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. 

Reminder: California Minimum Wage Going Up 1/1/2016

There are so many new laws and rules going into effect that one obvious one may slip through the cracks.  The minimum wage in California is going up on January 1, 2016 to $10.00 per hour.   It says so right here on the old Minimum Wage Notice that has been around for a couple of years now. (HERE).

Because of the minimum wage increase, the California minimum salary for exempt "white collar" employees will increase to $3,466.6667 per month or $41,600 annually.  Also, those of you relying on the inside sales exemption (requiring minimum compensation of 1.5X minimum wage, take note that your employees will have to make at least $15.00 / hour).  

There are other wages pegged to minimum wage as well, but my boundless generosity is limited by time this morning. So, please consult with your attorneys, read your wage orders and labor code, and enjoy time with family and friends this holiday season. 

Best wishes for a safe and enjoyable holiday, and Merry Christmas.

Greg

 

Court of Appeal: Employer Not Responsible for Off-the-Clock Work

Kaiser won summary judgment against an employee who claimed he was working off the clock, contrary to Kaiser policy and procedures for reporting time worked.

To recover on a claim for unpaid work time, the employee must prove that the employer knew or should  have known (via the exercise of reasonable care) that the employee was working off the clock. That is called "actual" or "constructive" knowledge.  This court distinguished between "should" have known and "could" have known.  That is, it is not enough for the employee to argue that the employer somewhere had enough data to infer that an employee was working off the clock. Quoting analogous federal authorities interpreting the federal Fair Labor Standards Act, the Court of Appeal explained:

In Forrester v. Roth’s I.G.A. Foodliner, Inc. (9th Cir. 1981) 646 F.2d 413, the court held that “where an employer has no knowledge that an employee is engaging in overtime work and that employee fails to notify the employer or deliberately prevents the employer from acquiring knowledge of the overtime work, the employer’s failure to pay for the overtime hours is not a violation of § 207.” (646 F.2d at p. 414.) “An employer must have an opportunity to comply with the provisions of the FLSA. This is not to say that an employer may escape responsibility by negligently maintaining records required by the FLSA, or by deliberately turning its back on a situation. However, where the acts of an employee prevent an employer from acquiring knowledge, here of alleged uncompensated overtime hours, the employer cannot be said to have suffered or permitted the employee to work in violation of § 207(a).” (Id. at pp. 414-415; see also, e.g., Kellar v. Summit Seating, Inc. (7th Cir. 2011) 664 F.3d 169, 176-178; cf. Brown v. Scriptpro, LLC (10th Cir. 2012) 700 F.3d 1222, 1230-1231.) This qualification was implicitly endorsed by our Supreme Court in a different context (Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575, 585 [“ ‘ “[T]he words ‘suffer’ and ‘permit’ as used in the statute mean ‘with the knowledge of the employer.’ ” ’ ”]

Here is what the plaintiff-employee testified to:

Jong acknowledged that he “knew of Kaiser’s written policy that OPMs should be clocked in whenever they were working,” that he was always paid for time he recorded on Kaiser’s recording system, including overtime hours, that he was instructed he was eligible to work and be paid for overtime hours, that there was never an occasion when he requested approval to work overtime that was denied and there were occasions when he worked and was paid overtime even though he did not seek pre-approval, that he was not told by any of his managers or supervisors or any other Kaiser management personnel that he should perform work before he clocked in or after he clocked out or otherwise work off-the-clock,1 and that he signed the attestation form and understood it was an attestation that he would not work off-the clock.

The plaintiff tried to get around that testimony by arguing that Kaiser knew he was working off the clock - or should have known - because other employees dong the same job testified that they were working off the clock; sort of "me-too" wage hour evidence.

Agreeing with the trial court, the Court of Appeal held that "me too" evidence was irrelevant:

Under these admitted circumstances, evidence that Kaiser was aware that many OPMs worked more than 40 hours a week before being reclassified would not support a finding that after the reclassification Kaiser knew or should have known that Jong was not correctly reporting his hours.

The Court of Appeal also rejected the plaintiff's argument that Kaiser "should have known" the plaintiff was working off the clock because the "alarm code" records showed he was reporting to work before his shift started, and activated the alarm code long after he punched out.

We again find the trial court’s reason for rejecting the sufficiency of this evidence to be persuasive: “[E]ven assuming that the availability of such data could otherwise meet the ‘should have known’ requirement, as opposed to ‘could have known’ [citation], the alarm data does not show what Jong was doing during the time between disarming the alarm and clocking in, or between checking out and arming the alarm.” While the summary judgment papers may have contained evidence that Jong was working whenever the alarm was off, that information was not before Kaiser when paying Jong and Kaiser could reasonably believe that he did not begin or end work except as he reported.

So, although this case involves an individual employee's summary judgment loss, this case is going to help in class action cases involving off the clock work.  The court will not accept the premise that other employees' testimony that a job took them more than 40 hours to perform proves that it takes more than 40 hours to perform ALL class members' job duties. 

There are good take-aways for employers prevention efforts here, as well.  It is key to have a written policy prohibiting off-the-clock work.  Employers also should have employees acknowledge, in writing, and perhaps under penalty of perjury, that they accurately report hours worked.  It is helpful, too, to have proof of paying overtime when work is reported. 

This case is Jong v. Kaiser Foundation Health Plan, Inc. and the opinion is here. 

9th Circuit: Employer's Credit for Paid Overtime Calculated Week by Week

So, the Ninth Circuit decided that Los Angeles mis-classified certain employees as "engaged in fire protection."  Under the FLSA, those "fire protection" employees are due overtime only after 212 hours worked in a 28-day work period (or 204 hours worked in a 27-day period).  Employees who are not "engaged in fire protection" are due the normal overtime pay for work > 40 hours in a workweek (unless another exemption applied).

These county fire dispatchers and air paramedic employees worked standard hours of 9 X 24 hour shifts in a 27 day work period, or 216 hours.  So, because they were mis-classified, overtime is due each workweek for each hour worked > 40.

Anyway, I know most of you are not running a city or fire protection operations and are not concerned with the above. But wait.  There's more.

After the district court found in favor of the employees, the parties disagreed on how to calculate the overtime due. LA argued that it was entitled to offset overtime already paid, as it was paying employees for the hours worked > 204 in a 27-day work period.

For example, under the normal rule, if an employee worked  60 hours per week for 4 weeks, that would be 20 hours per week of overtime, times 4 weeks = 80 hours of overtime premium pay due.   Under the exemption for fire protection, the overtime due for 240 hours worked in 28 days would be approximately 36 hours.  (Assuming 28 instead of 27 days).  So, big liability.

The city argued that it dutifully had been paying overtime for > 204 hours in the 27 day period Therefore, the city argued, it should be liable only for overtime hours not already paid for during that same 27-day period.  Meaning, the overtime paid during the entire work period would be offset against what was still owing.  The city  argued in the alternative it should be given  an offset for all overtime paid in the three year period of the lawsuit, with the amount paid credited against the total overtime owed.

No, said the Ninth Circuit.  The employer would be allowed to credit / offset overtime only for the workweek in which the overtime was paid.

Under the FLSA, 29 U.S.C. § 207(h)(2), an employer may credit overtime payments already made to employees against overtime payments owed to them under the FLSA. The statute, however, does not specify the method to be used to calculate these overtime payments. The statute simply states that “[e]xtra compensation . . . shall be creditable toward overtime compensation payable pursuant to this section.” 29 U.S.C. § 207(h)(2).

* * *

The district court correctly applied a week-by-week approach. Section 207(a) sets forth the basic overtime standard, set at forty hours in a seven-day workweek and time and one-half for overtime. To determine the overtime owed for each workweek, the total hours worked over forty is multiplied by one and one-half the regular rate. Then, under § 207(h), the overtime already paid by the employer is determined and credited against the overtime owed. While § 207(h) does not state whether credits must be determined on a workweek basis, it must still be read within the context of the overtime due under § 207(a), which is calculated on a workweek basis. Under this reading, compensation already paid for work done within one workweek should not be transferrable and offset against overtime due in another workweek. This makes sense because Plaintiffs are owed what they should have been paid had the City obeyed the law.

This decision adds to a split in the circuit courts.  The Supreme Court eventually may decide this issue. Until then, in the Ninth Circuit, employers will not be able to offset overtime already paid, except on a work week by workweek basis.

Although this is an FLSA case, California wage-hour laws track the FLSA unless there's a reason in the California law to depart from federal law.  In this instance, California courts are likely to follow the FLSA on this point, because it is the calculation method that is most generous to employees.

This case is Haro v.  City of Los Angeles and the opinion is here. 

9th Circuit Taketh Away in an Amended Opinion

We posted about the Ninth Circuit's post-Wal-Mart v. Dukes decision in Wang v. Chinese Daily News here.   This was an overtime class action involving newspaper employees. The Court of Appeals in the earlier opinion remanded the case to the district court for reconsideration of its class certification decision after Wal-Mart v. Dukes.

The plaintiffs apparently sought a rehearing. The Court issued an amended opinion instead.  The Court softened some of its language in the first opinion.  For example, it removed this line, quoted from its own precedent, addressing the plaintiffs' burden of proof on a motion for class certification:

Plaintiffs must show “significant proof that [CDN] operated under a general policy of [violating California labor laws].” Ellis, 657 F.3d at 983 (quoting Wal-Mart, 131 S. Ct. at 2553 (alteration omitted)).

The Court in the first opinion foreclosed class certification for injunctive relief Fed. R. Civ. Pro. 23(b)(2)

Further, it appears that none of the named plaintiffs has standing to pursue injunctive relief on behalf of the class, as none of them is a current CDN employee. See Wang, 623 F.3d at 756. We therefore reverse the district court’s class certification under Rule 23(b)(2).

In the new opinion, the Court opened the door to injunctive relief:

It appears that none of the named  plaintiffs has standing to pursue injunctive relief on behalf of the class, as none of them is a current CDN employee. See Wang, 623 F.3d at 756. However, because the Rule 23(b)(2) class was certified by the district court while they were current employees, the class certification with respect to injunctive relief may survive if there are identifiable class members who are still employed by CDN.

The Court's new opinion also deletes the section of the prior opinion called "Damages."  In the first opinion the Court wrote this, which could have been helpful to defense lawyers in class action cases:

in Wal-Mart, the Supreme Court disapproved what it called “Trial by Formula,” wherein damages are determined for a sample set of class members and then applied by extrapolation to the rest of the class “without further individualized proceedings.” Wal-Mart, 131 S. Ct. at 2561. Employers are “entitled to individualized determinations of each employee’s eligibility” for monetary relief. Id. at 2560. Employers are also entitled to litigate any individual affirmative defenses they may have to class members’ claims. Id. at 2561. 

Poof. That language is gone from the amended opinion. The Court mentions in the new opinion that it expresses no opinion regarding damages.
The case is Wang v. Chinese Daily News and the amended opinion is here. 

Court of Appeal - Managers Supervising While Performing Non-Exempt Tasks Are Non-Exempt

Safeway stores employ assistant managers who supervise many employees and have responsibility for hiring, supervising, budget compliance, etc.  But the stores' "operating budgets" and other policies allegedly require assistant managers to work the cash register and perform bookkeeping duties at times.  The assistant managers can supervise associates while "multi-tasking" / working the checkout line.

The plaintiff, Linda Heyen, was an assistant manager. The trial court found she worked about 54 hours a week, and spent a great deal of time at the check stand and performing bookkeeping tasks, even though she was able to supervise the store simultaneously.  An advisory jury concluded that Safeway did not prove Heyen was exempt.  The trial court instructed the jury that it should consider the primary purpose for "mixed" activities - those that involved both non-exempt work and supervision.

Safeway argued this:

So long as the manager is still actively functioning in his/her managerial capacity, and addressing his/her attention to managerial tasks such as observing how the store is running and considering how to make the store perform more efficiently and profitably, how to best model and train the store's employees in proper service activities, how to resolve any employee or operational problems that have arisen or are arising, and instructing employees in that regard, etc., all that time should be considered to fall on the 'exempt' side of the ledger—even if the manager is helping customers or handling product at the same time.

The court engaged in a detailed analysis of federal regulations, the wage order, and California case law, which you can read in the opinion. The punch line is this:

the federal regulations cited in Wage Order 7 expressly recognize that managers sometimes engage in tasks that do not involve the "actual management of the department [or] the supervision of the employees therein." (§ 541.108(a).) In those circumstances, the regulations do not say, as Safeway would have us hold, that those tasks should be considered "exempt" so long as the manager continues to supervise while performing them. Instead, the regulations look to the supervisor‟s reason or purpose for undertaking the task. If a task is performed because it is "helpful in supervising the employees or contribute[s] to the smooth functioning of the department for which [the supervisors] are responsible" (§ 541.108(a), (c)), the work is exempt; if not, it is nonexempt.

The court also found that when the company's expectations regarding the budgeted non-exempt hours, production standards, etc. virtually or expressly require the exempt manager to take on non-exempt tasks, the employer cannot argue that the employee did not live up to its expectations by performing non-exempt work.

So, employers, "working" / floor management, leads, etc. are more likely to be classified as "non-exempt" after this opinion, particularly when these managers are performing duties that non-exempt workers are simultaneously performing.   I predict the price of cheesy-poofs will be increasing or the checkout lines are going to be a little longer.

The case is Heyen v. Safeway and the opinion is here.

Court of Appeal Reconsiders, but then Re-Affirms Case re Work Week

We previously wrote about Seymore v. Metson Marine here.  Then we wrote an article covering it and other new wage-hour cases here.  This was the case in which the court held that the employer could not set a workweek to start on a day when the employees did not begin the week.

I am not so presumptuous to think the employer's lawyers or the court read my article, but maybe the they heard the other HOWLS from the employment bar about how bad a case this was.  So, the employer filed a petition for re-hearing, and the Court actually granted re-hearing and issued a new opinion.

The employer's lawyers submitted copious new case law, regulations, and new facts to support its argument that the employer can set the workweek for Monday when the employees start their 14-day hitches on Tuesday.  (That was the issue the Court of Appeal addressed in the initial opinion).

The Court on re-hearing remarked how much new information the employer's lawyers provided in support.  I think the Court was a bit miffed that the initial briefing was not as thorough as it might have been. Nevertheless, the Court affirmed its decision to reverse summary judgment. This time, however, the Court allowed more flexibility for employers to start the work-week on a different day than the employees' actual work begins, as long as there is a sufficient business reason for doing so (other than avoiding payment of overtime). The court hinted that Metson set up its work week for the purpose of avoiding certain wage-hour obligations.

So, the new opinion in Seymore v. Metson Marine is here.  It is now going to be up to the Supreme Court to de-publish or review this case.  On the bright side, the current version of the opinion is less dangerous for employers than the original one was.

DGV

Court of Appeal Limits' Employers' Discretion to Set the Workweek/Workday

The employees at Metson Marine, Inc. worked 14-day straight "hitches," during which they slept on their ships and had to remain within 30-45 minutes of the ship during downtime. These 14-day hitches started on Tuesdays. But the workweek was set as Monday at 12:01 a.m. through Sunday at 11:59 p.m.  As a result, Metson claimed that employees worked a six-day week, followed by a 7 day workweek, and then a two day workweek. 

The plaintiffs challenged the employer's designation of the workweek because it resulted in a less favorable calculation of overtime and of seventh day pay.  The employer relied on certain rulings by the Division of Labor Standards Enforcement, which basically say that the employer can designate any workweek or workday that it wants to, as long as it's consistent.

Surprise, Metson! The Court of Appeal, reversing summary judgment, held that the DLSE's interpretations are entitled to no respect. Rather, a workweek must coincide with the beginning of the work period actually worked:

Plaintiffs contend that premium pay must be calculated based on the "fixed and regular" schedule actually worked and that Metson should not be allowed to subvert the employee protections of section 510 by designating an artificial workweek that does not correspond with the period actually worked. Asserting that their workweek actually began and ended on Tuesday, plaintiffs argue that Metson was required to pay overtime wages for work performed on the seventh and 14th day of each hitch. We agree.

Relying on a federal district court opinion, the Court of Appeal held that the employer cannot set a workweek that differs from the workweek that employees actually work.

Much like the case before this court, the employer in In re Wal-Mart Stores, Inc. relied on the DLSE‟s interpretation of section 500 that " „[t]he beginning of an employee‟s workday need not coincide with the beginning of that employee‟s shift, and an employer may establish different workdays for different shifts.‟ " (In re Wal-Mart Stores, Inc., supra, 505 F.Supp.2d at p. 617.) The court rejected the DLSE interpretation, noting that "the California Supreme Court has held that interpretations contained in the DLSE Manual are non-binding and are entitled to no deference. (Tidewater Marine Western, Inc. v. Bradshaw, supra, 14 Cal.4th at p. 568.) Therefore, to the extent that the DLSE‟s opinion . . . is inconsistent with the Labor Code‟s goal of promoting employee protection, this opinion should be ignored." (In re Wal-Mart Stores, Inc., at p. 617.)

But it's unclear whether the Court of Appeal intends its holding to apply to worksites where employees work from week to week and have different work different days off every week. If an employer sets the workweek from 12:01 a.m Monday to 12:00 p.m. Sunday for all employees, what happens when some employees have Mondays off? What if employees sometimes have Mondays off, and sometimes Tuesdays? Does the employer have to set a different workweek for each employee each week? Also, what happens when employees report to work at different times? When does the workday start? What if the employee is late to work on the first day? Must the workday begin late just to ensure that the employee receives the maximum potential overtime pay? Hopefully, the court will re-consider the breadth of its holding in a petition for re-hearing, or maybe will be depublished..


The court also dealt with "on call" pay. The employees were on for 12 hours and off for 12 hours during the hitches. They rarely were called back to work for emergencies. However, they had to remain within 30-45 minutes of the ship, and could not drink. They also were required to sleep on the ship. On those facts, the court decided that the requirement of sleep on the shift turned all of the down time (less an 8-hour period for sleeping) into hours worked. The court excluded the 8 hours of sleep time on the basis of an agreement between the employer and employees. Unless your business requires employees to sleep on premises, this case probably won't result in a change in the law on this point. However, if you want to exclude sleep time from hours worked when employees are required to sleep on premises, have an agreement. 
 The case is Seymore v. Metson Marine, Inc. and the opinion is here.

Ninth Circuit Upholds FLSA OT Plan

Ponoma Valley Hospital pays nurses one rate for 12 hour shifts, and a higher rate for eight hour shifts. The nurses requested the 12-hour shifts. To accommodate them, the hospital calculated how much it would have to pay to neutralize the payroll effect of the 12-hour shift.

An employee claimed that the differing rates were a subterfuge to avoid paying overtime under the federal FLSA.

The Ninth Circuit held that it is lawful to pay different rates for different shifts. And it is OK to lower a base rate to minimize paying overtime, as long as it is above minimum wage.
The opinion does not address California wage and hour law.

The case is Parth v. Pomona Valley Hospital and the opinion is here.