2013 best best & krieger labor & employment update: wage & hour case studies

BB&K 2013 ANNUAL LABOR & EMPLOYMENT LAW UPDATE 1

WAGE & HOUR CASES

1. Meal & Rest Period Issues:

BRINKER CLARIFIES THAT WHILE EMPLOYERS MUST PROVIDE OFF-DUT Y MEAL PERIODS, THEY ARE NOT OBLIGATED TO ENSURE THAT EMPLOYEES TAKE SUCH A BREAK Plaintiff employees filed a class action suit, seeking to represent cooks, stewards, buspersons, wait staff, host staff, and other hourly employees against defendants Brinker Restaurant Corporation, Brinker International, Inc. and Brinker International Payroll Company, L.P. (collectively, “Brinker”), which own and operate restaurants throughout California, alleging that Brinker failed to provide plaintiffs with meal and rest periods during the workday, or premium pay in lieu of breaks. (Labor Code sections 226.7, 512; 8 Cal. Code. Regs. Sections 11050(11) and 11050(12).) Plaintiff moved for class certification, defining the class as “[a]ll present and former employees of [Brinker] who worked at a Brinker-owned restaurant in California, holding a non-exempt position, from and after August 16, 2000.” The class definitions included several subclasses, three of which are relevant here: (1) the “Rest Period Subclass”; (2) the “Meal Period Subclass”; and (3) the “Off-the-Clock Subclass.” The trial court granted class certification, finding that common issues predominated over individual issues: “[C]ommon questions regarding the meal and rest period breaks are sufficiently pervasive to permit adjudication in this one class action.” The appellate court issued writ relief and reversed class certification as to the meal and rest period subclasses on the basis that the trial court committed error per se by failing to resolve legal disputes over the scope of Brinker’s duties to provide meal and rest periods prior to ruling on certification. The Supreme Court affirmed in part, and reversed in part, the appellate court judgment and concluded that trial courts are not obligated as a matter of law to resolve threshold disputes over the elements of plaintiff’s claims, unless a particular determination is necessarily dispositive of the certification question. Upon the parties’ request, the Court agreed to resolve lingering uncertainty over the nature of rest and meal period obligations and the suitability of such claims for class treatment. The Court determined that the employer is not required to ensure employees cease all work during meal periods. Instead, under state law, an employer must provide its employees an uninterrupted 30-minute duty-free period during which the employee is at liberty to come and go. Absent a statutorily permissible waiver, a meal break must be afforded after no more than five hours of work, and a second meal period after no more than ten hours of work. With regard to rest periods, the Court determined that employees are entitled to ten minutes of rest for shifts from three and one-half to six hours in length, and to another ten minutes rest for shifts from six hours to ten hours in length. Rest periods need not be timed to fall specifically before or after any meal period. Brinker v. Superior Court (2012) 53 Cal.4th 1004.

COURT OF APPEAL AGAIN AFFIRMS ORDER DENYING CERTIFI CATION OF MEAL AND REST PERIOD CLASS POST-BRINKER Plaintiff worked at a Chipotle restaurant as an hourly worker. He filed suit against his employer for failure to provide meal and rest periods to hourly employees. Chipotle moved to deny class


certification, and Plaintiff moved to certify the class. The appellate court affirmed the trial court’s decision to deny class certification despite determining that Plaintiff established numerosity, ascertainability, typicality and adequacy, on the basis that the individual issues predominated over common issues, and class treatment was not superior to individual actions. The California Supreme Court granted review and then remanded the case for reconsideration in light of its decision in Brinker v. Superior Court (2012) 53 Cal.4th 1004. The appellate court held that class certification was properly denied on the basis that the employer’s obligation to provide meal breaks did not extend to ensuring the meal break was taken. The California Supreme Court conclusively resolved the issue, stating that an employer’s duty with respect to meal breaks under Labor Code section 512(a) and Wage Order No. 5 was an obligation to provide a meal period to its employees. However, the employer was not obligated to police meal breaks and ensure no work was performed. The trial court appropriately decided the threshold legal issue as it could not otherwise assess whether class treatment was warranted. Hernandez v. Chipotle Mexican Grill, Inc. (2012) 208 Cal.App.4th 1487.

CALIFORNIA SUPREME COURT SAYS NO ATTORNEYS’ FEES IN MEAL AND REST PERIOD ACTIONS Plaintiff worked for a contractor, IFP, and filed suit against his employer alleging that IFP violated a number of wage and hour laws. Plaintiff also named a number of doe defendants, alleging they were liable under Labor Code section 2810 because they entered into contracts with IFP while knowing that the contracts did not provide sufficient funds to allow IFP to comply with all applicable wage and hour laws. Plaintiff settled with the doe defendants and dismissed his action against IFP. The trial court awarded IFP its attorneys’ fees under Labor Code section 218.5, and the Court of Appeal affirmed.

The California Supreme Court reversed the trial court award on the grounds that there was no availability of statutory attorneys’ fees to either party for such claims for violations of the rest and meal period statute. The Court held that an action for meal and rest period compensation under Labor Code section 226.7 is not a claim for which attorneys’ fees can be awarded to a prevailing employee under Labor Code section 1194. The Court’s holding hinged in its detailed analysis of the two statutory bases for awarding attorneys’ fees in unpaid wage cases: Labor Code sections 218.5 and 1194. Relative to Labor Code section 218.5, it provides an award of attorneys’ fees to a prevailing party “in any action brought for the nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions.” Labor Code section 1194 allows successful plaintiffs to recover attorneys’ fees in actions for the “legal minimum wage or the legal overtime compensation.” The court held that Labor Code section 218.5 does not authorize a prevailing party, either the employer or the employee, to recover its attorneys’ fees in an action under section 226.7, on the basis that section 226.7 does not constitute an “action brought for the nonpayment of wages” within the meaning of section 218.5. Accordingly, while an award of statutory attorneys’ fees remains available for individual or class action claims involving the nonpayment of overtime, or delays in paying employees’ their wages, awards of attorneys’ fees are not available for either party solely involving alleged rest or meal break periods under section 226.7. Kirby v. Immoos Fire Protection, Inc. (2012) 53 Cal.4th 1244.


2. The Use of Statistics to Support Class Certification:

SUPREME COURT REINS IN THE USE OF STATISTICAL DATA SUPPORTING CLASS CERTIFICATIONS

Plaintiff-employees at Wal-Mart Stores filed a class action alleging sex discrimination and seeking an injunction, declaratory relief, back pay, and punitive damages. Wal-Mart had no corporate-wide policy on promotions. Instead, promotions were at the discretion of local management. Plaintiffs argued, however, that Wal-Mart had a corporate-wide culture of discrimination, and relied on sociological and statistical analyses showing that women were promoted less-frequently than men to support their claim that a class action was appropriate in this case. The Northern District of California granted class certification and the Ninth Circuit affirmed, based on the common question of whether the proposed class members were subject to a single implied set of corporate policies regarding promotion. The U.S. Supreme Court reversed finding that the Plaintiff’s had not adequately established commonality. Commonality requires that the proposed Plaintiffs have “suffered the same injury.” The “claims must depend upon a common contention … mean[ing] that determination of its truth or falsity will resolve the issue that is central to the validity of each one of the claims in one stroke.” In this case, the Supreme Court held that the Plaintiffs did not challenge any specific employment practice, and the sociological and statistical analyses did not reliably show disparities in promotion at the national level. Wal-Mart Stores, Inc. v. Dukes (2011) 131 S.Ct. 2541.

CALIFORNIA COURTS CONTINUE TO WRESTLE WITH THE HOLD ING IN DUKES; CALIFORNIA SUPREME COURT WILL REVIEW ISSUE IN 201 3

Plaintiffs brought an action against his bank-employer under California’s Unfair Competition Law. (Bus. & Prof. Code §§ 17200, et seq.) The proposed Plaintiffs were 260 “business banking officers” who claimed they were misclassified and denied overtime pay in violation of the Labor Code. The trial court allowed Plaintiffs to “prove” liability and damages on behalf of the entire class based on a sample of 20 members of the proposed class who were “randomly selected” to testify at trial. The court also rejected the declarations submitted by actual absent class members. Relying on plaintiffs’ statistical sampling, the trial court twice rejected employer’s motions to decertify, which had argued that the core issue of liability – “classification” – was inherently individual to each banking officer. At trial, the court precluded the employer from offering any evidence or argument related to class members other than those included in the sample group, notably rejecting approximately 78 absent class members who swore that they were not misclassified. After a bifurcated trial, the court entered judgment and awarded $15 million to the class, including amounts distributed to the 78 class members who admitted they were not misclassified. At the appellate court level, the Court of Appeal held that, in light of the Dukes case, the trial court’s use of statistical sampling was “fatally flawed” as to the merits and that the deprivation of the employer’s due process rights “was profound.” The Court of Appeal reversed the judgment and ordered the class decertified. Notably, however, the California Supreme Court has now granted review in this case. Therefore, the impact of this holding remains uncertain until after that review. Duran (Sam) v. U.S. Bank N.A. (2012) 203 Cal.App.4th 212, review granted (May 16, 2012) 2012 Cal. LEXIS 4635.


3. The Enforceability of Class Action Waivers in Arbitration Agreements:

SUPREME COURT UNCORKS THE ISSUE OF FEDERAL PRE-EMPTION OF CALIFORNIA RESTRICTIONS ON CLASS ACTION WAIVERS IN ARBITRATION AGREEMENTS

Consumers filed a class action against AT&T, alleging that the offer of a free cell phone with wireless service agreement was fraudulent because AT&T charged tax on the value of the free phone. Relevantly, AT&T’s service agreement contained an arbitration clause with a class action waiver. Such waivers were unenforceable in California pursuant to the California Supreme Court’s ruling in Discover Bank. The rule essentially stated that class action waivers in consumer arbitration agreements are unconscionable if the agreement is (1) one of adhesion, (2) disputes are likely to involve small amounts in damages, and (3) the party with inferior bargaining power alleges deliberate fraud. In the Discover Bank line of cases, under Gentry v. Superior Court (2007) 42 Cal.4th 443, the California Supreme Court also previously held that a class action waiver provision in an arbitration agreement should not be enforced if “class arbitration would be a significantly more effective way of vindicating the rights of affected employees than individual arbitration.” The U.S. Supreme Court held that the Federal Arbitration Act (FAA) preempts the state rules. The FAA was enacted by the Federal Legislature to counter perceived judicial hostility toward arbitration agreements and it makes those agreements to arbitrate “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” Arguably, the implied holding in Concepcion is that the FAA preempts any rule that stands as an obstacle to the enforceability of arbitration agreements as written. Whether all such rules are preempted by the FAA under Concepcion’s analysis is currently being hotly debated by California employment lawyers. AT&T Mobility v. Concepcion (2011) 131 S.Ct. 1740.

THE NLRB DISAGREES WITH THE SUPREME COURT’S ANALYSI S REGARDING CLASS ACTION WAIVERS

Embracing a very narrow interpretation of the U.S. Supreme Court’s decision in Concepcion, the National Labor Relations Board (NLRB) held that a class action waiver was unenforceable under the National Labor Relations Act (NLRA) in the employment setting. At issue was D.R. Horton’s practice of requiring employees to sign an arbitration agreement and class action waiver as a condition of their continued employment. The NLRB held that an agreement proscribing class and representative actions violates Section 7 of the NLRA, which gives employees the right “to engage in . . . concerted activities for the purposes of collective bargaining or other mutual aid or protection . . . .” (Quoting 29 U.S.C. §157.) In what may be the decision’s most significant divergence from Concepcion, the NLRB held that there was no conflict between the NLRA and the FAA. The FAA protects the rights of parties to arbitrate statutory claims, provided that “a party does not forego the substantive rights provided by the statute.” Because the NLRA provides a right to engage in concerted activity, any waiver of joint, class, or collective actions may not be enforced. The decision also limited Concepcion to the


facts at issue in that case. The NLRB recognized that the Supreme Court’s holding was influenced by a desire to maximize the efficiencies of informal arbitration proceedings arising from consumer contracts covering thousands of potential claimants. In contrast to the purported logistical difficulties of arbitrating consumer claims, the NLRB emphasized that arbitration of employment class actions would be less cumbersome and more efficient because employment claims typically involve relatively smaller classes, which are often further divided into subclasses. The California Court of Appeal has refused to follow D.R. Horton’s reasoning in several cases. Other employment class actions are likely to benefit from similar reasoning when confronted with Concepcion in the labor setting. D.R. Horton, Inc. (Jan. 3, 2012) 357 NLRB No. 184. The NLRB’s ruling is currently under review by the U.S. Court of Appeals for the Fifth Circuit.

CALIFORNIA COURT OF APPEAL HOLDS THAT STATE PAGA CL AIMS ARE NOT SUBJECT TO FAA PREEMPTION

California’s Private Attorneys General Act (PAGA) gives private parties authority to bring class-like claims that would normally only be available to the State of California through its attorney general. (Labor Code §§ 2698, et seq.) The resulting penalties are split between the employee (25%) and the California Labor and Workforce Development Agency (LWDA) (75%).

In this case, the Court of Appeal held that an employer could not enforce an employee’s waiver of the right to bring a representative action, namely his PAGA claim. The Court of Appeal distinguished Concepcion on ground that Concepcion “does not purport to deal with the FAA’s possible preemption of contractual efforts to eliminate representative private attorney general actions to enforce the Labor Code.” The California Supreme Court denied review of this case in October of 2011, and the U.S. Supreme Court denied certiorari in April of 2012. It appears this case will remain a good law for the foreseeable future. Brown v. Ralph’s Grocery (2011) 197 Cal.App.4th 489.

CALIFORNIA COURTS CONTINUE TO WRESTLE WITH THE HOLD ING IN CONCEPCION; CALIFORNIA SUPREME COURT WILL REVIEW ISSUE IN 201 3

Arshavir Iskanian worked as a driver for CLS Transportation. His employment contract contained a provision requiring that all disputes would be resolved through binding arbitration. The contract also contained a class action waiver. He filed a putative class action against CLS alleging wage and hour violations in 2006. The trial court initially pushed the case to arbitration, but on appeal, and after the Gentry decision in 2007, the parties proceeded to litigate the case. After a number of amendments and discovery, the trial court certified the class in 2009. In mid-2011, however, the Supreme Court overruled Gentry in AT&T v. Concepcion. In light of the Concepcion decision, CLS renewed its motion to compel individual arbitration. The trial court granted the motion and Iskanian appealed. The Court of Appeal held that Concepcion eliminates the Gentry analysis and that “the premise that Iskanian brought a class action to vindicate statutory rights is irrelevant in the wake of Concepcion.”


While the matter was pending, the National Labor Relations Board (NLRB) ruled in D.R. Horton (supra) that despite Concepcion, employees retained the right to bring class actions. The Court of Appeal, however, found that the NLRB is not responsible for interpreting the Federal Arbitration Act and that the U.S. Supreme Court precedent is binding.

Notably, however, the California Supreme Court has now granted review in this case. Therefore, the impact of this holding remains uncertain until after that review. Iskanian v. CLS Transp. Los Angeles, LLC (2012) 206 Cal.App.4th 949, review granted (Sept. 6, 2012) 2012 Cal. LEXIS 9288.

4. Classification and Exemptions:

CALIFORNIA COURT FINDS THAT INSURANCE AGENT CAN BE INDEPENDENT CONTRACTOR

Kimberly Arnold, a former insurance agent for Mutual of Omaha (“Mutual”), filed a putative class action seeking the reimbursement of business expenses and penalties for the untimely payment of final wages upon termination of her relationship. In response, Mutual claimed she was not entitled to recover expenses or penalties for unpaid wages because she was an “independent contractor” rather than an “employee.”

Applying a “control” test, the Court of Appeal agreed with Mutual and held that Arnold was properly classified as an independent contractor. Specifically, the court found that “Mutual had no significant right to control the manner and means by which Arnold” sold its products. As the court explained, “Arnold used her own judgment in determining whom she would solicit for applications for Mutual’s products, the time, place, and manner in which she would solicit, and the amount of time she spent soliciting for Mutual’s products.” Moreover, while Mutual offered several resources to its agents (such as training, office space, and prospecting accounts), agents were not required to take advantage of these resources. The Court also noted that Arnold’s relationship with Mutual was non-exclusive, as she was free to (and did, in fact) simultaneously contract with multiple insurance companies to offer her clients competing products.

In addition to “control,” the Court relied on several other factors to support its conclusion that Arnold was not an employee: she was engaged in a “distinct profession” (i.e., insurance sales); she was responsible for maintaining her own license with the California Department of Insurance; she provided most of her own instrumentalities or tools needed to sell insurance; and her compensation was based on results (i.e., how much she generated in sales as opposed to how much time she devoted to her work). As for the “at-will” termination clause in Arnold’s agreement with Mutual (which usually signals an employment relationship), the Court found that the inclusion of that term “is not by itself a basis for changing that relationship to one of an employee,” particularly where both parties believed that they were creating an independent contractor relationship. Arnold v. Mutual of Omaha Insurance Co. (2011) 202 Cal.App.4th 580.


NINTH CIRCUIT INVALIDATES A CHOICE OF LAW PROVISION IN FAVOR OF APPLYING CALIFORNIA LAW FOR WORKERS CLASSIFIED AS I NDEPENDENT CONTRACTORS Affinity Logistics Corporation, a transportation company, entered into written agreements with its drivers upon their hire. The agreements include two important provisions. First, the agreements specified that the drivers were independent contractors. Second, the agreements include a choice of law provision, which states that Georgia law will govern any dispute that could arise under the agreements. A driver brought a class action lawsuit against Affinity in California, alleging failure to pay overtime. Liability for the alleged violations hinged on whether the drivers were properly classified as employees or independent contractors. The Ninth Circuit invalidated the choice of law provision and held that California law applied. The Court found that applying Georgia law would contravene an important public policy of California. In Georgia (unlike California), the parties can freely decide whether to be an “employee” or an “independent contractor.” In California, that question is governed by law, and all workers are presumed to be “employees” unless and until it’s proven to the contrary. The Court also found that California has a substantially greater interest in the resolution of the dispute because (among other things) the contract was entered into in California, the work was to be performed in California, and the drivers lived in California. After deciding that California law applied, the Ninth Circuit remanded the case to the lower court to decide whether the drivers were employees or independent contractors. Ruiz v. Affinity Logistics Corp. (2012) 667 F.3d 1318.

CALIFORNIA COURT OF APPEAL APPLIES A NARROW INTERPR ETATION OF THE ADMINISTRATIVE EXEMPTION AND FINDS THAT INSURAN CE ADJUSTERS ARE NON-EXEMPT

Frances Harris worked as a claims adjuster for Liberty Mutual. She – like all claims adjusters with Liberty Mutual – was classified as an “exempt” employee. She filed a class action against Liberty Mutual, alleging that Liberty Mutual had misclassified her and other claims adjusters and had unlawfully denied them premium pay for overtime hours.

Liberty Mutual argued that the adjusters fell under the “administrative” exemption and were therefore not entitled to overtime pay. Liberty Mutual argued that the claims adjusters were exempt because they “service” the business by advising management, planning, negotiating, and representing the company. The Court of Appeal disagreed, finding that “production” employees do not qualify as exempt employees who are “servicing the business” because they are not formulating general policy on behalf of the business. The Court of Appeal reasoned that claims adjusters were production employees because Liberty Mutual’s product is risk transference, and claims adjusting is an essential part of risk transference.

In determining whether the nature of the claims adjusters’ work qualified as exempt administrative work, the Court relied on federal regulations, which provide that an employee’s work duties meet the exemption test only if they “relat[e] to the administrative operations of a


business as distinguished from ‘production.’” The Court of Appeal interpreted this regulation to include only duties involving establishment of management policies or general business operations. Applying this requirement to the facts, the Court of Appeal found that claims adjusters as a whole generally cannot satisfy this requirement because their primary duties involve adjusting individual claims rather than setting management policy or general operations.

Harris v. Superior Court (July 23, 2012) 2012 Cal.App. LEXIS 830. NOTE: The case initially went up on appeal to the California Supreme Court, which issued an opinion critical of the Court of Appeal’s decision and application of the administrative/production dichotomy. Following the issuance of the Court of Appeal’s decision on remand, the California Supreme Court ordered the decision not published. 2012 Cal. LEXIS 10811 (Oct. 24, 2012). As a legal matter, this makes the decision of questionable value. It is nonetheless instructive for employers as to how courts may apply the applicable test.

COURT OF APPEALS APPLIES AND UPHOLDS COMMISSIONED SALES EMPLOYEE EXEMPTION

Employees who worked as employment recruiters filed a class action against their employer (Surrex). The recruiters were responsible for locating prospective employees to place with Surrex’s corporate clients. The recruiters were paid on commission and were classified as exempt sales employees. The recruiters filed a class action, challenging their exempt status.

In order to qualify for the commissioned sales employee exemption, the employee must be involved principally in selling a product or service and the amount of compensation must be a percent of the price of the product or service. The recruiters claimed that their duties exceeded “selling”(because their duties involved searching for candidates, developing accounts, and placing candidates with customers) and that their compensation was not based on “price” (because they were paid a percentage of the Company’s adjusted gross profit).

The Court rejected both points. First, the Court concluded that “sales-related activities” should be viewed more broadly than the time involved in the sale itself. As a result, time spent “searching on the computer, searching for candidates on the website, cold calling, interviewing candidates, inputting data, and submitting resumes,” may be considered sales-related activities. Second, the Court concluded that “commissions” do not have to equal a fixed percentage of revenues. Because the recruiters negotiated the client’s rates and the billing structure, the recruiters had an impact on both the revenue (bill rate) that Surrex received and the costs (pay rate) that Surrex incurred. As a result, the commission exemption applied, and the recruiters were not entitled to overtime. Muldrow v. Surrex Solutions Corp. (2012) 208 Cal.App.4th 1381.


EXEMPT “PERSONAL ATTENDANTS” CAN PERFORM SOME MINIM AL MEDICAL-RELATED TASKS WITHOUT LOSING EXEMPT STATUS

Joy Cash worked as a personal attendant for Iola Winn, who is in her 90’s, in Winn’s home. Cash was not a licensed or trained nurse. Pursuant to a provision in the Wage Orders for those who work as “personal attendants,” Cash was treated as an “exempt” employee and was not paid premium pay for any overtime hours. After she left Winn’s employment, Cash sued Winn for failure to pay her overtime wages. Winn claimed that Cash was a personal attendant within the meaning of Wage Order No. 15 and thus exempt from overtime. Cash claimed that, because she provided some “medical services” to Winn, her duties exceeded that of a “personal attendant” and she was therefore not exempt.

According to Cash, she routinely took Winn’s “vital signs,” tested Winn for blood sugar levels, and monitored Winn’s oxygen intake. These “medical” activities generally took a few minutes each day. The remainder (and vast majority) of Cash’s time was spent assisting Winn with various daily living tasks, including dressing Winn, assisting her with walking, transporting, cleaning, and feeding The Court found that the performance of some medical-like functions did not remove the overtime exemption for a “personal attendant.” The Court noted that the purpose behind the “personal attendant” exemption was to make home healthcare affordable for the elderly and their families. Ensuring that a client takes her medications, adjusting her oxygen levels, or administering blood sugar level tests, do not “per se” invalidate the exemption – especially when those tasks take a few minutes each day and the vast majority of time is spent performing caretaker functions. Cash v. Winn (2012) 205 Cal.App.4th 1285.

5. Payment of Wages.

CALIFORNIA COURT FINDS THAT CLAIM FOR UNPAID VACATI ON COULD BE PREEMPTED BY ERISA AND THAT EMPLOYERS CAN PAY A “SP ECIAL” RATE FOR VACATION FOR CURRENT EMPLOYEES

Oscar Bell worked for H.F. Cox, Inc. as a truck driver. He and other truck drivers filed a putative class action against Cox, alleging various wage and hour violations. Among other things, the drivers alleged that Cox had failed to pay promised vacation benefits to current employees because Cox paid employees a flat rate of $500 (later increased to $650) per week of vacation instead of paying vacation at their “regular” wage rate. In addition, the drivers alleged that Cox failed to pay them accrued vacation upon termination of employment. The Court of Appeal held that the claim for unpaid vacation benefits would be preempted by ERISA (and therefore not a proper subject of suit in state court) if Cox’s vacation benefits plan was funded from a separate trust (as opposed to being paid out of Cox’s general assets).

With respect to the flat rate of vacation paid to current employees, the Court of Appeal found that “a vacation benefits policy [need not] provide for payment of vacation time at an employees


regular rate of pay.” The Court distinguished this from the requirement to pay employees accrued vacation at their then-current rate of pay at the time of termination. While employers are required to pay employees accrued vacation upon termination at the employee’s then-current rate of pay, there is no similar requirement as to the rate of pay paid to existing employees who take vacation. As long as the employer’s policy specifies the rate of pay that will be used for computing vacation benefits for current employees, it can be less than the employee’s “regular rate.” Bell v. H.F. Cox, Inc. (2012) 209 Cal.App.4th 62.

CALIFORNIA COURT REJECTS EMPLOYER’S ATTEMPT TO RECO UP PAID COMMISSION

Annie Sciborski worked as a sales representative for Pacific Bell Directory (“PacBell”) selling advertising for PacBell’s Yellow Pages. She earned a base salary plus commissions for completed sales. Sciborski made a sale to a new customer, Expert Home Services, for which she received $36,000 gross in commission. Shortly thereafter, PacBell began deducting monies from Sciborski’s subsequently earned commissions, claiming that she had not properly “earned” the $36,000 commission because PacBell had inadvertently assigned her the account. Sciborski sued to challenge this action.

Pacific Bell argued that Sciborski had been assigned the account due to a “clerical error” and that she had not satisfied the requirements for earning the commission. The Court of Appeal disagreed for two reasons. First, the Court determined that the commission agreement (which PacBell had drafted) did not expressly state that proper assignment of an account was a condition precedent to earning any commission. Second, the Court held that any implied contract term that would deny a commission under these circumstances would be unenforceable under California law because it would allow the employer to shift the cost of its own mistake to the employee. While an employer can condition commissions on the sale becoming final (for example, the customer not returning merchandise or cancelling an order within a specified time), receiving final payment, or providing certain post-sale follow-up services to the customer, an employer may not recoup a commission based on conditions unrelated to the sale. Sciborski v. Pacific Bell Directory (2012) 205 Cal.App.4th 1152.

EMPLOYERS MUST PAY NONRESIDENT EMPLOYEES OVERTIME F OR WORK IN CALIFORNIA Three Oracle Corporation employees, who worked as instructors, teaching customers how to use the company’s products, filed suit against the employer on the basis of unpaid overtime wages earned when working in California. The employees were residents of Arizona and Colorado, and primarily worked within their home states; however, occasionally the employees traveled to California to conduct trainings. Oracle Corporation’s headquarters is located in California. The California Supreme Court held that California’s overtime provisions apply to all employees working in California for a full day or week for California-based employers, regardless of their residence or principal place of work. In explaining the important policy goals to “protect the


health and safety of workers and the general public,” the Court noted that excluding “nonresidents from overtime laws” protection would tend to defeat their purpose by encouraging employers to import unprotected workers from other states. However, the Court expressly limited its holding to California’s overtime provisions and refused to extend its ruling to the Labor Code in its entirety, and noted that the treatment of an employee’s vacation time or the content of an out-of-state business’s pay stubs may not justify applying California law to the question at issue. Accordingly, employers are required to determine a mechanism to track daily overtime for non-exempt employees who sometimes work in California. Sullivan v. Oracle Corporation (9th Cir. 2011) 662 F.3d 1265. EMPLOYEES NOT ENTITLED TO “REPORTING TIME PAY” OR A DDITIONAL COMPENSATION FOR “SPLIT SHIFTS” In an underlying wage and hours class action, employees who worked at AirTouch stores and mall kiosks alleged violations concerning two separate provisions of the Industrial Welfare Commission (“IWC”) Wage Order No. 4-2001, on the basis that defendants: (1) failed to pay reporting time pay for days when they were required to report work just to attend work-related meetings; and (2) failed to pay shift compensation for days on which they attended a meeting in the morning and worked another shift later the same day. The trial court granted motion for summary judgment against two of the named plaintiffs. The appellate court affirmed and concluded that the plaintiffs were not entitled to receive “reporting time pay” for attending meetings at work, because all of the meeting were scheduled and they worked at least half the scheduled time. Additionally, the defendant did not owe additional compensation for working “split shifts” because on each occasion the employee worked a split shift the employee earned more than the minimum amount required by the wage order. Lastly, the defendant could not recover its attorneys’ fees from the plaintiffs because the claims arose under Labor Code section 1194, the one way fee-shifting statute, rather than section 218.5, which allows either successful party to recover its fees. Aleman v. Airtouch Cellular (2012) 209 Cal.App.4th 556. EMPLOYER NEAREST-TENTH ROUNDING POLICY IS PERMISSIB LE IF THE POLICY IS FAIR AND NEUTRAL ON ITS FACE AND IS USED IN A MANNER THAT WILL NOT RESULT IN FAILURE TO COMPENSATE EMPLOYEES OVER A PERIOD OF TIME See’s Candy uses a timekeeping software system, known as Kronos, to record its employees’ work hours. Employees are required to “punch” into the system at the beginning and end of their shifts, as well as for lunch breaks. During relevant times, See’s Candy calculated an employee’s pay based on his or her Kronos punch times, subject to adjustment under two policies: (1) the nearest-tenth rounding policy; and (2) the grace period policy. For example, if an employee clocked in at 7:58 a.m., the system rounds the time to 8:00 a.m., and if the employee clocked in at 8:02 a.m., the system rounds down the entry to 8:00 a.m. Plaintiff challenged this rounding policy by arguing that this policy prevented employees from receiving all of their wages twice a month as required by California. The court noted that even


though California employers “have long engaged in employee time-rounding, there is no California statute or case law specifically authorizing or prohibiting this practice.” See’s Candy argued that given this lack of clear authority on the issue, courts should adopt the federal standard, which is also used by California’s Division of Labor Standards Enforcement (“DLSE”), which allows rounding. The court agreed that time entry rounding is permissible under California law on the basis that the employer rounding policy is fair and neutral on its face, and it is used in such a manner that will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked. See’s Candy presented evidence that across all of its employees, the rounding policy actually resulted in a total gain of 2,749 hours for the class of employees involved in the litigation. Accordingly, the court held that there was clear evidence establishing the effect on the total time paid to employees did not result in a loss to the employees, as the rounding rule was both mathematically and empirically unbiased. See’s Candy Shops, Inc. v. Superior Court (2012) 210 Cal.App.4th 889.

2013 best best & krieger labor & employment update: wage & hour case studies

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