1 CALIFORNIA COMPENSATION CRISIS: HOW TO PAY YOUR EMPLOYEES PROPERLY! GREG S. LABATE, ESQ. LABOR & EMPLOYMENT PRACTICE GROUP LEADER SHEPPARD MULLIN RICHTER & HAMPTON LLP INDEPENDENT CONTRACTORS Independent Contractors • Dynamex Operations West, Inc. v. Superior Court (2018) • This was a landmark 82‐page decision; it will change the way most employers do business in California • The California Supreme Court set forth the new legal standard determining when workers are considered employees or independent contractors • The Court embraced the standard presumption that all workers are employees instead of independent contractors • This decision places the burden of proof squarely on the employer to prove the worker is an independent contractor, not an employee
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CALIFORNIA COMPENSATION CRISIS: HOW TO PAY YOUR EMPLOYEES PROPERLY!GREG S. LABATE, ESQ.LABOR & EMPLOYMENT PRACTICE GROUP LEADER
SHEPPARD MULLIN RICHTER & HAMPTON LLP
INDEPENDENTCONTRACTORS
Independent Contractors
• Dynamex Operations West, Inc. v. Superior Court (2018)
• This was a landmark 82‐page decision; it will change the way most employers do business in California
• The California Supreme Court set forth the new legal standard determining when workers are considered employees or independent contractors
• The Court embraced the standard presumption that all workers are employees instead of independent contractors
• This decision places the burden of proof squarely on the employer to prove the worker is an independent contractor, not an employee
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Independent Contractors• The Court framed its decision by broadly stating that the misclassification of independent contractors is harmful and unfair to workers, competitors, and the public at large
• The Court developed a newly adopted “ABC Test” for determining whether a worker is an independent contractor or an employee
Independent Contractors
• Under the new “ABC Test,” a worker will be deemed to have “suffered or permitted to work,” and thus an employee for wage order purposes, unless the employer proves all of the following three factors:
• (A) The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
• (B) The worker performs work that is outside the usual course of the hiring entity’s business; and
• (C) The worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed
Independent Contractors
• Importantly, all three of these requirements must be met by the employer to rebut the presumption that the worker is an employee
• This will often be a very heavy burden for an employer to meet
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Independent Contractors
• Takeaways:
• This is an important decision that will drastically change the way California employers classify their workers
• It will most likely increase the number of misclassification class action lawsuits, which are often the most costly types of lawsuits
• All California employers should conduct an immediate and detailed audit of its workers to ensure that they are properly classifying their workers as either employees or independent contractors
• If your workers are not properly classified, you must convert them
DAY OF RESTRULE
Day Of Rest Rule• California law guarantees employees “one day’s rest therefrom in seven.”
• Employers are prohibited from “causing” employees to work more than six days in seven.
• Employees are exempt from this rule when the employee’s total hours of employment do not exceed 30 hours in any week or six hours in any one day.
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• Mendoza v. Nordstrom (2017) 2 Cal.5th 1074.
• Plaintiffs brought a PAGA claim against Nordstrom for allegedly failing to provide “one day’s rest therefrom in seven.”
• Nordstrom prevailed at the district court level.
• On appeal, the Ninth Circuit asked the California Supreme Court to clarify the day of rest rule by answering three questions:
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Day Of Rest Rule
• Question: Is the day of rest calculated by the workweek, or does it apply on a rolling basis to any consecutive seven‐day period?
• Answer: “Seven days” is calculated by looking at the employer‐defined workweek.
• The Court also cautioned that the day of rest rule requires that: “if at one time an employee works every day of a given week, at another time shortly before or after she must be permitted multiple days of rest in a week to compensate, and on balance must average no less than one day’s rest for every seven.”
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Day Of Rest Rule
• Question: Does the exemption for workers employed six hours or less per day apply so long as an employee works six hours or less on at least one day of the applicable week, or does it apply only when an employee works no more than six hours on each and every day of the week?
• Answer: The six hours or less exception applies only if the employee works six hours or less each and every day of the week.
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Day Of Rest Rule
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• Question: What does it mean for an employer to cause an employee to go without a day of rest: force, coerce, pressure, schedule, encourage, reward, permit, or something else?
• Answer: To “cause” an employee to go without a day of rest means anything other than “absolute neutrality.”
• The employer has an obligation to apprise employees of their entitlement to a day of rest, and may not encourage its employees to forgo rest or conceal the entitlement to rest.
• However, an employer is not liable simply because an employee chooses to work a seventh day.
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Day Of Rest Rule
• It is still unclear what conduct could violate the Court’s “absolute neutrality” requirement.
• Merely asking an employee if they would like to work an extra shift on the seventh day of a workweek may violate the day of rest rule, since it may not constitute “absolute neutrality.”
• The California Supreme Court left open the possibility that an employer can still run afoul of the day of rest rule when employees working all seven days in a workweek average less than one day’s rest for every seven over the course of a month.
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Day Of Rest Rule
• Takeaways:
• Employers should train supervisors to refrain from encouraging employees to work seven days in a workweek.
• Employee handbooks should be revised to apprise employees of their entitlement to a day of rest.
• If an employee chooses to work a seventh day in a workweek, and is not exempt from the day of rest rule, the employee should acknowledge in writing that it was the employee’s choice to work the seventh day, and that the employee was not encouraged or pressured to do so.
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Day Of Rest Rule
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OFF THE CLOCKWORK
Off The Clock Work• Employers must pay for all work they know about, even if they did not ask for the work, they did not want the work done, and even if they had a rule against doing the work.
• If an employer does not want to pay overtime, its management must exercise its control and see that the work is not performed.
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• However, employers are not required to pay for work they did not know about, and had no reason to know about.
• An employer’s knowledge can be either actual or constructive. An employer has constructive knowledge of an employee’s work if it should have acquired knowledge of that work through reasonable diligence.
• One way an employer can exercise diligence is by establishing a reasonable process for an employee to report uncompensated work time.
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Off The Clock Work
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• White v. Baptist Memorial Health Care Corp., 699 F.3d 869, 876 (6th Cir. 2012): Summary judgment for the employer where the employee failed to follow reasonable time reporting procedures and thus prevented the employer from knowing its obligation to compensate her.
• Forrester v. Roth’s I.G.A. Foodliner, Inc., 646 F.2d 413, 414 (9th Cir. 1981): Summary judgment for the employer where it had “no knowledge that an employee is engaging in overtime work and that employee … deliberately prevents the employer from acquiring knowledge …, the employer’s failure to pay… is not a violation of” the FLSA.
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Off The Clock Work
• Most recently, in Allen v. City of Chicago (7th Cir. 2017), the court found that police officers were not entitled to compensation for work performed off‐duty on their Blackberrys because the employer did not prevent the plaintiffs from requesting payment for such non‐scheduled overtime work and did not know that the plaintiffs were not being paid for it.
• Importantly, the police department had a process that officers could use to obtain overtime compensation by submitting “time due slips” to their supervisors, including a space for explaining what work was done.
• Central to the court’s holding was its finding that the plaintiffs were not prevented or discouraged from submitting the “time due slips.”
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Off The Clock Work
• Takeaways:
• Employers should establish processes that employees can use to report off the clock work in writing, and clearly communicate these processes to their employees.
• To defend against arguments that employees were prevented or discouraged from using the processes, employers should ensure that at least some employees are utilizing the processes.
• Employers should also consider creating similar processes for employees to report non‐compliant meal and/or rest periods.
• The above line of cases may provide a basis to oppose claims for meal or rest period premiums when the employer had no actual or constructive knowledge of the missed meal and/or rest periods.
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Off The Clock Work
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REST PERIODS
Rest Periods• Under California law, employers must authorize and permit rest periods at the rate of 10 minutes net rest time per four hours worked, or major fraction thereof.
• Rest periods should be taken as close to the middle of each four‐hour work period, as practicable.
• Rest periods are paid, and must be taken on the clock.
• Failure to provide a rest period requires one hour of pay as a penalty.
• Employees are limited to one rest period penalty per workday.
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Rest Periods• Shifts of less than 3.5 hours: no rest period.
• Shifts of 3.5 hours up to 6 hours: one rest period.
• Shifts more than 6 hours up to 10 hours: two rest periods.
• Shifts more than 10 hours up to 14 hours: three rest periods.
• Etc.
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• Augustus v. ABM, 2 Cal. 5th 257 (2016)
• California Supreme Court clarified the duty to authorize and permit rest periods
• ABM employed security guards who were required to carry a pager and respond to emergency and non‐emergency issues during their 10‐minute rest periods
• The guards sued for rest period penalties in a class action lawsuit
• The trial court granted summary judgment for the guards, and awarded them $90 million in rest period penalties
• The Court of Appeal reversed, and held that being on call during rest periods did not violate the law
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Rest Periods
• The California Supreme Court reversed
• Employers must relieve employees of all duties during rest periods, and must “relinquish any control” over how employees spend their rest periods
• Requiring employees to “remain at the ready, tethered by time and policy to particular locations or communications devices” is inconsistent with relinquishment of control
• There is no express statutory authorization for on duty rest periods
• Being on call is considered as being on duty; but rest periods must be off duty
• This decision represents a major change in the way courts view rest periods, and will most likely lead to more class action litigation over rest periods
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Rest Periods
• Takeaways:
• Ensure that you authorize and permit duty free rest periods
• Do not have employees be on call during rest periods
• Do not require employees to remain on‐site during rest periods
• Review and revise rest period policies for compliance
• New insert to policy: “Employees are relieved of all duties during their rest periods, and Company relinquishes any control over how employees spend their rest periods”
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Rest Periods
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ROUNDING
• There has been a recent rise in wage/hour class actions based on rounding policies
• Key: Even if the rounding policy is facially neutral, employers could face potential class‐wide liability if the rounding practice unfairly favors the employer in practice
• Unfair results from rounding are often times based on factors outside employers control, such as employee work habits (i.e., start 5 minutes early; end 5 minutes late)
• Even a few minutes of underpayment per employee per day can lead to massive penalties, i.e., waiting time penalties, minimum wage penalties, paystub penalties, PAGA penalties, etc., plus attorneys fees and costs
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Rounding
• Takeaways:
• If you have a rounding policies, carefully analyze if the benefits outweigh the risks.
• Recommendation: eliminate rounding policies; just pay for actual time worked
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Rounding
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CALIFORNIAMINIMUM WAGE
California Minimum WageEffective Date Minimum Wage
(26 or more employees)Minimum Wage(25 or fewer employees)
January 1, 2018 $11 $10.50
January 1, 2019 $12 $11
January 1, 2020 $13 $12
January 1, 2021 $14 $13
January 1, 2022 $15 $14
January 1, 2023 $15 $15
California Minimum WageCity in California Effective Date Current Minimum Wage (if diff) 2018 Minimum Wage
Berkeley October 1, 2018 $13.75 $15.00
Cupertino January 1, 2018 $13.50
El Cerrito January 1, 2018 $13.60
Emeryville July 1, 2018 $15.20 (56 or more employees) $15.60 (56 or fewer)
$14.00 (55 or fewer employees) $15.00 (55 or fewer)
Long Beach January 1, 2018 $11.00 (26 or more)
$10.50 (25 or fewer)
Los Altos January 1, 2018 $13.50
Los Angeles (city) July 1, 2018 $12.00 (26 or more) $13.25 (26 or more)
$12.00 (25 or fewer)$10.50 (25 or fewer)
Los Angeles County (unincorporated areas) July 1, 2018 $12.00 (26 or more) $13.25 (26 or more)
$10.50 (25 or fewer) $12.00 (25 or fewer)
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California Minimum WageCity in California Effective Date Current Minimum Wage (if diff) 2018 Minimum Wage
Malibu July 1, 2018 $12.00 (26 or more) $13.25 (26 or more)
$10.50 (25 or fewer) $12.00 (25 or fewer)
Milpitas January 1, 2018 $11.00 $12.00 (26 or more)
July 1, 2018 $13.50 (25 or fewer)
Mountain View January 1, 2018 $15.00
Oakland January 1, 2018 $13.23
Palo Alto January 1, 2018 $13.50
Pasadena July 1, 2018 $12.00 (26 or more) $13.25 (26 or more)
$10.50 (25 or fewer) $12.00 (25 or fewer)
Richmond January 1, 2018 $13.41 (w/o qualifying health benefits)
$11.91 (w/ qualifying health benefits)
San Diego January 1, 2017 $11.50
San Francisco July 1, 2018 $14.00 $15.00
California Minimum WageCity in California Effective Date Current Minimum Wage (if
diff)2018 Minimum Wage
San Jose January 1, 2018 $13.50
San Leandro July 1, 2018 $12.00 $13.00
San Mateo January 1, 2018 $13.50
$12.00 (non profit employees)
Santa Clara January 1, 2018 $13.00
Santa Monica July 1, 2018 $12.00 (26 or more) $13.25 (26 or more)
$10.50 (25 or fewer) $12.00 (25 or fewer)
Sunnyvale January 1, 2018 $15.00
California Minimum Wage
• Increases in the local minimum wage do not affect the statewide minimum exempt salary level
• Whether a local minimum wage applies depends on where the employee is located, not the employer
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California Minimum Wage• Takeaways:
• Employers should regularly check to ensure that they are complying with state and local minimum wage requirements
DRIVING COMPANYVEHICLES
Driving Company Vehicles• Taylor v. Cox Communications California, LLC (C.D. Cal. 2017)
• Plaintiff filed a class action lawsuit alleging that Cox failed to pay employees who opted into their Home Start program
• The Home Start program allowed field technicians to drive company vehicles to and from their homes, as opposed to requiring employees to pick up and drop off the company vehicles at the office every day
• The field technicians began their workday by clocking in when they left their homes, but ended their workday by clocking out when leaving their last worksite
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Driving Company Vehicles• Therefore, the drive from their last location to their homes was unpaid
• Plaintiffs alleged that this was compensable work
• The Court granted summary judgment in favor of Cox because:
• Participation in the Home Start program was voluntary, and
• The mere act of driving the company vehicle home did not qualify as compensable time, even though the employee carried Cox’s tools and equipment in the truck
Driving Company Vehicles
• Takeaway:
• Employers should ensure that any programs which involve employees driving company vehicles to and from work are voluntary
BAG INSPECTIONS& SECURITY CHECKS
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Bag Inspections & Security Checks• Chavez v. Converse (N.D. Cal. 2017)
• Plaintiff brought a claim for payment for off‐the‐clock work for the time he spent going through mandatory bag inspections
• Employer moved for summary judgment and submitted a time‐and‐motion study completed by an expert
• The expert reviewed 436 exit inspections and found that they averaged 9.2 seconds per inspection
• The Court’s analysis focused on two questions:
• Does the de minimis doctrine apply to claims for unpaid wages?
• If so, does the de minimis doctrine apply to time spent undergoing bag inspections and/or security checks?
Bag Inspections & Security Checks• #1: Does the de minimis doctrine apply to California Labor Code claims for unpaid wages?
• Yes
• The California Supreme Court has never definitively held that the de minimis doctrine applies to claims under California law
• Note that this issue is pending before the California Supreme Court in Troester v. Starbucks
• Nonetheless, the Court followed Ninth Circuit precedent and found that the de minimis doctrine is applicable to claims raised under California law
Bag Inspections & Security Checks• #2: Does the de minimis doctrine apply to time spent undergoing bag inspections and security checks?
• Yes
• The Court considered the practical administrative difficulty of recording the additional time
• The Court agreed with the employer that it would be impractical to move time clocks to the front of the store because they would be within customer view/access
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Bag Inspections & Security Checks• Employer’s expert found the average exit inspection lasted between 7.2 and 11.2 seconds
• In contrast, Plaintiff’s expert found the average exit inspection lasted 114 seconds
• But the Court found that even exit inspections lasting 114 seconds would still be de minimis
Bag Inspections & Security Checks• Although employees had to undergo bag inspections and security checks for every shift, the Court focused on how regularly employees performed compensable work which was over one minute in length
• The Court found that employees did not regularly experience compensable work for these bag inspections and security checks
• The Court believed that they were less than one minute
Bag Inspections & Security Checks• Takeaways:
• If employees undergo mandatory inspections before/after they clock out, employers should ensure time spent doing so is de minimis (preferably, less than one minute)
• Employers should assess whether it is practicable to locate time clocks so as to allow employees to clock out before/after bag inspections and/or security checks
• Train managers/supervisors to conduct these inspections in an efficient and timely manner
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Flat Rate Bonusesand Overtime
Flat Rate Bonuses and Overtime• Alvarado v. Dart Container Corp. (2018)
• The California Supreme Court “clarified” how employers should calculate the regular rate for purposes of overtime when an employee receives a non‐discretionary flat rate bonus
• Dart argued that the Court should follow the guidance set forth by the FLSA
• Unfortunately, the Court rejected Dart’s arguments, and created its own calculation; it is a very complicated calculation
Flat Rate Bonuses and Overtime• Example:
• $15 base hourly pay
• Worked 9 hours each on Monday, Tuesday, Wednesday, and Thursday
• Worked 5 hours each on Friday and Saturday
• Received a $30 flat rate bonus for working on Saturday
• Regular Hours = 40
• Overtime Hours = 6
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Flat Rate Bonuses and Overtime• Calculation for California Employees:
• $30 flat rate bonus / 40 hours = 0.75
• 1.5 x regular bonus rate: $0.75 x 1.5 = $1.125
• OT on bonus: 6 x $1.125 = $6.75
• 46 (straight hours) x $15 = $690
• OT premium (w/o considering the bonus) = 6 hours x $7.50 = $45 ($15 x .5 = $7.50; i.e., the OT premium rate because the employee already received $15 for his “straight” hours over 40)
• Bonus = $30
• OT on bonus = $6.75
• Total = $771.75
Flat Rate Bonuses and Overtime• Reminder:
• Non‐discretionary bonuses that must be included in the regular rate of pay for the purpose of calculating overtime in California:
• Bonuses for productivity, efficiency, quality, accuracy, attendance, duration of service, and hiring bonuses
• Prizes and awards related to work• Bonus based on an occurrence, such as 0 accidents during a month
• Bonus based on attendance, such as $100 for perfect attendance during a month
• Bonus for service, such as $1,000 for 3 years of service• Etc.
Flat Rate Bonuses and Overtime• Takeaways:
• If an employer provides non‐discretionary flat rate bonuses to employees, it is very possible that it did not calculate the regular rate for purposes of overtime correctly
• Important: The regular rate calculation in Alvarado applies retroactively
• Employers who provide non‐discretionary flat rate bonuses to employees must review their overtime pay practices and determine if they are compliant with the new formula set forth in Alvarado as soon as possible
• We expect to see a lot of class action litigation in this area
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BONUSES ANDCALCULATING OVERTIME
• Russell v. Government Employees Insurance Co., Case 3:17‐cv‐0672‐JLS‐WVG (S.D. Cal. July 11, 2017)
• What are the overtime pay implications of a non‐discretionary profit sharing bonus that was paid as percentage of an employee’s straight and overtime wages?
• Overtime pay is calculated based on the “regular rate” of pay, which includes certain types of bonuses.
• Here, employee was paid hourly wage and an annual bonus through employer’s profit sharing plan.
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Bonuses And Calculating Overtime
Bonuses And Calculating Overtime• Employer made contributions to profit sharing plan fund, which was then allocated to each planning center based upon rankings.
• The amount each center received was based on a ratio of (1) ranking multiplied by total earnings of all eligible employees in that center to (2) the sum of the products of each planning center’s ranking and total earnings of all eligible participants.
• Then, each employee’s bonus was calculated as the ratio of (1) the employee’s earnings in the plan year to (2) the total earnings of all eligible employees within the center.
• The employee’s earnings in this calculation included all regular pay, overtime pay, and shift differential earned during the plan year.
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Bonuses And Calculating Overtime
• Employee had to remain employed until the payout date of the bonus, typically in late February following the plan year.
• Employee argued that this bonus should have been included in regular rate of pay for calculating overtime.
• But employer argued that bonus was paid as percentage of regular and overtime wages, so employee had already been paid all wages owed.
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Bonuses And Calculating Overtime• “Court said determination turned on whether this was a “percentage bonus” under the federal regulations.”
• Employer argued it was a percentages bonus, which renders recomputation of the regular rate of pay unnecessary because by definition it includes all overtime due on the bonus.
• Employee argued that since the bonus was designed to induce employees to remain with the company and are contingent upon the employee’s continuing employment, they must be included in the regular rate of pay.
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Bonuses And Calculating Overtime
• Court determined this was a percentage bonus, because it multiplied the employee’s earnings, including overtime, by a fixed percentage.
• As such, this bonus complied with federal regulations by providing employees with both a bonus and accrued overtime in one payment.
• The fact that the employees had to remain employed until the payout to receive the bonus did not change this conclusion.
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Bonuses And Calculating Overtime
• Takeaways:
• Many bonuses are required to be included in the regular rate of pay for purposes of calculating overtime.
• Carefully review your bonus structures with counsel to ensure you are paying overtime in compliance with California and Federal law.
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EQUAL PAY ACT
• On October 6, 2015, Governor Brown signed SB 358, The Equal Pay Act, which became effective on January 1, 2016
• It strengthened Labor Code § 1197.5, which already prohibited paying an employee at a wage rate less than the rate paid to other employees based on gender
• It required equal pay for male and female employees who perform “substantially similar work” under “similar working conditions,” which is a much broader standard
• It eliminated the requirement that employees could only compare work performed at the “same establishment”
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Equal Pay Act
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• It required employers to affirmatively demonstrate that a wage differential is entirely based on (a) a seniority system; (b) a merit system; (c) a system that measures earnings by quantity or quality of production; and/or (d) a bona fide factor other than sex
• It prohibited retaliation against employees who take actions to invoke or assist in enforcement of the act
• Recently, two amendments to Equal Pay Act were enacted in 2016, and became law effective on January 1, 2017
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Equal Pay Act
• SB 1063:
• It expanded the Equal Pay Act to also prohibit paying an employee at a wage rate less than the rate paid to employees of the opposite race or ethnicity; so no longer based on gender only
• This was already prohibited by Title VII, the FEHA, and other antidiscrimination statutes, but it offers more protection under state law
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Equal Pay Act
• AB 1676:
• It amended the Labor Code to state that prior salary shall not, by itself, justify any disparity in compensation
• The EEOC already discourages reliance on prior salary to justify pay disparity under federal law
• But again, it adds more protection under state law
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Equal Pay Act
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• Takeaways:
• Train managers, especially those employees involved in hiring and setting compensation, about the new laws
• You can still ask about salary history, but be sure to rely upon more than just past salary history to set compensation
• Conduct periodic audits of compensation levels to ensure there is no evidence of unfair disparity based on gender, race, ethnicity, etc.
• Conduct annual review of market/industry compensation, and adjust if applicable
• Communicate/justify compensation decisions to employees
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Equal Pay Act
QUESTIONS ABOUTSALARY HISTORY
Questions About Salary History
• Gov. Brown signed AB 168 into law on October 12, 2017, in response to concerns that the use of salary history in the hiring process can perpetuate discrimination
• Relying on the salary history information of a job applicant as a factor in determining whether to offer employment to the applicant or what salary to offer; and
• Seeking salary history information about a job applicant, either orally or in writing, personally or through an agent
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Questions About Salary History• Labor Code Section 432.2:
• Requires employers to provide the pay scale for a position to a job applicant upon reasonable request;
• Applies to all employers; and
• Includes compensation and benefits
Questions About Salary History• Note:
• AB 168 does not prohibit employers from considering or relying upon salary history which the applicant provides voluntarily and without prompting; but be careful not to seek it impliedly
• Reminder:
• Under Equal Pay Act, prior salary cannot, by itself, be used as a justification for any disparity in compensation between employees of difference races, sexes, ethnicities, etc.
Questions About Salary History• Rather than relying on salary history, employers should rely on relevantinformation concerning the applicant’s qualifications:
• Education
• Certifications
• Work experience
• Responsibilities at prior places of employment
• Performance in behavioral interview
• References
• Note: This is why the interview process is more important than ever now
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Questions About Salary History• Takeaways:
• Employers should review their employment applications carefully to ensure that they do not request information regarding an applicant’s prior salary history
• Employees handling applicant interviews should be advised that they cannot ask an applicant any information regarding their prior salary history during an interview or in any other communications
UNDOCUMENTED WORKERS
• Kao v. Joy Holiday, 12 Cal.App.5th 947 (2017).
• The California Court of Appeals considered unpaid minimum wage and overtime claims initiated by an individual who did not possess a work permit when his employment commenced.
• Employee, a Taiwanese national, worked in Millbrae, California as an Office Manager without legal permission to work in the U.S.
• Employee’s lawsuit alleged claims for failure to pay minimum wage and overtime under state and federal law.
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Undocumented Workers
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• The trial court determined that employee worked without a work permit, he was a non‐employee “guest,” and was, therefore, not entitled to minimum wage or overtime
• The California Court of Appeals disagreed:
• “Employee” is defined under the FLSA as “any individual employed by an employer”; FLSA thus protects and applies to undocumented aliens
• California law applies an even broader definition of employee than does the FLSA
• Holding: Under both Federal and California law, plaintiff was an “employee,” not a guest, and was entitled to minimum wage and overtime
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Undocumented Workers
• Takeaways:
• Federal and State wage and hour laws apply to persons with and without permission to work in the U.S.
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Undocumented Workers
COMPLIANCE TIPS
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Compliance Tips
• Consider having a "bell" system that signals the start/end of meal periods
• Consider using a "lockout" system on the timekeeping system to prevent employees from clocking back in after they clock out for a meal period unless they have been clocked out for at least 30 minutes
• Consider having meal periods that last longer than the required minimum 30 minutes; for example, require employees to take meal periods that last 35 to 45 minutes; that way, if employees come back early from a meal period by a few minutes, it will not be a short meal period; use the extra time as a “buffer”
• Similarly, consider having rest periods that are longer than the minimum required 10 minutes; for example, rest periods that are 12 minutes to 15 minutes long; again, use the extra time as a “buffer”
Compliance Tips• Consider scheduling meal periods and rest periods at specific times so that they cannot be taken late or be short
• Avoid late first meal periods by ensuring that the first meal period starts well before the end of the fifth hour; i.e., if an employee begins work at 9:00 a.m., the employee must start the meal period before 2:00 p.m.; so rather than push it to the very last minute, ensure that the meal period starts at 1:00 pm or 1:30 p.m. at the latest
• Avoid late second meal periods by ensuring that the second meal period starts well before the end of the tenth hour; i.e., if an employee begins work at 9:00 a.m., the employee must start the meal period before 7:00 p.m.; so rather than push it to the very last minute, ensure that the meal period starts at 6:00 pm or 6:30 p.m. at the latest
Compliance Tips• Update the rest period policy to comply with the recent ABM case that does not allow employers to have any control over employees during the rest period.
• Train managers and employees that non‐exempt employees can leave the premises for both meal periods and rest periods
• Ensure that you are using a proper meal period waiver
• Use certification forms where employees verify in writing that they have taken all their rest periods, meal periods, and have not worked off the clock, etc.; provide these to the employees with their paystubs and ensure they return them the following business day
• Create a Meal/Rest Period Violation Form that can be filled out by the employee and given to management; consider separate forms for each
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Compliance Tips• Be sure to pay the penalty (one hour of pay) when meal and/or rest periods are missed; but monitor so that employees do not abuse the process
• Train managers on the importance of strict compliance with wage and hour policies, including meal periods, rest periods, and off the clock work
• Consider scheduling shifts that are shorter than 6 hours, 8 hours, 10 hours, and/or 12 hours so that employees cannot go over those hours to trigger overtime and second meal periods; for example, never schedule an employee or allow an employee to work more than 12 hours; instead, schedule employees to work 11.75 hours; buffers!
Compliance Tips
• Sample Non‐Exempt Schedule (8:00 am to 10:00 pm shift)
• 8:00 am: start shift (clock in)
• 10:00 am: first 12‐minute rest period (on the clock)
• 12:30 pm: first 35‐minute meal period (clock out; before the end of the 5th hour of work)
• 1:05 pm: return to work (clock in)
• 3:30 pm: second 12‐minute rest period (on the clock)
Compliance Tips
• 5:30 pm: second 35‐minute meal period (clock out; before the end of the 10th hour of work; required since working more than 12 hours today)
• 6:00 pm: return to work (clock in)
• 8:00 pm: third 12‐minute rest period (on the clock)
• 10:00 pm: end shift (clock out)
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Compliance Tips
• Send out reminder memos that set forth the key policies, such as meal periods, rest periods, off the clock work, and timekeeping, at least twice per year; have the employees sign off that they received them and place them in their personnel file.
• Update the employee handbook at least yearly, and whenever there is a change in the law regarding wage and hour issues.
• Ensure that the company’s full legal corporate name is on the paystub
Compliance Tips• Consider changing payroll from once a week to twice per month to reduce potential PAGA penalties, which are based on the number of pay periods within the one‐year statute
• Confirm that all bonuses, if any, that are paid are included in the regular rate of pay for purposes of calculating overtime if required by law; analyze all additional compensation paid to determine if it should be included
• And no rounding!
ANY QUESTIONS?
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GREG S. LABATE, ESQ.PRACTICE GROUP LEADERSHEPPARD MULLIN RICHTER & HAMPTON LLP
