California Employment Law Update : Labor and Employment Lawyers & Attorneys : Proskauer Rose Law Firm : Wage & Hour Laws, Disability, Workplace Safety

Last week, we reported that the California Labor Commissioner issued a template "Notice to Employee" as required by the Wage Theft Prevention Act of 2011 (the "Act"), which went into effect January 1. The Act requires employers to furnish specified wage information to certain non-exempt employees at the time of their hire.

As we also pointed out, the Commissioner's "Frequently Asked Questions," published December 30, 2011, stated that the Notice (or the information contained therein) must be given to all current employees, despite the fact that the statute calls only for employers to provide such data to employees "at the time of hiring." We placed a call to the DLSE shortly after the FAQs were issued, and the agency responded yesterday by updating its Web site. The FAQs, which can be found here, now reflect that the information required under new Labor Code § 2810.5 need only be provided at the time of hiring and within 7 days of a change in such information, if the change is not listed on the employee's pay stub for the following pay period.

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Please visit the update to this entry, available here.

On the eve of the implementation of California’s Wage Theft Prevention Act of 2011, the California Labor Commissioner has made available to employers a template Notice (Word / pdf) that complies with the requirements of new Labor Code § 2810.5. Beginning January 1, 2012, Section 2810.5 requires employers to furnish specified wage information captured by the Notice to most non-exempt employees. All required information must be provided to employees in the language that the employer normally uses to communicate employment-related information.

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California Labor Code § 515.5 exempts computer software professionals from the overtime pay requirements imposed by Labor Code § 510, provided they meet certain requirements. To qualify as exempt, these professionals must perform the functions enumerated in the statute and receive a minimum hourly rate of pay. The California Department of Labor Standards Enforcement (“DLSE”) has announced that effective January 1, 2012, the minimum rate for qualifying computer software professionals will be $38.89 per hour (up from $37.94 per hour in 2011), with commensurate increases in the monthly and annual minimum rates. Certain licensed physicians and surgeons are similarly exempt from state overtime requirements, so long as they are compensated at a minimum pay rate; effective January 1st, this minimum rate increases from $69.13 to $70.86 per hour.

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Earlier this year, California Governor Jerry Brown signed into law AB 469 (pdf), entitled the “Wage Theft Prevention Act of 2011,” which adds Section 2810.5 to the Labor Code and requires employers to furnish to non-exempt employees, at the time of hiring, a notice specifying (among other things) the employee’s rate or rates of pay and the basis on which the employee’s wages are to be calculated. While the California Labor Commissioner had indicated that it would issue a notice template and guidance to employers by mid-December, it has yet to provide any such guidance.  While employers wait for the Commissioner to act, Proskauer has prepared a notice form that companies can utilize in the interim. Proskauer attorneys have extensive experience in this area, as the firm has long assisted its clients in complying with similar requirements under New York state law.  For further information on compliance with the California or New York statutes, please contact Enzo Der Boghossian at ederboghossian@proskauer.com (California) or Fred Leffler at fleffler@proskauer.com (New York).

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Solis v. State of Washington, 656 F.3d 1079 (9th Cir. 2011)

The U.S. Secretary of Labor filed a complaint against the State of Washington's Department of Social and Health Services ("DSHS"), alleging a violation of the Fair Labor Standards Act of 1938 ("FLSA") based upon the DSHS's classification of its social workers as "learned professionals" exempt from the FLSA's overtime pay requirements. The district court granted DSHS's motion for summary judgment, but the Ninth Circuit reversed. In order to satisfy the "learned professional" exemption, an employer must show that a position requires advanced knowledge customarily acquired by a prolonged course of specialized intellectual instruction. The Ninth Circuit held that because the social worker positions at issue in this case require only a degree in one of several diverse academic disciplines or sufficient coursework in any of those disciplines, DSHS had failed to meet its burden of showing the social work positions "plainly and unmistakably" met the regulatory requirement. See also Kairy v. SuperShuttle Int'l, 2011 WL 5222891 (9th Cir. 2011) (federal district court has subject matter jurisdiction to determine whether passenger stage corporation drivers are employees or independent contractors under California law).

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The California Supreme Court announced today that it will hear oral arguments in the landmark wage-and-hour case Brinker Restaurant v. Superior Court on November 8 in San Francisco. In Brinker, the Court will decide whether employers must merely provide meal and rest breaks to their employees or actually ensure that breaks are taken, as well as the related issue of whether such claims are generally amenable to class treatment or whether they require individualized inquiries that make class treatment inappropriate. The outcome of the Court's decision is likely to have a significant impact on the exposure of large employers to wage-and-hour class action lawsuits. As the Court has 90 days from the date of oral argument to issue its opinion, the much anticipated decision is scheduled to be handed down no later than Monday, February 6, 2012. We will continue to follow the run up to the decision as new events unfold.

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In a 2-1 decision, the California Court of Appeal held that representative actions under California’s Private Attorney General Act (PAGA) may not be waived in mandatory, pre-dispute employment arbitration agreements. (Brown v. Ralphs Grocery Co., Cal. Ct. App., No. B222689 [pdf]). This decision comes as something of a surprise in light of the U.S. Supreme Court’s recent ruling in AT&T Mobility, LLC v. Concepcion (2011) 563 U.S. __, 131 S. Ct. 1740 [pdf], which held that the Federal Arbitration Act (FAA) preempts state law and that class-action waiver provisions in California consumer arbitration agreements are generally enforceable (see prior blog post).

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In Sullivan v. Oracle, No. S170577 (Cal. June 30, 2011) (pdf), the California Supreme Court today resolved three important questions posed by the federal Court of Appeals for the Ninth Circuit regarding California law:

(1) Does the California Labor Code apply to overtime work performed in California for a California-based employer by out-of-state plaintiffs, such that overtime pay is required for work in excess of eight hours per day or in excess of forty hours per week?

(2) Does California’s unfair competition law (UCL), Business and Professions Code section 17200, apply to the overtime work described in question one?

(3) Does section 17200 apply to overtime work performed outside California for a California-based employer by out-of-state plaintiffs in the circumstances of this case if the employer failed to comply with the overtime provisions of the federal Fair Labor Standards Act (FLSA)?

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Campbell v. PricewaterhouseCoopers LLP, 2011 WL 2342740 (9th Cir. June 15, 2011) (pdf)

The U.S. Court of Appeals for the Ninth Circuit reversed a lower court’s grant of partial summary judgment in favor of the plaintiff-junior accountants, noting that the district court’s holding would produce “significantly troubling results” and create “highly problematic precedent affecting several non-accounting professions.” The plaintiffs, a class of approximately 2,000 current or former junior accountants resident in six California offices of PricewaterhouseCoopers LLP (“PwC”), claimed that PwC improperly classified them as “exempt” employees and failed to provide them overtime pay in accordance with California’s rigid overtime pay requirements. As “junior accountants,” the plaintiffs occupied the bottom two tiers of their department’s seven-tier hierarchy and performed, among other accounting functions, audits of financial records. While Certified Public Accountant (“CPA”) licenses were required for the five levels above them, the plaintiffs were unlicensed.

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As the federal government wades deeper into the realm of mobile "apps" (among the most useful, of course, the Smithsonian Institution’s “MEanderthal” app, which enables users to morph personal photos into prehistoric images of themselves), various U.S. agencies are promoting new apps that allow the public to access official information from “the palm of [one's] hand.”

Not to be left behind, the U.S. Department of Labor (DOL) recently rolled out a smartphone app to help employees independently track the hours they work. The “DOL-Timesheet,” as the app has been dubbed, is currently available in English and Spanish for use on the iPhone, iPod Touch, and iPad. The app is designed to assist employees in recording their hours worked and calculating the wages – including overtime – that they're owed. (Overtime pay is computed at a rate of one and one-half times the employee’s regular rate for all hours worked each week in excess of 40 – though California also has a daily overtime requirement for hours worked in excess of eight.) Users are currently able to view and email summaries of their logged hours and gross pay, and additional features have been promised, including the ability to track tips, commissions, bonuses, deductions, holiday and weekend pay, shift differentials, and paid time off.

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On Wednesday, June 22, from 12:00 to 1:00 p.m., Anthony Oncidi of Proskauer and plaintiff-side attorney, Andrew Friedman of Helmer Friedman LLP, will summarize the latest developments and discuss the practical implications of this year’s most significant employment decisions. Among other developments, attendees will hear about the new U.S. Supreme Court rulings regarding the “cat’s paw” liability theory (Staub v. Proctor Hosp., 131 S. Ct. 1186 (2011)), third-party retaliation claims (Thompson v. North Am. Stainless, LP, 131 S. Ct. 863 (2011)), whether state limitations on arbitration agreements are preempted by federal law (AT&T Mobility v. Concepcion, 2011 WL 1561956 (2011)), and whether an employee who complained orally about a FLSA violation is protected from retaliation (Kasten v. Saint-Gobain Performance Plastics Corp., 131 S. Ct. 1325 (2011)). And, of course, our panelists will cover the latest developments in the ongoing deluge of wage-and-hour cases including new cases holding that the “explicit mutual wage doctrine” barred a janitor’s claim for additional unpaid overtime (Arechiga v. Dolores Press, Inc., 192 Cal. App. 4th 567 (2011). They also will discuss how employees who misuse their employer's computer system to set up a competing business may be in violation of the federal Computer Fraud and Abuse Act (U.S. v. Nosal, 2011 WL 1585600 (9th Cir. 2011)) and the latest from the California courts on whether an allegedly "bi-polar" employee who threatened co-workers can assert a disability discrimination claim once she's been fired (Willis v. Superior Court, 194 Cal. App. 4th 312 (2011)).

The presentation will earn attendees 1 hour of participatory CLE credit. To register, see 2011 Employment Law Update: A Mid-Year Review of Recent Developments or go to http://www.legalspan.com/calbar/catalog.asp and select Tele-Seminars and Webinars.

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In a case possibly signaling a new direction in California wage and hour law, a California appellate court ruled Friday that a class of car dealers fell within the commissioned salesperson exemption to California overtime laws despite receiving flat fee commissions instead of commissions calculated as a percentage of the price of the cars sold.

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On November 18, the California Supreme Court in Pineda v. Bank of America, No. S170758 (Cal. Nov. 18, 2010) (pdf) clarified two issues regarding so-called “waiting time penalties” (i.e., penalties under California Labor Code Section 203 associated with the late payment of final wages upon termination of employment). First, the Court ruled that a three-year statute of limitations applies to such actions, whether or not accompanied by a claim for the underlying late wages. Second, it held that waiting time penalties are not recoverable as restitution under California’s unfair competition law, Business and Professions Code Section 17200 (the “UCL”). While the latter ruling is marginally beneficial to employers by limiting liability under the UCL, the Court’s finding of a three-year statute of limitations for waiting time penalties dramatically expands potential employer liability.

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On November 3, 2010, the Ninth Circuit Court of Appeals refused to hear an appeal brought by a Harrah’s Las Vegas casino dealer challenging the District Court’s ruling that her proposed state wage-and-hour class action was preempted by the Fair Labor Standards Act (FLSA).  In so doing, the Ninth Circuit chose not to revisit the District Court's ruling that the plaintiff could not assert parallel federal and state wage-and-hour class actions.  This ruling provides welcome relief to employers threatened by such a multiplicity of claims.

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While California employers continue to await a definitive ruling from the California Supreme Court, the California Court of Appeal this week issued a ruling determining that employers need only provide employees with meal and rest breaks and need not necessarily ensure that employees take them.

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Morgan v. United Retail Inc., 186 Cal. App. 4th 1136 (2010)

Amber Morgan filed this class action lawsuit against her former employer under Cal. Lab. Code § 226, alleging United Retail had violated the law because the wage statements issued by the employer listed the total number of regular hours and overtime hours separately and did not provide the sum of the regular and overtime hours as a separate line item. During her deposition, Morgan testified she was injured by United Retail’s failure to include an additional line item showing the sum of hours worked because “[i]t makes it a little difficult to count how many hours I have been working.” 

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The decision establishes that employees have no right to sue under the California Labor Code to recover tips or gratuities allegedly withheld or misappropriated by their employer.

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Recent developments demonstrate that an employer’s uniform policy of classifying employees as exempt from wage-and-hour laws is insufficient to establish the requirements of class certification.

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It's that time of the year. School is out. The weather is warm. And high school and college students all over the country are descending on the workforce in search of temporary summer employment. That means it's also time for businesses who take on temporary summer workers to familiarize themselves with the federal and state regulations governing the wages and hours of "interns."

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The California Supreme Court today unanimously reaffirmed the principle that individual officers, directors and agents of a business cannot be held personally liable if the business fails to pay its employees wages and penalties. The decision, Martinez v. Combs, S121552, 2010 WL 1995830, also clarifies the definition of an employer, found in the California Industrial Wage Commission Wage Orders, in a way that further limits the scope of potential wage and hour liability.

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Cumbie v. Woody Woo, Inc., 2010 WL 610603 (9th Cir. 2010)

Misty Cumbie worked as a waitress at the Vita Café (owned and operated by Woody Woo, Inc.). Woo required its servers to contribute their tips to a “tip pool” that was redistributed to all restaurant employees, including the kitchen staff (dishwashers and cooks). Cumbie filed this putative collective and class action against Woo, alleging that its tip-pooling arrangement violated the minimum wage provisions of the federal Fair Labor Standards Act (“FLSA”). The district court dismissed Cumbie’s complaint for failure to state a claim, and the Ninth Circuit affirmed, holding that “nothing in the text of the FLSA purports to restrict employee tip-pooling arrangements when no tip credit is taken” by the employer.

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Chau v. Starbucks Corp., 174 Cal. App. 4th 688 (2009)

Jou Chau, a former Starbucks “barista,” brought a class action against the company, challenging Starbucks’ policy of permitting shift supervisors to share in tips that customers place in a collective tip box. Chau alleged the policy violated California’s Unfair Competition Law based on a violation of Labor Code § 351. The trial court certified a class consisting of thousands of current and former baristas from 1,350 Starbucks stores in California and, after finding liability, awarded the class $86 million in restitution. The Court of Appeal reversed the judgment, concluding that Starbucks had not violated the statute by allowing the shift supervisors (who spent more than 90 percent of their time performing the same service tasks as the baristas) to keep a portion of the collective tips merely because those employees also had limited supervisory duties.

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The California Court of Appeal has issued an important decision that has significant implications for California employers that have tip-sharing arrangements for their employees. In Chau v. Starbucks Corp., 2009 WL 1522708 (Cal. Ct. App. Jun. 2, 2009), the court held that an employer can allow employees who have both supervisory and customer service duties to receive a portion of the tips that are left by patrons in collective tip-boxes. The court further held that customers who place tips in a collective tip-box (rather than giving the tip directly to a specific employee) intend their gratuity to bedistributed among all members of the team that provided customer service to them, including employees who may have some supervisory duties. As a result, the San Diego trial court’s judgment granting over $105 million in restitution to a class of more than 100,000 current and former Starbucks coffee baristas has been overturned.

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The U.S. Department of Labor’s (the “DOL”) Wage and Hour Division recently issued a Wage and Hour Opinion Letter, FLSA 2009-3, addressing how a company can compute overtime payments retroactively for salaried employees it had mistakenly classified as exempt (not overtime-eligible) under the Fair Labor Standards Act (“FLSA” or the “Act”). The DOL reiterated its support for the half-time methodology in calculating back overtime due, endorsing the so-called “fluctuating workweek” model on a retroactive basis for remedying the misclassification of salaried employees. This is a significant development and, in so deciding, the DOL has “weighed in” on an issue that remains a source of lively debate in the federal courts.

Generally, the FLSA requires that overtime pay be calculated weekly (notwithstanding that an employer’s payroll period might be semi-monthly or bi-weekly) and that employees receive one and one-half times their regular hourly rate of pay for each hour worked in excess of 40 hours in a workweek. Here, the employer paid a guaranteed salary bi-weekly and expected the employees to work a minimum of 50 hours per week. The employer’s payroll software even converted the bi-weekly salary to an hourly rate by dividing the salary by 100, without regard to whether the employees worked more or less than 100 hours in the payroll period. When the employer concluded that it had mistakenly classified certain salaried employees as exempt, it wished to pay them back overtime retroactively, using a half-time methodology, reasoning that the employees had already been compensated straight-time for each hour over 40 worked in the workweek.

The DOL agreed. Since the fixed salary covered all the hours the employees worked in a workweek, straighttime already was included in the salary covering the hours worked over 40 and, as a result, the employees needed only to be paid an additional one-half of their actual regular rate for each overtime hour. Important to the DOL’s decision was the fact that the fixed salary was paid to the employees even when they worked less than 100 hours in the bi-weekly payroll period.

The Opinion Letter is particularly noteworthy for its generous interpretation of the fluctuating workweek’s “clear mutual understanding” requirement which, heretofore, many had understood meant that there had to be a “clear and mutual understanding” at the outset of how salary and overtime would be calculated and paid for hours worked. According to this Opinion Letter, the “clear and mutual understanding” criterion does not need to be set forth in writing and intent can be inferred from the parties’ conduct that the fixed salary was compensation for all hours actually worked by the employee in a given week, rather than for a fixed number of hours per week – a stance that adopts the minority view among judicial decisions that have considered the issue.

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Recent changes in the legal and economic landscape have significantly heightened the risk that employers’ compensation systems will come under attack. Congress has passed the Lilly Ledbetter Fair Pay Act (“Ledbetter”), which effectively waives the statute of limitations for compensation discrimination claims under the majority of federal employment statutes. The law increases a plaintiff’s ability to recover for compensation discrimination, by placing into issue each and every decision impacting pay, starting from the date of initial hire, rather than just those decisions that occurred within statutory filing period. The law has made the issue of pay equity a hot button issue. Plaintiffs’ attorneys and government regulators are primed for attack.¹

The Obama administration also has brought the specter of increased EEOC and OFCCP enforcement activity, as well as the possibility of additional proemployee legislation in the pay discrimination arena. Of note is the Paycheck Fairness Act (“PFA”), which, if passed in its current form, would substantially amend the Equal Pay Act of 1963 and make it significantly easier for employees to establish unlawful pay discrimination. The PFA broadens the categories of employees that plaintiffs can claim as comparators for purposes of showing pay inequity; it sharply curtails the affirmative defenses available to employers; it makes it easier for plaintiff’s attorneys to bring large class-action lawsuits, and it permits uncapped compensatory and punitive damages. It also allows the OFCCP to use a simplistic and often inaccurate “pay grade methodology” when identifying federal contractors unjustly investigated and make it more difficult for them to defend against agency audits.

Coupled with these legal developments have been a rash of company layoffs, rising unemployment, and an increasing number of employees and former employees who face difficult financial plights. All of these forces make employee compensation discrimination lawsuits more likely. Conducting internal audits to identify disparities in compensation that might be subject to legal challenge, and appropriately addressing such disparities, is one of the best ways to prevent pay discrimination lawsuits and to place your organization in the most favorable position should they occur. This Tip of the Month provides guidance for in-house counsel and human resources executives when undertaking such audits.

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1} For more information on the Ledbetter Act see our Client Alert about it.

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Kullar v. Foot Locker Retail, Inc., 2008 WL 4561629 (Cal. Ct. App. 2008)

Crystal Echeverria and two other objectors challenged the fairness and adequacy of a settlement of a class action lawsuit involving approximately 18,000 Foot Locker employees who were required to “purchase and wear shoes of a distinctive design or color as a term and condition of their employment” (the “uniform class”) as well as employees who were subject to security searches for which they were not compensated (the “security check class”). Following a successful mediation with Mark Rudy, Esq., the parties agreed to a stipulation of settlement, which was submitted to the trial court for approval. After Echeverria filed a separate class action alleging meal break violations and wages due to terminated employees, she filed written objections to the settlement in this case, asserting that there was insufficient investigation and discovery prior to settlement to allow counsel or the trial court to act intelligently in valuing the case. The Court of Appeal reversed the judgment approving the settlement and held “the fact that the settlement was reached during mediation to which Evidence Code § 1119 applies does not eliminate the court’s obligation to evaluate the terms of the settlement and to ensure that they are fair, adequate and reasonable.”
 

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Bradstreet v. Wong, 161 Cal. App. 4th 1440 (2008)

Toha Quan and Anna Wong owned the capital stock and served as corporate officers or directors of three San Francisco garment manufacturing companies (the “Wins Corporations”). For several months during the summer of 2001, the Wins Corporations failed to meet their payroll obligations, and the owners encouraged the employees to continue working without pay. After the Labor Commissioner paid wage claims from an account established pursuant to Labor Code § 2675.5, the Commissioner filed this lawsuit against the owners, seeking to hold them personally liable for unpaid wages owed by the bankrupt Wins Corporations. Following the California Supreme Court’s opinion in Reynolds v. Bement, 36 Cal. 4th 1075 (2005), the trial court held that Quan and Wong could not be held personally liable for the employer’s unpaid wages and related penalties. The Court of Appeal affirmed the judgment in favor of Quan and Wong. See also Costco Wholesale Corp. v. Superior Court, 161 Cal. App. 4th 488 (2008) (employer would not be irreparably harmed by production of redacted version of letter from employer’s counsel regarding alleged misclassification of managers).
 

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Isner v. Falkenberg/Gilliam & Associates, Inc., 2008 WL 712045 (Cal. Ct. App. Mar. 18, 2008)

Ron and Sharon Isner were resident employees of Falkenberg — a property management company specializing in managing nonprofit housing for the elderly. Although the Isners were required to remain on the premises and be on call on designated evenings from 5:00 p.m. until 8:00 a.m., they were otherwise free to use the on-call time as they wished. In their class action lawsuit, the Isners sought compensation not just for the hours they spent responding to emergencies but for all the hours they were on call and “confined to their apartment or the building office so as to remain within audible range of the telephone and alarm.” The Court of Appeal affirmed summary judgment in favor of the employer, holding that “employees who are required to reside where they work are entitled to be compensated for time spent performing their assigned duties; they are not entitled to be compensated for time spent simply being available to perform those duties.”
 

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Combs v. Skyriver Communications, Inc., 159 Cal. App. 4th 1242 (2008)

Mark Combs sued his former employer, Skyriver Communications, and Skyriver’s former interim CEO, Massih Tayebi, for violations of the California Labor Code, the Unfair Competition Law and the Private Attorneys General Act of 2004. Combs, who was employed as the manager of capacity planning and later as the director of network operations, alleged he had been misclassified as an exempt employee. The trial court granted Tayebi’s motion for summary judgment and dismissed Combs’ remaining claims in response to Skyriver’s motion for nonsuit. As part of his case in chief, Combs produced evidence that he was responsible for maintaining, developing and improving Skyriver’s computer network. Although he supervised “one or two employees,” Combs testified he spent the majority of his time performing the same functions as the employees who reported to him. The Court of Appeal affirmed dismissal, holding that the “administrative-production worker dichotomy” was inapplicable in this case because Combs performed “specialized functions” that were unlike the “routine and unimportant” functions performed by the insurance claims representatives in Bell v. Farmers Ins. Exch., 87 Cal. App. 4th 805 (2001).
 

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Bell v. Superior Court, 2007 WL 4127646 (Cal. Ct. App. Nov. 21, 2007)
Four employees of H.F. Cox Inc. d/b/a Cox Petroleum Transport filed this wage and hour class action challenging their employer’s failure to pay overtime; its requirement of off-the-clock work; its failure to provide meal and rest periods; its incorrect calculation of vacation pay; and its failure to pay pro rata vacation pay upon termination. The trial court granted plaintiffs’ motion to certify a class but only with respect to the last category of claims. In response, plaintiffs filed a petition for writ of mandate, which the Court of Appeal granted, holding that the trial court had erred in failing to certify a class for the overtime pay and the vacation pay calculation claims. The appellate court reasoned that the trial court’s determination that individual issues predominated over common ones was not supported by substantial evidence. Cf. Fireside Bank v. Superior Court, 40 Cal. 4th 1069 (2007) (trial court erred in ruling on the substantive merits of class action while concurrently certifying the class).

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