Inflation to Cause California Minimum Wage to Rise Higher Than Anticipated in 2023
Introduction
On July 27, 2022, the Director of the California Department of Finance sent a letter to Governor Gavin Newsome and state legislative officials, notifying them that the high inflation rate over the last year will cause the state’s minimum hourly wage to rise higher than anticipated in January 2023. The higher minimum wage will affect several categories of employees in addition to minimum-wage earners.
Background on California’s Minimum Wage Law
Labor Code section 1182.12 established a series of annual increases to the state minimum wage, causing it to rise from the 2016 minimum wage of $10 per hour, to the 2022 minimum wage of $14 per hour for employers with 25 or fewer employees, and $15 per hour for employers with 26 or more employees. Under subdivision (b) of that statute, in January 2023 the minimum wage for employers with 25 or fewer employees was scheduled to rise to $15 per hour, with no increase in the minimum wage for employers with 26 or more employees, meaning employers of all sizes would then be subject to a uniform minimum wage of $15 per hour.
Other provisions of the statute provide for further annual increases. Specifically, subdivision (c)(1) of the statute requires the Director of Finance, beginning in 2023, to calculate an adjusted minimum wage on or before August 1 of each year based on the United States Bureau of Labor Statistics nonseasonally adjusted United States Consumer Price Index for Urban Wage Earners and Clerical Workers (U.S. CPI-W). The Director is to calculate the increase in the minimum wage by the lesser of 3.5 percent or the rate of change for the U.S. CPI-W, and the result is then rounded to the nearest ten cents, with the adjusted minimum wage increase implemented on the following January 1, beginning in 2024.
However, subdivision (c)(3) provides that if the inflation rate exceeds seven percent in the first year in which the minimum wage for employers with 26 or more employees is $15 per hour (which is this year), the annual increases based on the U.S. CPI-W are to begin a year earlier—in January 2023.
The Department of Finance’s Determination of the 2023 California Minimum Wage
In her letter of July 27, 2022, California Department of Finance Director Keely Martin Bosler announced that the Department had determined the U.S. CPI-W for the 12-month period from July 1, 2021 through June 20, 2022 increased by 7.9 percent compared to the preceding 12-month period and, as a result, the inflation-adjusted annual increases required by the minimum wage statute would begin on January 1, 2023. The Department calculated that the required 3.5 increase will result in a state minimum wage of $15.50 per hour for all employers beginning January 1, 2023, fifty cents higher than the previously anticipated minimum wage of $15.00 per hour.
Ripple Effect of a Higher Minimum Wage
Any increase in the state minimum wage has a ripple effect on several categories of California employees in addition to minimum-wage earners.
California’s salary threshold for “white collar” (executive, administrative, and professional) exempt employees is set at twice the state minimum wage for a 40-hour work week. A $15.00 minimum wage would have established a salary threshold of $62,400 per year ($15 x 2 x 40 hrs x 52 wks). A $15.50 minimum wage will establish a salary threshold of $64,480 per year ($15.50 x 2 x 40 hrs x 52 wks).
California’s overtime exemption for commissioned employees (sometimes referred to as the “inside sales” exemption) applies to employees whose earnings exceed 1.5 times the state minimum wage if more than half the employee’s compensation represents commissions. In order to maintain the exemption for those employees, beginning in January 2023 they must earn at least $23.25 per hour, in addition to earning more than half their compensation from commissions.
As a general rule, when tools or equipment are required for a job, the employer must provide and maintain them. However, a California employee whose wages are at least twice the state minimum wage may be required to provide and maintain hand tools and equipment customarily required by the trade or craft. Beginning in January 2023, those employees must be paid at least $31.00 per hour.
Conclusion
California Employers should begin planning for the higher minimum wage, and budget for this unexpected expense. Employers should also keep in mind that a host of local governments throughout California have their own minimum wage ordinances that often require minimum wages higher than the state minimum, and some local governments may take steps to increase their own minimum wages in response to the higher than anticipated increase in the state minimum wage.
Aaron Buckley – Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA
California Court of Appeal Holds No Right to Jury Trial in PAGA Cases and Affirms Suitable Seating Win for Employer
On February 18, 2022, the California Court of Appeal, Second District, held there is no right to a jury trial in a Private Attorneys General Act (PAGA) action for civil penalties. In that same decision the Court of Appeal affirmed a trial court’s judgment in favor of Ralphs Grocery Company after a bench trial in which the trial court found the company’s decision not to provide seats to cashiers did not violate workplace suitable seating requirements under the applicable Industrial Wage Commission (IWC) wage order.
Background on PAGA
Under PAGA, the State of California deputizes “aggrieved employees” to sue employers to recover civil penalties as a mechanism to enforce provisions of the Labor Code. An aggrieved employee is a person who was employed by the defendant employer and against whom one or more of the alleged Labor Code violations occurred. Under PAGA, the plaintiff-employee pursues civil penalties for Labor Code violations the employer allegedly committed against all aggrieved employees (not just the plaintiff). The employee who brings a PAGA action acts as an agent of the state enforcement agencies; therefore the action is considered a dispute between the employer and the state, as opposed to a suit for damages. If the employee prevails in the litigation, 75 percent of the civil penalties go to the state, and the remaining 25 percent go to the aggrieved employees. Prevailing PAGA plaintiffs are also entitled to recover reasonable attorneys’ fees and costs.
California’s “Suitable Seating” Requirements
For decades, California’s IWC wage orders have required most employers to provide “suitable seats” to their employees “when the nature of the work reasonably permits the use of seats.” When the nature of employees’ work requires standing and the employees are not actively engaged in those duties, the wage orders require employers to provide their employees seats when using seats “does not interfere with the performance of their duties.”
These “suitable seating” requirements were little noticed until after the enactment of PAGA in 2004. Although the suitable seating requirement does not appear within the Labor Code itself, section 1198 of the Labor Code makes it unlawful to employ any employee under conditions prohibited by an IWC wage order. The result is that a violation of any IWC wage order is also a violation of Section 1198, which gives rise to a PAGA claim. Under PAGA, the civil penalty for a violation of Section 1198 is $100 for each aggrieved employee per pay period for the initial violation, and $200 for each aggrieved employee per pay period for each subsequent violation. It doesn’t require a calculator to see how PAGA provided the financial incentive behind the explosive growth of suitable seating litigation.
LaFace v. Ralphs Grocery Co.
Ralphs Grocery Company employed Jill LaFace as a cashier. She brought a PAGA action against Ralphs on behalf of herself and other current and former Ralphs cashiers, alleging Ralphs violated an IWC wage order requiring the company to provide suitable seating when the nature of the work reasonably permitted the use of seats, or, for a job where standing was required, to provide seating for employees to use when their use did not interfere with their duties.
The trial court set a jury trial but later granted Ralphs’s motion for a bench trial after finding PAGA actions are equitable in nature and are therefore not triable to a jury. After a bench trial the trial court found Ralphs had not violated the wage order because the evidence showed even when cashiers were not functioning in their primary roles as cashiers, they were required to move about the store fulfilling other tasks. LaFace appealed the judgment, contending she was entitled to a jury trial on her PAGA claim.
On appeal, LaFace and Ralphs agreed that PAGA itself does not confer a right to a jury trial, so the Court of Appeal limited its inquiry to whether the California Constitution’s guarantee of a right to a jury trial applies to PAGA actions. Surveying the line of cases examining the reach of the state constitutional right to a jury trial, the Court of Appeal determined the issue turned on whether a PAGA action is of “like nature” or “of the same class as a pre-1850 common law right of action” that the constitutional provision was designed to protect.
Examining the nature of a PAGA action, the Court of Appeal concluded there is no right to a jury trial in PAGA actions for four reasons. First, notwithstanding the fact that a PAGA action’s designated forum is the trial courts which technically makes it a civil action, PAGA plaintiffs act as mere proxies for the state, bringing on behalf of the state what would otherwise be an administrative regulatory enforcement action. Second, PAGA’s penalty provisions are subject to a variety of equitable factors that call for a qualitative evaluation and the weighing of a variety of factors that is typically undertaken by a court, not a jury. Third, the Labor Code proscribes a wide range of conduct that was unknown at common law, including suitable seating requirements among others. Fourth, although the penalty assessment portion of a PAGA action could be severed from the liability portion, with a jury deciding liability and the court deciding penalties, as noted above many PAGA violations are based on newly created rights that did not exist at common law, with the result that a PAGA action typically does not have a pre-1850 analog that would call for the right to a jury trial under the California Constitution.
After addressing the constitutional issue, the Court of Appeal next turned to the merits of LaFace’s suitable seating claim. On appeal, LaFace did not argue the nature of her cashier duties reasonably permitted the use of seats; her appeal was limited to her contention that she was entitled to a seat during the brief periods of time when she was on the clock but not checking out customers. LaFace and Ralphs generally agreed the evidence, including the testimony of longtime cashiers and expert witnesses, showed that when cashiers were not checking out customers, Ralphs expected them to be performing other tasks that required standing, to include cleaning, restocking, and looking for customers ready to check out.
The parties disagreed, however, whether Ralphs’s expectation about these secondary tasks required Ralphs to provide seats. LaFace contended that notwithstanding Ralphs’ expectation that cashiers would perform these secondary tasks when they were not checking out customers, the “reality” was that cashiers would often remain at their checkstands, talking to other employees or using their mobile phones. Ralphs argued that because cashiers were expected to be active and busy at all times, no seating was required, and “rogue employees” should not be able to create an entitlement to seats by shirking their job duties. The Court of Appeal sided with Ralphs and affirmed the trial court’s judgment, holding an objective inquiry into whether using a seat would interfere with an employee’s performance of job duties properly takes into account an employer’s reasonable expectations regarding customer service and acknowledges an employer’s role in setting job duties. “An expectation that employees work while on the clock, rather than look at their phones or do nothing, seems objectively reasonable.”
Conclusion
While the bulk of suitable seating litigation has been brought by cashiers and other customer service employees who deal directly with the public, any California employer can be the target of a suitable seating claim. Employers are therefore well advised to periodically review job duties and provide suitable seats where warranted. When an employer concludes a seat is not warranted by an employee’s job duties, those duties should be clearly defined to make it clear an employee should not be sitting while on the clock.
Aaron Buckley – Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA
New California Law Classifies Intentional Wage Theft as a Felony
On September 27, 2021, Governor Gavin Newsom signed Assembly Bill No. 1003 (“AB 1003”) into law, adding Section 487m to the California Penal Code, which creates a new type of felony for intentional “wage theft.” The law takes effect on January 1, 2022.
While theft is commonly thought of as an intentional crime, the California Labor Commissioner defines “wage theft” much more broadly, to include not only egregious intentional conduct such as forcing employees to work off-the-clock, but also violations that might result from simple mistakes, such as failing to pay reporting time pay or failing to correctly calculate the overtime due on a commission.
The California Labor Code attempts to discourage wage theft by imposing criminal penalties on employers that violate provisions regulating payment of wages. Running afoul of dozens of the most commonly-violated wage provisions of the Labor Code may result in a misdemeanor offense, including provisions such as:
- Labor Code section 204, which requires timely payment of wages twice a month;
- Labor Code section 206.5, which prohibits releasing claims for unpaid wages unless payment of the wages has been made;
- Labor Code section 207, which requires employers place employees on notice of regular pay days and the time and place of payment;
- Labor Code section 216, which prohibits employers from failing to pay wages owed to an employee or falsely denying the amount due after the employee has made a demand for payment; and
- Labor Code section 226.6, which requires employers provide accurate itemized wage statements to employees.
While Labor Code wage theft statutes classify violations as misdemeanors, the new law goes one step further by creating a new felony offense under the Penal Code. Specifically, under the new law, the intentional theft of employee wages in an amount greater than $950 from a single employee or $2,350 from two or more employees within a consecutive twelve-month period is considered “grand theft” under California Penal Code section 487m. Importantly, the theft must be intentional to be actionable. Accordingly, inadvertent mistakes or errors are not contemplated by the new code section. Of note, the law also classifies independent contractors as “employees” for purposes of the offense, and includes individuals or entities hiring independent contractors as “employers.”
Employers (and entities that engage independent contractors) that violate the new law risk serious consequences. Prosecutors have the authority to charge those responsible for intentional wage theft violations with a misdemeanor or felony, either of which may be punishable by imprisonment (up to one year for a misdemeanor, and 16 months, or 2 or 3 years for a felony), a specified fine, or both a fine and imprisonment.
AB 1003 is a notable escalation in efforts to classify disputes over wages as serious criminal conduct. The author of the bill, Assemblywoman Lorena Gonzales, confirmed the intent of AB 1003 was to send a clear message to employers that intentionally stealing wages from employees is criminal and can result in imprisonment.
It is not yet clear how “intentional wage theft” will be interpreted and applied under the new law once it goes into effect next year. Employers should remain vigilant about compliance with wage and hour laws by regularly reviewing and updating their compensation policies and practices for employees and independent contractors, and making adjustments where needed. Employers should also take steps to ensure that hourly employees and managers are appropriately trained on wage and hour compliance and appropriately disciplined for violations.
California Court Provides Guidance on “Unlimited” Vacation Policies
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.
Aaron Buckley
Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA
California Supreme Court Rules Employees Must Be Paid for Time Spent in Post-Shift Bag Checks
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
Federal Court Issues Preliminary Injunction Prohibiting Enforcement of AB 51, California’s Anti-Arbitration Law
Today a federal court issued a preliminary injunction prohibiting the state of California from enforcing Assembly Bill 51, the state’s new anti-arbitration law. Earlier, on December 30, 2019, the court issued a temporary restraining order prohibiting the law’s enforcement, just two days before it was scheduled to take effect.
The anti-arbitration law is being challenged in a federal lawsuit filed in December 2019 by a number of pro-business organizations seeking a permanent injunction against enforcement of AB 51. The business groups argue that AB 51 is preempted by the Federal Arbitration Act (“FAA”).
In the court’s minute order issued today, Judge Kimberly J. Mueller of the U.S. District Court for the Eastern District of California indicated she will explain her reasoning in a detailed, written order to be issued “in the coming days.”
Today’s order means California employers may continue to require employees to sign mandatory arbitration agreements as a condition of employment. It also means the court continues to find the plaintiffs’ argument that AB 51 is preempted by the FAA to be persuasive.
Federal Court Issues Temporary Restraining Order Prohibiting Enforcement of California’s Anti-Arbitration Law
Today a federal court issued a temporary restraining order prohibiting the state of California from enforcing Assembly Bill 51, the state’s new anti-arbitration law, at least until another hearing scheduled for January 10, 2020. The new law was scheduled to take effect January 1, 2020.
The temporary restraining order was issued in the federal lawsuit filed earlier this month by the U.S. Chamber of Commerce and other pro-business organizations seeking a permanent injunction against enforcement of AB 51. The business groups argue that AB 51 is preempted by the Federal Arbitration Act (“FAA”).
In the order, the U.S. District Court for the Eastern District of California found the “plaintiffs have raised serious questions regarding whether the challenged statute is preempted by the Federal Arbitration Act” and that allowing the new law to take effect even temporarily could “cause disruption in the making of employment contracts” in California.
Today’s order means California employers can continue, at least until January 10, 2020, to require employees to sign mandatory arbitration agreements as a condition of employment. It also means the Court found the plaintiffs’ argument that AB 51 is preempted by the FAA to be persuasive.
California Supreme Court Rules Unpaid Wages Not Recoverable Under PAGA Law
Today the California Supreme Court ruled that employees cannot recover unpaid wages in actions brought under the California Labor Code Private Attorneys General Act (PAGA). As a result of today’s decision, unpaid wages can only be recovered in actions brought under other Labor Code provisions that, unlike PAGA, can be subjected to mandatory employment arbitration agreements, including agreements that require employees to waive the right to bring claims on a class or collective basis.
Since 2004, the PAGA law has allowed employees to act as “private attorneys general” by bringing claims in court to recover “civil penalties” for violations of California Labor Code provisions. PAGA allows employees to bring claims on behalf of themselves and on behalf of other “aggrieved employees.” Before PAGA took effect, these “civil penalties” were recoverable only by the state’s labor law enforcement agencies.
In the fifteen years since the PAGA law took effect, the United States Supreme Court has issued a series of decisions upholding the enforcement of arbitration agreements, including agreements between employers and employees. The U.S. Supreme Court has also repeatedly held that employment arbitration agreements may include provisions prohibiting employees from arbitrating claims on a class or collective basis, effectively requiring employees to arbitrate only individual claims. As a result of these court decisions, many employers now encourage or require their employees to enter into arbitration agreements that include class and collective action waivers.
However, in 2014 the California Supreme Court ruled that employment arbitration agreements cannot prohibit employees from bringing PAGA claims in court on behalf of themselves and other “aggrieved employees.” As a result, even where an employee subject to an employment arbitration agreement is barred from bringing claims on a class or collective basis in court or in arbitration, the employee may still bring a “PAGA-only” claim in court, forcing the employer to litigate claims for alleged violations affecting not only the plaintiff-employee, but other “aggrieved employees” as well.
Most of the Labor Code provisions providing for civil penalties recoverable under the PAGA law assess penalty amounts (typically $50 or $100) for each aggrieved employee affected by the violation, for each pay period in which a violation occurs. But Labor Code section 558, which provides for civil penalties when an employer violates provisions of the Labor Code requiring employers to provide meal periods and overtime pay, is different. Section 558 provides for a civil penalty of $50 for each underpaid employee for each pay period in which the employee was underpaid for an initial violation, and $100 for each under paid employee for each pay period in which the employee was underpaid for a subsequent violation, “in addition to an amount sufficient to recover underpaid wages.”
In recent years different districts of the California Court of Appeal have reached different conclusions about how to interpret Section 558’s language, with one district concluding that claims for underpaid wages under Section 558 are subject to arbitration, and other districts concluding they are not. Despite their disagreements, however, all districts agreed that under the language of Section 558, the “underpaid wages” sought under Section 558 are part of a “civil penalty” recoverable under the PAGA law.
But today the California Supreme Court reached a different conclusion, confirming that the $50/$100 for each underpaid employee for each pay period is a civil penalty recoverable under the PAGA law, but holding that an employee’s underpaid wages are not part of that civil penalty, and are therefore not recoverable under the PAGA law.
As a result of today’s decision, plaintiff-employees cannot recover unpaid wages in PAGA-only cases. Although employees may bring claims for unpaid wages under other, non-PAGA Labor Code provisions, those non-PAGA claims are subject to employment arbitration agreements that may require employees to arbitrate claims on an individual basis only.
This means employment arbitration agreements that include class and collective action waivers now provide more protection to employers than they did before today’s decision. Employers that already make use of arbitration agreements should consult with counsel about whether their existing agreements are sufficient, or should be revised. Employers that do not have arbitration agreements with their employees should consult with counsel about whether to adopt an arbitration program.
Aaron Buckley – Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA
California Employers Should Remember the Federal and California White Collar Exemptions Are Different
In Rob Boonin’s post below, he summarizes the U.S. Department of Labor’s proposal to change the regulations governing the so-called “white collar” overtime exemptions for executive, administrative, and professional employees under the Fair Labor Standards Act (FLSA).
As Rob mentioned, the proposed changes are expected to have little impact in California and some other states, because some of the salary thresholds for white collar exemptions under state law are higher than the proposed new FLSA salary threshold, and to be exempt from overtime under both the FLSA and state law an employee must satisfy both the federal and state exemption requirements in full.
Employers with California employees should be aware that the California white collar exemptions differ in other important respects. Below is a summary of the most important ways in which the FLSA and California white collar exemptions differ.
Salary Threshold
California’s salary threshold for white collar exempt employees is set at twice the state minimum wage for a 40-hour work week. Under the current $12 state minimum wage for employers with 26 or more employees, California’s salary threshold is $960 per week ($49,920 per year). California’s minimum wage for employers with 26 or more employees is set to increase according to the following schedule, and by doing so cause corresponding increases in the salary threshold for white collar exempt employees:
Effective Date Minimum Wage Salary Threshold
January 1, 2019 $12.00 per hour $960 per week / $49,920 per year
January 1, 2020 $13.00 per hour $1,040 per week / $54,080 per year
January 1, 2021 $14.00 per hour $1,120 per week / $58,240 per year
January 1, 2022 $15.00 per hour $1,200 per week / $62,400 per year
No Use of Incentive Pay
Unlike the proposed new FLSA exemption rules recently announced by the DOL, California does not allow employers to include bonuses or commissions to satisfy the salary threshold.
No Exemption for Highly Compensated Employees
California does not have a separate threshold for “highly compensated employees.”
More Stringent “Duties” Test
Unlike the FLSA, California’s “duties” test requires exempt employees to spend a majority of their working time performing exempt (as opposed to nonexempt) work consistent with the exemption under which they are classified.
To avoid liability for unpaid overtime arising from employee misclassification, employers should ensure their white collar exempt employees satisfy all the exemption requirements under both federal and state law.
Aaron Buckley
Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA
California Court Rules Employers That Require Employees to Call in Before Scheduled Shifts Must Pay Them
On February 4, 2019, the California Court of Appeal held employers that require employees to call in to work two hours before scheduled “on-call” shifts to find out whether they need to report to work trigger California’s “reporting time” pay requirements.
Clothing retailer Tilly’s, Inc. scheduled its retail store employees to work both regular and “on-call” shifts. Employees were required to call their stores two hours before the start of their on-call shifts to determine whether they were needed to work those shifts. Tilly’s told its employees to consider on-call shifts as “a definite thing” unless they were advised they did not need to come in to work.
A former Tilly’s employee filed a putative class action alleging Tilly’s owed her and other employees reporting time pay for on-call shifts. The employee’s argument was based on Wage Order No. 7-2001, which applies to the retail industry. That wage order requires employers to pay “reporting time pay” to employees for each workday “an employee is required to report for work and does report, but is not put to work or is furnished less than half said employee’s usual or scheduled day’s work.” The reporting time pay requirement is “half the usual or scheduled day’s work, but in no event for less than two (2) hours nor more than four (4) hours.”
The trial court ruled in favor of Tilly’s, holding that calling in to ask whether to report for work did not constitute “reporting for work.” But on Monday the Court of Appeal reversed, concluding that requiring employees to call in to work two hours before scheduled on-call shifts falls within the definition of “reporting to work” and therefore triggers the reporting time pay provisions. Under this holding, the employer would be required to pay the employee for at least half of the on-call shift (up to four hours), even if the employee did not work that amount of time.
The Court reasoned that by scheduling employees for on-call shifts and not informing them whether they would be required to work until two hours before those shifts, Tilly’s effectively deprived the employees of the ability to schedule other work or make plans for personal activities, and this was “precisely the kind of abuse that reporting time pay was designed to discourage.”
Although this decision was limited to Wage Order No. 7-2001, which governs retail employees, similar reporting time pay provisions are found in other wage orders. California employers who need employees to be on call should examine their practices. The critical element in this case was Tilly’s practice of requiring all on-call employees to call in prior to their shifts, which the court held was effectively requiring the employees to report to work. If Tilly’s did not require such an effort from its employees, but instead only called off the employees that it determined were not needed to work, the court’s result may well have been different. Accordingly, if a California employer needs to have employees on call, but does not want to pay reporting time pay, it should not require any pre-shift action by employees, but instead should have supervisors contact only those employees who are not required to come to work.
Aaron Buckley
Paul, Plevin, Sullivan & Connaughton LLP
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