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.

By John R. Giovannone and Aaron Lubeley

“Let me get this straight. To the delight of our workers, we’ve been providing free meals. But now someone is claiming that I owe unpaid overtime to account for the value of the free meals? Really??” 

We have been hearing this kind of exasperated response from clients with more frequency, as many employers have made the business choice to provide their employees with lunch at no cost. Many of these same employers are being accused of underpaying overtime by failing to incorporate the value of free food in calculating the regular, overtime, and double-time rates of pay. Talk about a funny way to give thanks!

Companies provide free food to employees for many legitimate business reasons: to help limit lunch breaks to 30 minutes, to encourage employees stay close to the job site during lunch breaks in case of emergencies, to avoid food waste and related disposal costs in industries where more food is prepared than the customers will consume (i.e., menu options), and to build workforce camaraderie by encouraging employees to take their lunch breaks together. This just a small sampling of reasons an employer might decide to feed its workforce. And not all free food needs to be considered in the computation of overtime.  But sometimes companies enact such free lunch policies without due consideration of the rules and possible legal ramifications.

As the plaintiffs’ bar clearly understands, California defines wages as “all amounts for labor performed by employees.” California overtime and double time are computed based on an employee’s regular rate of pay, which includes cash and other types of remuneration. Labor Code §§ 200, 510.

Increasingly, employers are seeing complaints that argue, essentially, if an employee earns $9 an hour and gets a free turkey sandwich for lunch, the sandwich is part of the “amounts for labor performed.” Therefore, plaintiffs argue, the value of the food should be factored into the employee’s regular rate, so that the corresponding rate of payment for any overtime worked should be increased by the per-hour value of a couple slices of turkey and bread! For example, if the value of the sandwich is $4.00, and is provided five days a week, the employee is getting an extra $20 per week in “other remuneration” that, plaintiffs argue, would make the regular rate for overtime computation not just $9/hour, but something more (depending on the number of hours worked in the week).

Unfortunately, this is no Thanksgiving prank. Free food regular rate miscalculation cases have actually been around in California since the Seventies (e.g., Marshall v. Valhalla Inn, 9th Cir. 1979: “The regular remuneration … consisted of the wages … plus the value of the meal provided … . The amount of such payments must therefore be included in determining the overtime rate.”). But this “gotcha” category of lawsuits, which defy common sense, have recently come into vogue. Worse still, theoretically similar claim types have evolved in response to similar food-related company policies.

Some lawsuits, for example, attack the practice of giving employees a discount on cafeteria food, claiming that the value of the discount should be included in calculating overtime rates (“If you charge me $1 for a $4 sandwich, that’s $3 more to my regular rate computation.”).

Other lawsuits claim that employers miscalculate overtime when they incorporate the employer’s cost of the food provided into the overtime calculation rather than incorporating the fair market value of the food provided to the employee into the overtime calculation.

These lawsuits actually work against the interests of employees, as they inspire an unsurprising employer response: cancellation of free and discounted meal policies. Are there effective alternatives to the drastic cancel-the-policy solution to this problem? Yes, but only careful consideration of each employer’s relevant facts and circumstances, coupled with careful drafting of free-lunch policies and procedures, will avoid liability for miscalculating overtime and double time rates: Continue Reading Gobble, Gobble … When Providing Employees With Food, Is There Such A Thing As A Free Lunch?