Wage Claims

7 posts

Court Affirms Neutral Policy Rounding Employee Time to the Nearest 15 Minutes

In California, an employer is entitled to round employee hours if the rounding policy is fair and neutral on its face and “it is used in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.” (Donohue v. AMN Services, LLC (2018) 29 Cal.App.5th 1068, 1083, quoting See’s Candy Shops, Inc. v. Superior Court (2012) 210 Cal.App.4th 889, 907 (See’s).)

In Ferra v. Loews Hollywood Hotel, LLC, hourly employees challenged the employer’s electronic timekeeping system which automatically rounded time entries either up or down to the nearest quarter-hour. This policy was neutral on its face because it rounded all employee time to the nearest quarter-hour without an eye towards whether the employer or the employee benefits from the rounding.

The plaintiff, however, claimed the rounding policy was not neutral as applied because her time records showed she lost time by rounding in 55.1 percent of her shifts, but only gained hours 22.8 percent of the time. For a sample group of employees, paid time was reduced in 54.6 percent of shifts, but paid time was only added in 26.4 percent of shifts. Despite these differences, the court found that this was not sufficient to show that the rounding policy “systematically undercompensate[s] employees.”

[R]ounding contemplates the possibility that in any given time period, some employees will have net overcompensation and some will have net undercompensation. … We agree with the trial court that Loews’s rounding policy does not systematically undercompensate its employees over time. [A] “fair and neutral” rounding policy does not require that employees be overcompensated, and a system can be fair or neutral even where a small majority loses compensation. Ferra did not demonstrate that Loews’s rounding policy systematically undercompensated employees over time. (Internal citations and quotations omitted)

The court’s decision reaffirms California’s commitment to allowing neutral rounding policies even though such policies may appear to reduce working hours in isolated time periods.

No Waiting Time Penalties for Unpaid Meal and Rest Break Premium Pay

Labor Code section 203 imposes a “waiting time” penalty of one day’s wages for each day that former employees are not paid their final wages due when they stop working. For many years, employment lawyers assumed that any unpaid wages would trigger waiting time penalties, including premium wages for missed meal and rest breaks. But in Naranjo v. Spectrum Security Services (September 26, 2019), the Court of Appeal held otherwise.

In Naranjo, a class of security guards won a judgment for unpaid meal period premium pay under Labor Code section 226.7. The trial court also awarded waiting time penalties since these meal premiums were not paid at the time their employment ended. The defendant appealed the award of waiting time penalties and the appellate court reversed:

By statute, “wages” are defined only in terms of “labor performed by employees.” (§ 200, subd. (a).) “Labor,” in turn, means “labor, work, or service . . . if the labor to be paid for is performed personally by the person demanding payment.” (§ 200, subd. (b).) … Section 203 penalizes an employer that willfully fails “to pay . . . any wages” owed to a fired or voluntarily separating employee. … Read this way, an employer’s failure, however willful, to pay section 226.7 statutory remedies does not trigger section 203’s derivative penalty provisions for untimely wage payments.

In other words, meal period premiums are earned by working without the required break – not by an employee’s labor. Accordingly, they are not “wages” under Labor Code section 203.

This is a fairly recent decision and still might be overruled by the state Supreme Court. But if it stands, it will be interesting to see how the reasoning would apply in other contexts. For example, the Labor Commissioner has traditionally applied Section 203 to unpaid overtime premium wages. For now, it remains to be seen whether waiting time penalties will continue to apply for the failure to pay overtime.

What Are Waiting Time Penalties?

When an employee is fired, all of his earned and unpaid wages must be paid immediately at the time of termination. When an employee quits without notice, his wages are due within 72 hours of quitting. However, if he gives more than 72 hours notice of his departure, his wages are due on the last day of employment.

Failure to pay the full amount of wages due when the employee stops working can give rise to “waiting time” penalties under Labor Code section 203, which provides:

If an employer willfully fails to pay, without abatement or reduction… any wages of an employee who is discharged or who quits, the wages of the employee shall continue as a penalty from the due date thereof at the same rate until paid or until an action therefor is commenced; but the wages shall not continue for more than 30 days.

This means that the regular daily wage of the former employee shall continue as a waiting-time penalty for up to 30 days when the employer fails to pay all wages due at termination or when the employee quits. For a minimum wage employee who works 8 hour days, the waiting time penalty would be $96 per day ($12/ hr x 8), and the maximum penalty for this employee would be $2,880 ($96/day x 30 days). As the employee’s wage increases so too does the amount of the penalty.

Even a small amount of unpaid wages can trigger the penalty. This includes unpaid vacation wages, overtime pay, and premium wages for missed breaks. Often an employee will only have a few hundred dollars in unpaid wages, but when waiting time penalties are added, the claim can exceed $5,000.

In order to recover waiting time penalties, the employee must prove the employer’s failure to pay the wages was “willful.” This means the employer intentionally failed to pay wages that were due. The term “willfully” does not require a showing that the employer knew of its obligation. An employer may act willfully even if it did not know it was required to pay some category of wages. However, a good faith dispute that the wages are due will preclude a finding of willfulness.

If you are facing a wage claim with waiting time penalties, you should have an experienced lawyer protecting your business. I have successfully defended these claims and I can help you avoid paying more than the law requires.

Did California Make It Illegal For Truck Drivers To Be Independent Contractors?

California’s governor, Gavin Newsom, recently signed into law AB 5 – the bill that would codify the “ABC test” and make most workers employees if they perform the same services for a business that the business provides to its customers. For example, Uber and Lyft drivers perform the transportation services those companies provide to their customers. Under the ABC test, these drivers must be classified as employees. [UPDATE (11/2020): Following passage of Prop 22 drivers for app based driving services, including Uber and Lyft, will be independent contractors]

This is, of course, a major concern for trucking companies that hire owner-operator drivers as independent contractors. If you are a trucking company, the people that drive trucks for you will be your employees under the new law. So does that make the owner-operator model illegal? Not necessarily.

In Alvarez v. XPO Logistics Cartage, (C.D. Cal. Nov. 15, 2018), the defendant challenged the ABC test on the grounds that it was preempted by the Federal Aviation Administration Authorization Act (“FAAAA”). The FAAAA provides that states “may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier.” The Federal District court agreed, and found the ABC test preempted.

Here, the question is not whether the FAAAA preempts California wage orders; rather, it is whether the ABC test—used to interpret the wage orders—is preempted. … [W]hile the Ninth Circuit declined to affirmatively address whether the ABC test was preempted by the FAAAA, it nevertheless distinguished the two standards, noting that “the ABC test may effectively compel a motor carrier to use employees for certain services because, under the ABC test, a worker providing a service within an employer’s usual course of business will never be considered an independent contractor.” The Court agrees with this dicta and finds that the ABC test—as adopted by the California Supreme Court—”relates” to a motor carrier’s services in more than a “tenous” manner and is therefore preempted by the FAAAA.

So does that settle the matter? Unfortunately, no. Other Federal courts have come to the opposite conclusion on the same issue, and it will thus need to be resolved by the Ninth Circuit and possibly the U.S. Supreme Court.

UPDATE: New FLSA Overtime Regulations on the Horizon

Under President Obama, the Department of Labor issued new overtime rules in 2016 that changed the minimum salary required for employees to be exempt under the Fair Labor Standards Act (FLSA). But before those rules could take effect, a federal court enjoined the new rule, preventing it from taking effect. While the appeal on that case was pending, the Department of Labor proposed a new rule with a minimum salary requirement from $35,308 ($679 per week) instead of the $47,476 minimum salary ($931 per week) issued under the Obama administration. The new rule has not yet been approved but will likely be approved soon and will probably take effect in 2020. Among other things, the new rule:

  • Increases the minimum salary required for an employee to qualify as FLSA exempt from the currently-enforced level of $455 to $679 per week (equivalent to $35,308 per year).
  • Increases the total annual compensation requirement for “highly compensated employees” (HCE) from the currently-enforced level of $100,000 to $147,414 per year.
  • Does not include automatic adjustments to the salary threshold, but the DOL has given its commitment to periodically review the salary threshold. Any update would continue to require notice-and-comment rulemaking.
  • Allows employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid annually or more frequently to satisfy up to 10 percent of the standard salary level.

New Federal Overtime Regulations Coming Soon

In a blog post today, Labor Secretary Tom Perez announced that the DOL had finished drafting updates to Federal overtime regulations.

The rules governing who is eligible for overtime have eroded over the years. As a result, millions of salaried workers have been left without the guarantee of time and a half pay for the extra hours they spend on the job and away from their families.

We’ve worked diligently over the last year to develop a proposed rule that answers the president’s directive and captures input from a diverse range of stakeholders. After extensive research, study and careful analysis, we have submitted the proposed rule to the Office of Management and Budget for review. In the near future, the public will have an opportunity to weigh in and help us craft a final rule.

The proposed regulations have not yet been released, but they are widely expected to include changes to the minimum salary employers must pay to workers properly classified as “exempt” from overtime pay. Currently, Federal law requires eligible employees earn a minimum salary of $455 per week, or $23,660 per year in order to qualify as “exempt” from Federal overtime pay.

Peabody v. Time Warner Cable: Commission Wages Cannot Be Averaged To Meet California Minimum Wage Requirements

The California Supreme Court published its opinion this week in Peabody v. Time Warner Cable, (2014) 59 Cal.4th 662, wherein it addressed the following question:

May an employer, consistent with California‟s compensation requirements, allocate an employee’s commission payments to the pay periods for which they were earned?

Peabody worked as a sales person for Time Warner, and claimed she was not paid minimum wages and overtime. Time Warner did not dispute that Peabody regularly worked 45 hours per week and was paid no overtime. It argued that she fell within California’s “commissioned employee” exemption and thus was not entitled to overtime compensation. (Cal. Code Regs., tit. 8, § 11040, subd. 3(D).) The exemption requires, among other things, that an employee’s “earnings exceed one and one-half (1 1/2) times the minimum wage” (ibid.), i.e., $12 per hour. Time Warner acknowledged that most of Peabody’s paychecks included only hourly wages and were for less than that amount. It argued, however, that her commission wages should be averaged across all pay periods to satisfy the $12 per hour requirement – and not simply allocated to the period in which they were actually paid. Time Warner also relied on this argument in defense of Peabody’s minimum wage claims.

The California Supreme Court disagreed.

We next consider Time Warner’s contention that commission wages paid in one biweekly pay period may be attributed to other pay periods to satisfy the exemption’s minimum earnings prong. Specifically, Time Warner argues that Peabody’s commissions, which were always paid on the final biweekly payday of each month, should be attributed to the weeks of the preceding month. For example, it contends the $2,041.33 in commission wages it paid on November 26, 2008, should be attributed to the four workweeks of October 2008. Time Warner’s ability to satisfy the minimum earnings prong hinges on its ability to attribute commissions in this way. We conclude it may not do so. Whether the minimum earnings prong is satisfied depends on the amount of wages actually paid in a pay period. An employer may not attribute wages paid in one pay period to a prior pay period to cure a shortfall.

The ruling affirms the DLSE enforcement policies on this issue and again rejects deference to the Federal rule allowing wages to be averaged. The court went on to note that reallocating wages to a period when they were not actually paid would be inconsistent with Labor Code section 204 (requiring regular, periodic paydays) and section 226 (requiring wage stubs state the amount of wages earned per pay period).

Notably, the court emphasized the policy reasons behind the minimum wage laws and found that Time Warner’s reallocation practice would undermine those policy objectives:

This interpretation narrowly construes the exemption’s language against the employer with an eye toward protecting employees. (Ramirez v. Yosemite Water Co., supra, 20 Cal.4th at pp. 794-795.) It is also consistent with the purpose of the minimum earnings requirement. Making employers actually pay the required minimum amount of wages in each pay period mitigates the burden imposed by exempting employees from receiving overtime. This purpose would be defeated if an employer could simply pay the minimum wage for all work performed, including excess labor, and then reassign commission wages paid weeks or months later in order to satisfy the exemption’s minimum earnings prong.