State Farm Settlement Highlights How State Laws Can Trip Up Multi-State Employers

Earlier this month a federal district judge in Los Angeles approved a class action settlement in which State Farm agreed to pay $5 million to a class of 274 vehicle damage inspectors who alleged they were not paid for commuting between their California homes and vehicle inspection sites.  The case is Shiosaka v. State Farm Mutual Automobile Ins. Co., C.D. Cal., No. 2:12-cv-01268.

The home-based inspectors worked in the field, inspecting damaged vehicles and estimating repair costs.  They alleged that State Farm required them to drive company-owned vehicles between their homes and vehicle inspection sites, but were not allowed to use the vehicles for personal errands.  The inspectors further alleged that State Farm did not begin paying them for their time until they arrived at their first inspection site of the day, and stopped paying them when they left their last inspection site of the day to return home.  The inspectors claimed they worked an average of 1.75 hours per day for which they were not paid, most of which was attributed to commuting between their homes and vehicle inspection sites.  They sued for unpaid wages under both the FLSA and California state law.

Under the FLSA, State Farm had a good argument that the commute time was not compensable.  In 1996, Congress enacted the Employee Commuter Flexibility Act (“ECFA”), which provides that an employer need not compensate an employee for commute time, even when the employer requires the employee to use the employer’s vehicle as a condition of employment.  Courts interpreting the ECFA have held that the commute time remains non-compensable even when the employer prohibits the employee from using the vehicle for personal purposes.

But California law favored the employees.  Under California law, employees must be compensated for all time during which they are “subject to the control” of an employer.  California courts have held that when an employer requires an employee to take designated transportation to a work site, and the employee is foreclosed from activities in which the employee might otherwise engage if the employee was permitted to use the employee’s own transportation (such as personal errands), the employee is subject to the control of the employer and therefore must be compensated for that travel time.

State Farm agreed to pay $5 million to settle the case.  Vehicle inspectors in the settlement class will receive an average of $13,061 each.

This case is a good reminder that California and some other states have their own wage and hour laws that differ from the FLSA, and place substantially greater restrictions on employers.  These state laws can trip up even relatively sophisticated employers like State Farm that are based out of state and may not be familiar with state law requirements.  Employers with multi-state operations are well advised to familiarize themselves with applicable state laws and to make sure they are in compliance.

Aaron Buckley – Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA


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