Paul R. Lynd, Esq., Nixon Peabody, LLP

September 11, 2014California Payroll Conference

Time’s Not Standing Still: Update on Wage & Hour Issues

Class Action UpdateWage and hour class actions are still going!

Different claims in cases, but same ones, tooClass action waivers in arbitration agreements

are OK in California, but not with Labor Code Private Attorney General Act claims (Iskanian v. CLS Transportation, 59 Cal.4th 348 (2014))

California courts still wrestling with certification

California Supreme Court tried again to clarify what’s important for whether common issues allow class certification (Ayala v. Antelope Valley Newspapers, 59 Cal.4th 522 (2014))

Minimum Wage Issues Continue on Many Levels

Federal proposal to raise federal minimum wage to $10.10 from current $7.25. It’s gone nowhere.

Executive order raised to $10.10 for federal contractors on new contracts or replacement contracts. Did not change much.

Local cities enacting own minimum wagesSan Francisco’s minimum wage now $10.74

an hour as of January 1, 2014 – up from $10.55

San Jose’s minimum wage now $10.15 after annual hike

California Minimum Wage IssuesCalifornia minimum wage increased to

$9.00 per hour on July 1, 2014By law, state minimum wages increases

again to $10.00 per hour on January 1, 2016

What is not happening: Another increase is off for now! SB 935 failed, which would have imposed more increases and automatic annual increases.

Don’t be surprised if the Legislature revisits the issue again next session.

What Else Changes with California Minimum Wage Increase?Increase in California minimum wage changes

the minimum salary for administrative, executive, and exempt employees

Now is $3,120 per month, or $37,440 per yearIn 2016, minimum salary will increase to

$3,466.67 per month or $41,600 per yearThese minimums must be met through salary

only, not total compensationMinimum for commission pay exemption

employees is now $13.50 per hour and will be $15.00 per hour in 2016

End of Minimum Wage and Overtime Exemptions for Some EmployeesCalifornia ended minimum wage exemption

for “personal attendants” effective January 1, 2014Contrary to reports, did not end for all

domestic employeesIssue to be studied further in California

Federal minimum wage and overtime exemptions ending January 1, 2015 for caregivers

Federal Overtime Exemption ReviewIn March 2014, President issued Presidential

Memorandum directing the U.S. Department of Labor to review federal overtime rules under the Fair Labor Standards Act

Stated goal is “updating and modernizing” the rules

DOL last did so in 2004Told to revisit federal minimum salary rule of

$455 per weekReview of duties for exemptions likelyNo proposals emerged yet, probably nothing

until 2015

San Francisco’s New “Family Friendly Workplace Ordinance”Amended effective February 14, 2014 to

clarify law applies to any employee with 20 or more employees “regardless of location”

Covers employees who have worked at least six months and regularly work at least 8 hours a week

Employee may request “flexible working arrangement” to assist with caregiver responsibilities, including changes in times worked, number of hours, and location

Further such proposals likely on different levels

Other New 2014 California Laws of Note

SB 390: Misdemeanor (year in jail and $1,000 fine) for employer not remitting wage withholdings

SB 462: Prevailing employer no longer entitled to automatic fee award on wage lawsuit. Now, award only if employee brought suit in “bad faith.”

SB 435: Heat “recovery period” rest breaks of at least five minutes for outdoor employees, or pay hour’s wages

New leave rights for victims of stalking, domestic violence, sexual assault, and crime victims

Oral or written complaints to employer about wages now protected from retaliation

A California Law that Won’t Be HappeningAB 1164: California Fair Paycheck Act

Bill would have allowed a lien on employer’s property for wages, compensation, related penalties and damages, interest, and costs of lien

Would have been permitted on all property of the employer, including property acquired later

Take mechanic’s lien idea and expands it significantly

Bill died at end of legislative session.

Coming Up: Mandatory Paid Sick Days

AB 1522, the Health Workplaces, Healthy Families Act of 2014, signed into law on Sept. 10.

Requires employers provide paid sick leaveEmployees could use the sick leave to care for

certain family members (parent, child, spouse, domestic partner, grandparent, grandchild, sibling)

Paid at the same rate as regular wage rate, in pay for that pay period.

Employee may use up to three days a year.Wage statements must give available balance.

Poster, wage disclosure statement also required.

Paying Final WagesMcLean v. State of California, 2014 Cal. App.

LEXIS (Aug. 19, 2014)Definition of “quits” includes to “retire” for timing

of wage payment purposesUnder Labor Code section 202, employer has up

to 72 hours to pay when resignation without notice. If gave enough notice, final wages due immediately.

Reminder: Mailing permitted only if employee quits without notice and requests mailing, with an address

Otherwise, hold check for pick up or instruction by former employee.

Cell Phone Expense CoverageCochran v. Schwan’s Home Service, Inc.,

228 Cal.App.4th 1137 (2014)Employer must cover all work-related cell

phone expensesRule applies even if employee has an

unlimited plan, in which case additional work calls would not have added to the bill

California law ordinarily requires covering the actual expenses. If an unlimited plan, employer “must pay some reasonable percentage of the employee’s cell phone bill”

Not Reimbursing Expenses:Other Consequences?Vasquez v. Franklin Management Real Estate

Fund, Inc., 222 Cal.App.4th 819 (2013)Labor Code section 2802 requires expense

reimbursementEmployer would not pay mileage, kept assigning

driving, and employee quitCan sue for constructive discharge in violation of

public policy: Not a “typical case,” but an “untenable position” here and would have made less than minimum wage

Cannot sue for intentional infliction of emotional distress but can file worker’s compensation claim

Partial-Day Absences and Exempt EmployeesRhea v. General Atomics, 227 Cal.App.4th 1360

(2014)California follows federal rule for deductions from

paid leave for exempt employee’s absencesConley v. PG&E, 131 Cal.App.4th 260 (2005)

upheld policy of deducting from paid leave when absence was at least four hours

General Atomics held that there is no minimum required for deduction from paid leave

Remember: Deductions from salary are different, and generally allowed only if for a full-day absence.

Minimum Pay Must Be “Salary” to Be ExemptNegri v. Koning & Associates, 216 Cal.App.4th

392 (2013)Pay was $29 per hourNo fixed guarantee, so not a “salary”Law requires a “salary,” which is a fixed,

predetermined, guaranteed amount, not subject to deduction

The “salary” also is not based on “pay” or “compensation” in total

No salary, so not exemptIf “salary” requirement or minimum not met,

duties don’t matter and not exempt!

Simultaneous Exempt and Non-Exempt Duties = Non-ExemptHeyen v. Safeway Inc., 216 Cal.App.4th 795

(2013)Former assistant manager, claimed spent

majority of time bagging and stockingSafeway claimed she was “simultaneously”

managingCourt found “some intuitive appeal” to

Safeway’s argument, but California law won’t recognize

Federal law different, recognizing “head and hands” work simultaneously in Burger King cases

Timing Is Everything in Paying CommissionsPeabody v. Time Warner, 59 Cal.4th 662

(2014)Commission pay exemption requires that half of

an employee’s pay be commission, and that pay be at least 1.5 times state minimum wage for all hours

California Supreme Court held that commissions must be paid each pay period to measure the exemption. Employer cannot spread commissions paid over a larger period

Important holding in case: Regardless of exemption, “commissions” must be paid at least twice a month, not monthly!!!

Interview PayGunawan v. Kforce Inc., 2014 U.S. Dist.

LEXIS 17873 (C.D. Cal. Jan. 30, 2014)A Nixon Peabody casePlaintiff sought to be paid minimum wage for

time spent interviewing for initial assignmentCourt dismissed potential class action,

holding that “applicant” not an “employee” entitled to pay

Betancourt v. Advantage Human Resourcing, 2014 U.S. Dist. LEXIS 123504 (N.D. Cal. Sept. 3, 2014) reach opposite conclusion.

Paying Wages with PaycardsGunawan v. Kforce Inc. also addressed a

paycard claimPaycards usually challenged under Labor Code

section 212 and 213Gunawan court held that employee has no private

right of action to sue under Labor Code sections 212, 213, 221, and 223

Civil penalties claim under Labor Code Private Attorney General Act (PAGA) still possible

Holak v. Kmart Corp., 2012 U.S. Dist. LEXIS 176331 (E.D. Cal. Dec. 12, 2012)

Paycards need to be voluntary, among other things

Inadequately Funded Contract LiabilityHawkins v. TACA Intern. Airlines, S.A., 223

Cal.App.4th 466 (2014)Labor Code section 2810 imposes liability for a

contract where entity “knows or should know” contract does not have sufficient funds to comply with law

Applies with construction, farm labor, garment, janitorial, security guard, and warehouse contractor

Cannot simply use “a pair of scissors and a paste pot” to draft a lawsuit, but must see and allege contracts

Important: Admission security company “has the ability to pay,” means contract was not underfunded

Arbitration Agreement Can Bar Labor Commissioner ClaimSonic Calabasas A, Inc. v. Moreno, 57

Cal.4th 1109 (2013)2011 decision prohibited waiving Labor

Commissioner hearing, allowed arbitration in lieu of trial de novo

U.S. Supreme Court told court to reconsiderNow: If covered by Federal Arbitration Act,

agreement can require arbitration instead of a Labor Commissioner hearing

Careful on Appealing Labor Commissioner Award into CourtPalagin v. Paniagua Construction, Inc., 222

Cal.App.4th 124 (2013)Timely bond or undertaking is “a condition to”

filing appealCourt lacks jurisdiction otherwise; it cannot

extend deadlineAmendment to Labor Code section 98.2

overturned 2006 Progressive Concrete decisionCourt ruled in favor of employer, who likely

would have avoided $80,000 award if it had been timely

The Labor Commissioner Took Too Long, But Wait. . . American Corporate Security, Inc. v. Su,

220 Cal.App.4th 38 (2013)Labor Commissioner found violation of Labor

Code section 98.6 . . . 3 years later!Demand letter insisted employer offer

reinstatement, plus pay $86,000 in backpay and $13,000 in interest

Employer filed writ petition. Court said must wait to raise defense in enforcement lawsuit filed by Labor Commissioner.

Tip Pooling Held OKAvidor v. Sutter’s Place, 212 Cal.App.4th1439

(2013)Earlier case held no private right of action under

Labor Code section 351, which declares tips the property of employee

Mandatory tip pool of a “drop” per hourCourt rejected unfair competition and

conversion claimsMandatory tip pooling ok under California law,

as long as employer’s “agent” not includedCustomer intent not relevantBe careful of federal law

California’s Piece Rate ProblemLabor Code section 200(a) defines “wages”

as including “all amounts for labor performed by employees of every description, whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other method of calculation.

Wage orders have the same definition

California’s Minimum Wage ComplicationSection 4(A) of the wage orders requires

pay at the minimum wage “for all hours worked”What does “all hours worked” mean?As long as the total pay exceeds the

minimum wage for all hours worked, is it legal?

Yes, but not in California

The Federal RuleFederal law requires minimum wage “in

any work week”Federal law permits averaging Medrano v. D’Arrigo Bros. Co. of California,

336 F.Supp.2d 1053 (N.D. Cal. 2004) held California follows federal rule

Settled issue?

What Time Must Be Paid as “Hours Worked”Two parts to definition in wage orders,

either: (1) the time during which an employee is “subject to the control of an employer,” or (2) “all the time the employee is suffered or permitted to work, whether or not required to do so”

“Control” interpreted by courts to mean whether the employee can use “the time effectively for his or her own purposes,” Morillion v. Royal Packing Co., 22 Cal.4th 575 (2000)

What Other Time Could Have to Be Paid?Meeting timeTrainingControlled waiting timePreparation time at the startCleaning up time at the end of dayTravel during the dayItems taken home for workExercise time

What About Paid Rest Periods?Wage Orders require paid rest periods of at

least 10 minutes“Authorized rest period time shall be

counted as hours worked for which there shall be no deduction from wages”

New heat “recovery period” breaks for cool down?

Ontiveros v. Zamora, 2009 U.S. Dist. LEXIS 13073 (E.D. Cal. Feb. 20, 2009)Auto mechanics paid a piece rate for

repairsNot paid separately for meetings, training,

setting up work stations, and rest breaksEmployer claimed “necessary and integral”

to piece work tasks, so paid by piece rateCourt disagreed, holding that all activities

must be paid separately, no averaging

Cardenas v. McLane Foodservices, Inc., 796 F.Supp.2d 1246 (C.D. Cal. 2011)

Drivers paid for number of cases delivered, miles driven, or stops

Not paid separately for pre- and post-shift activitiesRejected averaging, and claim that activities

“integral and necessary”Clear holding: “a piece-rate formula that does not

compensate directly for all time worked does not comply with California Labor Codes, even if, averaged out, it would pay at least minimum wage for all hours worked”

Rejected declarations from employees saying they understood piece rate compensated for everything

Quezada v. Con-Way Freight, Inc., 2012 U.S. Dist. LEXIS 98639 (N.D. Cal. July 11, 2012)Drivers paid piece rate by the mile, but also

hourly rate for loading and unloading timeNot paid separately for pre- and post-trip

inspection time, or for the first hour of waiting time

Court held cannot build in time for these activities into piece rate, must pay separately

If performing a task that prevents someone from earning piece rate, must be “directly compensated for that time.”

Balasanyan v. Nordstrom, Inc., 913 F.Supp.2d 1001 (S.D. Cal. 2012)Retail employees’ time included 30 minutes of

daily stocking assignments, and over 40 minutes of pre-opening and post-closing work

Could not average time to cover activities when commissions could not be earned

Holding: “employees must be directly compensated at least minimum wage for all time spent on activities that do not allow them to directly earn wages.”

Did not matter if employees signed agreement, because not lawful

Case settled for $7.5 million.

Enter the California Courts: Gonzalez v. Downtown L.A. Motors, LP, 215 Cal.App.4th 36 (2013)Auto mechanics againPaid piece rate per repair, with no separate

pay for waiting time between customers, getting parts, cleaning workstations, meetings, travel between locations, and reviewing service bulletins

Held averaging not allowed, separate pay required for non-repair tasks

Employer’s “minimum wage floor” did not save it

Bluford v. Safeway Inc., 216 Cal.App.4th 864 (2013)

Drivers paid piece rate for trips, hourly rate for other things

Rest breaks not paid separately, but Safeway claimed “part of the overall piece-rate compensation”

Court held this averaging not allowedConclusions: “a piece-rate compensation formula

that does not compensate separately for rest periods does not comply with California’s minimum wage law”

Also: an employer “is precluded from building compensation into its mileage rates for rest periods”

What Is the Potential Liability?Unpaid wages due at either minimum wage

or employee’s usual pay rateLiquidated (or doubled damages) on a

minimum wage claimWaiting time penalties of 30 day’s wages

for former employeePossible civil penaltiesAttorney’s fees

What to Do?Is it the end of piece rate or commissions only

as base pay? Likely, there will be much less.Evaluate whether you have any uncompensated

time, with piece rate, commissions, or notIf keeping piece rate or commissions only, find

a way to track and pay separately other time not covered by piece rate

Is there a need to track rest periods to pay them correctly? Probably so.

How to handle wage payment statements if paying for time separately?

Watch Out for These Recurring Issues that Still Drive Claims and LawsuitsRegular rate: Is everything included?Itemized wage payment statements: Is

everything there? Are the inclusive dates listed?

Semi-monthly pay periods: Are you always paying the same to non-exempt employees?

Deduction authorizations and final payFrequency of commission paySeating issues: Still in the hot seatMeal and rest period issues

PresenterPaul R. Lynd, Esq.Nixon Peabody LLPSan Francisco, CA415-984-8235plynd@nixonpeabody.com

— Partner, Labor and Employment group

— Represents a diverse group of clients in litigation in federal and state courts, as well as before administrative agencies

— General employment matters, with an emphasis on wage and hour issues.

— Advice and strategy, development and revisions of policies and plans, litigation prevention and defending employers in individual claims and class actions, leave and reasonable accommodation issue.

— Published California and federal decisions on important wage and hour issues involving bonus plans and class certification issues.