California Labor & Employment Law Blog

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  Since that time, SB 1539 has been withdrawn from hearing before the Senate Appropriations Committee and re-referred to the Rules Committee.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.

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. 

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. 

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. 

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.

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.

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.