By John R. Giovannone and Hayley E. Macon

While its administrative and executive siblings often get more publicity, the “outside sales exemption” presents unique challenges for California employers, particularly those that employ large sales teams (even setting aside the administrative challenges surrounding cell phone and other business expenses).

California’s rationale for exempting outside sales personnel from overtime and similar wage-related requirements is straightforward:  “Outside sales[people] have historically been exempt ‘because ‘it’s very difficult to control their hours and working conditions. They set their own time, and they’re on the road, they call on their customers . . . . [R]arely do you know what they are doing on an hour-by-hour basis.’” DLSE Op. Ltr. (September 8, 1998).

But although the outside sales exemption reflects the difficulty of tracking hours in connection with sales activity, California still requires employers to know what hard-to-track sales employees are doing “on an hour-by-hour basis” to defend the application of that exemption.

Who is an exempt outside sales person?

Federal law:  Employees whose “primary duty” is making sales and who regularly work away from the employer’s place of business may be exempt from minimum wage and overtime pay requirements. 20 CFR § 541.500(a). This federal rule is often described as being a  “qualitative” test.

California law:  The California version of the outside sales exemption (Lab. Code § 1171) is peculiar, by federal standards. Like the federal rule, California’s exemption covers sales people who regularly work away from the employer’s place of business. But California imposes an additional “quantitative” requirement: the employee must spend most of the work day away from the employer’s place of business, engaged in sales activities. California also limits the exemption to sales people who sell tangible or intangible items, or obtain orders or contracts for products, services, or use of facilities. IWC Wage Order 1-2001(2)(j). As a result, California’s outside sales exemption is narrower than the federal exemption.

Why is the California definition problematic?
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By Michael Kopp and Sarah Hamilton

In a simpler world, only the time an employee spent working would count as “hours worked.”  In the world we live in, the employer may need to keep the pay clock running to track time that might be regarded as off duty, such as time spent sleeping, traveling, on call, or at rest. With a rising number of lawsuits now seeking to recover pay for idle time, let’s review some main issues.

The big picture: it is employer control, not employee productivity, that matters. California’s Wage Orders uniformly define “hours worked” as “the time during which an employee is subject to the control of an employer, and includes all time the employee is suffered or permitted to work, whether or not required to do so.” So the key question often is not whether the employee is actually working during the time in question, but whether the employee merely is subject to the employer’s control.

When do I need to pay employees for not (really) working?

  • When can sleeping on the job be “hours worked”? In California, the final answer remains to be seen. Federal law allows employers and employees to agree to exclude up to 8 hours of a 24-hour shift as unpaid sleep time, as long as: (1) the employer provides adequate sleeping facilities, (2) the employee has at least 5 hours of uninterrupted sleep, (3) the employee agrees to the sleep deduction, and (4) sleep-time deductions are only permitted from a 24-hour shift.  California courts traditionally followed the federal approach. See Monzon v. Schaefer Ambulance Serv., Inc., 224 Cal. App. 3d 16 (1990). But stay tuned—whether California will continue to permit such agreements, and on what terms, is the central issue pending before the California Supreme Court in Mendiola v. CPS Security Solutions, Inc. We will keep you updated here at CalPecs with new developments!
  • Are rest and recovery breaks “hours worked”?  California’s Wage Orders provide that the 10-minute rest breaks mandated for every 4 hours of work (or major portion thereof) are counted as  “hours worked.” That means they must be paid for and counted in determining whether the employee worked overtime.

But did you know there are other potentially paid breaks?  Required lactation breaks can be compensable time, to the extent those breaks coincide with the standard 10-minute rest periods mandated by the Wage Orders. (But lactation breaks taken outside of or in excess of the standard 10-minute rest periods are, to that extent, not compensable time.)  Also, for employers with outdoor places of employment, mandated “cool down” recovery time, for the purpose of heat illness prevention, is compensable time. See our previous article here for more details.

  • The daily commute: is heading to work also work?  Generally, the daily work commute (home-to-work and work-to-home) is not compensable as “hours worked” under either federal and California law. But if the employee performs work during the commute, such as reviewing reports while on the train, that time may be compensable.

Are there any other potential commuting pitfalls for the unwary employer?  Yes. California courts have held that employer-provided shuttles to work can convert this daily commuting time into “hours worked,” where the employer requires employees to use the employer-provided transportation. Morillion v. Royal Packing Co., 22 Cal. 4th 575 (2000). In contrast, commuting on truly optional employer-provided work shuttles need not be compensated. Overton v. Walt Disney Co., 136 Cal. App. 4th 263 (2006).

By Geoffrey C. Westbrook and Joshua M. Henderson

Just when one might have thought California employment law couldn’t get any stickier for employers, in January 2014 the California Legislature turned up the heat by expanding meal and rest break penalty provisions. Now there’s a new penalty for failure to provide “cool-down,” or recovery, periods to prevent heat illness.

Before, heat illness prevention laws were enforced only by the limited resources of Cal-OSHA. Now, newly amended Labor Code Section 226.7 authorizes private enforcement through class, individual, and multi-plaintiff actions, as well as by the DLSE. Monetary incentives, in addition to ambiguities on many aspects of the law, will likely trigger increased Cal-OSHA enforcement and new litigation, just as the remedies for meal and rest break violations have produced a heat wave of class action litigation. Talk about a scorcher!

But What is a “Cool-down” Period? California employers with “outdoor places of employment” must implement a heat illness prevention program, including allowing and encouraging employees to take a “cool-down rest in the shade for a period of no less than five minutes at a time when they feel the need to do so to protect themselves from overheating.” During these periods, employees must get continuous access to shade and drinking water.

While these obligations existed for almost a decade under Cal-OSHA’s oversight, private enforcement officially began January 1, 2014 with the amendment to Labor Code Section 226.7. Now, “an employer shall not require an employee to work during a meal or rest or recovery period” required by law. As a penalty, employers must pay non-exempt employees one additional hour of pay for each workday in which a meal or rest or recovery period is not provided. Penalties are cumulative, meaning it is now theoretically possible under Section 226.7 for an employer to incur three penalties in a given workday for each affected employee.

So, What are “Outdoor Places of Employment?” This term, not defined in the regulations, may seem self-evident. “Outdoor” really means “out of doors” in an open air environment. But how much time must one spend out of doors to make it a “place” of employment? Reasonable minds could differ here: is 50% of a workday spent outdoors sufficient to trigger the law, or will a mere 25% suffice?

Recovery Periods: A “Hotbed” for Litigation? There are no published decisions yet on cool-down periods, and the law is rife with ambiguities that only litigation will resolve. These uncertainties, and the prospect of penalties that will be very large when considered on a cumulative basis, may prompt private litigants to initiate civil actions against unsuspecting employers in industries with some outdoor work that haven’t traditionally been the focus of enforcement initiatives. These industries may include engineering, warehousing, carwash, outdoor recreation, automotive sales, security, country clubs, valets, summer camps, and janitorial businesses.

The following are areas where employers may face “cooling down” challenges:
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By Pam Devata and Dana Howells

Previously in this three-part series, we discussed employer obligations concerning background checks furnished by investigative consumer reporting agencies.  In this third and final segment, we highlight the requirements for California employers who do their own background checks without utilizing the services of a consumer reporting agency. 

Public Records Searches and Disclosure Obligations.  In the Internet age, many types of public records are instantly searchable. Employers who do their own public records searches (either on-line or using old fashioned techniques) must beware of a little-known California law.  Civil Code Section 1786.53(a)  provides broadly that any person who uses personal background information—even information that is a matter of public record—for employment purposes must provide that information to the consumer within 7 days.  “Public records” are defined as records documenting an arrest, indictment, conviction, civil judicial action, tax lien or judgment.

Here’s the most peculiar twist:  the obligation to provide the public records exists regardless of whether the employer obtained actual copies of  public records or simply obtained a verbal summary of the contents.  

  • For example, an in-house researcher may give a verbal report that an applicant has convictions instead of obtaining hard copies of the court records.  Does the employer have any disclosure obligations?
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By Pam Devata and Dana Howells

Both federal and California law impose additional requirements on the users of “background checks” over and above the requirements for “consumer credit reports.” California’s  most significant peculiarity is that it regulates not only background checks done by a consumer reporting agency, but also background checks done by employers in-house.  In this second part of a three-part series, we focus on California background checks done by an investigative consumer reporting agency.

Employers who use agencies to conduct background checks need a disclosure and authorization under both state and federal law.  However, California’s imposes additional burdens on employers.    

Disclosure Requirements.

Federal Law:  The federal Fair Credit  Reporting Act (the FCRA) imposes requirements on users of “investigative consumer reports.”  Investigative consumer reports are defined by federal law as containing information obtained through personal interviews of neighbors, friends, and other associates about character, general reputation, personal characteristics and mode of living.  

California’s definition is broader.

California Law:  The California Investigative Consumer Reporting Agencies Act’s (“ICRRA’s”) more expansive definition of “investigative consumer report” includes all third party collection of information about character obtained through “any means,” not just personal interviews with acquaintances. This broad definition would  include reference checks performed by a third party.  An employee could argue that any type of background check—other than a pure credit check—is covered by the ICRRA.  In several recent lawsuits, courts have found the ICRRA unconstitutionally vague because criminal background checks concern both credit-worthiness and character.  Therefore, it is unclear whether ICRRA or the less severe California Consumer Credit Reporting Agencies Act is the governing law.

Under California’s ICRRA, employers seeking authorization to procure an investigative consumer report must disclose:
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By Brian P. Long

It is a fairly common practice for companies to have non-exempt employees available by phone at the drop of a hat to respond to emergencies and other unexpected business needs.  Yet, if the employee doesn’t actually respond to any phone calls or do anything during that time period, is the company still required to pay them for the mere possibility that their services may at some point be needed?

Any time during which employees are subject to control by the company may be “hours worked,” even though the employees don’t actually perform any work and possibly even if they are able to spend the time doing whatever they choose.

So how do companies know if the employee is under their “control” during on-call/standby time?  Like many other areas of California employment law, whether the answer to this question is yes or no turns on the employee’s specific situation.

There have to be some general rules, right?  Non-exempt employees may be on-call during unscheduled work hours to respond to calls for help from work.  On-call time can be either controlled or uncontrolled, depending on how restricted the employee is in being able to utilize the time for personal pursuits.

To be controlled or uncontrolled: That is the question.  Of course, because this is California, there is no hard and fast rule about how many times an employee’s day or evening must be interrupted or for how long that interruption can last before all of the on-call time (not just the time the employee spent dealing with the interruption) rolls into the controlled category as opposed to uncontrolled.  Factors that are considered include:
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By Catherine Dacre, Emily Barker, and Matthew Mason

One would think that an employee would prefer being deemed a “professional.” But when faced with the possibility of receiving additional income, employees often argue to the contrary, claiming that their classification as a “professional” is incorrect.

Under both California and federal law, so-called “white collar” employees, including “professional” employees, are exempt from wage and hour laws concerning overtime payment and breaks. That is, if an employee meets the test for exemption, the employer pays her a set salary, rather than on an hourly basis, and is not required to pay overtime or provide meal and rest breaks, among other things.

However, employers must take care. If an employee who has been classified as exempt later successfully argues that she does not meet the professional exemption, the employer will be on the hook for unpaid overtime going back, potentially, for four years. Plus, the employer may face additional penalties for any missed meal and rest breaks (at a rate of one additional hour of pay per break), failure to keep accurate records, failure to issue accurate wage statements, and, for terminated employees, penalties that accrue each day (up to 30 days) during the time the employee was not paid all she was owed.

Such suits will likely only become more popular in the near future. In March of this year, President Obama issued a memorandum directing the Department of Labor to streamline overtime regulations and make more workers eligible for overtime under federal law. Specifically, he asked the Department to consider how the professional exemption could be simplified to address the changing nature of the American workplace.

So, What Makes A Professional A “Professional”?

The answer to this question is complex, and is different under California law and federal law. As such, an employee may meet the test for the professional exemption under federal law, but fail to meet the test under California law.

In addition, the answer varies depending on whether the employee works in a certified profession, or whether the employee is an artist, writer or in another creative field. Generally, the criteria depend on the types of work the employee does, the level of education or training required to perform the work, and the employer paying at a specified salary threshold.

Types of Work:

Federal Law: Under federal law, an employee is properly classified as an exempt professional when the primary duty is the performance of work requiring “advanced knowledge,” defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment.

The “advanced knowledge” must be in a field of science or learning, and must be customarily acquired by a prolonged course of specialized intellectual instruction.

California Law: In California, an employee may be an exempt professional in one of three ways:
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By Michael Wahlander and Charles O. Thompson

Last week, California’s Employee Development Department (“EDD”) released California’s most recent unemployment figures, for March 2014 (8.1%) (See here). This number remained unchanged from February 2014 and was a decrease from 9.2% in March 2013.  While these numbers seem encouraging, it still means that many Californians are out of work.  This got us thinking about a common predicament facing employers, whether or not to appeal an award on unemployment benefits.

You’re fired!  That’s good-bye, right?  It is a situation that employers often face — finally reaching the last straw with a problematic employee, terminating him for misconduct, breathing that sigh of relief, and then receiving notice that the same employee filed a request for unemployment benefits with the EDD (See here). In response, you fill out a notice with the myriad reasons this guy couldn’t remain employed, with full confidence he won’t get any benefits based on his nefarious deeds.  But lo and behold, the next thing you know, here comes a surprise notice from the EDD: “Please be advised that the EDD has awarded your former employee, Mr. Slacker Uptonogood, unemployment benefits!”

So what’s your next move?  Once the steam leaves your ears, you have the option to appeal the ruling (See here). Alternatively,
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