Sit Down. Rest for a Period. OK, Now Get Up and Rewrite All Your Policies and Procedures.

The California Supreme Court has just issued a Christmas present to the plaintiffs' bar. The Court was generous with a coal delivery to employers as well.  

OK, holiday segue over.  Whatever you thought you knew about rest breaks in California was wrong.  The high Court today decided Augustus v. ABM, which presented two issues: 

1.  Must an employee be relieved of all duty for a paid, ten-minute, rest period? 

2.  If you are "on call" during a  rest period, does it count as a lawful break? 

The Court in a 5-2 opinion decided these questions "Yes," and "No." And that means employers must institute major changes and that there will be waves of new class action lawsuits in 2017.  

A Little Background

The case arose in the security guard industry.  ABM required its guards to take rest breaks with pagers in case there was a need for their services.  There was disputed evidence over whether they actually were bothered during breaks, and how often.  There was evidence that employees were able to surf the internet, eat snacks, etc. even while tethered to that pager for the ten minutes of break time that must occur every four hours (or major fraction thereof) under California law.  

A trial judge in LA granted the plaintiffs' motion for summary judgment and awarded the class some $90 million in penalties, including an hour of penalty time for each day worked.  Because the employees were on call, the trial court said, they were NEVER on break.  The court of appeal reversed that decision and held that being on call, without being called, is still a break. 

Supreme Court Decision 

The Supreme Court, however, agreed with the trial court. Here is the Court's rule regarding rest periods:

state law prohibits on-duty and on-call rest periods. During required rest periods, employers must relieve their employees of all duties and relinquish any control over how employees spend their break time.  

I'll spare you the analysis.  Essentially, the Court decided that only a completely duty-free rest period fulfills the Legislature's intent of promoting employee welfare and safety. Justice Cuellar, one of the two new justices, authored the majority opinion.  The other new member of the Court, Justice Kruger, wrote a concurring / dissenting opinion, joined by Justice Corrigan.

This holding has several consequences:

1.  Relieving employees of all duties is the same standard as the Court previously applied to meal periods in the Brinker case.  Yes, rest periods are paid, while meal periods are not.  Yes rest periods  are only 10 minutes; meal periods are 30 or more.  None of that matters.  

2.  To ensure the employee is relieved of all duty, employers must treat employees during rest periods the same as they are treated for meal periods. No rest breaks at your desk or in the work area if being in the work area means the employee is even potentially going to be interrupted.  No requiring employees to help customers if they come in during the break.  Potential interruption - being on call - means a non-compliant break.  A non-compliant break means a one-hour penalty per day.   

3.   Employers should schedule rest periods and should be able to explain how there is "coverage" for the employees on break. Breaks should be structured and managed so the employee is incapable of helping a customer or even discussing work with a manager.  There should be a rest area, where management is trained employees are off limits.  Or, if possible, employers may require employees to leave the work area or go outside.   Employers in certain circumstances may have to consider hiring extra workers to cover rest periods to prove that they receive employees of all duty. 

4.   "Relinquishing control" requires changes.  It was generally understood that an employer could restrict an employee from leaving the work premises during a paid rest period.  Under California law, prohibiting employees from leaving the premises is "control."  That is why employers cannot restrict employees from leaving during meal periods. Recognizing that rest breaks are shorter than meal periods, the Supreme Court expressly stated that an employee's inability to leave the premises and timely return from break does not constitute employer "control" in the rest break context. But the Court did not say employers can require employees to remain on premises, either.  So, from a risk avoidance standpoint, the safer practice is to banish employees from the work area. (Of course, if an employee returns from break late, the employee is subject to discipline. And that employee will claim retaliation for taking a break.)  

5.  Naturally, employers may find the above restrictions unreasonable. When interruptions happen, as they must from time to time, the Court noted that the break can be rescheduled, or the employer can pay the penalty.  However, the Court also mentioned that regular interruptions are not allowed.

6.  Employers' rest period policies should affirmatively state that employees are free from any duty, must take breaks as scheduled, and are prohibited from working, being available to work, etc. during rest periods. 

7.  The Court noted that the DLSE has the power to grant exemptions under certain circumstances when it is impossible to afford employees completely duty free breaks.  The exemption provision is section 17 of Wage Order No. 4.  Employers may wish to become familiar with this provision and, if appropriate, use it. 

17. EXEMPTIONS
If, in the opinion of the Division after due investigation, it is found that the enforcement of any provision contained in Section 7, Records; Section 12, Rest Periods; Section 13, Change Rooms and Resting Facilities; Section 14, Seats; Section 15, Temperature; or Section 16, Elevators, would not materially affect the welfare or comfort of employees and would work an undue hardship on the employer, exemption may be made at the discretion of the Division. Such exemptions shall be in writing to be effective and may be revoked after reasonable notice is given in writing. Application for exemption shall be made by the employer or by the employee and/or the employee’s representative to the Division in writing. A copy of the application shall be posted at the place of employment at the time the application is filed with the Division.

8. Caveat: This case is decided under Wage Order 4, a wage order that applies to many office workers and other occupations not covered by the Industry Orders.  The other Wage Orders also contain rest period provisions. Some are different (such as Wage Order 5's).  So, read your wage order and know which one(s) apply before assuming Augustus is applicable to your business. (In most cases, it is.)  

Status of On-Call / Standby Time After Augustus?

You may ask yourself, if merely carrying a pager does not constitute being "relieved of duty," then must I now pay my employees when they are at home, "on call"?  And must unpaid on-call employees be given paid, duty free rest periods? 

No. The standards regarding rest breaks at work are not the same as the standards applicable to employees who are "on call" at home.  Why? Because the Supreme Court said so:

Plaintiffs argue that the on-call break time here constituted compensable work under Mendiola, supra, 60 Cal.4th 833, so there was no way it could satisfy ABM‘s obligation to provide duty-free rest periods. ABM cites Mendiola for the opposite proposition. But Mendiola is distinguishable. For one thing, shifts lasting eight hours (e.g., Mendiola) or longer (Madera Police Officers Assn. v. City of Madera (1984) 36 Cal.3d 403, 412 [involving 24-hour shifts]) are significantly different from breaks, which are short in duration, break up work periods, and thereby protect employees‘ health and safety (Murphy, supra, 40 Cal.4th at p. 1113). For another thing, factors relevant to the extent of employer control during an on-call shift of eight hours or more are inapposite in the context of a rest or meal period. (Mendiola, at p. 841 [e.g., on-premises living requirement, excessive geographical restrictions, etc.].)

The Court's statement, appearing in a footnote, means that this case has nothing to do with "on call" time occurring when the employee is punched out.

So, that's Augustus v. ABM.  The opinion is here.  It is a major decision about rest periods that require virtually all employers to review policies and make changes. 

IRS Mileage Rate for 2017

As we say goodbye (go away, and never come back) to 2016, let's make sure you're ready for the New Year.

Big changes are in store.  And by big changes, I must mean the IRS Standard Mileage Rate.  That's the rate at which employers may reimburse employees for use of their personal vehicles for work without creating reportable income.  I know you've been waiting for this post all year.

The 2017 Standard Mileage Rate will be as follows:

Beginning on Jan. 1, 2017, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 53.5 cents per mile for business miles driven, down from 54 cents for 2016
• 17 cents per mile driven for medical or moving purposes, down from 19 cents for 2016
• 14 cents per mile driven in service of charitable organizations

So, that's a decrease of one cent per mile for business reimbursement.

Here's the link to the IRS's own website.

The next post is longer and very unsettling about rest periods.  So I'll use this post to wish you happy holidays, Merry Christmas and happy new year!

Court of Appeal: Wage Statements Need Not Include Vacation and PTO Balances

Labor Code section 226 explains in detail what information must be included in an itemized wage statement, which must accompany paychecks in California.  Here are the section's requirements:

(1) gross wages earned, 

(2) total hours worked by the employee, except for any employee whose compensation is solely based on a salary and who is exempt from payment of overtime under subdivision (a) of Section 515 or any applicable order of the Industrial Welfare Commission, 

(3) the number of piece-rate units earned and any applicable piece rate if the employee is paid on a piece-rate basis, 

(4) all deductions, provided that all deductions made on written orders of the employee may be aggregated and shown as one item, 

(5) net wages earned, 

(6) the inclusive dates of the period for which the employee is paid, 

(7) the name of the employee and only the last four digits of his or her social security number or an employee identification number other than a social security number, 

(8) the name and address of the legal entity that is the employer and, if the employer is a farm labor contractor, as defined in subdivision (b) of Section 1682, the name and address of the legal entity that secured the services of the employer, and 

(9) all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee and, beginning July 1, 2013, if the employer is a temporary services employer as defined in Section 201.3, the rate of pay and the total hours worked for each temporary services assignment.

The deductions made from payment of wages shall be recorded in ink or other indelible form, properly dated, showing the month, day, and year, and a copy of the statement and the record of the deductions shall be kept on file by the employer for at least three years at the place of employment or at a central location within the State of California. For purposes of this subdivision, “copy” includes a duplicate of the itemized statement provided to an employee or a computer-generated record that accurately shows all of the information required by this subdivision.

Oh, but if you pay a piece rate, you also have to comply with section 226.2:

(a) For employees compensated on a piece-rate basis during a pay
period, the following shall apply for that pay period: * * *  

(2) The itemized statement required by subdivision (a) of Section 226 shall, in addition to the other items specified in that subdivision, separately state the following, to which the provisions of Section 226 shall also be applicable: 

(A) The total hours of compensable rest and recovery periods, the rate of compensation, and the gross wages paid for those periods during the pay period.

(B) Except for employers paying compensation for other nonproductive time in accordance with paragraph (7), the total hours of other nonproductive time, as determined under paragraph (5), the rate of compensation, and the gross wages paid for that time during the pay period.

So, do you see vacation or PTO balances there?  Me neither.  Neither did the Court of Appeal, which rejected the plaintiff's claim in Soto v. Motel 6 Operating LP (opinion here).  The Court wrote:

section 226(a) is highly detailed, containing nine separate categories that must be included on wage statements, and the code section does not identify accrued paid vacation as one of these categories. (See fn. 2, ante.) When a statute omits a particular category from a more generalized list, a court can reasonably infer a specific legislative intent not to include that category within the statute's mandate. (See Blankenship v. Allstate Ins. Co. (2010) 186 Cal.App.4th 87, 94.)
*  *  *  *
[V]acation pay cannot be fairly defined as "gross wages earned" or "net wages earned" under section 226(a)(1) or (a)(5) until the termination of the employment relationship. The employee has vested rights to paid vacation or vacation wages during the time of his employment, but these rights do not ripen and become an entitlement to receive the monetary value of the benefit as wages until the separation date. (Church, supra, at pp. 1576-1577, 1583; see Suastez, supra, 31 Cal.3d at p. 784.) Further, before separation, the amount of vacation pay to which the employee is entitled is not ascertainable. An employee is entitled to obtain the value of unused paid vacation at his or her "final rate." (§ 227.3, italics added.) Because the amount of unused vacation and an employee's final rate may change, an employee's accrued vacation balance depends on the particular circumstances at the employment termination date.

This will help employers not only with claims that vacation / PTO belong on the wage statement, but also with other items not included in section 226.  Section 226 also requires employers to provide a copy of payroll records that include only the above 9 items.  Plaintiff lawyers argue that section 226 requires more than what is listed. This decision in Soto should put that issue to rest. 

One more tip:  employers have to report paid sick leave on the wage statement (or in a separate document) per  Labor Code section 246, subd. (h):

(h) An employer shall provide an employee with written notice that sets forth the amount of paid sick leave available, or paid time off leave an employer provides in lieu of sick leave, for use on either the employee's itemized wage statement described in Section 226 or in a separate writing provided on the designated pay date with the employee's payment of wages.

Therefore, employers that rely on PTO in lieu of mandatory paid sick leave might well have to provide the PTO balance on the wage statement (or in the separate document).  Apparently that was not the case in the Soto case, or no one brought it up.   

Be careful out there.

New Laws for 2017 - Shaw Valenza's Annual Employment Law Update

We're not publishing here on the blog as regularly as we'd like. And there are just too many new laws to cover.

The California legislature was very busy last year.  Everything from a separate retirement plan for employees without an employer 401k, to expanding the equal pay law to race and "ethnicity," to a phased in $15.00 minimum wage, to penalties for mishandling I-9 verification, and more.  Long quiet, the federal government is going after employers as well, with agency decisions and regulations.    Joint employer rules, paid sick leave for federal contractors,  Let's not forget the many court decisions that shape the law in new and exciting ways (unrelated to class action certification or arbitration, even).

With the blog publishing less frequently, where o where can one get accurate summaries of the important employment law changes that will affect HR and business people in 2017?

Thank you for that excellent question.  The answer is:  SV's annual employment law update. We've been doing it for years and years.  No lie: the live sessions almost always sell out.  The webinar is available, but live is always better.

As of now, we have a live session in Sacramento now set for December 1. Get info here.
Our first webinar is set for January 19, 2017. Info is here.

Please tell your friends too.  They'll thank you, assuming they have some interest in employment law. Otherwise, they'll probably be annoyed.

Best.

Federal Contractors: Federal Paid Sick Leave Final Regulations Are Here

California employers have to provide paid sick leave.  How much paid leave, and how to administer it, depends where your business is located within the Golden State.  There is a statewide law, and a growing list of local ordinances.  San Francisco, Oakland, Emeryville, and Los Angeles are some of the localities that have passed ordinances.  Employers trying to harmonize state and local law must  provide leave on whatever terms are most generous.  That can cause some traps, particularly with respect to how the leave accrual is counted.  And don't forget the posters!

Sure, California could pass a law preempting the local ones to make life easier for employers and still provide employees with leave. But making things easier for employers is just not job 1 at the Legislature.

Now, there is yet another law that requires employers' attention. Back in September 2015, President Obama issued an Executive Order, No. 13706, in which he ordered employers with federal contracts to provide employees working on those contracts with paid sick leave.  The US Department of Labor issued proposed regulations, which are now final.

A summary of the regulations, the comments and the final regulations are in this very long PDF. 

To break it down,

 - the first 10 pages contain a summary of the various regulations
- the next 394 pages are a detailed analysis including responses to the 35,000 comments that were submitted regarding this regulation.
- Page 404 of the PDF is where the regulations begin.

What is  a Contractor and What Contracts are Covered? 

Section 13.2 (p. 406 of the PDF) of the new regulation defines who is a federal contractor, covered by the rule:

Contractor means any individual or other legal entity that is awarded a Federal
Government contract or subcontract under a Federal Government contract. The term contractor refers to both a prime contractor and all of its subcontractors of any tier on a contract with the Federal Government. The term contractor includes lessors and lessees. The term employer is used interchangeably with the terms contractor and subcontractor in various sections of this part.

Of note, the term "employee" is defined (pp. 410-411 of the PDF) as limited to those who work on federal contracts. So, employers that have operations that are separate from servicing the federal contract are not covered by this rule.

The coverage of the types of contracts that the regulation applies to is explained in section 13.3, at pp.  417 et seq. of the PDF.

What Is the Sick Leave Entitlement?

That's explained in section 13.5 of the regulation, beginning at page 420 of the PDF.

a contractor shall permit an employee to accrue not less than 1 hour of paid
sick leave for every 30 hours worked on or in connection with a covered contract. A contractor shall aggregate an employee’s hours worked on or in connection with all covered contracts for that contractor for purposes of paid sick leave accrual.

However,

A contractor may choose to provide an employee with at least 56 hours of paid sick leave at the beginning of each accrual year rather than allowing the employee to accrue such leave based on hours worked over time.

So, like California and other jurisdictions, the sick pay accrues at one hour for every 30 hours worked.  More generous than California, the federal entitlement maxes out at seven, eight-hour days.
And the employer can front-load 56 hours to the employee rather than accrue over time.

There are rules regarding "carrying over" at page 423-24 of the PDF.

Pages 425-428 include the terms of the leave, documentation the employer may require, and more.

Pages 428-431 cover the medical certification the employer may require.

Enforcement
The regulation provides for no private enforcement of the paid sick leave law.  Employees claiming a violation of the regulation must proceed through the Department of Labor.

The DOL will investigate and try to address any violations. However, the DOL may sue an employer or seek "debarment" from federal contracts.


Recordkeeping
  Section 13.5 of the regulations require employers to maintain a record of the sick leave employees have accrued and used, and furnish information to employees with the paycheck or online.
 Section 13.25 (page 441 of the PDF) requires contractors to keep a variety records for three years.
That section also requires employers to keep detailed records if they wish to segregate employees' hours worked on federal contracts versus non-contractor work.

Poster
Of course. Section 13.26 describes the obligation to post a notice prepared by the DOL.

*  *  *
Unless Congress or the new president rescinds this rule, it will go into effect.  So, employers with federal contracts, please get ready for the new sick leave obligation, create policies, and determine how you will address sick leave for employees who are not working on the contract.

Finally, I tried my best to summarize 460 pages of rule making and analysis.  If I left anything out important to you or your business, please accept my apologies.  It's best if you click the link above and read the rules along with your employment counsel!

Now please excuse me, I'm feeling a little sick.  SWIDT?

CA Employers: Learn Your I-9 Rules or Pay Up to $10,000

The employment of more undocumented immigrants, formerly known as illegal aliens, remains a top priority for the California legislature.  Whatever you think of that, the policy creates a dilemma for employers. 

The dilemma is that it remains illegal under federal law for employers to knowingly hire or retain those who are not authorized to work in the U.S.  So, employers are supposed to follow immigration law. But the California Legislature does not want employers to follow it too hard, you know? 

This year's disincentive for employers to follow immigration law is called AB 1001 (here).  It will be Labor Code section 1019.1.  

First, this law provides it is unlawful for an employer, while doing its duty under federal immigration law, to 

(1) Request more or different documents than are required under Section 1324a(b) of Title 8 of the United States Code.

So, that means that the employer is limited to asking for what the I-9 authorizes. So far so good.  Employers should be doing that anyway. 

Second, the law makes it illegal for an employer to:

(2) Refuse to honor documents tendered that on their face reasonably appear to be genuine or 

(3) Refuse to honor documents or work authorization based upon the specific status or term of status that accompanies the authorization to work.

Who gets to decide what "reasonably appears to be genuine"? And what does (3) even mean? We should call a lawyer!  Anyway, this section will create an incentive for employers to let false documents pass.  Of course, if a federal I-9 audit reveals the employer should have caught the false documentation, well that's not part of the calculus.

Third,  if an employer learns that someone has falsified information or is illegal to work, or if the authorization documents expire, employers are supposed to re-verify authorization, no?  Not so fast, employers.  It's now illegal for an employer to 

(4) Attempt to reinvestigate or reverify an incumbent employee’s authorization to work using an unfair immigration-related practice.

Ok, I'll bite: What's an "unfair immigration-related practice" and how does one know she is engaging in that practice?

So, what are the consequences for violating section 1019.1? 

 - an applicant or a representative of the applicant, such a union, presumably, can file a complaint with the Labor Commissioner;

- The Labor Commissioner can make an order of "equitable relief."  Yes, back pay is a form of equitable relief.  So is reinstatement. 

- AND, the Labor Commissioner can assess a penalty of up to $10,000.

So, employers must ensure they are complying with the I-9 rules to the letter. Deviations regarding documentation and re verification can lead to heavy financial penalties under state law, in addition to penalties possible under federal law for being too lax. 

Yikes. 

A Couple of New California Employment Laws that Require Attention

Here are two recently signed laws that will go into effect 1/1/17.

First, the Legislature re-drafted the Labor Code provision that prohibits asking applicants about arrests, convictions that have been expunged, or about misdemeanor marijuana possession charges more than 2 years old, etc.

The new bill, numbered AB 1843 (here) makes it unlawful to ask applicants to disclose

an arrest, detention, processing, diversion, supervision, adjudication, or court disposition that occurred while the person was subject to the process and jurisdiction of juvenile court law.

Is a "court disposition" a conviction?  Don't know.  But the statute also cryptically says:

For purposes of this section, “conviction” does not include, and shall not be construed to include, any adjudication by a juvenile court or any other court order or action taken with respect to a person who is under the process and jurisdiction of the juvenile court law.

There are also special provisions regarding conviction / arrest inquiries applicable to public sector police / peace officer applicants, the health care industry, and certain occupations. So, read the law carefully and ask your lawyers for more detail.

And now, a mini-rant! I know that's why you come here.   

I'm not sure who's writing these statutes nowadays. But "does not include" and "shall not be construed to include" is entirely unnecessary repetition. And why say "court disposition" when they could say something more clear?  These California employment laws are getting longer and less comprehensible. Good for me; good for plaintiff lawyers; bad for our clients.

Anyway, you'll have to ensure conviction inquiries on application forms etc. are modified. 

* * * 

The second law could be a game changer for out of state and multi-state employers. 

SB 1241 (here) prohibits employers from requiring, as a condition of employment, that an employee agree to 

- litigate or arbitrate a dispute outside of California. For example a NY-based employee cannot require an employee to litigate or arbitrate his or her dispute in NY court.  This is a prohibition on "choice of venue" or "forum selection clauses." 

- a "choice of law" clause that requires another state's law to apply to a dispute.   So a multi-state employer that has a confidentiality / trade secret agreement cannot provide for another state's law to apply in the case of a dispute. 

Note - though that the law is applicable only to an employee who "primarily" resides AND works in California.  In wage-hour law, primarily means more than 50%.  Here, however, that term is not defined.  The law, then, will not apply to employees who do not primarily live in California.  It also will not apply to employees who work in more than one state, if California is not the "primary" state. 

The bill says that the provision is "voidable" by the employee, which means it is not illegal as written, but the employee can object to it and have it struck.  If it is struck then the matter must be litigated in California under California law. 

The new law also allows employees to challenge these provisions and receive an award of attorney's fees. However, the fee provision is "one way" and employers therefore will not be awarded fees if they win. 

Finally, this new law does not apply if a lawyer represented the employee when the employee agreed to the choice of law / venue provisions in the employment agreement. 

The law takes effect January 1 and applies not only to new agreements, but also to any agreement "modified" or "extended" after that date. 

So, the new law does not appear to apply to post-hire agreements unless modified or extended after 1/1/17. But it  will apply if  employment is conditioned on the agreement (e.g., the employee is fired if s/he doesn't agree).  It also does not appear to apply to separation agreements. 

This new law, however, will affect offer letters, confidentiality agreements, bonus plans, and restrictive covenants.  

California Department of Industrial Relations and Labor Commissioner Create Complaint Hotline

Employees who think their employer is not paying wages or following other California labor laws can now lodge complaints with the Department of Industrial Relations, which includes the state Labor Commissioner's office.  See the press release here.

This new system allows workers to fill out an online form (here) to report violations.  The report does not constitute a claim for the employee's own wages, which would have to be filed separately.   However it is unclear what the agencies will do with the reported info.

The online system ensures that employees do not harass employers by filing bogus complaints, or makes reports about matters that have nothing to do with the Labor Commissioner.  Ha, I kid.  Of course disgruntled employees will use the system to beat on their former employers.

So, forewarned is forearmed.  Despite my cynical comment above, most employees do not want to turn their bosses in.  So, it's important to keep up on the wage-hour requirements, pay your employees in accordance with the law, etc.

But it's also important to give employees a way to raise concerns internally, so they do not go to external resources.  If employees have no recourse within your organization, they'll find another way.

Ninth Circuit Holds Class Action Waivers in Employment Agreements Violate the National Labor Relations Act

A panel of the Ninth Circuit Court of Appeals held 2-1 that class action waivers in arbitration agreements violate the National Labor Relations Act.

In an opinion by Chief Judge Sidney Thomas, the divided panel's majority decided that the National Labor Relations Board correctly decided that class action waivers violate the National Labor Relations Act because they require employees to give up "concerted activity" - joining together in a group to address wages, hours, and other terms and conditions of employment.

The majority's rationale is that a class action waiver is a waiver of the right to act in concert - a substantive right under the NLRA. Therefore, the employee is not merely waiving the right to a class action; the employee is waiving the right to section 7 of the Act.  And that's not legal.  Because it's not legal, the arbitration provision is not enforceable, notwithstanding the Federal Arbitration Act.
The Court took special pains to emphasize that it was not holding that a class action waiver is illegal because it requires arbitration.  The opinion emphasizes that any class action waiver - even one that did not require arbitration at all - would be illegal.

So, never mind that

- Many employees who might be subject to an arbitration agreement with a class action waiver,  such as supervisors,  are not covered by the NLRA;
- Many employees who might be subject to an arbitration agreement with a class action waiver are former employees who are not engaging in protected, concerted activity to improve working conditions;
- There was no such thing as a class action in 1937 when Congress passed the NLRA;
- a class action is a procedural tool, the Supreme Court has held, not a substantive right;
- a class action is frequently asserted by one employee on behalf of a putative class, the members of which have no rights as parties and often do not even know someone filed the lawsuit;
- The Fifth, Second, and Eighth Circuits, and the California Supreme Court for that matter, have held that the NLRB got it wrong; and
- The Supreme Court has held that class action practice is incompatible with arbitration. 

None of that makes any difference. Judge Ikuta discussed some of these points and others in her dissent.

The court left open the possibility that the parties could arbitrate the class action if the employer desired.  The court also held that nothing in the decision limited arbitration of the claims asserted in the case.  The employees, however, would not be precluded from proceeding as a putative class if the district court decides to "sever" the class waiver.

So, the Supreme Court is going to have to take a look at this issue.  Until then, class action waivers are on shaky ground in the 9th Circuit.

Two things, however:

1. The California Supreme Court has held that the NLRB was wrong and the NLRA does not preclude class waivers.  So, state courts probably have to follow the California Supreme Court unless or until that Court changes its mind.

2. The Ninth Circuit held in Johnmohammadi v. Bloomingdale's, Inc. 755 F.3d 1072 (9th Cir. 2014), that an employer does not violate the NLRA when it gives employees the chance to opt-out of an arbitration agreement containing a class waiver.  Here's what the Court said:

We can quickly dismiss any notion that Bloomingdale’s coerced Johnmohammadi into waiving her right to file a class action. Bloomingdale’s did not require her to accept a class- action waiver as a condition of employment, as was true in In re D.R. Horton, Inc., 357 N.L.R.B. No. 184, 2012 WL 36274 (Jan. 3, 2012), enforcement denied in part, 737 F.3d 344 (5th Cir. 2013). Bloomingdale’s gave her the option of participating in its dispute resolution program, which would require her to arbitrate any employment-related disputes on an individual basis. As the district court found,
Johnmohammadi was fully informed about the consequences of making that election, and she did so free of any express or implied threats of termination or retaliation . . . 

Therefore, at least in the 9th Circuit, and at least for now, it is necessary to include an opt-out provision and to explain the consequences of the arbitration provision containing a class waiver.  Good drafting, therefore, can save the class waiver. 

This case is Morris v. Ernst & Young LLP and the opinion is here. 

Don't Wait for the $15 Minimum Wage - San Francisco's Goes Up to $13 Today!

If you know someone doing business in San Francisco, remember to let that special person know that the minimum wage goes up to $13.00 per hour effective today.  The SF minimum wage web page with access to the poster etc. is here.

As of today, you can hire someone in LA for just $10.50 per hour. (here).  But LA is going to increase that wage to $15.00 within the next few years.  And LA just doubled the statewide paid sick leave entitlement!

Happy July 4 everyone.

Happy 10th Anniversary Shaw Valenza LLP

Yep, lil ol' Shaw Valenza LLP is now officially lil' AND 10 years old as of 6/19.

The blog is turning 10 in a week or so too. And that means it's time to thank you once again for reading and passing along to your colleagues and such.  Thank you!

Jennifer and Greg

Ninth Circuit: Pay In Lieu of Benefits Is Included in the Regular Rate of Pay

for Overtime Purposes, Even.

Yes, this is what they call a "case of first impression." That means no court has decided the issue before.  The issue the Ninth Circuit Court of Appeals decided is this:

Although the value of benefits are obviously not included in the overtime calculation, the cash equivalents that employers sometimes pay "in lieu" of benefits count as wages that would be included.  This decision will apply in California because federal law applies everywhere.

So, let's back up. The City of San Gabriel had in place a "Flexible Benefits Plan" under which it allowed employees to take cash in lieu of certain health care benefits under certain circumstances, explained here:

The City provides a Flexible Benefits Plan to its employees under which the City furnishes a designated monetary amount to each employee for the purchase of medical, vision, and dental benefits. All employees are required to use a portion of these funds to purchase vision and dental benefits. An employee may decline to use the remainder of these funds to purchase medical benefits only upon proof that the employee has alternate medical coverage, such as through a spouse. If an employee elects to forgo medical benefits because she has alternate coverage, she may receive the unused portion of her benefits allotment as a cash payment added to her regular paycheck. 

The city designated these cash payments "benefits" and did not include them in the regular rate of pay for overtime purposes.

The city argued that these payments were excluded from overtime calculations and the regular rate under the Fair Labor Standards Act's section 207(e)(2), which excludes:

payments made for occasional periods when no work is performed due to vacation, holiday, illness, failure of the employer to provide sufficient work, or other similar cause; reasonable payments for traveling expenses, or other expenses, incurred by an employee in the furtherance of his employer’s interests and properly reimbursable by the employer; and other similar payments to an employee which are not made as compensation for his hours of employment.

The Ninth Circuit panel was concerned with the phrase "other similar payments to an employee which are not made as compensation for his hours of employment."  The court decided that the DOL's regulations and court's precedents did not include these payments in lieu of benefits.  Because pay in lieu of benefits did not fall within "other similar payments" they would be part of the regular rate.  

The court also noted that section 207(e)(4) expressly excludes the value of the benefits themselves from the regular rate. However, rather than treating the cash in lieu as a benefit equivalent, the court said that the payment "in lieu" meant that the cash was not a benefit at all.  Of note, the court found that the cash payments were made directly to the employees, whereas section 207(e)(4) requires payment of the benefit premiums to a third party such as a benefits trust. The regulation interpreting section 207(e)(4) actually permits payment of cash in lieu of benefits, but caps the amount at 20%.  The city's payment was more.

To add insult to injury, the court also found that the city's violation of the FLSA here was "willful" resulting in a 3-year statute of limitation and the availability of "liquidated" or double damages for the violation. The court believed the city did not do enough to research the law in the area, even though there was no case law on the subject (!).  This holding drew comment by two of the three judges that the court should re-examine its standards for finding "willfulness."

Cute disclaimer: I'm not an ERISA lawyer and I did not stay in a Holiday Inn Express last night. (No cookies).  Also, employers may or may not have discontinued these plans under the Affordable Care Act.  And the case might have come out differently if the pay-in-lieu were administered through a third party trust or administrator because it might have fallen within the section 207(e)(4) exemption. So don't panic until you check with qualified benefits counsel. 

However, this case is important if employers continue to offer pay in lieu of benefits, or if it did so within the past three years.  It also is important because it underscores the need for employers to consider whether payments to employees are properly included or excluded from overtime, and how overtime is calculated.  Again, although this is an FLSA case, it will have an impact in California. So heads up.

This case is Flores v. City of San Gabriel and the opinion is here. 

Arbitration Class Action Waivers - Trouble Brewing?

There are pros and cons associated with mandatory arbitration agreements.  Yes, everybody knows that.  One of the biggest "pros" is that an employer can insist that employees arbitrate only individual claims, not class claims.  Or can it?  That's what may be under re-consideration...

The U.S. Supreme Court supposedly settled this issue some years ago in AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 333, 131 S. Ct. 1740, 1742 (2011).  There, the Court, in a nutshell, held:

the overarching purpose of the FAA, evident in the text of §§ 2, 3, and 4, is to ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings. Requiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.

The Supreme Court in Concepcion expressly invalidated a line of California precedent, in which the California courts had held that class action waivers in arbitration agreements were unconscionable and void against public policy.

The California Supreme Court recognized Concepcion's rule in its landmark Iskanian ruling:

Concepcion held that the FAA does prevent states from mandating or promoting procedures incompatible with arbitration. The Gentry rule runs afoul of this latter principle. We thus conclude in light of Concepcion that the FAA preempts the Gentry rule.

Iskanian v. CLS Transp. L.A., LLC, 59 Cal. 4th 348, 366, 173 Cal. Rptr. 3d 289, 299, 327 P.3d 129, 137 (2014)

Why are we walking down memory lane?  Hang in there...

Because the National Labor Relations Board waded into this issue and decided in a case called D.R. Horton, 357 N.L.R.B. 2277 (2012), that class action waivers are unlawful under the National Labor Relations Act, even if the Federal Arbitration Act preempts state laws prohibiting them.  The Federal Arbitration Act, a federal law, does not preempt the National Labor Relations Act, a federal law.  The NLRB's rationale is that a class action is a form of "protected concerted activity" and that requiring employees to waive the right to sue as a class is an unlawful waiver.  

The Court of Appeals for the Fifth Circuit disagreed with the Board and did not enforce its opinion in D.R. Horton. That means the decision was not binding and could not be used as precedent.  The California Supreme Court also rejected the Board's rationale in Iskanian: 

We thus conclude, in light of the FAA's “‘liberal federal policy favoring arbitration’” (Concepcion, supra, 563 U.S. at p.___ [131 S. Ct. at p. 1745]), that sections 7 and 8 of the NLRA do not represent “ ‘a contrary congressional command’ ” overriding the FAA's mandate (CompuCredit Corp. v. Greenwood, supra, 565 U.S. at p. ___ [132 S. Ct. at p. 669]). This conclusion is consistent with the judgment of all the federal circuit courts and most of the federal district courts that have considered the issue.

So, the NLRB thing was a big yawn, and no one cares because everybody is non-union, right?  Well, no. The NLRB's rules apply to non-union employers too, but D.R. Horton wasn't getting a lot of play.  Until now.

The Seventh Circuit has just come down in favor of the NLRB's position, in a case involving a non-union employer's motion to compel arbitration in federal court.  In Lewis v. Epic Sys. Corp., No. 15-2997, 2016 U.S. App. LEXIS 9638, at *1 (7th Cir. May 26, 2016), the court of appeals refused to enforce Epic Systems's arbitration agreement because it contained a class action waiver.  

The court held that the waiver violated the National Labor Relations Act:

Epic's clause runs straight into the teeth of Section 7. The provision prohibits any collective, representative, [12] or class legal proceeding. Section 7 rovides that "[e]mployees shall have the right to ... engage in ... concerted activities for the purpose of collective bargaining or other mutual aid or protection." 29 U.S.C. § 157. A collective, representative, or class legal proceeding is just such a "concerted activit[y]." See Eastex, 437 U.S. at 566; Brady, 644 F.3d at 673; D. R. Horton, 357 N.L.R.B. 2277, at 2278. Under Section 8, any employer action that "interfere[s] with, restrain[s], or coerce[s] employees in the exercise of the rights guaranteed in [Section 7]" constitutes an "unfair labor practice." 29 U.S.C. § 158(a)(1). Contracts that stipulate away employees' Section 7 rights or otherwise require actions unlawful under the NRLA are unenforceable.

Lewis v. Epic Sys. Corp., No. 15-2997, 2016 U.S. App. LEXIS 9638, at *11-12 (7th Cir. May 26, 2016)

The Seventh Circuit's decision sets up a circuit split and a chance for the U.S. Supreme Court to consider whether class action waivers violate the NLRA or not.  The Seventh Circuit's decision also gives the NLRB the impetus to bring unfair labor practice charges against employers that maintain class action waivers in their arbitration agreements, which could result in invalidation of those agreements down the road. 

So, employers with class action waivers, be aware that challenges to these agreements may come as a result of the NLRB's position in D.R. Horton, especially given the Seventh Circuit's recent endorsement.  We will have to see if the Seventh Circuit's decision is taken up for review by the U.S. Supreme Court.   The court already decided not to hear it en banc.

Shaw Valenza's Employment Law Pot Pourri / Quick Takes

Here are some quick takes to catch you up on a bunch of recent developments.

Rounding Time to the Quarter Hour

The Ninth Circuit upheld a neutral policy under which an employer rounded time to the nearest quarter-hour.

The time clock system would automatically round back for 7 minutes or less of time worked in the 15-minute period, and would round ahead for 8 or more minutes.  The rounding mechanism was not allowed to be edited by managers.

On that basis, the Court held that the rounding system was neutral on its face.  And as applied to the plaintiff, he lost just $15.00 in pay over the 13 months of punches that he made.  That's how neutral rounding is supposed to pan out.

The Court found that this practice was lawful under both the federal Fair Labor Standards Act and the  California Labor Code.  The case is Corbin v. Time Warner Entertainment etc. and the opinion is here.

California Fair Employment Agency to Revise Gender Regulations

The FEHC is beginning the process of revising its regulations regarding gender identity.   You can read the proposed revisions here.  The proposed additions include a new provision on bathroom / locker facilities:

(A) Employers shall permit employees to use facilities that correspond to the employee’s gender identity or gender expression, regardless of the employee’s assigned sex at birth.

(B) To balance the privacy interests of all employees, employers shall provide alternatives if no individual facility is available, such as, locking toilet stalls, staggered schedules for showering, shower curtains, or other method of ensuring privacy. However, an employer or other covered entity may not require an employee to use a particular facility.

(C) Transitioning employees shall not be required to undergo, or provide proof of, any particular medical treatment to use facilities designated for use by a particular gender.

(D) Employers and other covered entities with single-occupancy facilities under their control shall use gender-neutral signage for those facilities, such as “Restroom,” “Unisex,” “Gender Neutral,” “All Gender Restroom,” etc.

There also is a proposed regulation regarding pronouns and names:

(h) Recording of Gender and Name

(1) It is unlawful to require an applicant or employee to state whether the individual is transgender.

(2) If a job application form requires an individual to identify as male or female, designation by the applicant of a gender that is inconsistent with the applicant’s assigned sex at birth or presumed gender shall not be considered fraudulent or a misrepresentation for the purpose of adverse action based on the applicant’s designation.

(3) If an employee requests to be identified with a preferred gender, name, and/or pronoun, an employer or other covered entity who fails to abide by the employee’s stated preference may be liable under the Act, except as noted in subdivision (4) below.

(4) An employer may use an employee’s gender or legal name as indicated in a government-issued identification document only if it is necessary to meet a legally- mandated obligation.

Here's a proposal about dress and grooming standards:

(g) Physical Appearance, Grooming, and Dress Standards. It is lawful for an employer or other covered entity to impose upon an applicant or employee physical appearance, grooming or dress standards that serve a legitimate business purpose, so long as any such standard does not discriminate based on an individual’s sex, including gender, gender identity, or gender expression.

However, if such a standard discriminates on the basis of sex and if it also significantly burdens the individual in his or her employment, it is unlawful.  It is unlawful to require individuals to dress or groom themselves in a manner inconsistent with their gender identity or gender expression.

And, finally, something about requiring proof of gender identity:

(1) It is unlawful for employers and other covered entities to inquire or require documentation or proof of an individual’s sex, gender, gender identity, or gender expression as a condition of employment, unless the employer or other covered entity meets its burden of proving a BFOQ defense, as defined above, or the employee initiates communication with the employer regarding any requested adjustment to the employee’s working conditions. 

Attorney's Fees for Prevailing Employers Under Federal Anti-Discrimination Law?

The U.S. Supreme Court decided - 8-0 - that a prevailing defendant in a Title VII discrimination case (and that means ADA, ADEA and section 1988, too), may recover attorney's fees without winning "on the merits."  That means, for example, if a plaintiff insists on bringing a frivolous case that is obviously barred by the statute of limitations, the employer can apply for attorney's fees even though the statute of limitations defense is not proof of non-discrimination.  As Justice Thomas already points out, the defense already has to establish that the plaintiff's case was 'frivolous, unreasonable or groundless" because of an earlier Supreme Court case (that invented that standard).  So requiring a win "on the merits" would have been a whole new burden and the Court wasn't having it.  So, the EEOC owes CRST at least $4 million for its frivolous pursuit of CRST if that ruling holds up on remand.  Wet blanket moment: Where will the EEOC get the money to pay those fees?  Oh. Right.  Us.

That case is CRST Van Expedited, Inc. v. EEOC and the opinion is here.

Statute of Limitations for Constructive Discharge Under Federal Law

The U.S. Supreme Court in an 7-1 decision decided that a "constructive discharge" or forced resignation claim is considered timely or untimely based on the date that the employee gives notice of resignation.

The Post Office in Green v. Brennan, opinion here, argued that the limitations clock begins to run when the employer performs the "last discriminatory act."  But the Court disagreed and reversed the Tenth Circuit:

Ordinarily, a “ ‘limitations period commences when the plaintiff has a complete and present cause of action.’” Ibid. “[A] cause of action does not become ‘complete and present’ for limitations purposes until the plaintiff can file suit and obtain relief.” Bay Area Laundry and Dry Cleaning Pension Trust Fund v. Ferbar Corp. of Cal., 522 U. S. 192, 201 (1997).

 Applying this general rule to the case before it, the Court ruled:

the “matter alleged to be discriminatory” in a constructive-discharge claim necessarily includes the employee’s resignation for three reasons. First, in the context of a constructive-discharge claim, a resignation is part of the “complete and present cause of action” necessary before a limitations period ordinarily begins to run. Second, nothing in the regulation creating the limitations period here, §1614.105, clearly indicates an intent to displace this standard rule. Third, practical considerations confirm the merit of applying the standard rule here.

Of note, the Court made clear that the limitations period begins to run when the employee gives notice of the resignation, not on the date of the resignation.

U.S. DOL Issues New White Collar Exemption Regulations, But

The U.S. DOL is only (substantially) increasing the salary test for the time being. That's right. No changes to the duties tests for now.

Unless Congress acts (and overrides a veto I'm sure would be coming), the base salary for an exempt executive, administrative or professional employee will rise from its current $23,660 to $47,476 on December 1, 2016.    That's a federal law.  So, that means that if you have exempt manager employees who make less than $47,476 on December 1, they are non-exempt as of that date unless you give them a raise.

Now this change does not affect outside sales, or retail commission exempt employees. Only the ones who require a salary to be exempt.

In California, the minimum wage is currently $10.00  an hour. So, the minimum salary test is $20 X 2080 = $41,600.  That means that everyone in California who is exempt must be making at least $47,476 base salary on 12/1/16 or they will lose the exemption.

One issue that will help satisfy the federal test but may not help in California.  Under the new regulations, it will be OK to count bonuses, commissions, or other variable compensation towards up to 10% of the minimum salary requirement.  Only certain types of bonuses etc. apply so read the regulations. That may not work in California, where salary is supposed to be a fixed sum.  We shall see if state law follows the new rule.

And let's not forget that on 1/1/17, the California minimum wage goes up to $10.50 an hour. The California minimum exempt salary will then be $43,680.  That's still lower than the federal minimum!

Another major change affects the federal "high compensation" exemptions - which don't apply in California. These are relaxed duties tests for people who make more than $100,000 per year.  That $100,000 threshold goes up to $134,004, again on 12/1/16.

The federal salary test will increase every three years, too.  So, look for a $51,000 minimum salary in 2020.

I know this is not welcome news. But it's a whole lot better news than the proposed regulations, which were going to make it very tough to qualify people as exempt under federal law.  As it is, the DOL estimates that some 4.2 million workers will become eligible for overtime under the new regulations, (presumably unless the employers increase their salaries).

The U.S. DOL has put out some FAQs that you can review here.  

Don't blow this. Overtime liability comes with serious penalties.

California Supreme Court Takes a Stand on Sitting Down

The California Supreme Court in Kilby v. CVS Pharmacy (opinion here)  issued a unanimous opinion interpreting California Wage Orders' (section 14(A)) requirement that employers provide

[a]ll working employees  . . . suitable seats when the nature of the work reasonably permits the use of seats.”

Also, Section 14(B) says:

When employees are not engaged in the active duties of their employment and the nature of the work requires standing, an adequate number of suitable seats shall be placed in reasonable proximity to the work area and employees shall be permitted to use such seats when it does not interfere with the performance of their duties.” 

Why is the state's highest court doing this?  In this case, the Ninth Circuit Court of Appeals asked the California Supreme Court to interpret California law, because the Ninth Circuit is trying to figure out whether certain class actions filed in federal court have merit.  No case interpreted this portion of the Wage Order before, because the class action lawyers were busy suing over rest periods, wage statements, and a host of other matters.  They finally made it down to section 14 - "suitable seating," and so here we are.  

With that background, here are the questions the California Supreme Court sought to answer:

(1) Does the phrase “nature of the work” refer to individual tasks performed throughout the workday, or to the entire range of an employee's duties performed during a given day or shift?

(2) When determining whether the nature of the work “reasonably permits” use of a seat, what factors should courts consider? Specifically, are an employer‟s business judgment, the physical layout of the workplace, and the characteristics of a specific employee relevant factors?  

(3) If an employer has not provided any seat, must a plaintiff prove a suitable seat is available in order to show the employer has violated the seating provision?.

This case involved CVS employees.  The named plaintiff, Kilby, had a customer service job that included duties such as: "operating a cash register, straightening and stocking shelves, organizing products in front of and behind the sales counter, cleaning the register, vacuuming, gathering shopping baskets, and removing trash. CVS did not provide Kilby a seat for these tasks."

This case also was consolidated with Henderson v. JP Morgan Chase Bank, which involved tellers at a bank.  They are covered by Wage Order 4 rather than 7.  The seating requirement, section 14(A), is identical in both Wage Orders.  The tellers 

had duties associated with their teller stations, including accepting deposits, cashing checks, and handling withdrawals. They also had duties away from their stations, such as escorting customers to safety deposit boxes, working at the drive-up teller window, and making sure that automatic teller machines were working properly. These duties varied depending on the shift or branch location and whether the employee was a lead or regular teller.

Against this backdrop, the Court answered the above questions.

1.   So, how does a court look at the "nature of the work" 

courts must examine subsets of an employee's total tasks and duties by location, such as those performed at a cash register or a teller window, and consider whether it is feasible for an employee to perform each set of location-specific tasks while seated. Courts should look to the actual tasks performed, or reasonably expected to be performed, not to abstract characterizations, job titles, or descriptions that may or may not reflect the actual work performed. Tasks performed with more frequency or for a longer duration would be more germane to the seating inquiry than tasks performed briefly or infrequently.

* * *

An employee may be entitled to a seat to perform tasks at a particular location even if his job duties include other standing tasks, so long as provision of a seat would not interfere with performance of standing tasks.

Mushy.  But what this means is that if a teller spends a certain period of time at a teller window, one looks at the tasks s/he performs at that location and then looks whether it's feasible to perform the tasks seated.  If not, can there be a seat available so that some tasks are performed seated.

The Court also looked at how employers  have to provide suitable seating for employees who may have to stand when they are actively working, but who may experience "lulls" in operation:

if an employee‟s actual tasks at a discrete location make seated work feasible, he is entitled to a seat under section 14(A) while working there. However, if other job duties take him to a different location where he must perform standing tasks, he would be entitled to a seat under 14(B) during “lulls in operation.” Although the seating inquiries under sections 14(A) and 14(B) are analytically different, the seat provided to an employee under section 14(A) may satisfy the requirement of section 14(B) to the extent it is within “reasonable proximity to the work area” (§14(B)) and is available when work is not required to be performed. 

2.  What does "reasonably permits" mean?  

The Court then turned to an examination of what factors courts would consider to determine if the nature of the work "reasonably permits" the use of a seat.  What if the employer thinks that employees should stand as a matter of respect or service?  What if the physical layout does not accommodate seats, even if the duties of the job might?  Etc.   

You crave simplicity and bright line rules?  No such luck:

Whether an employee is entitled to a seat under section 14(A) depends on the totality of the circumstances. Analysis begins with an examination of the relevant tasks, grouped by location, and whether the tasks can be performed while seated or require standing. This task-based assessment is also balanced against considerations of feasibility. Feasibility may include, for example, an assessment of whether providing a seat would unduly interfere with other standing tasks, whether the frequency of transition from sitting to standing may interfere with the work, or whether seated work would impact the quality and effectiveness of overall job performance. This inquiry is not a rigid quantitative analysis based merely upon the counting of tasks or amount of time spent performing them. Instead, it involves a qualitative assessment of all relevant factors.

Ok but what about business judgment? Can't the employer pay the employee to stand?  Well sure:

There is no question that an employer may define the duties to be performed by an employee. As the DLSE observes, “[a]n employer's business judgment largely determines the nature of work of the employee both generally, as well as duties or tasks specifically.” Contrary to plaintiffs‟ suggestion, such duties are not limited to physical tasks. Providing a certain level of customer service is an objective job duty that an employer may reasonably expect. An employee's duty to provide a certain level of customer service should be assessed, along with other relevant tasks and obligations, in determining whether the nature of the work reasonably permits use of a seat at a particular location. Providing “customer service” is an objective job function comprised of different tasks, e.g., assisting customers with purchases, answering questions, locating inventory, creating a welcoming environment, etc.

Wait, did I say "sure"?  Hold the phone:

However, “business judgment” in this sense does not encompass an employer's mere preference that particular tasks be performed while standing. The standard is an objective one. An employer's evaluation of the quality and effectiveness of overall job performance is among the factors that can be objectively considered in light of the overall aims of the regulatory scheme, which has always been employee protection. An objective inquiry properly takes into account an employer's reasonable expectations regarding customer service and acknowledges an employer's role in setting job duties. It also takes into account any evidence submitted by the parties bearing on an employer's view that an objective job duty is best accomplished standing. It protects employees because it does not allow employers unlimited ability to arbitrarily define certain tasks as “standing” ones, undermining the protective purpose of the wage order.

So, can an employer can pay an employee to stand?  Can the boss require employees to be standing when on the clock and customers are in view, because it's "classier"?  It seems the employer can define customer service duties, which include standing tasks. But a third party - jury or judge - will decide if they are objectively reasonable.  "I, for one, welcome our new overlords," said no business owner, ever.

The Court similarly considers the physical layout of the workplace to be a relevant consideration to whether it is reasonable to have suitable seating available.  But, employers - and architects - take note:

just as an employer's mere preference for standing cannot constitute a relevant “business judgment” requiring deference, an employer may not unreasonably design a workspace to further a preference for standing or to deny a seat that might otherwise be reasonably suited for the contemplated tasks. As the DLSE observes in its amicus curiae brief, the seating requirement is “a workplace condition aimed at the welfare of employees performing work and not an „engineering‟ or technically-based standard,” and “[w]hile facts regarding technical aspects of workplace configurations or studies may be relevant to determining whether suitable seating can be provided, the application of the standard is essentially one of overall reasonableness applied to the particular facts.” As the DLSE suggests, reasonableness remains the ultimate touchstone. Evidence that seats are used to perform similar tasks under other, similar workspace conditions may be relevant to the inquiry, and to whether the physical layout may reasonably be changed to accommodate a seat. As the DLSE states, reasonableness must be based on the particular circumstances.

3. Whose Burden Is It to Prove Suitable Seating Either Is or Is Not Available?

It is the employer's burden to show that no suitable seat was available, not the employee's burden to show that there was one.   The Court spent little time on this.  However, the language of the wage order appears to place this burden on the employer.

In sum, this case will be difficult to interpret for employers looking for a bright line rule on whether seating should be provided in work situations when seating is not necessarily an obvious part of a job.  It remains to be seen whether there will be more litigation in this issue, or whether employers will reconfigure businesses to permit more seating in California to avoid these lawsuits. 

Court of Appeal Saves Electronically Signed Arbitration Agreement - Relevant to Other Electronic Acknowledgements Too

Wait, don't skip this one yet. It's not just another arbitration case. If your business uses electronic acknowledgments of policies, handbooks or employment agreements (commissions, confidentiality agreements, etc.), it's worth a read.

In this case, Doctor Espejo sued Kaiser for wrongful termination. The facts aren't important.  At the beginning of employment, Kaiser sent the doctor an email containing electronic links to his offer letter, the dispute resolution procedures (arbitration agreement), "rules and regulations," and a benefits handbook. He accepted his offer and the other materials via an electronic signature that he applied after clicking the links, signing in and following procedures.

The issue that lawyers have to deal with, dear HR and company management, is how to prove that these things happened in litigation.  And that problem came up when Kaiser tried to compel Dr. Espejo to arbitrate.

The trial court rejected Kaiser's attempt to prove that Dr. Espejo signed his arbitration agreement. But the trial court did so because it refused to rely on a declaration that Kaiser submitted after Kaiser had filed its initial Petition to Compel Arbitration.  (Kaiser submitted the additional declaration in response to a new court decision that had come down, trying to satisfy its evidentiary burden.)  The Court of Appeal decided the trial court should have accepted Kaiser's declaration.

With that out of the way, the Court of Appeal made two significant rulings. One applies in the context of compelling arbitration. But one is more generally applicable to proving that electronically signed documents are "authentic" and admissible evidence.

First, the Court of Appeal decided that a party's initial burden on a Petition to Compel arbitration does not include fully "authenticating" an arbitration agreement, unless the other side disputes the agreement is authentic in its opposition.

we conclude that defendants here met their initial burden by attaching to their petition a copy of the purported arbitration agreement bearing Espejo’s electronic signature. Once Espejo challenged the validity of that signature in his opposition, defendants were then required to establish by a preponderance of the evidence that the signature was authentic.

That's good news unless, as in this case, the employee is going to deny electronically signing the document.  Doctor Espejo recalled electronically signing his offer letter, but he did not remember authorizing his electronic signature on the other documents.  So, as it says above, Kaiser then had to prove authenticity by a preponderance of the evidence. This issue will arise a lot in other contexts, such as handbook receipts, commission plans, etc.  How does one prove to a court that an electronic acknowledgment is real?  Remember, that's the only reason employers have these sign-offs - in case of litigation.  So, it pays to have a way of proving they are valid.

The Court of Appeal reviewed the law in this area and approved the declaration that Kaiser submitted.  To prove an electronic signature is valid under Civil Code section 1633.9, subd. (a), it is necessary to prove it is the "act of the person" whom you want to establish signed the document.  The Court of Appeal reviewed Kaiser's declaration and decided it was sufficient to do so:

Tellez detailed SCPMG’s security precautions regarding transmission and use of an applicant’s unique user name and password, as well as the steps an applicant would have to take to place his or her name on the signature line of the employment agreement and the DRP. Based on this procedure, she concluded that the “name Jay Baniaga Espejo could have only been placed on the signature pages of the employment agreement and the DRP by someone using Dr. Espejo’s unique user name and password. . . . [¶] Given this process for signing documents and protecting the privacy of the information with unique and private user names and passwords, the electronic signature was made by Dr. Espejo” on the employment agreement and the DRP at the date, time, and IP address listed on the documents. These details satisfactorily meet the requirements articulated in Ruiz and establish that the electronic signature on the DRP was “the act of” Espejo (Civ. Code, § 1633.9, subd. (a)), and therefore provide the necessary factual details to properly authenticate the document.

So, to prove electronic signatures depict the acknowledgment of the person whom the company wants to say signed the document, the following is necessary:

- a company witness has to know how the electronic signature process works and has to be able to explain it in a declaration.  The vendor has to have a white paper explaining the process in plain English, and training for HR and IT;

- the electronic signature process has to have sufficient security safeguards to allow a court to find that it is more likely than not the signature of the person you want it to be.  It always helps to have an email confirmation of the signing event sent to the email user with a return receipt; and

- the lawyer has to know how to draft a proper declaration of a person who can lay foundation regarding knowledge of how the process works and how it was applied to the plaintiff.  (You're welcome).

This case is Espejo v. Southern California Permanente Medical Group and the opinion is here.

Ninth Circuit's Tip Case Makes a Hash Out of California Tip Pool Law

The Ninth Circuit decided 2-1 that the U.S. Department of Labor was allowed to issue a regulation that applies to tip pooling arrangements, but even if the tips are not taken as credits against the federal minimum wage.  This is an interesting decision about federal agency power, but you don't care about that.  I'll just fume about that alone.

What you do care about in California is this: the DOL regulation will probably invalidate California law on tip-pooling in most cases.  That is because federal law trumps state law when it is more generous to employees.

The court in Oregon Restaurant and Lodging Association LLC v. Perez (Opinion here) decided that the DOL was within its rights to issue a regulation defining what a tip pool is, and that the DOL's definition applies regardless of whether the employer is using the employees' tips as a credit against the minimum wage.

So, let's look at the federal regulation:

§ 531.52 General characteristics of “tips.” 

A tip is a sum presented by a customer as a gift or gratuity in recognition of some service performed for him. It is to be distinguished from payment of a charge, if any, made for the service. Whether a tip is to be given, and its amount, are matters determined solely by the customer, who has the right to determine who shall be the recipient of the gratuity. Tips are the property of the employee whether or not the employer has taken a tip credit under section 3(m) of the FLSA. The employer is prohibited from using an employee's tips, whether or not it has taken a tip credit, for any reason other than that which is statutorily permitted in section 3(m): As a credit against its minimum wage obligations to the employee, or in furtherance of a valid tip pool. Only tips actually received by an employee as money belonging to the employee may be counted in determining whether the person is a “tipped employee” within the meaning of the Act and in applying the provisions of section 3(m) which govern wage credits for tips.

Ok so this regulation means that the employer cannot use a tip for any purpose except for a tip credit or "a valid tip pool."  What's a valid tip pool under federal law?

A valid tip pool is explained here:

§ 531.54 Tip pooling.

Where employees practice tip splitting, as where waiters give a portion of their tips to the busboys, both the amounts retained by the waiters and those given the busboys are considered tips of the individuals who retain them, in applying the provisions of section 3(m) and 3(t). Similarly, where an accounting is made to an employer for his information only or in furtherance of a pooling arrangement whereby the employer redistributes the tips to the employees upon some basis to which they have mutually agreed among themselves, the amounts received and retained by each individual as his own are counted as his tips for purposes of the Act. Section 3(m) does not impose a maximum contribution percentage on valid mandatory tip pools, which can only include those employees who customarily and regularly receive tips. However, an employer must notify its employees of any required tip pool contribution amount, may only take a tip credit for the amount of tips each employee ultimately receives, and may not retain any of the employees' tips for any other purpose.

Now the DOL's regulation says that only people who "customarily and regularly" receive tips can be in tip pools under federal law.  The cases say that those are people directly involved in service.  They include bussers, waiters, bar staff, even hosts.  But cooks, dishwashers, expediters, and the like are out of luck.  There are federal cases that say so.  So, bottom line is that federal law says that tip pools cannot include back of the house people.

State law, on the other hand, says that they can be included.  We've blogged a bunch about tip-pooling under California law here.   The net-net is that California does permit participation by back-of-the-house employees in the tip pool because they participate in making the service experience pleasant.

Anyway, the 9th Circuit may re-consider its decision in the Oregon case or the Supreme Court could decide to hear it.  If neither of those things happen, California employers that are covered by the Fair Labor Standards Act may wish to revisit their tip-pooling policies.

California Minimum Wage Increases to $15.00!!..ZOMG..1!!1! There's Lots of Fine Print. But Much Is Not Good.

For one thing, it's not 2022.  Businesses can move away or raise prices 50% by then.  I kid.  ::cough::

Anyway, Governor Brown says he will sign SB 3 (here,) which is the bill you've heard of that "raises California's minimum wage" to $15.00 per hour.  Well, it may do so by 2022 (or a year later for employers with fewer than 25 employees). And it definitely will do so eventually. But there is lots of fine print.

"Good" News 

First, it's a staged increase. Second, the timing of the increase will depend on the business size.  Because California can't just pass a simple law.  See, e.g., the paid sick leave law, which looks like a tax code.

Here is the implementation schedule as it currently exists.

(1) For any employer who employs 26 or more employees, the minimum wage shall be as follows:

(A) From January 1, 2017, to December 31, 2017, inclusive,—ten dollars and fifty cents ($10.50) per hour. 

(B) From January 1, 2018, to December 31, 2018, inclusive,—eleven dollars ($11) per hour. 

(C) From January 1, 2019, to December 31, 2019, inclusive,—twelve dollars ($12) per hour. 

(D) From January 1, 2020, to December 31, 2020, inclusive,—thirteen dollars ($13) per hour. 

(E) From January 1, 2021, to December 31, 2021, inclusive,—fourteen dollars ($14) per hour. 

(F) From January 1, 2022, and until adjusted by subdivision (c)—fifteen dollars ($15) per hour.

(2) For any employer who employs 25 or fewer employees, the minimum wage shall be as follows: 

(A) From January 1, 2018, to December 31, 2018, inclusive,—ten dollars and fifty cents ($10.50) per hour. 

(B) From January 1, 2019, to December 31, 2019, inclusive,—eleven dollars ($11) per hour. 

(C) From January 1, 2020, to December 31, 2020, inclusive,—twelve dollars ($12) per hour. 

(D) From January 1, 2021, to December 31, 2021, inclusive,—thirteen dollars ($13) per hour. 

(E) From January 1, 2022, to December 31, 2022, inclusive,—fourteen dollars ($14) per hour. 

(F) From January 1, 2023, and until adjusted by subdivision (c)—fifteen dollars ($15) per hour.

After the rate goes up to $15 per hour, the minimum wage will be set according to price indexes as set forth in the statute.  Economists with advanced degrees and Sominex will figure out the amount of the increase and publish annually.

Effect of Minimum Wage Increases

Don't forget, the minimum wage increase will effect things like:

- Minimum salaries for exempt managers (which have to be at least 2X the minimum wage.

- Meal period premiums (penalties).

- Overtime premiums.

- Split shift pay (one hour at minimum wage).

- The minimum compensation to qualify for exempt inside sales (1.5 X minimum wage).

- Sick pay, vacation pay, and other paid leave costs.

-  Employers' payroll tax

- Public sector salaries / wages - and your personal taxes pay for those.

And there will be posters.

Also, this is the state minimum wage and does not preclude local minimum wage increases. What will the San Francisco minimum wage be in 2022?  It's currently going to $13.00 on 7/1/16.

***

OK, that's it for the positive part of this post.  The rest may be snarky.  But fair.


Small Employers: Look Out

As shown above, smaller employers can pay a lower wage.  If they are actually smaller employers under the law.  I know you're thinking it's easy to figure out if you're an employer of 25 or less employees because here's the handy definition:

(3) For purposes of this subdivision, “employer” means any person who directly or indirectly, or through an agent or any other person, employs or exercises control over the wages, hours, or working conditions of any person. For purposes of this subdivision, “employer” includes the state, political subdivisions of the state, and municipalities. 

(4) Employees who are treated as employed by a single qualified taxpayer under subdivision (h) of Section 23626 of the Revenue and Taxation Code, as it read on the effective date of this section, shall be considered employees of that taxpayer for purposes of this subdivision. 

Unfortunately, your thinking is incorrect, maybe because you are not cynical and paranoid like I am.  It is unclear who is a small "employer" under this standard because of the "indirectly"  and "agent" language.  

There may be litigation over whether "joint employers" (like temp agencies or contractor-subcontractor relationships) will count when the employer is assessing the small employer provision.  Plaintiff attorneys won't be shy, because they can bring class actions and seek one-way attorney's fees. And there's PAGA too!  

As we have covered, the government agencies and courts are expanding "joint employer" liability.  Paying below minimum wage is a very costly endeavor and can result in double pay and other penalties, personal liability, and more.  So, small employers may have to get a legislative fix for this provision, or pay the higher rate to avoid potential lawsuits.  That won't break a lot of hearts in the legislature.

Suspended Implementation?

Now here's another twist.  During the period when the minimum wage is increasing to $15.00, each year in July, the state Director of Finance will examine "economic conditions" according to certain listed criteria.  The purpose of the review is  "to ensure that economic conditions can support a minimum wage increase . . . "

Huh. Why would that be necessary?  I thought minimum wage increases were economically super duper!!!  Well, just in case the data come in not-super-duper, the Governor may suspend the minimum wage increase set for the following year.  If he does so, that will delay the above schedule for a year.

The governor has the right to make that determination and suspend implementation twice.  So the $15.00 wage could be delayed a couple of years longer than the above schedule in case of an economic downturn.

Conclusion

Please prepare for minimum wage increases to begin 1/1/17 and to adjust other wage rates accordingly.

Please contact your Chamber of Commerce, legislator, or the Governor's office to express your concern if you have one, particularly about the potential mushy small employer definition.

And consider researching ETFs or mutual funds that focus on moving companies and Texas real estate. I kid again! ::cough:::