California Supreme Court

Seyfarth Synopsis: With apologies to Dr. Seuss, we’ve penned an ode to the judicial chaos of the year just past, highlighted by three California Supreme Court decisions—Alvarado v. Dart Container Corp., Dynamex Operations v. Superior Court, and Troester v. Starbucks Corp.—all of which deviated from federal or common law norms to create more new cal-peculiar law that is friendly to plaintiffs and hostile to California business. Happy New Year!

The California Supremes, as we so often hear it,
rarely leave an employer in holiday spirit.

2018, alas, gave much more of the same,
placing employers behind in the game.

There were many new laws and decisions to weigh,
but here are just three to ruin management’s day:

At the beginning of March, to make business irate,
the Court changed how to figure the regular rate.

Flat-sum bonus calculation? Just tear it to shreds!
California proclaims, “We are not like the feds.”

Instead of dividing the bonus by all hours each week,
Just use the straight time, a division so bleak.

Important for employers seeking lawful abidance
is carefully following our regular-rate guidance.

The California Supremes continued their way,
wreaking more havoc just before May:

On April 30, Two Thousand Eighteen,
they continued their pro-plaintiff’s lawyer routine.

The Court issued a much anticipated decision,
inventing new law to some widespread derision.

Is one independent, or instead employee?
The Court says it’s simple as A, B, and C.

To be independent under wage order sections,
the worker must be free from control and directions.

Also a hirer must always enforce
that the work be beyond business’s usual course.

And also the work must be usually made
in some independent business or trade.

The decision is one we’re happy to share;
it should be considered with the utmost care.

Then in mid-summer, near end of July,
the California Supremes made still more of us cry.

In dissing a doctrine—de minimis time—
the Court found the federal law out of line:

Leeway for small stray time cannot be afforded
where high-tech can see that all time is recorded.

Advice that to us now seems rather quite sage
is to make sure all the work time is paid as a wage.

You have our best wishes this holiday season;
call us for advice for some employment-law reason.

For all who agree California law’s strange,
we will help in adopting all needed change.

Seyfarth Synopsis: AB 1654 provides a PAGA exemption for certain employees covered by a collective bargaining agreement. While AB 1654 is limited to the construction industry, its underlying rationale applies much more broadly, and may augur further thoughtful restrictions on PAGA’s broad scope.

California’s Private Attorneys General Act, imposing draconian penalties for even relatively trivial Labor Code violations, remains the bane of California employers. Efforts to restrict PAGA’s scope thus arise from time to time in the California Legislature, which occasionally enacts some reform. Lost in the attention received by recent high-profile employment legislation was a bill of enormous import for the construction industry specifically but also (potentially) for the future of PAGA enforcement more broadly.

AB 1654, effective on January 1, 2019, exempts “employees in the construction industry” from PAGA if employees’ collective bargaining agreements meet certain requirements. To qualify for a PAGA exemption, a CBA must

  • apply to working conditions, wages, and hours of work of employees in the construction industry,
  • ensure employees receive a regular hourly wage not less than 30% more than the minimum wage,
  • prohibit Labor Code violations redressable by PAGA,
  • contain a grievance and binding arbitration procedure to redress Labor Code violations remedied by PAGA,
  • expressly waive the requirements of PAGA in clear and unambiguous terms, and
  • authorize an arbitrator to award all remedies available under PAGA, except for penalties payable to the LWDA.

While limited to the construction industry, AB 1654 suggests the question: why are not all industries afforded this exemption option? This thought was not lost on AB 1654’s opponents, who wondered if the bill was a “camel’s nose under the PAGA tent”:

The immediate impact of this bill is limited to the construction industry. Its longer term policy implications may not be. The justification provided for the PAGA exemption proposed by this bill is that some construction industry employers have been recently targeted by frivolous PAGA lawsuits. It is not hard to imagine employers in many other sectors making the same argument.

. . .

With that in mind, a key policy question presented by this bill is whether there is sound basis for distinguishing the construction industry from other sectors of the economy in relation to the application of PAGA. If not, it may be difficult, from a policy point of view, to rationalize denying future requests for PAGA exemptions under similar circumstances.

This is indeed the key policy question, and to which there is an easy answer: there is no sound basis to single out the construction industry for special protection from PAGA lawsuits. AB 1654 undermines the PAGA defenders’ argument, adopted by the California Supreme Court in Iskanian, that a PAGA plaintiff stands in for the state and cannot waive the state’s power by private arbitration agreement. In the bill, the Legislature says otherwise. PAGA claims can be waived—in this case through a valid CBA—provided employees have redress for Labor Code violations through a grievance and arbitration procedure in the CBA. While AB 1654 applies only to the construction industry, its reasoning supports an argument employers should use to argue against the logic of Iskanian in other contexts.

Non-California employers with non-exempt workers who work in California will be interested in the following piece, originally posted on Seyfarth’s Wage Hour Litigation Blog.

Seyfarth Summary: On July 12, 2018, the California Supreme Court agreed to address questions posed by the Ninth Circuit about whether California Labor Code provisions apply to an out-of-state employer whose employees work part of their time in California. Nationwide employers with employees jetting in to work temporarily in California need to return their seats to an upright position and follow this developing story.

Is your business flying high in the current economy? Profits reaching new altitudes? Maybe you have employees residing in one state while working in another. If some work occasionally in California, prepare to fasten your seatbelts for a potentially rough landing. Even if your employees work in California only intermittently (think partial days), and even if your company is not headquartered in the Golden State, the California Supreme Court may soon bring you down to earth.

Background

Traditionally, employers in paying their employees have applied the wage and hour law of the state where the employee sides or most often works, even if the employee occasionally works in another state. In California, however, the rules are peculiar.

In a 2011 decision, Sullivan v. Oracle, the California Supreme Court held that non-California residents working in California for a California-based employer were subject to California daily overtime laws if they performed their in-state work for whole days. Oracle left employers up in the air as to whether California law would apply in other contexts, such as (a) when non-California residents work partial days of work in California, (b) when the employees worked for non-California based employers, or (c) when the wage and hour provisions at issue were something other than the cal-peculiar rules on daily overtime.

The Certified Questions

Which brings us to the current Ninth Circuit cases. Specifically, in three airline cases raising California issues in federal court (two cases against United Airlines, one against Delta), the Ninth Circuit requested the California Supreme Court to address five questions, paraphrased below:

(1) Does the federal Railway Labor Act exemption found in Wage Order 9 bar a wage-statement claim (Labor Code § 226) by an employee who is covered by a collective bargaining agreement?

(2) Does Section 226 apply to wage statements that an out-of-state employer provides to an employee who resides in California, who receives pay in California, and who pays California income tax on her wages, but who does not work principally in California?

(3) Does Section 226 and Labor Code § 204 (governing timely wage payments to current employees) apply to payments that an out-of-state employer makes to an employee who, in the relevant period, works in California only episodically and for less than a day at a time?

(4) Does California minimum wage law apply to out-of-state employers for the California work that their employees perform in California only episodically and for less than a day at a time?

(5) Does California’s peculiar rule preventing pay-averaging for employees paid by commission or piece rate apply to a pay formula that generally awards credit for all hours on duty, but that does not always award pay credit for all hours on duty?

In the underlying lawsuits, United pilots and Delta flight attendants claim that the airlines violated California Labor Code provisions on wage statements, minimum wage, and the timing and completeness of wage payments. United (based in Chicago) and Delta (based in Atlanta) both won at the district court level, successfully arguing that de minimis work within California does not trigger California law, especially when (i) the employers are not based in California, (ii) the employees work only limited amounts of time in the state, and (iii) the employees mostly work in federal air space and in multiple jurisdictions during a single pay period or even a single day.

Why Does This Matter to Employers Based Outside California?

The guidance that the California Supreme Court will issue may ensnare non-California employers in a complex web of Labor Code laws for employees who work in California only sporadically, or who merely stop in California on their way to other work locations. It remains to be seen whether the Supreme Court will stretch to apply California’s peculiar rules on wage statements, daily overtime, and minimum wage to such transitory California work. Or whether California rules on meal and rest beaks, or paid sick time, might also be implicated.

Based on recent emanations from our high court, we would not be surprised to see another extension of California’s employee-protective laws. Any such extension would be highly problematic in light of California’s robust civil and statutory penalties for Labor Code violations. The state’s Private Attorneys General Act authorizes penalty lawsuits brought on a representative basis on behalf of all “aggrieved employees or former employees.” While we do not predict that California will attempt to regulate employment of individuals who merely fly through California airspace, all employers with employees having feet on the ground in California need to sit up, return their tray tables to their original position, and be alert to these pending decisions.

Workplace Solution: The California Supreme Court’s opinion regarding the certified questions will not come down for many months. In the meanwhile, sit back, enjoy the flight, and watch this space for further developments. Feel free to contact your favorite Seyfarth attorney if you would like to discuss.

On April 30, 2018, the California Supreme Court issued a long-awaited opinion in which it considered which test should be used to decide whether a worker asserting claims under a California Wage Order is an employee or an independent contractor.  The following Seyfarth One Minute Memo summarizes the case and what it means for employers.

Seyfarth Synopsis: The California Supreme Court, in Dynamex Operations v. Superior Court, held that “engage, suffer or permit to work” determines employee status for Wage Order claims, requiring a defendant disputing employee status to prove (A) the worker is free from control and direction of the hirer in connection with performing the work, both under contract and in fact; (B) the worker performs work outside the usual course of the hiring entity’s business; and (C) the worker customarily engages in an independently established trade, occupation, or business of the same nature as the work performed for the hirer.

The Trial Court Decision

Delivery drivers Charles Lee and Pedro Chevez sued Dynamex Operations West for unlawfully classifying them and 1,800 other drivers as independent contractors. To argue that they were really employees, they cited California’s Industrial Welfare Commission Wage Order No. 9. Their motion for class certification argued that, under Martinez v. Combs (2010), they were employees in that Dynamex knew that they provided services and had negotiated their rates. The trial court certified a class. Dynamex petitioned the Court of Appeal for a writ of mandate.

To view the full alert, please click on the link below:

http://www.seyfarth.com/publications/OMM050118-LE

Seyfarth Synopsis: The California Supreme Court heard oral arguments yesterday morning in Dynamex Operations v. Superior Court, a case addressing the legal standard for determining whether a worker should be classified as an independent contractor or an employee. We expect the Supreme Court’s opinion will be significant for any entity using independent contractors in California.

The Story Thus Far

As outlined in a previous blog article, the decision in Dynamex Operations v. Superior Court will be extremely important for all companies that use independent contractors, especially those in the emerging “gig economy.” Misclassifying workers can have painful consequences, involving not only liability for unpaid wages and employee benefits but also statutory penalties for each violation considered “willful.”

The Issue

In agreeing to review the case, the California Supreme Court defined the issue on appeal as to whether, in a misclassification case, a class may be certified based on the expansive definition of employee as outlined in the Wage Order language construed in Martinez v. Combs (2010), or on the basis of the common law test for employment set forth in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989). In short, the Supreme Court focused on whether to continue using the Borello test and on what test, if any, to apply instead.

The definition of employment identified in the Wage Orders is broader than the prior common law test. The Wage Orders define “employ” broadly to mean “to engage, suffer or permit to work.” In contrast, Borello focuses instead on a multi-factor balancing test that depends on the unique facts of each situation and that is more likely to recognize the existence of an independent contracting relationship.

Oral Argument

Dynamex Operations Goes First

In its opening argument, Dynamex praised the Borello test as a tried and true California rule and warned against the danger that uncertainty in the classification of workers would pose to California’s booming “gig economy.” Dynamex raised concerns with any judicial adjustment to the definition of employment that would usurp the legislature role.

Justice Kruger, however, wondered whether judicial adoption of a bright-line rule would not be more instructive for employers, and suggested, as a possibility, adopting the ABC test followed in such jurisdictions as New Jersey and Massachusetts. The ABC test says that three conditions must all concur for a worker to be an independent contractor: (1) freedom from actual control over the work, (2) work beyond the usual course of business and off company premises, and (3) engaging in an independent trade. Unless A, B, and C all concur, then the worker is an employee.

Chief Justice Cantil-Sakauye raised an additional response to Dyanamex’s plea to leave this issue to the Legislature: if the ABC test is a stricter version of the Borello test, then why should the Supreme Court be precluded from adopting a new version of the test to ensure clarity in enforcement when, after all, it was the Supreme Court that had adopted the Borello test in the first place? Finally, Justice Kruger and Dynamex had a robust discussion about adopting a modified rule, where the ABC test would govern for some Labor Code provisions, but a different test may apply to others. Dynamex opined that this result would be confusing for employers and might result in individuals being employees for some purposes but independent contractors for others.

Aggrieved Independent Contractors Respond

In their responsive argument, the workers portrayed what they saw as the sorry plight of California independent contractors. The workers called independent contracts the new “serf-class”: people who work hard while receiving none of the Labor Code’s basic employee benefits. They argued that the Supreme Court should adopt a new, broader definition of employee to protect workers from harm. The workers seemed open to several outcomes, including (a) a broader definition for some Labor Code provisions, (b) the definition outlined in the Wage Orders, or (c) any other new employment test  that the Supreme Court might come to favor.

Justice Liu seemed skeptical about a broader test. He referred to an “Amazon Analogy.” Although most people know Amazon sells goods online, many people also view Amazon Prime (with its delivery services) as within Amazon’s usual course of business. Justice Liu then asked: if the Supreme Court were to adopt a strict interpretation of the ABC test, at what point would Amazon be considered a shipping business, meaning that all drivers who ship Amazon Prime goods would be employees of Amazon under the second ABC prong? This analogy caught the attention of Justices Cuellar and Justice Chin, who both seemed to appreciate how complicated, and blurry, a new test could be.

Dynamex Makes A (Brief) Comeback

In its rebuttal, Dynamex took up Justice Liu’s “Amazon Analogy” to argue why a flexible test is needed to ensure just results. Two Justices followed up. The first was Justice Liu, who asked whether other jurisdictions have applied the ABC prongs strictly. The second was Justice Chin, who closed oral argument with a pointed question that represents the concerns of many observers: which employment test best fits the modern economy? Dynamex responded that the body of developing case law as well as the uniformity of Borello’s application has suited California well and that it provides all of the factors needed to fully determine employment relationships.

Our Crystal Ball

Although one cannot read the minds of seven justices, we sense the Supreme Court will likely reject the call to leave this matter for the Legislature and will lean instead toward a judicially fashioned test that, in the view of most justices, will best fit the needs of the modern economy. The Supreme Court’s decision is expected within the next 90 days.

As always, we will remain vigilant and on the scene. Look for more updates about this case as they come out and in the meantime do not hesitate to reach out to your friendly neighborhood Seyfarth attorney for guidance or with any questions you might have.

Seyfarth Synopsis: While California courts have created annoying doctrines with respect to vacation pay, it remains the case that vacation pay is a matter of contract and that employers can avoid many problems with careful drafting of the vacation plan.

As we anticipate Labor Day weekend, note this mid-summer treat from the California Court of Appeal: its decision in Minnick v. Automotive Creations that when an employer’s vacation policy explicitly provides that employees don’t earn vacation until after their first year of employment, the policy is interpreted just like it was written, so that an employee who separated during his first year is not owed any vacation pay upon termination.

Is this holding really new? No and yes. Not new, of course, is the rule that California employers, absent a contract, need not provide any paid vacation at all. But employers that do provide paid vacation must comply with their policies and honor the principle, established by the California Supreme Court’s 1982 opinion in Suastez v. Plastic Dress-Up Co., that vacation pay, once “vested,” cannot be forfeited and must be paid (to the extent unused) when employment terminates (Lab. Code §227.3).

Also not new is the point that an employer may, by policy, impose a waiting period at the beginning of employment before vacation benefits begin to accrue. This kind of provision has been honored by the DLSE and by courts, so long as the employer implements the period consistently; that is, employers that want to avoid the accrual of paid vacation from the start of employment cannot then award vacation pay retroactively upon completion of some period of employment, but rather must provide that vacation pay does not begin to accrue at all until the waiting period is over.

What is new, and welcome, about Minnick is its definitive statement that employer policies can define how and when vacation has been “earned,” and can provide for advances of vacation pay not yet earned. For context, we harken back to Suastez, which interpreted Labor Code section 227.3 to mean that vacation pay is vested as it is “earned,” and that vested vacation pay cannot be forfeited. The vacation policy in Suastez simply provided: “One week—First Year; Two weeks—Second Year; Three weeks—Fifth Year.” The Supreme Court interpreted this language to mean that vacation pay started to accrue on day one, and was earned on a daily basis as the employee worked. Therefore, the employer violated the law when it failed to pay a pro rata share of the vacation pay earned during the year before the employee terminated, even though he had not completed the full year.

The spectre of Suastez haunts California employers when structuring vacation programs, as they strive to (a) avoid the negative of incurring potential liabilities to short-timers (in the form of accrued but unused vacation benefits) while (b) achieving the positive of offering paid vacation as soon as possible. The Court of Appeal provided additional guidance on this dilemma in its 2009 decision in Owen v. Macy’s, which recognized that an employer can lawfully fix the date on which vacation pay begins to accrue; in Owen, the employer imposed a waiting period of six months before vacation pay began to accrue. And, of course, it is common to have 90-day waiting periods for vacation accrual.

No case prior to Minnick had validated a one-year waiting period before accruals begin. Minnick notes that Suastez does not require vesting of vacation pay on day one of employment, and reasons that Suastez does not prohibit an employer from imposing a waiting period (of apparently any length):

[A]n employer may lawfully decide it will not provide paid vacation. By logical extension, an employer can properly decide it will provide paid vacation after a specified waiting period. This is similar to an employer’s authority to limit the amount of vacation pay that may be earned. If employers can lawfully restrict accrual at the back end [a la the often utilized “accrual cap” concept], it follows that employers can lawfully impose a waiting period at the front end.

Meanwhile, employers can address the desire to provide paid vacations as soon as possible by advancing unearned vacation pay (as the employer did in Minnick). (Whether unearned vacation pay could ever be recovered upon termination of employment is an issue that Minnick does not address).

The Minnick decision will be welcome news to employers who wish to impose a longer waiting period before vacation accruals start. And much of we’ve said about vacation applies equally to “paid time off” programs as well. A couple of caveats, though:

  • Drafting clear limitations on vacation accruals is crucial.
  • As to plans that use PTO to satisfy obligations to provide mandatory paid sick time under California (or local municipal) law, note that most paid sick time laws provide for accruals to begin upon employment, so imposing a waiting time for that benefit would get you in trouble.

For more information on this or any other pressing employment Cal-peculiarity, please reach out to your favorite Seyfarth attorney.

Seyfarth Synopsis: Back from Spring Break, and Back to Work: Our List of L&E Bills to Watch in the remainder of the 2017-2018 California Legislative Session.

New LegislationCalifornia Legislators were, as always, very busy in the first few months of the 2017-18 Legislative Session, introducing well over 2000 bills by the February 17th bill introduction deadline. But, in comparison to prior years, the calendar has been surprisingly light for heavy-hitter labor and employment bills. The Legislature returned to work on April 17, after its spring break, and continued to push bills out of the house of origin in advance of the June 2nd deadline.

Here’s what we’re watching:

Opportunity to Work Act. Modeled after the City of San Jose’s November 2016 voter-approved Opportunity to Work Ordinance (effective April 1, 2017), AB 5 would require employers with 10 or more employees in California to offer additional hours of work to existing nonexempt employees in California before the employer may hire additional employees or temporary employees. The employer would not have to offer the hours to existing employees if those hours would result in the payment of overtime compensation to those employees. The bill would require employers to retain documents, including work schedules of all employees and documentation of offering additional hours to existing employees, prior to hiring new employees or subcontractors. The bill would also require employers to post a notice to be created by the Division of Labor Standards Enforcement (DLSE) outlining employee rights under this (proposed) new law. This Act would create a new Labor Code section, and provide for enforcement by the DLSE on its own accord or via complaint by an employee, or via employee private right of action. The Act would allow for an express CBA carve-out. The bill is scheduled for its initial hearing in the Assembly Committee on Labor and Employment on April 19. Stay tuned for an update on this bill following the hearing.

Rest Breaks. AB 817 would carve out an exception to Labor Code section 226.7’s off-duty “rest period” requirement for employers providing emergency medical services to the public. The bill would authorize those EMS employers to require employees to monitor and respond to calls for emergency response purposes during rest or recovery periods without penalty, as long as the rest break is rescheduled. The bill expressly states that it is declaratory of existing law. Likely in response to the California Supreme Court’s December 22, 2016 ruling in Augustus v. ABM Security Services, Inc. (holding that no true rest break was permitted when security guards were required to carry radios or pagers and respond to calls during rest breaks), this bill is one to watch.

Retail employees: Holiday Overtime. AB 1173 would establish an overtime exemption for “a holiday season employee-selected flexible work schedule,” requested in writing by individual nonexempt retail employees and approved by the employer. The exemption would allow the employee to work up to 10 hours per workday with no overtime pay. Hours worked between 10 and 12 in a workday, or over 40 hours in a workweek would be paid at one and one-half the regular rate of pay. All hours over 12 in a workday and over eight on a fifth, sixth, or seventh day in a workweek would be paid at double time. This bill contains a CBA carve-out, and clearly has many details to still be ironed out, as it contains a blank in the bill text for the definition of “retail industry.”

Pay Equity: salary inquiry ban. Once again, AB 168 seeks to ban employers, including state and local government employers, from asking job applicants about their salary history, as well as compensation and benefit information. The bill would also require that private employers, upon reasonable request, provide the applicant with the position’s pay scale. AB 168 brings back language that was shot down twice—first by Governor Brown in his October 2015 veto of AB 1017, then removed from 2016’s AB 1676 (fair pay legislation) before it received the Governor’s approval in September 2016.

Pay Equity: Gender Pay Gap Transparency Act. Dubbed the “Gender Pay Gap Transparency Act,” by author Assembly Member Gonzalez-Fletcher in her April 4, 2017 Equal Pay Day press release, AB 1209 would “require companies with more than 250 employees to include gender pay data as part of their annual reporting to the Secretary of State.” If passed, AB 1209 would require employers, beginning July 1, 2020, to publish and update yearly the difference between the mean salary and median salary of male exempt employees and female exempt employees broken down by job classification or title and the difference between the mean compensation and median compensation for male board members and female board members. Arguments against this bill will likely mirror those made in response to the EEOC’s revised EEO-1 rule.

Voluntary Veterans’ Preference Employment Policy Act. Dubbed the “Voluntary Veterans’ Preference Employment Policy Act,” AB 353 and AB 1477 would allow private employers to establish a veterans’ preference policy  and uniformly grant a hiring preference to veteran applicants, regardless of when the veteran served. These bills would expand Government code section 12940(a)(4), which currently allows for a veterans’ preference policy for Vietnam-era veterans only. The bill would provide that the granting of a veterans’ preference will not violate any local or state equal employment opportunity law or regulation, including FEHA, as long as the policy is not applied for the purpose of discriminating against an employment applicant on the basis of any protected classification.

Applicants: prior criminal history. The Legislature is joining the flurry of “Ban-the-Box” initiatives throughout California with AB 1008, which would make it unlawful for an employer to: 1) include on any job application questions that seek the disclosure of an applicant’s criminal history; 2) inquire or consider an applicant’s prior convictions before extending a conditional offer; and 3) when conducting a background check, to consider or disclose  various information. The bill would also require employers that intend to deny employment to an applicant because of prior convictions to perform an individualized assessment of whether the applicant’s conviction history has a direct and adverse relationship to the specific job duties, considering the nature and gravity of the offense, the time passed since the completion of the sentence, and the nature of the job. Then, the employer must notify the applicant of the reasons for the decision and provide the applicant 10 days to respond and challenge the accuracy of that information or provide evidence of rehabilitation which it must consider before making a final employment decision, in writing. This bill is substantially similar to the recent Fair Employment and Housing Council regulations, which go into effect in July 2017; and would thus largely codify what will soon be required by regulation.

Health professional interns: minimum wage. Following the recent increases in minimum wage, AB 387 would expand the definition of “employer” to include a person who employs any person engaged in supervised work experience (i.e., clinical hours) to satisfy the requirements for licensure, registration, or certification as an allied health professional. Cal Chamber opposes this bill, as it could cause internships provided for educational credit to be eliminated.

Resident apartment manager wages. AB 543 would authorize, under a voluntary written agreement, an employer that doesn’t charge a resident apartment manager monthly rent, to apply up to one-half of the fair market rental value of the apartment to meet minimum wage obligations to the apartment manager. Existing law allows employers to take a credit against minimum wage for two-thirds of the ordinary rental value, up to $564.81 per month for a single occupant and $835.49 per month for couples.

Credit Card gratuities. AB 1099 would require employers that are lodging establishments, car washes, barber shops and beauty salons, massage parlors, restaurants, and on-demand service providers such as transportation network companies that allow debit or credit card payment for services to also accept a debit or credit card for gratuities or tips. This bill would require the tip payment to be made to the employee by the next regular payday following the date the credit card authorized payment.

Overtime compensation: executive, administrative, or professional employees. AB 1565 would exempt from overtime compensation an executive, administrative, or professional employee, if the employee earns a monthly salary of either $3,956 or no less than twice the state minimum wage for full-time employment, whichever amount is higher.

Labor organizations: compulsory fee payments. AB 1174 would, beginning January 1, 2018, prohibit a person from requiring employees, as a condition of employment, to pay union dues or contribute financially to any charity sponsored by or at the behest of a labor organization.

Employer liability: small business and microbusiness. AB 442 would prohibit Cal OSHA from bringing an enforcement action for any “nonserious violation” against any employers with 100 or fewer employees and an average gross of $10,000,000 or less over the past three years, or microbusinesses  with 25 or fewer employees and an average gross of $2,500,000 or less over the past three years, without first giving the employer written notice of the violation and providing 30 days to cure. AB 442 would authorize Cal OSHA to assess a reasonable fee, up to $50, to cover its costs for enforcement.

Immigration: worksite enforcement actions. AB 450, the “Immigrant Worker Protection Act,” would impose several requirements on public and private employers dealing with federal ICE workplace raids or enforcement actions. Assemblymember Chiu has described the key components as:

  • Requiring employers to ask for a warrant before granting ICE access to a worksite.
  • Preventing employers from releasing employee records without a subpoena.
  • Requiring employers to notify the Labor Commissioner and employee representative of a worksite raid and notifying the Labor Commissioner, employees, and employee representatives of an I-9 audit (i.e., employment eligibility verification).
  • Preventing retaliation by enabling workers crucial to a labor claim investigation to receive certification from the Labor Commissioner that employee complainant or employee witness has submitted a valid complaint for violations of the Code and is cooperating in the investigation and prosecution of the violations.

The bill would authorize the Labor Commissioner to asses penalties of at least $10,000 to $25,000 for each violation against employers for failure to satisfy the bill’s requirements and prohibitions.

FEHA enforcement expansion. SB 491 would expand Government Code section 12993 and allow local jurisdictions, such as cities and counties, to enforce FEHA discrimination regulations. Cal Chamber opposes this bill.

Good faith defense: employment violations. SB 524 would permit an employer to raise an affirmative defense that, at the time of a violation, the employer was acting in good faith when the employer relied upon a valid published DLSE opinion letter or enforcement policy. SB 524 would only apply after January 1, 2018 to DLSE opinion letters or enforcement policies that are still in effect at the time of the violation. Employers would not be able to claim an affirmative defense when a DLSE opinion letter or enforcement policy has been modified, rescinded, or deemed invalid. Cal Chamber supports this bill but hearings for SB 524 have been canceled at the request of the author, Senator Vidak. We’ll keep our eye on this to see if there is any further movement.

Reproductive health. AB 569 would prohibit employers from taking any adverse employment action against an employee based on the employee or employee’s dependent’s reproductive health decisions. The bill would also prohibit employers from requiring employees to sign a waiver or any document denying an employee the right to make his or her own reproductive health care decisions, including the use of a particular drug, device, or medical service (e.g., in vitro fertilization). The bill would require an employer to include in its handbook a notice of the employee rights and remedies under this bill.

New Parent Leave Act. Likely DOA, but resurrected for another go from its 2016 veto, SB 63, the “New Parent Leave Act,” would prohibit employers with at least 20 employees within 75 miles, from refusing to allow an employee to take up to 12 weeks of parental leave to bond with a new child within one year of the child’s birth, adoption, or foster care placement. Like under CFRA, to be eligible, the employee must have more than 12 months and at least 1,250 hours of service with the employer during the previous 12-month period. The bill would require the employer to maintain and pay for the employee’s coverage under a group health plan during this leave. SB 63 would also allow—but not require—an employer to grant simultaneous leave when two employees are entitled to leave for the same birth, adoption, or foster care placement. This bill is almost identical to 2016’s SB 654, which Governor Brown vetoed, and only provided for 6 weeks of leave, rather than the 12 weeks SB 63 would provide. The Governor’s veto message expressed his concerns for impact the leave would have on small business and pointed lawmakers to explore an amendment that would have made mediation an option—which the SB 63 does not have.

PAGA: Three New Valiant Efforts. AB 281 attempts to reform PAGA by: 1)  requiring an actual injury for an aggrieved employee to be awarded civil penalties; 2) excluding health and safety violations from the employer right to cure provisions; and 3) increasing employers’ cure period to 65 calendar days from 33.

AB 1429 would limit the violations an aggrieved employee can bring, require the employee follow specific procedural prerequisites to filing suit, limit civil penalties recoverable to $10,000 per claimant and exclude the recovery of filing fees, and require the superior court to review any penalties sought as part of a settlement agreement.

AB 1430 would require the Labor and Workforce Development Agency (LWDA) to investigate alleged Labor Code violations and issue a citation or determination regarding a reasonable basis for a claim within 120 calendar days; and allow an employee private action only after the LWDA’s reasonable basis notification or the expiration of the 120 day period. Read our further analysis of PAGA proposed amendments here.

Workplace Solutions

We will continue to monitor and report on these potential Peculiarities, as well as any other significant legislative developments over the course of the 2017 Legislative Session. Contact your favorite Seyfarth attorney with any questions.

Edited by Colleen Regan.

Seyfarth Synopsis: 2016 brought a wave of new protections for California employees and scant protection for employers. In this week’s post, we anticipate changes for 2017, in the ever-peculiar world of California employment law.

True to our tradition, we pause at the beginning of the New Year to reflect on last year’s California employment law changes, and consider possible trends. On the good ship Cal-Pecs, our contributors take turns keeping lookout in the crow’s nest. Where, we ask, is the wandering bark of employment law heading in California? What shoals loom ahead?

Despite the sea change that the election of Donald J. Trump represents, including expected changes favoring employers at the federal level, California remains (with apologies to Carey McWilliams) its own “island on the land.” An island of employees who know their rights. While lawmakers in Illinois, New York, New Jersey, and Massachusetts are doing whatever they can to catch up, all three branches of California’s government—legislative, executive, and judicial—continue to tack toward expanding employee rights.

To pick just a few examples: in 2016, California judges, legislators, and municipalities

  • extended the protections of pay equity laws beyond gender, to also prohibit unjustified disparities based on race and ethnicity,
  • shielded applicants from being haunted by juvenile conviction histories,
  • provided that all contracts with California employees will be governed by California law, unless the employee is represented by a lawyer,
  • increased the number of jurisdictions where minimum wage and paid sick time rights exceed state norms,
  • required employers, upon pain of penalty, to schedule work time for certain employees well in advance.

The above developments—which we’ve discussed in more detail here, here, and here—are part of a continuing trend in recent years that emphasizes equal pay, expansion of paid sick and small-necessity leave rights, prevention of ”wage theft,” and increasing work opportunities for historically underprivileged or disenfranchised groups such as immigrants and those with criminal histories.

Against this ever more employee-friendly backdrop, one can only wonder how California will grapple with the challenges of a modern economy, such as job eliminations (caused by more work automation), the increasingly “gig” nature of our state’s economy (resulting in more independent contractors and fewer employees), and the impact of legalization of recreational marijuana (employees can’t be impaired in the workplace, but attempts to limit non-work time use could implicate employee privacy, among other things). One particularly bold effort came in 2016: proposed bill AB 1727 would have given independent contractors the right to organize and negotiate with work providers through “group activities” such as withholding work, boycotting, or critiquing labor practices. That effort died in the Assembly Judiciary Committee. But hear this fearless prediction: we will hear of this again. And we can expect other bold efforts to empower the growing numbers of gig economy workers.

Meanwhile, we anticipate answers on the following workplace issues now pending before the California Supreme Court:

  • Which “employee” test determines whether a class should be certified to determine whether a group independent contractors was misclassified? The IWC definition of “employee” (as construed in Martinez v. Combs, 49 Cal. 4th 35 (2020), or the common law test set forth in S.G. Borello & Sons, Inc., 48 Cal. 3d 341 (1989)? [Dynamex Operations West, Inc., v. Superior Court, S222732]
  • What does it mean that a California employer is to provide “one’s day rest in seven”? [Mendoza v. Nordstrom, S224611]
  • Does the federal de minimis doctrine apply to claims for unpaid wages under California Labor Code Sections 510, 1194 and 1997 (minimum wage and overtime)? [Troester v. Starbucks Corp., S234969]
  • What is the correct way to calculate the rate of overtime pay when a non-exempt employee receives a flat sum bonus? [Alvarado v. Dart Container Corp of California, S232607].

If we can take any guidance from the Supreme Court’s latest wage-hour decision (Augustus v. ABM Security, rewriting the law on required rest breaks [see links to our OMM and prior post on the case here]), the results in the above cases will continue the tide of worker rights that will swamp more than a few employer boats, making management of California employees even more complicated, and increasing the risks of employers incurring inadvertent violations.

As in past years, we invite you to contact us with any comments, suggestions, or disagreements you may have regarding any of our posts, or if you would like to be a guest author.

We look forward to keeping you apprised of continuing ebbs and flows in California employment law during the year to come.

Seyfarth Synopsis: California’s rules on rest breaks are still developing. Recent cases have addressed the timing of rest breaks, and whether employees (particularly those who remain “on call”) must be relieved of all duty during breaks.

Our fair state has long imposed peculiar—and specific—requirements for employee work breaks. Varying interpretations of the rules for meal and rest breaks have spawned prodigious class action litigation, both before and after the California Supreme Court’s crucial 2012 decision in Brinker Restaurant Corp. v. Superior Court. Accordingly, California employers have a keen interest in making their break policies and practices as compliant as possible.

But this can be hard to do while the rules remain in flux. In this post, we discuss two cases—one decided a few months ago and the other now pending before the California Supreme Court—that bring the requirements for rest breaks into finer focus. The cases raise these questions: (1) Exactly when must employers provide rest breaks? (2) Can employers require workers on break to remain “on call”?

So we invite you to “take 10” and read on.

The Basic Rule

Section 226.7 of the Labor Code says that employers can’t require employees to work during breaks mandated by an order of the Industrial Welfare Commission. The IWC, in turn, has mandated (in Section 12(A) of the Wage Orders) that:

Every employer shall authorize and permit all employees to take rest periods, which insofar as practicable shall be in the middle of each work period. The authorized rest period time shall be based on the total hours worked daily at the rate of ten (10) minutes net rest time per four (4) hours or major fraction thereof.

More about that pesky phrase “insofar as practicable,” below.

Timing of Rest Breaks

The rule on rest breaks is often short-handed as “10 minutes paid rest for every four hours (or major fraction thereof) worked.” But must each rest break occur during the middle of each four-hour work period? Or can it be permissible to allow—or require—employees to combine breaks, or to schedule them at some time other than midway through the work period? And what does “insofar as practicable” mean, anyhow?

The 2016 California Court of Appeal decision in Rodriguez v. E.M.E., Inc. took a stab at answering. E.M.E. gave one 20-minute rest break and one meal break per eight-hour shift, due to the nature of the work and the clean-up time required at each break. Rodriguez brought a class action claiming that this practice violated Section 12(A) of the applicable Wage Order.

The Court of Appeal held that the phrase “insofar as practicable” means that employers must implement the rest schedule specified in the Wage Orders unless there is “an adequate justification why such a schedule is not capable of being put into practice, or is not feasible as a practical schedule.” More specifically, employers may depart from the Wage Order schedule (i.e., a rest break in the middle of each four-hour period or major fraction thereof) only when it (1) will “not unduly affect employee welfare” and (2) “is tailored to alleviate a material burden” on the employer that would result from using the Wage Order schedule.

Reversing summary judgment for the employer on the certified rest break claim, the Court of Appeal sent the case back to the trial court to resolve triable issues about these questions. The court highlighted two issues: (1) Was the nature of the work (i.e., sanding, painting and finishing metal parts for the aerospace industry) such that it took 10 minutes to prepare for each break and 10 minutes to ramp up again after the break? (2) Did the employees actually prefer to receive one combined 20-minute break? If E.M.E. could establish these points, then E.M.E. could use a schedule other than the one specified by the Wage Order.

Relief From All Work?

Poised for decision by the California Supreme Court in Augustus v. ABM Security Services, Inc., 233 Cal. App. 4th 1065 (2014) review granted, 186 Cal. Rptr. 3rd 359 (2015), is the question whether an employee on a rest break must be relieved of all duties, even the duty to be on call. The employees at issue in Augustus were security guards who remained “on call” even while taking their rest breaks. The guards claimed that their “on call” status deprived them of legally compliant rest breaks. The trial court agreed and granted them summary judgment.

But then, in a refreshing display of common sense, the Court of Appeal reversed, holding that on-call rest breaks are permissible. The Court of Appeal explained that although on-call hours constitute “hours worked,” an employee who is merely available to work is not actually working. Section 226.7 proscribes only work on a rest break; being on call is a compensable activity, but it is not work. This result is consistent with the point that employers may require employees on a rest break to stay on the employer’s premises because the breaks are, after all, paid. The issue of whether a rest period is compensable time (it is) is not the same as whether a rest period is a true break from work (on-call duty, when one is not called, is not work).

Yet employer hopes that the Court of Appeal had the final say on this matter were dashed when the California Supreme Court granted review of the decision. Check this space after the oral argument on this case, scheduled for September 29, 2016, to read our take on how the Supreme Court may be leaning when it comes to the issues presented in this case.

Workplace Solution

Even after Brinker, the waters continue to roil around rest break rules. We welcome your inquiries regarding any Cal-peculiar issues of employment law.

Girl in black suit takes stool up.The countdown begins to receiving some clarity on the suitable seating rule from the California Supreme Court. On January 5, 2016, the Court heard oral argument in the consolidated matters of Kilby v. CVS Pharmacy, Inc. and Henderson v. JP Morgan Chase Bank. These putative class actions claim that the employers violated Section 14 of Wage Orders 4-2001 and 7-2001 (the “suitable seating” rule), providing that “[a]ll working employees shall be provided with suitable seats when the nature of the work reasonably permits the use of the seats.” In the present proceedings, the Court is responding to a question certified by the Ninth Circuit for guidance on the meaning of the rule.

CVS and JPMorgan both argued for a “holistic approach” in which the factfinder should assess the nature of employees’ work by looking at the whole range of tasks they perform, the workplace’s layout and other factors, including the employer’s business judgment in requiring employees to stand to deliver the expected level of customer service.

In contrast, the employees argued for a task-oriented approach, and contended that if the tasks they are required to undertake can be done sitting down, then they should be provided seats. They also argued that an employer’s business judgment should never be taken into account. According to the employees, the suitable seating rule conveys a minimum labor standard, like meal and rest breaks, that cannot be compromised based on perceived customer preferences and expectations for a standing employee.

Questions from the justices  indicated that some were not wholly sold on either side’s argument. Although statements by Justice Goodwin Liu suggested that CVS and JPMorgan’s proposed approach was not unreasonable, others asked whether the holistic approach would contemplate any circumstance where an employee would be entitled to sit. Overall, the Court appeared concerned that if a holistic approach were adopted in applying the suitable seating rule, then there would never be a situation where an employee would be entitled to sit, because an employer’s business judgment would always weigh in favor of making the employee stand.

The Court also took issue with the employees’ contention that an employer’s business judgment should not be considered at all. Justice Liu questioned whether the use of the term “reasonably” necessarily requires consideration of an employer’s business judgment. A few comments indicate that some justices think employers are in the best position to determine what works for their business and whether the nature of the work permits the use of seats.

The Court has 90 days to issue its decision. Based on the questioning, it is difficult to say whether the decision will be a slam dunk win for either side. Will the Court adopt the holistic approach advocated by CVS and JPMorgan, write off the business judgment of an employer, as advocated by the employees, or come up with a different interpretation altogether?  Stay tuned to this space for further analysis when the decision comes down.