served for 30-180 days, unless the employer has good cause.

An employer is not required to re-employ an employee if re-employment is unreasonable or impossible because the employer's circumstances have changed. Additionally, an employer is not required to re-employ employees who have been absent for more than five cumulative years for military service. Finally, an employer is not required to re-employ an employee if doing so would place an undue hardship on the employer. The employer has the burden in establishing each of these defenses.

The military leave laws can be tricky to implement. If you have any questions concerning military leave, it would be best to consult legal counsel.

As long as you are given reasonable advance notice, employees are entitled to take time off to serve as a juror or as a witness if subpoenaed to appear at trial. You may not discriminate or otherwise punish an employee for taking time off to serve as a juror or a witness.

Question: Am I required to pay an employee who misses work because of jury duty?

Answer: Unless a union agreement or contract provides otherwise, you are not required to pay non-exempt employees for time not worked due to jury service. However, due to the prohibition against discrimination against employees who are subpoenaed or called for jury service, employers should have a jury duty policy that is consistent with other policies for taking time off due to non-personal, non-voluntary reasons. In the case of an exempt employee, the employer must continue to pay the full weekly salary unless the jury service prevents the exempt employee from performing any work for a full week.

Many employers voluntarily pay full or half wages for a specified period of time, such as a maximum of two weeks, to employees who are selected to sit on a jury. They may view it as a civic duty, or an effort to raise the quality of juries by expanding the pool of people who are able to serve. As with all policies, whether you choose to provide paid or unpaid leave, it is important to have a clear policy that is uniformly enforced.

Wrong. Simply paying employees a salary does not make them exempt from overtime obligations. The wage orders issued by the California Department of Industrial Relations provide for limited exemptions from some or all of the state's wage and hour obligations (e.g., overtime, minimum wage, record-keeping, uniform and equipment, cash shortage and breakage, meal-period, and rest period requirements of the wage orders) for "white collar" employees and for employees in particular industries and occupations.

The most common exemptions are those for "white collar" employees (i.e., executive, administrative, and professional employees) and outside salespersons. The wage orders themselves do not define what is meant by "executive," "administrative," and "professional" employees. Rather, they provide a test under which an employee will only be considered exempt under the "executive" or "administrative" categories if he or she is engaged in work (a) that is primarily intellectual, managerial, or creative (i.e., more than 50% of employee's time is devoted to such work); (b) that requires exercise of discretion and independent judgment; and (c) for which the monthly remuneration is not less than twice the minimum wage for one month of full time work. The professional exemption applies only to certain enumerated professions such as doctors, lawyers, engineers, and teachers.

In addition to meeting these requirements for the exemption test, an employee must be "primarily engaged" in exempt work. California generally determines whether an employee is "primarily engaged in" exempt work strictly as whether the employee spends more than one-half of his or her time doing such work. As a result, both the exempt quality of each task which an employee performs and the quantity of time which is spent in such tasks must be carefully appraised in determining if an individual is an exempt "white collar" employee.

Furthermore, the California Division of Labor Standards Enforcement ("DLSE") has taken the position that an employee performing exempt and non-exempt duties simultaneously will be deemed to be performing solely non-exempt duties. For example, if the manager of a small restaurant is supervising employees (an exempt duty) while he or she clears a table (a non-exempt duty), the time will be considered non-exempt for purposes of determining whether the manager is "primarily engaged" in exempt work. Whether the DLSE's position will be upheld by California courts has yet to be seen.

This is a complicated area and employers are counseled to seek advice from their employment counsel regarding application to their specific businesses. Copies of the Wage Orders and other useful information can be found on the Department of Industrial Relations website at www.dir.ca.gov.

Question: Do I need to give my employees time off to vote in the upcoming election, or can I tell them to vote on their own time?

Answer: As election days approach, employees must be informed that they may be able to take time off to vote. State law requires that all employers post a notice to employees of these provisions of the California Elections Code:

"If a voter does not have sufficient time outside of working hours to vote at a statewide election, the voter may, without loss of pay, take off enough working time that, when added to the voting time available outside of working hours, will enable the voter to vote.

No more than two hours of the time taken off for voting shall be without loss of pay. The time off for voting shall be only at the beginning or end of the regular working shift, whichever allows the most free time for voting and the least time off from the regular working shift, unless otherwise mutually agreed.

If the employee on the third working day prior to the day of election, knows or has reason to believe that time off will be necessary to be able to vote on election day, the employee shall give the employer at least two working days' notice that time off for voting is desired, in accordance with this section."

The notice must be posted conspicuously where employees work, or where it can be seen as employees come or go to the place of work.

The notice must be posted at least ten days before every statewide election.

The polls in California are open from 7:00 a.m. to 8:00 p.m. Accordingly, the vast majority of employees should not require time off to vote. Employers should, however, post the required notice and assess requests for time off, and grant them when justified.

Question: May I deduct from an employee's final wages if he or she fails to return a uniform or equipment?

Answer: For many employers with relatively high turnover, the cost of providing new employees with uniforms or other equipment can be substantial. There are two primary means an employer may use to recoup the costs of such items. First, the employer may require a deposit when an employee is hired. When the employee leaves employment, the deposit need only be returned if the items are returned in good condition. Note, however, that the deposit should not be retained if the items merely show normal wear and tear. The major drawback to requiring deposits is that employers must maintain the deposits in a separate account, and must pay interest on the amount.

The second means for recouping the cost of uniforms or equipment is to deduct the cost from the employee's final paycheck. To use this method, the employee must give written consent to the deduction. This can be obtained at the time the uniform or equipment is issued. Note that the final paycheck cannot be reduced below the minimum wage for the number of hours worked by the employee in that pay period. Therefore, for an employee earning minimum wage, this option will not be available.

Question: In the case of a national emergency, such as a terrorist attack that forces me to close down my restaurant, how do I handle paying my employees?

Answer: The general rule is that hourly (non-exempt) employees must be paid for half of their usual or scheduled day's work, but not less than 2 hours and not more than 4 hours. Thus, if an hourly employee shows up to work his or her scheduled shift of 3 hours but is sent home after only one, you must pay the minimum of 2 hours. If the scheduled shift is 6 hours, you must pay for half, or 3 hours. If the scheduled shift is 10 hours, you must pay the maximum of 4 hours. (However, if an employee is only scheduled to work one hour and is sent home after that one hour, he or she need only be paid for the one hour.)

An exception exists for certain events outside the employer's control, such as a closure resulting from threats to employees or property or a recommendation of civil authorities; a failure of the sewer system or of public utilities to supply electricity, water, or gas; an interruption of work caused by "an act of God"; a request by the employee to leave early for personal reasons; or where an employee reports to work unfit.

Closures due to terrorist attacks will very likely be considered as "resulting from threats to employees or property or a recommendation of civil authorities." This exception permits you to send home hourly employees and pay them only for work actually performed, without regard for the 2 hour minimum or payment for half of the hours worked.

If you have salaried (exempt) employees who are paid a monthly or annual salary, this analysis does not apply. Salaried employees are paid for the general value of their services rather than the precise amount of time spent on the job. Accordingly, exempt employees must be paid their full salaries for any week in which they perform any work (except for the weeks in which they begin and end their employment). Deducting for days not worked may jeopardize the employees' exempt status, and risk transforming them into hourly employees who must be compensated for any overtime hours worked. Therefore, for temporary shutdowns, regardless of the reasons, the employer should not deduct from exempt employees' salaries, unless the shutdown lasts for a fully workweek and the exempt employee performs no work at all during the workweek. In that case, the employer can refrain from paying the exempt employee for the entire workweek.

Telecommuting: A Growing Phenomenon
While most employees travel to their employer's facilities to work, evolving information technologies are enabling more and more people to work effectively from home. With proper equipment, many functions associated with sales and service positions can be accomplished without the necessity of traveling to the central office. The vast number of employers who have benefited from implementing a telecommuting program has created a ripple effect. Each year more and more companies are either implementing a program or expanding an existing one. In fact, AT&T, one of the first major American companies to formally promote telecommuting, now has over half of its U.S.-based managers working out of their homes. Moreover, a study of Fortune 1,000 companies reveals that twenty-five percent of big businesses employ workers who regularly telecommute.

Ten years ago the number of nationwide telecommuters was less than 5 million. Now that figure approximates 15 million and is expected to double in the next ten years. Technology and increasing support by companies are the two major reasons for the steady increase in telecommuters. With a booming job market and high employee turnover becoming commonplace, employers are taking seriously concepts such as telecommuting.

Although telecommuting has a number of important benefits to employers, employees, and society in general, there are pitfalls and traps as well. Employers should carefully consider the advantages, disadvantages and risks before implementing a telecommuting policy or program. This section outlines some of the more important items of consideration.

Reaping The Benefits

The advantages that telecommuting offers has caused it to become increasingly prevalent in the American workplace. Specifically, employers have found that telecommuting:

Increases Productivity: Many companies report productivity increases with telecommuting, reasoning that work schedules can be arranged to take advantage of the employee's most productive work periods.

Reduces Overhead: By requiring sales and service personnel to telecommute, organizations have actually reduced their office space requirements, and, consequently, their rents.

Improves Recruitment and Retention: The labor market today is tighter than ever, particularly in the technology industry. The expense of recruiting a new employee, including direct recruiting costs, personnel administration and payroll costs can be very high. Employees benefit from the flexibility that telecommuting provides. In fact, it creates incentives for employees to remain with the company, thereby increasing the retention rate and decreasing recruiting costs. Moreover, telecommuting allows the company to increase its base of potential employees, since the geographic location of available candidates greatly expands. Finally, telecommuting is also a mechanism for recruiting persons with disabilities. Many individuals who are excluded from the work force solely on the basis of their inability to commute to and from an office, can work very effectively under a telecommuting arrangement.

Decreases Absenteeism: Many absences occur due to an employee not being able to come to work for reasons including illness, pregnancy or emergency. A Wall Street Journal article estimated "that a day's absence of a clerical worker costs, in addition to wages, "up to 100 dollars in reduced efficiency and increased supervisory workload." Considering the number of absences that occur in the workplace over the course of a year, these costs are far from trivial. Telecommuters are less likely to use sick days for their own minor illnesses. Rather than take sick time and be unproductive for the entire day, telecommuters often find that the opportunity to work at home allows projects to proceed (without risking the health of their office mates).

Telecommuting is also useful in minimizing the impacts of other uncontrollable events such as extremely inclement weather, highway construction, or special events (e.g., Operation Telecommute '96 was developed to provide relief to downtown Atlanta's workforce which faced enormous traffic congestion during the Olympic games, and after some of California's major earthquakes many companies established telecommuting arrangements for employees because conditions physically prevented or hindered travel to the corporate center).

Decreases Payroll Costs: There are a number of obvious savings a teleworker has most directly the cost savings from not having to travel to and from the workplace. Savings are also realized by the avoidance of the expense of midday meals at work and having to buy expensive clothing, such as business suits.

Benefits Society: Telecommuting can be an important means to reduce air pollution and traffic congestion and to reduce the high costs of highway commuting. In addition, relocating work into the home means that many families who now see each other only a limited number of hours each day could benefit from the arrangement.

Murphy's Law: If There Can Be A Disadvantage There Will Be

Despite the many advantages of telecommuting, some disadvantages also exist. In making a management decision about whether or not to implement a program, consideration should be made to the disadvantages which could arise:

Monitoring Problems: The most common concern expressed by managers is that if they can't see their employees, they have no way of knowing if they are actually working. One response to that is—even when an employee can be seen, a supervisor can't be certain that the employee is working. To effectively manage a telecommuting employee, the supervisor must manage what the telecommuter produces. When managers focus on results instead of attendance, telecommuting can thrive.

Safety Concerns/Liability Issues: What if a child trips over the computer cord and gets hurt? What if the worker spills coffee in his/her lap? These questions are not easily answered. Usually, the employee remains liable for injuries to third parties on the employee's premises. Otherwise, Workers' Compensation generally covers job related accidents occurring when the employee is working at home.

Inability to Fully Complete Tasks: The employee may have difficulty completing work assignments because he/she does not have access to the necessary equipment (i.e. photocopier or fax machine).

Feelings of Isolation: Although the employee has chosen to work at home, feelings of desolation may occur since the employee no longer has daily contact with co-workers. According to some adversaries, telecommuters face a difficult challenge of separating their work from their personal lives. In conventional working life, commuting can be an advantage, providing a barrier between work and home and offering the opportunity to adjust mentally at the beginning and ending of each working day. Telecommuters do not have this facility—though there was a tale of a male home-based telecommuter who left the front door of his house every morning dressed in a work suit, walked around the side of the building and reentered the house by a side door!

Societal Harm: It can be argued that telecommuting causes a loss of jobs and revenue. For instance, the demand for bus drivers and toll collectors may decrease as fewer employees travel to work. However, while some jobs may be lost as a result of telecommuting, its increasing use along with developing technology are certain to create new jobs opportunities to replace those lost.

Implementing A Program

From an organizational standpoint, telecommuting should be justified if the costs are balanced by the benefits. If, as is most often the case, the benefits exceed the costs, telecommuting should be actively promoted.

The prospects for telecommuting depend on the setting in which it is applied. Important considerations include the type of employer, work force, and characteristics of the industry. Information industries such as accounting, data processing, and programming are more amenable to telecommuting than production lines or construction. A telecommuting job should consist of activities that can be 1) measured; 2) completed independently; 3) are portable to a non-office environment; and 4) do not need special equipment that is only at the work site.

Telecommuting is not appropriate for every worker. Since work produced, not hours worked, is the standard by which telecommuters are judged, a potential candidate must have a proven track record that shows initiative and an ability to work without supervision. He/She must be a trustworthy employee, whose work is more independent than others.

Thus, it is essential to address the following issues before implementing a telecommuting program:

Who can telecommute? Consider employees who hold positions with functions/tasks which can be performed away from the central work location and who have demonstrated satisfactory work performance.

Consider position responsibilities: Are there functions/tasks which can be performed at home? Does it involve writing, reading, research, editing, data entry, or word processing? Does the position require use of equipment or services that are only available at the central work location? Does it require use of confidential files that cannot be taken from the central work location?

Frequency: It may be best to begin with a minimum telecommuting assignment for the employee (e.g., one day a week) and then increase program usage when and if it becomes productive to do so.

Measuring performance: To effectively manage a telecommuting employee, the employer must manage the work produced. The employer must decide what tasks the employee will be performing, and when each of those tasks should be completed. Goals/timelines should be discussed with the employee.

Telecommuting arrangements should be clearly articulated through a written contract between the employee and the employer, or a written, comprehensive telecommuting policy should be established.