On Friday, Governor Newsom signed SB 95, which requires California employers with 25 or more employees to provide employees with a brand new bank of supplemental paid sick leave for COVID-related reasons (SPSL), including to employees seeking vaccination appointments or recovering from vaccination side-effects. The law requires employers to provide the SPSL to employees retroactively back to January 1, 2021.
California’s new mandate is unfunded, placing all of the burden on employers. However, in a bit of good news, the recently enacted $1.9 trillion American Rescue Plan of 2021 (ARPA) extended the federal payroll tax credits originally put in place by the Families First Coronavirus Response Act (FFCRA) through September 30, 2021. This means that, in many cases, California-mandated SPSL provided by employers with fewer than 500 employees will qualify for federal payroll tax credits. However, the rules regarding tax credits are complex – employers should consult their tax professionals to see if the credits may apply.
The new SPSL law goes into March 29, 2021, so employers have little time to provide employees with notice of their rights under the law, ensure compliant policies and practices, and work with their payroll providers to ensure that their paystubs include the necessary new information.
What does SB 95 require?
SB 95, which adds section 248.2 and 248.3 to the California Labor Code, requires employers with 25 or more employees to provide SPSL for COVID-related reasons (listed below). This entitlement is over and above employees’ regular paid sick leave, PTO, or vacation leave banks. SPSL must be available for immediate use by the employee, upon oral or written request. An employee may determine how many hours of SPSL to use, up to the total number of hours to which the employee is entitled.
How much leave are employees entitled to?
Full-time employees are entitled to 80 hours of SPSL. Part-time employees who have a normal weekly schedule are entitled to SPSL based on the total number of hours the employee is normally scheduled to work over two weeks. Variable hour employees are entitled to SPSL based on an average hours calculation defined in the new law.
Employers cannot require the employee to use any other paid or unpaid leave, paid time off, or vacation time provided before the employee uses SPSL or in lieu of SPSL. The law clarifies that SPSL and leave provided under the Cal/OSHA emergency standards may run concurrently.
How will employees know about SPSL and how much leave they have available?
Each employee’s SPSL balance must be listed on the employee’s wage statement or a separate writing provided with the employee’s pay. The law provides only a very short grace period on implementing the pay stub requirement: employers have until the next full pay period after March 29, 2021, which is the effective date of the new law.
For variable hour employees, the employer may prepare an initial calculation of SPSL available and indicate “(variable)” next to that calculation. However, the employer must provide an updated calculation when a variable hour employee seeks to use SPSL or requests the calculation.
The employer must also post a notice to employees of their SPSL rights. The California Labor Commissioner will provide a model notice sometime this week. Notices may be posted electronically for employees who do not frequent the workplace.
What can SPSL be used for?
Employees may use SPSL if they are unable to work or telework for any of the following reasons:
- the employee is under a COVID-19 quarantine or isolation period based on a governmental order or guidelines;
- the employee is under self-quarantine for COVID-19 concerns based on advice from a health care provider;
- the employee is receiving a COVID-19 vaccine;
- the employee is experiencing COVID-19 vaccine side-effects;
- the employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis;
- the employee is caring for a family member who is subject to an order or guidelines described in subparagraph (1) or who has been advised to self-quarantine, as described in subparagraph (2);
- the employee is caring for a child whose school or place of care is closed or otherwise unavailable for reasons related to COVID-19 on the premises.
How much are employees paid for SPSL?
As is the case with regular California paid sick leave, nonexempt employees must be paid SPSL at the employee’s “regular rate of pay” (a term of art that includes all forms of remuneration the employee receives such as shift differentials and non-discretionary bonuses) or via a calculation made by dividing the covered employee’s total wages, not including overtime premium pay, by the employee’s total hours worked in the full pay periods of the prior 90 days of employment.
Exempt employees’ SPSL should be paid in the same manner as the employer calculates wages for other forms of paid leave time.
However, employers are not required to pay more than $511 per day or $5,110 in the aggregate to an employee for SPSL unless federal legislation is enacted that increases the caps included in the FFCRA, in which case the new federal dollar amount caps would apply.
What is the practical effect of the law applying retroactively to January 1, 2021?
As noted above, SB 95 applies retroactively to January 1, 2021. This presents a significant practical challenge (and cost) for employers.
For any time an employee took off between January 1, 2021 and March 29, 2021 for a qualifying reason under the new law (see above):
- unless the employee has already received compensation in an amount equal to or greater than the amount of compensation required by the SPSL law, then upon the oral or written request of the employee, the employer must provide the employee with a retroactive payment that provides for such compensation;
- this retroactive payment must be paid on or before the payday for the next full pay period after the oral or written request of the employee; and
- the retroactive payment must be reflected on the employee’s wage statement as retroactive SPSL pay.
The law does not directly address what happens if the employee used “regular” paid sick leave, PTO, vacation leave, or unpaid leave after January 1, 2021, but we expect employees will request that their leave banks be credited and replenished for any such time previously debited. Employers should have internal processes/forms ready to process such requests.
When does the new SPSL leave expire?
This new law is in effect through September 30, 2021, except that an employee taking SPSL at the time of the expiration must be permitted to take the full amount of SPSL to which the employee otherwise would have been entitled to under the new law. For example, if an employee starts SPSL on September 30, 2021, she may continue it into October to complete her leave.
Anything else I should know about the new SPSL law?
The new SPSL incorporates many of the provisions of California’s regular paid sick leave laws. For example, the recordkeeping, wage statement, pay calculation, and anti-interference/discrimination/retaliation provisions all apply to SPSL.
In addition, because SPSL is codified in the Labor Code, violations of the SPSL law may be the basis for a Private Attorneys General Act of 2004 (PAGA) representative action.
How does the new federal American Rescue Plan affect implementation of the SPSL?
The federal mandate for employers with fewer than 500 employees (“small employers”) to provide FFCRA leave expired on December 31, 2020. However, shortly before its expiration, Congress extended the federal payroll tax credits for small employers who continued to provide leave based on FFCRA eligibility requirements and in accordance with FFCRA rules, through March 31, 2021. The ARPA has both extended the FFCRA payroll tax credits through September 30, 2021, and expanded the payroll tax credit eligibility to leaves taken for additional reasons covered by SB 95 (e.g., vaccination-related qualifying reasons). This means that small California employers may be entitled to claim federal payroll tax credits to cover most SPSL provided to their employees.
Navigating the tax credits issue is complicated because the federal ARPA and California’s SPSL are not exactly aligned, eligibility for federal payroll tax credits is limited by a number of factors including company size and leave plans offered, and the tax credits will not necessarily cover 100% of the cost of SPSL provided to employees.
Earlier this month, on February 8, the Ninth Circuit Court of Appeals held that a California employer’s per diem expense reimbursement payments functioned as compensation for work rather than business expense reimbursements. As a result, the employer was required to factor those per diem payments into employees’ “regular rate of pay.”
An employee’s “regular rate of pay” is used to calculate overtime under the FLSA and California Labor Code. It is also used to calculate double-time, sick leave, and reporting time pay in California. The decision, if adopted by other courts, could have devastating consequences for California employers with flat-sum and/or automatic expense reimbursement procedures.
The Details of the Case: Clarke v. AMN Services
AMN is a healthcare staffing company that places hourly-paid clinicians on short-term assignments. Each week AMN paid traveling clinicians a per diem amount to reimburse them for the cost of meals, incidentals, and housing while working over 50 miles away from their homes. AMN did not report these payments as wages and classified them as tax-exempt expense reimbursements.
AMN used a number of factors to calculate the per diem payment, including the extent to which clinicians worked their scheduled shifts. Notably, under the per diem policy, the payments could decrease if clinicians worked less than their scheduled shifts, and work hours in excess of those scheduled could be “banked” and used to “offset” missed or incomplete shifts. Interestingly, AMN provided “local” clinicians per diem payments under the same policy, but such payments were reported as taxable wages. It was not clear why AMN took a different position with the local clinicians
The Ninth Circuit determined that these characteristics indicate that the per diem payments to traveling clinicians functioned as compensation for hours worked, and not expense reimbursements. The court relied heavily on AMN’s decision to pay both local and traveling clinicians under the same per diem policy but treat payments to local clinicians as wages. The Court also noted that “AMN offers no explanation for why ‘banked hours’ should effect” per diem payments, and found “the only reason to consider ‘banked hours’ in calculating” per diems is to compensate clinicians for hours worked.
Potential Implications for California Employers
Many California employers implement a business expense reimbursement policy aiming to fully reimburse employees for all expenses they incur, while (1) minimizing administrative burdens and expenses, and/or (2) avoiding the creation of preferential work assignments and a perverse incentive for employees to “incur” expenses.
The process of submitting, reviewing and processing expense reimbursements is cumbersome, especially for employees who work in the field and/or travel frequently. For this reason, some employers adopt a flat-sum reimbursement policy in which the amounts paid are at least partially fixed, such as AMN’s per diem policy. They often issue these payments automatically, without obtaining documentation of the expenses from employees. This issue is especially important during the COVID-19 pandemic because California employers often use fixed expense reimbursement amounts for computer and other expenses for remote workers.
The Clarke decision should concern any employer with a business expense policy that includes such flat-sum or automatic reimbursement payments. It is unclear whether or not the holding of the Clarke case will be extended in other cases or whether it will be distinguished based on the unique facts of the case and inconsistencies of AMN’s implementation (i.e., that AMN was paying local clinicians a per diem, but treating it as part of wages under the same policy).
Significant liability can arise if reimbursement payments, in whole or in part, are deemed to function as wages that must be factored into the regular rate of pay. In addition, plaintiffs could also argue that if such payments were actually “wages” then they were not properly reimbursed for their business expenses under section 2802 of the California Labor Code. As a result of this decision, California employers should carefully review any flat-sum or automatic reimbursement policies and procedures to ensure that they do not present any of the dangers illustrated in the Clarke decision. In addition, the scope of this decision remains unclear. Therefore, employers in other states particularly those employers with employees in states covered by the Ninth Circuit (Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, Washington), should also take a close look at their per diem policies in conjunction with the Ninth Circuit holding in Clarke.
A few weeks ago, California’s Pay Data Reporting Act, went into place. This new Act requires California private employers with 100 or more employees that are required to file an annual EEO-1 report with the EEOC to also submit a “pay data report” to the California Department of Fair Employment & Housing (“DFEH”). Earlier this week, the DFEH released new reference materials that provide guidance on how to prepare the pay data report and submit it to DFEH, including a user guide, an excel template and a CSV example (plain text file). California employers that are subject to the reporting act must submit the requisite pay data report to the DFEH (by way of an online portal) by March 31 this year and every subsequent year. The portal will be operational by February 16. In addition, the DFEH maintains and updates a Frequently Asked Questions resource page that explains the substantive requirements of the act and how to satisfy them. Links to the FAQs, user guide, portal, and the samples are here.
There have been many changes in California wage and hour law and leave laws over the last year. If you have employees in California, we encourage you to reach out to one of our California based members at Paul Plevin (So Cal) or CDF Labor Law (Nor Cal).
The Ninth Circuit Court of Appeals recently upheld the Federal Motor Carrier Safety Administration’s (FMCSA) determination that federal law preempts California’s meal and rest break requirements as to drivers of property-carrying commercial motor vehicles (CMVs), who are subject to the FMCSA’s hours of service (HOS) regulations. The Ninth Circuit’s decision provides much needed clarity for companies employing such drivers, allowing them to operate in compliance with the FMCSA HOS drive-time, break, and time recording rules, without the additional costs burdens imposed by California’s break rules.
However, the decision may still be overruled through en banc review by the Ninth Circuit or on petition to the Supreme Court. Additionally, it is possible that the FMCSA reverses course after President Biden’s nominated Secretary of Transportation, Pete Buttigieg is in the driver’s seat. A copy of the opinion is available here.
BACKGROUND & SUMMARY
On December 21, 2018, the FMCSA issued a Determination of Preemption, finding that California’s break rules are subject to the Secretary of Transportation’s authority to review and preempt state laws and regulations on CMV safety. (Federal regulations delegate the Secretary’s authority to the FMCSA Administrator.) This finding was a departure from a 2008 decision, in which the FMCSA concluded that California’s break rules could not be regulations on CMV safety because they “cover far more than the trucking industry.” The FMCSA supported the departure by pointing to its 2011 revisions to the HOS rules. Among other changes, the 2011 revisions created a mandatory rest period requirement, which the FMCSA found are “unquestionably” rules on CMV safety. Because California’s break rules govern the same subject as the mandatory rest break requirement under the FMCSA’s HOS rules, the FMCSA concluded that California’s break requirements are also rules on CMV safety and thus subject to preemption review.
Because California’s rules are additional to or more stringent than the HOS regulations, they were subject to preemption upon a finding that they either (1) have no safety benefit, (2) are incompatible with the HOS regulations, or (3) would cause an unreasonable burden on interstate commerce. The FMCSA determined that California’s break rules check each box. It then concluded that California may no longer enforce its break rules with respect to property-carrying CMV drivers subject to the FMCSA’s HOS rules.
On December 28, 2020, the International Brotherhood of Teamsters petitioned the Ninth Circuit to review and reverse FMCSA’s determination. California’s Labor Commissioner and others also filed petitions for review. The Ninth Circuit rejected petitioners’ arguments and upheld the FMCSA’s decision, holding the FMCSA acted within its authority under federal law. The court distinguished its prior decision in Dilts v. Penske Logistics, LLC, 769 F.3d 637 (9th Cir. 2014) because it was decided based on a different federal preemption law concerning state laws that are “related to” CMV prices, routes, or services.
Many California truckers and drivers remain subject to the state’s break rules. Although the FMCSA’s HOS regulations, and thus the preemption decision, will apply to any person who operates a CMV (49 C.F.R. §§ 390.5 and 395.1), the roads are not all clear. Companies must confirm that drivers are operating a vehicle that meets the detailed definition of a CMV, which is not always a simple task.
A CMV is defined as “a self-propelled or towed vehicle used on the highways in interstate commerce to transport passengers or property” depending on the vehicle’s weight or weight rating, number of potential passengers, or the type of property it is used to transport. A critical factor is whether the vehicle is used “in interstate commerce,” which includes “trade, traffic, or transportation … [b]etween two places in a State as part of trade, traffic, or transportation originating or terminating outside the State or the United States.” (49 C.F.R. § 390.5.) This definition includes the intrastate transport of goods in “the flow of interstate commerce,” which may be interpreted broadly.
For example, in 2019, a California Court of Appeal concluded that a driver who transported beer and liquor from his employer’s California warehouse to California retail stores was engaged in interstate commerce because the “deliveries, although interstate, were essentially the last phase of a continuous journey of the interstate commerce.” Nieto v. Fresno Beverage Co., 33 Cal.App.5th 274 (2019), reh’g denied (Mar. 27, 2019), review denied (July 10, 2019). In that case, the court found the beverages were held in the employer’s warehouse for a “short period,” which was not sufficient to disrupt the “continuous stream of interstate travel.”
Before leaving California’s break rules in the dust, companies should evaluate its drivers’ routes and shipments to confirm that they are transporting property in interstate commerce, which would likely require the advice of legal counsel. Additionally, those companies and their drivers still must comply with the FMCSA’s HOS drive-time, break, and time recording rules. It would be the employer’s burden to establish the FMCSA preemption defense in any related litigation, which would be a difficult task if the employer does not treat them as being subject to the FMCSA’s HOS rules. Moreover, employers should be aware that this area of the law may continue to evolve in the near-term.
|On September 22, 2020, the U.S. Department of Labor (DOL) unveiled its long-awaited proposed independent contractor rule. The new rule sets forth a new standard for determining whether a worker can be classified as an independent contractor rather than an employee for purposes of the Fair Labor Standards Act (FLSA). However, employers will still need to be aware of and comply with state laws that apply stricter standards for independent contractor classification, such as the laws in many blue states, including California, New Jersey, and Massachusetts.|
Under the FLSA, “employees” are subject to certain protections, such as minimum wage and overtime requirements, while “independent contractors” are not. But neither the FLSA nor current DOL regulations define, as a general rule, what makes a worker an independent contractor, giving rise to a patchwork of tests and rules across states and in federal courts. As questions of classification have grown in salience over the past decade with the rise of the “gig economy,” the DOL has attempted to fill the gap. In 2015, the DOL under President Obama issued an “Administrative Interpretation” (AI) setting forth a six-factor “economic reality” test that was widely seen as setting a demanding standard for classifying workers as independent contractors. Then, in 2017, the Trump DOL withdrew the 2015 AI, signaling a shift to a more forgiving, employer-friendly classification standard. Pressure has been mounting for the DOL to issue the new rule this year in light of the upcoming presidential election, which could bring about another ideological shift within the DOL.
The proposed rule creates a five-factor test to determine whether a worker is an independent contractor for FLSA purposes. Those factors are:
· The Nature and Degree of the Worker’s Control Over the Work: This includes a worker’s ability to set his or her schedule, the extent or lack of supervision over the worker, and the worker’s ability to work for competitors of the employee.
· The Worker’s Opportunity for Profit and Loss: This factor looks to whether the worker’s opportunity to succeed in his or her work relates to personal initiative, managerial skill, and business acumen.
· The Amount of Skill Required: This includes whether the work requires specialized training or skills that the employer does not provide.
· The Permanence of the Working Relationship: Under this factor, a working relationship that is definite in duration or sporadic is indicative of independent contractor status.
· The “Integrated Unit”: This asks whether the worker is part of a “production line” (real or metaphorical) – i.e., something requiring the “coordinated function of interdependent subparts working towards a specific unified purpose” as opposed to providing “discrete, segregable services.”
No single factor controls, although the rule indicates that the most weight should be given to the first two factors, which are deemed as being most probative of a worker’s economic dependence on an employer.
Not only does the new rule provide a clear, unified federal standard on independent contractor classification, but it puts less emphasis on certain indicia that are relevant under current court-created tests, which the DOL view as less relevant under the modern economy. For example, the DOL notes that falling transaction costs of hiring have led to shorter job tenures and that a knowledge-based economy means that independent contractors may not need to make significant capital investments of their own. Accordingly, the proposed rule de-emphasizes the importance of job tenure and worker investments, which had been factors cited in tests created by courts on the issue.
The proposed rule has been submitted to Federal Register for publication. Once published, the public will have 30 days to comment on it. However, it is unclear whether the proposed rule will survive a potential change in control of the White House or Congress, or even be implemented in the first place. If it does become final, the new rule will provide little comfort to employers in states like Massachusetts and California, which impose stricter tests for determining whether a worker can be classified as an independent contractor under state law. In those states, employers will need to continue to apply the state-specific test, which may result in treating a worker as an employee even though the worker would qualify as an independent contractor under the federal test.
Jonathan Keselenko, Foley Hoag LLP, Boston, MA
With the pandemic continuing, many offices remain closed and many employees are performing their job duties remotely from home. In certain states, like California, employers are statutorily required to pay for remote work expenses.
This had led many employers with remote workers in the Golden State to reasonably to ask, “what types of expenses are we required to reimburse employees for out there?” Unfortunately, the law is very unclear on this issue and there are no bright-line answers for employers that have California employees working remotely.
Here is some background on this issue, along with some tips for compliance.
What Law Applies in California?
Wage and hour obligations for California employers generally come from three sources—the federal Fair Labor Standards Act (“FLSA”), the California Labor Code, and the wage orders issued by the California Industrial Wage Commission applicable in the particular industry. The California employer must comply with all three of these.
The FLSA generally does not require an employer to reimburse employees for remote work expenses, unless the amount of those expenses is such that it effectively causes an employee to be paid less than the federal minimum wage (and/or applicable overtime compensation) for all hours worked. The federal Department of Labor’s COVID-related FLSA guidance explains this.
Because California employees generally work well above the federal minimum wage (because California’s minimum wage is much higher – currently 12 or 13 dollars an hour depending on the number of employees), this is rarely an issue. However, if you have employees who are paid close to minimum wage with significant business expenses, you need to look more closely at the types of business expenses they may be incurring in connection with remote work to assess whether the expenses are of such an amount that the employee effectively is netting less than minimum wage plus any applicable overtime for all hours worked. If so, expense reimbursement will be required under federal law.
California (along with a handful of other states) has a specific law that requires employers to reimburse employees for necessary business expenses that they incur. California’s law on expense reimbursement is contained section 2802 of the California Labor Code. This statute requires employers to reimburse employees for all expenditures necessarily incurred by the employee in direct discharge of duties for the employer, or in obedience to directions of the employer.
Unfortunately, this is not as easy to apply as it may seem. Making matters worse, in 2014, a California court issued a decision in a case called Cochran v. Schwan’s Home Service, Inc., muddying up the standard even more. In the Cochran case, the court addressed expense reimbursement requirements in circumstances where employees are required to use their personal cell phones for work purposes. The court held that if an employee is required to use a personal cell phone for business purposes, the employer must reimburse the employee. This is true even if the business use of the personal phone does not cause the employee to incur expense in excess of their usual, flat monthly rate. Unfortunately, the court did not specify how much an employer is required to pay in expense reimbursement, just that it should be a reasonable percentage of the employee’s bill.
Neither the wage orders, the California Labor Commissioner’s office, nor the California courts, have provided further clarification for employers on the scope and amount of expense reimbursement that is required under California law. Disappointingly, the California Labor Commissioner’s office has failed to issue COVID-specific expense reimbursement guidance for employers with remote workforces due to COVID.
This leaves employers uncertain about the extent of their expense reimbursement obligations related to employees working from home. Rest assured that California plaintiffs’ attorneys will file class action and Private Attorney General Act lawsuits against employers, alleging that they did not comply with their expense reimbursement obligations under Labor Code 2802. As such, all employers who are requiring California based employees to work remotely should think about the types of expenses their remote employees are incurring and issue them a reasonable amount of expense reimbursement to cover those expenses. These expenses may include use of personal phones and other devices, use of home internet/WiFi, use of office supplies, increased electricity costs, and the like. Of course, for most of these things, no employer will be able to determine the precise portion of an employee’s expense that is work-related.
As such, employers faced with reimbursing California employees should generally decide on a flat monthly amount that they believe reasonably covers the work-related expense associated with working from home. An employer also can limit employee expenses by providing employer-owned equipment (e.g. cell phones, laptops, printers, hotspots) for employees to use at home. Regardless of the monthly amount decided on by the employer, the employer should tell its California employees what the expense stipend is intended to cover (all home-related work expenses) and include a provision telling employees that if, in any month, they believe that the expense stipend is not sufficient to cover their specific remote work expenses, the employee should notify Human Resources, so that the employee’s expenses can be reviewed and a determination made as to whether additional reimbursement is owed.
Of course, if California employees are incurring driving-related expenses, or concrete expenses associated with purchasing items needed to perform their jobs, those expenses should be compensated at the IRS mileage reimbursement rate and/or actual cost, as applicable.
Finally, remember that California’s expense reimbursement law only applies to expenses that are “necessarily” incurred in direct consequence of the job duties or in complying with an employer’s directions. This means that if an employee is incurring expenses that are wholly unnecessary or unreasonably exorbitant, they need not be reimbursed. Employers may want to adopt a policy requiring employees to get advance approval for before purchasing any items to use for their remote work. This will help avoid unreasonable expenditures and a dispute over whether to cover it.
The “necessarily incurred” standard also raises the question of whether employers are required to reimburse remote work expenses where a California employee voluntarily chooses (but is not required) to work from home. If an employer has reopened its offices and employees are welcomed to return to the office to perform their jobs, but are permitted to voluntarily choose to continue working remotely, there is a very good argument that the employee’s remote work expenses are not “necessary” and need not be reimbursed, particularly if the employer has notified employees that home office expenses will not be reimbursed in this situation (because employees are free to report to work and not incur any such expenses).
Bottom line: If you have not already done so, evaluate your remote work arrangements in California and any need to adopt new or revised expense reimbursement policies. If you are late to the game, you can always issue retroactive expense reimbursement for prior months of required remote work by employees.
Last Friday, the Department of Labor (DOL) issued revised FFCRA regulations that will be formally published on September 16. The unpublished version is available here. These regulations were issued in response to an August 2020 ruling by a federal court in New York that invalidated some of the prior regulations as either inconsistent with the text of the FFCRA, or insufficiently explained by the DOL in its original regulations. According to the DOL’s press release accompanying the revised regulations, the revisions do the following:
- Reaffirm and provide additional explanation for the requirement that employees may take FFCRA leave only if work would otherwise be available to them.
- Reaffirm and provide additional explanation for the requirement that an employee have employer approval to take FFCRA leave intermittently.
- Revise the definition of “healthcare provider” to include only employees who meet the definition of that term under the Family and Medical Leave Act regulations or who are employed to provide diagnostic services, preventative services, treatment services or other services that are integrated with and necessary to the provision of patient care which, if not provided, would adversely impact patient care.
- Clarify that employees must provide required documentation supporting their need for FFCRA leave to their employers as soon as practicable.
- Correct an inconsistency regarding when employees may be required to provide notice of a need to take expanded family and medical leave to their employers.
These are the specific regulations that are revised:
29 CFR 826.20: This regulation sets forth the qualifying reasons that FFCRA may be used. The DOL revised the regulation to make clear, for every qualifying reason, that leave may not be used unless the employer has work available for the employee to perform, but the employee cannot work due to the COVID qualifying reason.
29 CFR 826.30: This regulation is the one that explains that employers can exempt “health care providers” from FFCRA leave in certain circumstances. The revised regulations change the definition of “health care provider” in response to criticism that the prior definition was too broad and a court order invalidating it. The revised regulation states that a health care provider is (1) anyone deemed a healthcare provider under the FMLA, or (2) any employee who is capable of providing health services, meaning he or she is employed to provide diagnostic services, treatment services, or other services that are integrated with and necessary for the provision of patient care. The revised regulations include specific examples of the types of employees who qualify as health care providers, and those who do not. Any employer exempting health care provider employees from the FFCRA’s paid leave provisions should review the revised regulation to assess whether their employees still qualify for exemption.
29 CFR 826.90: This regulation describes the notice that employees must provide of the need to use paid sick leave in order to qualify. The revised regulation clarifies that advance notice may not be required for use of emergency paid sick leave and that notice may only be required after the first workday or portion thereof for which the employee uses paid sick leave. After the first workday, notice should be provided as soon as practicable and may be provided by an employee’s family member or other spokesperson if the employee is unavailable. For leave due to school closures, notice should be provided as soon as practicable. If the closure is foreseeable, prior notice should be provided in advance of the need for leave.
29 CFR 826.100: This regulation relates to the timing of documentation substantiating the need for FFCRA leave. Consistent with the revisions to section 826.90, this revised regulation clarifies that documentation should be provided as soon as practicable (generally at the same time as the employee’s notice of the need for leave, described in 826.90).
Employers covered by the FFCRA should review their policies and practices to ensure they are in compliance with the revised regulations.
In recent years, some employers have implemented so-called “unlimited” vacation policies, mostly applied to exempt employees, that leave it up to employees and their supervisors to decide how much paid time off to take. On April 1, 2020, the California Court of Appeal addressed for the first time whether California law requires an employer with an “unlimited” vacation policy to pay an employee for “unused” vacation upon the employee’s separation from employment. The court held that on the specific facts of the case before it, the employer was required to pay its former employees for unused vacation, but also offered guidance as to what kind of unlimited vacation policy might relieve an employer of the obligation to pay out accrued but unused vacation upon an employee’s separation.
Background on California Law Governing Vacation Policies
California law does not require employers to provide employees with paid vacation. But when an employer does provide paid vacation, Labor Code section 227.3 requires employers to pay as wages any “vested” vacation time that separating employees have not used. Decades ago, in Suastez v. Plastic Dress-Up Co., 31 Cal.3d 774, 784 (1982), the California Supreme court addressed when the right to vacation “vests” under section 227.3, stating:
The right to a paid vacation, when offered in an employer’s policy or contract of employment, constitutes deferred wages for services rendered. Case law from this state and others, as well as principles of equity and justice, compel the conclusion that a proportionate right to a paid vacation “vests” as the labor is rendered. Once vested, the right is protected from forfeiture by section 227.3 On termination of employment, therefore, the statute requires that an employee be paid in wages for a pro rata share of his vacation pay.
While Section 227.3 effectively prohibits so-called “use-it-or-lose-it” vacation policies, an employer may adopt a policy that creates a waiting period at the beginning of employment during which no vacation time is earned, and therefore none vests. An employer may also adopt a policy that “caps” the amount of vacation an employee accrues, by precluding accrual of additional vacation time once an employee has reached a specified maximum. Under such a policy, the employee does not forfeit vested vacation pay because no more vacation is earned once the maximum is reached, and therefore no more vests until such time as the employee uses accrued vacation, drops below the cap, and once again begins to accrue more vacation.
In order to pay a separating employee all “vested” vacation, an employer necessarily must keep track of how much vacation an employee earned and used during employment. But what happens if an employer offers “unlimited” vacation to an employee, or allows an employee to take paid time off, but never notifies the employee of precisely how much paid time off the employee may take? That is the question addressed by the California Court of Appeal in its recent opinion.
McPherson v. EF Intercultural Foundation, Inc.
EF Cultural Foundation, Inc. (EF) runs educational and cultural exchange programs between the United States and other countries. While EF’s employee handbook included a policy providing most salaried employees with a fixed amount of paid vacation days per month based on their lengths of service, that policy did not apply to “area managers,” a handful of exempt employees tasked by EF to run the company’s programs within their regions. While area managers could, with their supervisors’ permission, take paid time off, they did not accrue vacation days or track the number of vacation days they took, nor were they ever notified of any specific limit on the amount of paid days off they could take.
After their employment ended, three area managers sued EF, alleging the company failed to pay them accrued but unused vacation upon their separation from employment. After a bench trial, the trial court found EF liable for failing to pay the plaintiffs unused vacation, finding the plaintiffs’ right to take vacation time was not truly “unlimited” but rather was “undefined.” The trial court found that “vacation time vests under a policy where vacation time is provided, even if the precise amount is not expressly defined by the employer in statements to employees.” The trial court explained that “offering vacation time in an undefined amount simply presents a problem of proof as to what the employer’s policy was. That policy is implied through conduct and the circumstances, rather than through an articulated statement.” The trial court concluded that based on the evidence presented at trial, the area managers were provided at least 20 days of vacation per year, therefore that amount vested annually for each plaintiff, and Section 227.3 required EF to pay them the unused portion when their employment ended.
The California Court of Appeal agreed with the trial court’s conclusion that Section 227.3 applied to the area managers “[o]n the particular, unusual facts of this case.” The appellate court emphasized that the company did not provide the area managers “unlimited” vacation in practice, nor did the company publish a formal policy notifying the area managers they had “unlimited’ vacation, and therefore the trial court was correct in determining their right to vacation was undefined, not unlimited. But the court was careful to note that although Section 227.3 applied to EF’s informal, unwritten vacation policy, that does not mean Section 227.3 “necessarily applies to truly unlimited time off policies.” The court suggested that such a policy “may not trigger section 227.3” if the policy is in writing and it:
- Clearly provides that employees’ ability to take paid time off is not a form of additional wages for services performed, but perhaps part of the employer’s promise to provide a flexible work schedule—including employees’ ability to decide when and how much time to take off;
- Spells out the rights and obligations of both employee and employer and the consequences of failing to schedule time off;
- In practice allows sufficient opportunity for employees to take time off, or work fewer hours in lieu of taking time off; and
- Is administered fairly so that it neither becomes a de facto “use it or lose it policy” nor results in inequities, such as where one employee works many hours, taking minimal time off, and another works fewer hours and takes more time off.
Unfortunately, the court offered these criteria as only an “example” of an unlimited time off policy that might not require a payout of unused vacation upon the end of employment, and not as a bright-line rule.
The appellate court’s opinion makes it clear that not all unlimited vacation policies necessarily dispose of the requirement to pay some amount of “vested” vacation upon an employee’s separation. Employers operating in California that wish to establish or continue unlimited vacation policies should review those policies, and modify them if necessary, to ensure they are consistent with the California court’s guidance.
In Massachusetts, a commission is a wage subject to the Wage Act when the amount of the commission “has been definitely determined and has become due and payable.” Accordingly, an employer’s failure to pay a commission which had not yet become due and payable generally does not implicate the Wage Act, and employers cannot be held liable for treble damages stemming from the failure to pay such a future commission. However, last week in Parker v. EnerNOC, Inc., the Supreme Judicial Court created an exception to this rule, holding that an employee is entitled to treble damages on an unpaid future commission as lost wages where the employer’s unlawful retaliation was the reason the commission did not became due and payable.
Parker concerned an employee’s Wage Act claims based upon her prior employer’s failure to pay her certain commissions. The employee earned commissions on software sales contracts she secured for her employer. As a result of a particular contract, the employee earned two different commissions – one payable when the sales contract first became guaranteed and another when the time period for the client to opt out of the contract had passed. After the deal became guaranteed, the employee complained that she had not been paid the full amount of the first commission to which she was entitled. After the employee complained, the employer terminated her employment. After the termination, the opt-out period passed. Had the employee remained employed with the employer, she would have been entitled to the second commission. The employee sued, alleging that she had been terminated in retaliation for her complaints and that she had been denied her commissions in violation of the Wage Act. She ultimately prevailed. The trial court judge granted the employee treble damages on the first commission, but not on the second, on the basis that the second commission had not “become due and payable” as of the employee’s last day of employment.
The SJC reversed the trial court, ruling that the employee was entitled to treble damages on the unpaid portions of both commissions. According to the SJC, nothing in the Wage Act required a commission to be due and payable as of the date of termination to be subject to the Wage Act. Because the Wage Act prohibits retaliation against employees raising Wage Act claims, the SJC ruled, “commissions that are not yet due to be paid may nonetheless constitute lost wages if the employer’s violations of the act prevent payment of those commissions.” As such, the employee was entitled to treble damages on those lost wages as a remedy for the employer’s retaliation prohibited by the Act, regardless of whether the commission was due and payable.
In light of the decision in Parker, employers should exercise caution when terminating employees who have earned commissions that have not yet been paid. Parker makes clear that unpaid commissions – even if they are not due and payable at the time to termination – constitute lost wages under the antiretaliation provisions of the Act, and employees are entitled to treble damages on future commission where an employee can show that the commission did not become due and payable as a result of an employer’s retaliation prohibited by the Act.
Jonathan Keselenko, James Fullmer, & Chris Feudo
Foley Hoag LLP
Last Thursday, in a unanimous opinion, the California Supreme Court held that the time employees spend on an employer’s premises waiting for and undergoing required exit searches of their bags and other personal items that they bring to work purely for their own personal convenience, constitutes “hours worked” for which the employees must be paid.
Apple Inc. requires its retail store employees to undergo mandatory searches of their bags, packages, purses, backpacks, briefcases, and personal Apple technology devices (e.g., iPhones), before leaving the store for any reason, including after completing their work shift and clocking out. In 2013, several employees sued Apple in a California federal district court to recover wages for the time spent undergoing these security checks. They brought their claims under both California law and the federal Fair Labor Standards Act (FLSA). The employees estimated that the time spent waiting for and undergoing the exit searches typically ranged from five to 20 minutes, but could take up to 45 minutes on the busiest days.
The district court dismissed the FLSA claims after the United States Supreme Court’s 2014 decision in Integrity Staffing Solutions v. Busk, which held that time spent undergoing mandatory security screenings is not compensable “hours worked” under the FLSA. The district court later dismissed the plaintiffs’ California law claims, holding that exit search time was not “hours worked” because the employees could avoid the searches by not bringing bags or other personal items to work. The employees appealed.
The Ninth Circuit Court of Appeals then asked the California Supreme Court to weigh in on the issue. In last Thursday’s opinion, California’s high court hinged its decision on the significant differences between the FLSA and California law in defining “hours worked.” In 1947, the FLSA was amended to narrow the definition of “hours worked,” excluding activities that occur before or after employees perform the “principle activity” they are engaged to perform. As a result, under the FLSA, some pre-shift and post-shift activities are not compensable, even when required by an employer. In contrast, California’s wage orders generally define “hours worked” much more broadly, to include all the time an employee is “subject to the control” of an employer, and all the time an employee is “suffered or permitted to work, whether or not required to do so.”
Applying this definition, the California Supreme Court concluded the employees were “subject to [Apple’s] control” when they waited for and underwent security checks, because these checks were required for Apple’s benefit. The court rejected the district court’s conclusion that the security checks were essentially voluntary because employees could avoid them by not bringing personal items to work, reasoning that the realities of 21st-century life mean employees have little choice but to bring mobile devices and other personal items to work.
This decision illustrates two realities for all California employers. First, California employees must be compensated for time engaged in pre-shift and post-shift activities that might not be compensable elsewhere.
Second, California employers should ensure employees are compensated for required activities that involve even very small amounts of time. In 2018, the California Supreme Court held that the federal de minimis rule, under which small amounts of time need not be compensated under certain circumstances, does not apply to wage claims brought under California law. As a result, claims for unpaid wages brought under California law are more difficult to defend. Employers should therefore be vigilant about capturing and compensating employees for all time spent under the employer’s control, including security checks and other activities that might begin and end very quickly.
Aaron Buckley – Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA