Court of Appeal on Reporting Time (Redux)

We first blogged about Aleman v. Airtouch Cellular here.  I was pretty excited because I'm a dork. Oh, and because the Court of Appeal addressed two issues that come up all the time for clients, but never in court:  "reporting time" and the "split shift" premium. You remember.  

Anyway, as I predicted, the Supreme Court granted review and held the case, which meant it had no precedential value and pretty much disappeared.  But it's back.  And if it stays on the books this time, it may result in a big change to advice that employment lawyers give their employer clients.

Here are the facts as explained by the Court:

Krofta was required to attend occasional work-related meetings. Most of these were ―store meetings, which would be held once or twice a month on Saturday or Sunday morning, before the store opened, and which would last an hour to an hour and a half. The meetings were scheduled in advance and listed on employees‘ work schedules, and they were recorded in AirTouch‘s electronic timekeeping system.

Krofta‘s timesheets from AirTouch showed that there were five occasions on which he was scheduled to work, and did work, less than four hours (possibly to attend meetings). Separately, the AirTouch timesheets showed there were five times when Krofta worked a split shift—described by the parties for purposes of this litigation as a short shift (generally a meeting) in the morning followed by a longer shift later the same day.

*** Krofta contended, however, that he was owed additional compensation as reporting time pay for the five instances he worked less than four hours, and split shift premiums for the five times he worked a split shift.

REPORTING TIME PAY

Here's how the court analyzed the reporting time pay provision contained in the Wage Orders.  This will result in a big change to advice employment lawyers give to employers:

To simplify, the issue may be framed by the following question: If an employee‘s only scheduled work for the day is a mandatory meeting of one and a half hours, and the employee works a total of one hour because the meeting ends a half hour early, is the employer required to pay reporting time pay pursuant to subdivision 5(A) of Wage Order 4 in addition to the one hour of wages? The answer to this question is no, because the employee was furnished work for more than half the scheduled time. The employee would be entitled to receive one hour of wages for the actual time worked, but would not be entitled to receive additional compensation as reporting time pay. . . . [W]hen an employee is scheduled to work, the minimum two-hour pay requirement applies only if the employee is furnished work for less than half the scheduled time

SPLIT SHIFTS

The court's treatment of split shift pay clarified ambiguity in the law regarding whether split shift premiums are due for workers who make a certain amount more than minimum wage:

Krofta contends that he was owed additional compensation for working split shifts under subdivision 4(C) of Wage Order 4. Subdivision 4(C) is located under the section \4. Minimum Wages. heading of the wage order. It states: \When an employee works a split shift, one (1) houres pay at the minimum wage shall be paid in addition to the minimum wage for that workday, except when the employee resides at the place of employment.. (Cal. Code Regs., tit. 8, ˜ 11040, subd. 4(C).) * * *

*** While subdivision 4(C) applied to Krofta, the provision did not provide him with any tangible benefit, since the total amount of his regular pay was significantly higher than the minimum amount required by subdivision 4(C).

No published California case has previously addressed this direct issue. However, although obviously not binding, a well-respected treatise (Chin et al., Cal. Practice Guide: Employment Litigation (The Rutter Group 2011)) has embraced the same interpretation of subdivision 4(C). The Rutter guide explains the provision thusly: ―[A]n employee earning the minimum wage who works eight hours on a split shift is entitled to receive nine times the minimum hourly wage.‖ (Id. at ¶ 11:682, p. 11-68.) ―This provision also applies to employees paid more than the minimum wage. However, such employees are only entitled to the difference between what they actually earned and what they would have earned had they been paid the minimum wage for their entire shift plus an extra hour.‖ (Id. at ¶ 11:683, p. 11-69.) ***

So, this means that an employee is not required to earn a split shift premium of one hour at minimum wage, unless he or she earns < (minimum wage * hours worked + (minimum wage * 1 hour)).

OTHER ISSUES

If the above weren't enough, this case keeps on giving. The Court held that a release of claims will lawfully include disputed claims for unpaid wages, despite Labor Code Section 206.5, a California statute prohibiting releases of wage claims.

The Court also clarified that on the reporting time claim, either party may seek attorney's fees under Section 218.5, which means that the employer won its fees against the plaintiffs.

So, happy Friday!  Monday won't be so bad either.

The case is Aleman v. Airtouch Cellular and the opinion is here.

California Supreme Court Takes Up Arbitration Again

I posted in detail about Iskanian v. CLS Transportation here.  (This is one of the post-Concepcion cases that address arbitration. )  The California Supreme Court just granted review here.  The Court eventually will explain how Concepcion affects California arbitration law.  But that could take some time... Unfortunately for employers, the Court's grant of review means the Iskanian decision is uncitable going forward.
DGV

California Workers' Compensation Reform Bill

Governor Jerry Brown just signed SB 863, a big workers' compensation reform package, supported by the Cal. Chamber. 

We don't practice in this area, but we know workers' comp. premiums are expensive for employers and administration is employers' responsibility. So, the bill is here.  If I see a good summary I will post it as well.

Much of the bill addresses how the workers' compensation appeals board and medical providers will go about their business.  The Cal Chamber believes it will result in improved efficiency and reduced fraud.  See here. I hope so!

Court of Appeal: Rare Opinion on Inside Sales Exemption

Tyrone Muldrow and a class of recruiters sued their employer, Surrex Solutions Corporation,  for unpaid overtime, meals and breaks.  The trial court held that the employees were exempt undre the "inside sales exemption" and that the company had adequately provided meals and breaks.  The Supreme Court issued a "grant and hold" order pending the decision in Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1037.

On remand after Brinker, the Court of Appeal reaffirmed its earlier decision.  It's blogworthy because of the discussion of the "inside sales exemption" under the wage order .

The exemption is contained in both wage order 4 and wage order 7.  The court did not address which wage order applies, but quoted from wage order 7:

California Industrial Welfare Commission (IWC) Wage Order No. 7-2001 exempts from this statutory overtime compensation requirement "any employee whose earnings exceed one and one-half (1 1/2) times the minimum wage if more than half of that employee's compensation represents commissions." (Cal. Code Regs., tit. 8, § 11070, subd. (3)(D).)

Under federal law, this is known as the "inside sales" or "7(i)" exemption.

For the above exemption to apply, the employees had to be "selling" a product or service. 

Appellants' primary job duty was to recruit "candidates" for employer "clients." Surrex's clients would place "job orders" with Surrex and appellants would search for potential candidates to fill the job orders. Appellants would use various resources to find candidates, including an internal database that Surrex maintained and various "on-line job boards."

The court decided that these recruiters were "selling" the recruiting services, and that the other activities they engaged in were part of the sales process.

The court then decided that the compensation the recruiters received were "commissions" because they were sufficiently related to the sales price - the revenue the business received for placements:

the sole argument that appellants offer to support their contention that the term "commissions" in the commissioned employees exemption (Cal. Code. Regs., tit. 8, § 11070, subd. (3)(D)) should be construed as excluding commission systems such as Surrex's, is that such a formula is "too complex." Appellants' contention that the Surrex's commission system is "too complex" is neither factually accurate nor legally relevant. The formula was clearly stated in the employees' employment agreements and, in most cases, could be calculated simply by knowing the candidate's "bill rate" and "pay rate" (both of which the consulting service managers, themselves, negotiated).15 In any event, appellants fail to cite any authority for the proposition that complexity is, or should be, a factor in determining whether a compensation scheme constitutes a commission under relevant California law.

The court also decided that the commission plan was "bona fide" because the commissions regularly exceeded draw.

So, the court decided that the trial court was correct because the inside sales exemption applies.


There are a couple of things the court did not decide that might have affected the outcome. First, the court did not appear to actually decide if Wage Order 4 or 7 is the correct one. The court quoted from Wage Order 7, which applies to all employees working in the "mercantile" industry.   The definition of "mercantile" applies to the sale of goods, not recruiting agencies. From the Wage Order: "'Mercantile Industry' means any industry, business, or establishment operated for the purpose of purchasing, selling, or distributing goods or commodities at wholesale or retail; or for the purpose of renting goods or commodities."

Rather, Wage Order 4 applies to occupations such as office workers, if an industry order does not apply.

The applicable Wage Order actually does not affect the exemption under California law because that exemption is contained in both Wage Order 4 and 7. (The Court should have cited the correct one, though).   The issue, though, is that the federal "7(i)" exemption applies only to "retail" establishments. In fact, the applicable Department of Labor regulations specifically exclude employment agencies from the definition of a retail establishment. See regulation here.  I can't say for certain that Surrex is not a "retail" establishment under federal law, but someone probably should take a look at that issue if he/she hasn't already. 

This is one of the few instances in which California law is less generous than federal law. Although an employee may be exempt under California law, if an employee is not "exempt" under federal law, then federal law will require overtime for work performed over 40 hours in a work week. I may have missed something, but the court's opinion does not seem to address federal law, or the wage order issue. Yet, the court does acknowledge the existence of the 7(i) exemption at footnote 14 of the opinion. Annnyyyway, I may be nuts, or someone has some splaining to do, or both! The message to our dear readers remains:   Please do not apply the inside sales exemption unless you consider both state and federal law.
 The case is Muldrow v. Surrex Solutions Corp. and the opinion is here.  

Remember to vote

No, no....not that vote.  The ABA is collecting its Top 100 law blogs.  Over 5 years of bloggery and over 500 posts, and we've never won a Webbie, an Emmy or even a scratch ticket. 


Please remedy this oversight by voting for your favorite blogs, and this one too, at the ABA's site.

Thanks!

Court of Appeal: No Waiver of Arbitration and No Class Action Either

The Court of Appeal overturned a trial court's denial of the employer's motion to compel arbitration.  Here are some key points:

1.  The Court of Appeal expressly recognized that an arbitration agreement that is silent regarding class actions cannot be read to require classwide arbitration.

[A] party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so. . . . As the Arbitration Agreement explicitly covers the type of claims that are the subject of Reyes‘s lawsuit and provides only for bilateral arbitration, there is no contractual basis for concluding the parties agreed to submit to class arbitration. Therefore, we conclude that the Arbitration Agreement does not authorize class arbitration.

2. The court held that the employer did not waive the right to arbitrate, even though it did not cite the arbitration agreement in the answer, and though it conducted lots of discovery in court.  The reason is that the employer likely would not have prevailed on a motion to compel arbitration until the U.S. Supreme Court issued its decision in AT&T Mobility v. Concepcion  (2011) 563 U.S. ___ [131 S.Ct. 1740, 179 L.Ed.2d 742].  Therefore, the employer did not "waive" the right to arbitrate, when seeking arbitration would have been futile.

3.  Like pretty much every other court, the court here refused to follow the National Labor Relations Board's decision in DR Horton (holding that arbitration agreements cannot require class action waivers unless the employee can bring a class action in court). 

The decision is Reyes v. Liberman Broadcasting and the opinion is here.

DGV