On Tuesday the Los Angeles City Council voted to raise the city’s minimum wage to $15 an hour by 2020. Los Angeles will join San Francisco, San Jose and Oakland as California cities with minimum wages higher than both the federal and state minimum wages.
The federal minimum wage is $7.25 per hour. California’s state minimum wage is currently $9 per hour, and is scheduled to rise to $10 per hour on January 1, 2016. Employees must be paid the highest minimum wage in effect, which in California is the state minimum wage except in cities that have established their own higher minimum wages.
The City of Los Angeles does not currently have its own minimum wage, but on Tuesday the City Council voted to establish a city minimum wage of $10.50 per hour effective July 1, 2016. Thereafter the city’s minimum wage will increase to $12.00 on July 1, 2017; $13.25 on July 1, 2018; $14.25 on July 1, 2019; and $15.00 on July 1, 2020. Beginning in 2022 the city’s minimum wage will be adjusted for inflation on July 1 of each year.
California cities that already have minimum wages higher than the state minimum wage include San Francisco (currently $12.25 per hour and scheduled to rise to $13 on July 1, 2016; $14 on July 1, 2017; and $15 on July 1, 2018; followed thereafter by annual adjustments for inflation each July 1); San Jose (currently $10.30 per hour and adjusted each January 1 for inflation); and Oakland (currently $12.25 per hour and adjusted each January 1 for inflation).
Meanwhile, San Diego’s minimum wage is on hold. In October 2014 the San Diego City Council voted to establish a city minimum wage that would rise to $11.50 per hour by January of 2017, and would also require employers to provide their employees with up to 40 hours of paid sick leave each year. But opponents of the ordinance gathered enough petition signatures to put the measure to a public vote. It will go into effect only if it survives a June 2016 referendum.
It is becoming increasingly clear that employers can no longer assume that compliance with federal and state laws is enough. The trend of cities establishing their own minimum wages appears to be picking up steam. Employers should take steps to stay abreast of, and comply with, all local minimum wages and other local mandates.
May 15, 2015
by Malani L. Kotchka
On January 26, 2015, the Ninth Circuit Court of Appeals amended its decision in Landers v. Quality Communications, Inc. Landers was employed by Quality as a cable services installer. He brought suit individually and on behalf of other similarly situated persons alleging that Quality failed to pay minimum wage and overtime wages in violation of the Fair Labor Standards Act. He alleged he was subject to a “piecework no overtime” wage system. The Ninth Circuit agreed with the First, Second and Third Circuits and held that in order to survive a motion to dismiss, the plaintiff asserting a claim of overtime must allege that he or she worked more than 40 hours in a given workweek without being compensated for the overtime hours worked during that workweek. The Ninth Circuit concluded that under the post-Twombly and Iqbal standard, Landers failed to state a plausible claim for relief under the FLSA. Since Landers declined to amend his complaint electing to stand on his claims as alleged, the district court correctly dismissed his complaint for failure to state a plausible claim.
On behalf of Landers, Nichols Kaster filed a Petition for Writ of Certiorari with the United States Supreme Court. Landers was joined by Civil Procedure Law Professors as Amici Curiae in support of Landers. Quality Communications opposed the Petition and on April 20, 2015, the United States Supreme Court denied the Petition for Writ of Certiorari.
Before unlocking the doors of discovery, a class action FLSA plaintiff must allege more than a general scheme which might result in non-payment of minimum wage or overtime. In the Ninth Circuit, the plaintiff must allege at least one workweek when he worked in excess of 40 hours and was not paid for the excess hours in that workweek or was not paid minimum wage.
On April 17, 2015, Judge James Donato of the U.S. District Court for the Northern District of California held that Integrity Staffing Solutions, Inc. v. Busk, 136 S.Ct. 513 (2014), in which the U.S. Supreme Court held the FLSA does not require employees to be compensated for time undergoing post-shift security screenings, does not apply to wage claims brought under California law. The case is Miranda v. Coach, Inc., No. 14-cv-02031-JD, 2015 U.S. Dist. LEXIS 51768 (Apr. 17, 2015).
Eve Miranda and Mary Lou Ayala filed a class action complaint against Coach, Inc., alleging they and other Coach sales associates were required to submit to “bag checks” each time they left the store. They alleged that waiting for and undergoing the bag check process, for which they were not paid, lasted anywhere from 5 to 30 minutes, and sought damages and penalties under California law for “off-the-clock” time. Coach moved to dismiss, arguing the bag check time was non-compensable under Integrity Staffing Solutions.
Judge Donato denied the motion to dismiss, explaining that while the decision in Integrity Staffing Solutions was premised on how the federal Portal-to-Portal Act of 1947 exempts employers from FLSA liability for certain categories of work-related activities, Coach was being sued under California law, which contains no similar exemption and defines “hours worked” differently. The opinion cited Morillion v. Royal Packing Co., 22 Cal.4th 575, 582 (2000), in which the California Supreme Court explained that California defines “hours worked” as including not only “time the employee is suffered or permitted to work,” but also “time during which an employee is subject to the control of an employer.” Given all this, Judge Donato denied the motion to dismiss, holding the plaintiffs’ claims for uncompensated time under California law “are viable and will go forward.”
Judge Donato’s opinion is not binding on any other court, but there is no reason to believe other courts presented with the same issue will reach a different conclusion. This does not mean—and Judge Donato did not hold—that time spent by employees undergoing bag checks is compensable under California law; it merely means the time may be compensable. For example, in certain situations there may be a viable argument that the time is so minimal as to be de minimis and therefore non-compensable. In class actions, certification might be defeated by showing that even where an employer requires bag checks, the employer’s policy affects employees differently, with the result that individualized inquiries will be needed to establish liability.
This case is another reminder that California’s wage and hour laws differ from their federal counterparts in important respects. As a result, decisions construing the FLSA and other federal laws cannot be relied on as indicators of what may allowed under California law. This presents challenges to all California employers, and especially to employers that are based outside California, but have employees working in the state. Employers should consult counsel before relying on any judicial decisions.
Employers That Prevail in Discrimination Cases Are No Longer Automatically Entitled to Recover Costs
It has long been the rule in California that the prevailing party in a discrimination or harassment claim under the Fair Employment and Housing Act is entitled to recover costs. A prevailing plaintiff is also entitled to automatically receive an attorneys’ fee award, while a prevailing defendant needed to prove that the plaintiff’s claim was frivolous or otherwise unreasonably brought or pursued. Although fee awards are difficult to obtain for prevailing employers, the ability to recover costs has served as a useful deterrent against marginal claims.
However, in a disappointing ruling for California employers, on May 4, 2015, the California Supreme Court ruled in Williams v. Chino Valley Independent Fire District that an employer’s ability to recover its costs after prevailing in a discrimination or harassment case is subject to the same “objectively without foundation” standard that applies to attorneys’ fee awards. The Court concluded the legislature intended for the Fair Employment and Housing Act to provide an exception to the general rule that a prevailing defendant is automatically entitled to recover costs, and imposing the higher standard of proof on a prevailing defendant’s cost application was consistent with California’s policy not to chill the vindication of employees’ rights under the FEHA.
What This Means
An employer will no longer be able to automatically recover costs in a FEHA case, even if it proves a plaintiff’s case has no merit. This further reduces the downside risk for employees and their attorneys who file baseless claims, and removes an important tool for employers to resolve unmeritorious claims.
Massachusetts Highest Court Rules that Taxicab Drivers Are Independent Contractors Under the Wage Act
The Massachusetts Independent Contractor statute is among the strictest in the country, and employers face an uphill battle in proving that individuals satisfy the three-prong test for correctly being classified as independent contractors. The test, however, is not impossible to surmount, as demonstrated by a decision issued earlier this week.
On April 21, 2015, the Massachusetts Supreme Judicial Court (SJC) held in Sebago, et al. v. Boston Cab Dispatch, Inc., et al., that taxicab companies may classify taxicab drivers as independent contractors. The plaintiffs in this case were taxicab drivers that leased taxis and medallions at a flat-rate from taxicab and medallion owners. The plaintiffs brought suit against three groups of defendants: taxicab and medallion owners, dispatch service companies and a taxicab garage. They claimed that the defendants jointly misclassified them as contractors rather than employees, entitling them to relief under Massachusetts’ minimum-wage and overtime laws.
The SJC ruled against the taxicab drivers. In reaching this conclusion, the court first addressed the issue of whether the defendants were joint employers. It held that the defendants should not be considered “as a single employer exercising monolithic control over the taxicab industry.” Instead, entities can formulate legitimate business-to-business arrangements to secure services, and this, on its own, does not render the entities joint employers. Thus, when analyzing claims under the independent contractor statute, the SJC explained that courts must look separately at each defendant’s relationship with the plaintiffs to assess potential liability.
Before determining whether the taxicab drivers were employees, the court assessed the threshold question of whether the taxicab drivers provided services to the defendants. The court held that the drivers provided no services to the garage, but that the drivers did provide services to the dispatch companies and the taxicab and medallion owners.
Next, the court turned its analysis to whether the dispatch companies and taxicab and medallion owners could lawfully classify the drivers as independent contractors under Massachusetts’ independent contractor statute. The SJC explained that all three of the following elements must be met in order for the defendants to prevail: (1) the drivers must be “free from control and direction in connection with the performance of the service,” both under their contracts and in fact; (2) the service being performed must be “outside the usual course of the business of the employer”; and (3) the drivers must be “customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.”
Under the first prong, freedom from direction and control, the SJC determined that the drivers were mostly independent. The drivers selected their own shifts and which passengers to pick up or refuse. The court also found that the defendants satisfied the second prong because the drivers’ services were outside the usual course of the defendants’ businesses. The court reasoned that the medallion owners’ leasing businesses were not dependent on the success of the drivers’ operations. Rather, a driver paid a daily flat-rate to lease a taxicab, and the taxicab and medallion owner retained this fee regardless of how much money the driver earned on a given day. The court similarly found that the dispatch companies were not in the business of giving rides; instead, they were in the business of selling dispatch services to medallion owners.
Finally, under the last prong, the court found that the drivers engaged in an independent trade or business. Specifically, the drivers had the freedom to lease from whomever they wanted on whatever days they wanted. The drivers were not tied to particular medallion owners, and they were free to advertise their services as they wished. Because the defendants carried their burdens under all three prongs of the statute, the SJC ruled that the drivers were properly classified as independent contractors. A significant component of the court’s rationale was that regulations governing the taxicab industry recognized that drivers could be independent contractors as well as employees. Under this regulatory scheme, the entities–be it the taxicab and medallion owners, dispatch companies or the drivers themselves–are free to plan an arrangement that provides for either result.
Sebago is important because it reiterates that legitimate business-to-business relationships are outside of the stringent Massachusetts independent contractor statute. The plaintiffs’ bar will likely claim that the unique regulatory scheme covering the taxicab industry makes this case inapposite to misclassification disputes arising in other industries. However, the decision suggests that businesses in any industry will not be treated as employers for purposes of state wage laws when the services they provide are legitimately different from those provided by a contractor.
Seventh Circuit Articulates Broad View of FLSA Section 7(i) for Commissioned Workers and Service or Retail Establishments in Rejecting Overtime Claims of Window Washers
On April 1, 2015, the Seventh Circuit, in Alvarado v. Corp. Cleaning Services, Inc., Case No. 13-3818, ruled that high-rise window washers in Chicago were exempt from overtime under Section 7(i) of the Fair Labor Standards Act (FLSA). Under Section 7(i) of the FLSA, the retail or service establishment exemption, the following three elements must be met in order to qualify:
- the employee’s regular rate of pay must exceed one and a half times the federal minimum wage;
- the employee must be employed by a retail or service establishment; and
- more than half the employee’s total earnings for a representative period must consist of commissions.
The plaintiffs in this case, high-rise window washers, argued that neither the second nor the third element was met and, as such, they were not exempt from overtime under Section 7(i).
The defendant, Corporate Cleaning Services (CCS) is Chicago’s largest provider of window-washing services to high-rise business operators, apartment building owners, and other non-residential buildings. When CCS receives a window-washing order, it uses a “point system” to calculate the price it will charge for the job. The assessed points are based on the complexity of the job as well as the estimated number of hours to complete it. Each window washer assigned to the job usually gets the same share of points allocated to the job. CCS then pays the window washer the number of points allocated to him multiplied by a rate specified by the company’s collective bargaining agreement. CCS regularly makes price adjustments depending on variable costs, such as permits, equipment rental and competition, which cause the percentage of the price attributable to the window washers’ compensation to vary from job to job. The annual pay for a CCS window washer ranges from $40,000 to $60,000.
On appeal, the plaintiffs argued that their compensation, based on this point system, did not amount to a commission system and that the sale of window-washing services to managers of tall buildings “lacks a retail concept.” The Seventh Circuit disagreed. Although CCS called its compensation system a “piece-rate” or “piecework” system from job to job, the Court noted “the nomenclature is not determinative.” Instead, a commission system need only be “proportional and correlated” to the price. More importantly, according to Judge Posner, the irregularity of the work (because of the peculiar conditions of window-washing such as high winds, dive-bombs from peregrine falcons, and the like) makes the window-washers even more like commissioned employees. The fact that a window-washer cannot count on working 40 hours each week for an entire year is precisely “the reason for exempting his employer from the requirement of paying the worker time and a half for overtime.”
As to the last element—being a retail or service establishment—the Court found that CCS is best described as a “retail service establishment” because it sells its window-cleaning services to building owners and managers. While the plaintiffs’ attempted to characterize this as a wholesale relationship, the Court pointed out that the building owners and managers are the “ultimate customers; they do not resell the window cleaning.” Accordingly, CCS satisfied the third element as well. Interestingly, the Court’s ruling is in direct conflict with the Department of Labor’s (DOL) position on this issue. In July 2014, the DOL filed an amicus brief supporting the plaintiff’s position and arguing that the exemption should not apply to a company like CCS, which failed to present “any evidence that its sales are ‘recognized’ as retail in the window washing industry.” The Seventh Circuit, however, was not swayed. Paying extra for overtime “is said to be a boon to low-wage workers,” but, as the Court pointed out, the window washers here are well paid.
Joseph E. Tilson and Jeremy J. Glenn, Meckler Bulger Tilson Marick & Pearson
By: John Ho – Bond, Schoeneck & King
WHDI member, Dennis McClelland served as a moderator for a presentation by Jennifer Brand, Associate Solicitor of Labor, at the American Bar Association’s, Federal Labor Standards Legislation Committee’s Mid-Winter Meeting held this morning. Mr. McClelland is also the Employer Co-Chair of the Committee. Ms. Brand provided an update on important DOL initiatives and activities. In her discussion, Ms. Brand discussed recent litigation involving interns and confirmed that the Department still believes the six factors outlined in USDOL Fact Sheet #71 is the proper test to determine whether an unpaid internship is lawful. Ms. Brand did acknowledge that as the workplace evolves, it may, in unusual situations, be appropriate to consider other factors.
Ms. Brand also discussed the Department’s appeal of the U.S. District Court for the District of Columbia’s order vacating two major provisions in the DOL’s Home Care Rule originally intended to be effective January 1, 2015. The new rule would have excluded third-party employers from relying on the companionship and live-in domestic worker exemptions and would have significantly narrowed the definition of companionship services. The Department believes the case should be heard in the May term. Mr. McClelland specifically asked Ms. Brand why the revocation of the companionship exemption to third-party employers should not a Congressional issue. Ms. Brand responded that significant changes to home care services over several decades including the approximately 2 million hone care workers have dramatically changed the profession and that the United States Supreme Court provided DOL with the authority to define the term “companionship services.”
Finally, Ms. Brand acknowledged that the highly anticipated proposed changes to the white-collar exemptions would not be published this month as DOL had previously suggested. She further stated that they are “not imminent.” Although she would not comment on specifics, she stated that DOL is examining the appropriate salary level test and whether the duties test needs to be reviewed.
Other WHDI members serving on panels at the conference include Lawrence Peikes, Joseph Tilson, Reed Russell, Jeremey Glenn, and John Ho.
In 2014, President Obama directed the Secretary of Labor to streamline existing overtime regulations for the “white-collar” exemptions. These exemptions from overtime, which cover the typical executive, administrative and professional employees, were last revised in 2004. When the revisions became effective in 2004, there were significant changes in the application of the exemptions for many employers. It remains to be seen whether these proposed changes will have as sweeping an impact across industry.
In 2014, there was quite a bit of discussion by proponents of change to increase the minimum salary required to be exempt. Some commentators pointed to examples of entry-level management employees who, by and large did the same tasks as their subordinates, but were not entitled to any overtime compensation. This can result in subordinate employees working fewer hours or making more money once the overtime premiums were factored in.
Last fall, the Department of Labor stated that it would delay the publication the proposed final regulations until February 2015. The month is quickly coming to a close and the Department of Labor has yet to publish these proposed new regulations. Of course there will be a comment period prior to final implementation. If it is similar to the 2004 changes, there will be some tweaks from the first version published to the final version that is actually implemented in the Code of Federal Regulations. The Wage & Hour Defense Institute will be closely monitoring the Department of Labor and its proposed rules once they are published for the benefit of its members and their clients. But, suffice to say that all employers should take note of the changes to ensure compliance, especially those with executive employees.
On January 29, 2015, a California appellate court modified and published its earlier opinion holding that ten minute rest breaks are not invalidated by the mere possibility the employee(s) may be asked to perform work. While actual work is prohibited during rest breaks, simply remaining available to work is not. The case is Augustus v. ABM Security Services, Inc.
ABM Security Services employs thousands of security guards throughout California. The company’s rest break policy requires security guards to keep their radios and pagers on during rest breaks and to respond to emergency and non-emergency situations should the need arise.
Three security guards filed putative class actions against ABM in which they argued the requirement to stay in contact and to respond to requests for assistance rendered the rest breaks indistinguishable from normal security work, and therefore invalid as a matter of law. The trial court certified the class. The plaintiffs then moved for summary adjudication, offering no evidence that any rest periods had ever been interrupted, but arguing the requirement to remain on call during rest breaks rendered them invalid. The trial court granted the motion, finding the requirement to remain on call during rest breaks meant the security guards were not truly on break, regardless of whether they were actually interrupted and required to perform work. The court awarded $90 million in damages, penalties and interest to the security guards, plus over $31 million in attorneys’ fees.
The appellate court examined Wage Order No. 4 and Labor Code section 226.7 in an effort to determine “the nature of a rest period.” The court found no useful guidance in the wage order, but noted that section 226.7 merely prohibits requiring an employee “to work” during a rest break. The court framed the issue as “whether simply being on-call constitutes performing ‘work.’ We conclude it does not.”
The court rejected the guards’ argument that on-call time necessarily constitutes work because it is indistinguishable from the rest of a guard’s work day, given that guards are always on call. The court explained: “[S]ection 226.7 does not require that a rest period be distinguishable from the remainder of the workday, it requires only that an employee not be required ‘to work’ during breaks. Even if an employee did nothing but remain on call all day, being equally idle on a rest break does not constitute working.”
The court also rejected the guards’ reliance on case law holding that employees must be relieved of all duty during meal breaks, noting the wage order includes language specifically requiring an employer to relieve an employee of all duty during a meal break, but contains no such requirement with respect to rest breaks. The court concluded: “In sum, although on-call hours constitute ‘hours worked,’ remaining available to work is not the same as performing work. . . . Section 226.7 proscribes only work on a rest break.”
This decision clarifies important distinctions between meal break and rest break requirements, and in the process provides guidance to employers on what they must do to comply.
On January 8 the California Supreme Court held that security guards who spend eight hours of their 24-hour shifts sleeping on their employer’s premises must be paid for that sleep time, disapproving a 2011 appellate court decision holding that eight hours of on-call sleep time during 24-hour shifts need not be compensated. The new case is Mendiola v. CPS Security Solutions, Inc.
CPS Security Solutions employed guards to provide security at construction sites. CPS required the guards to live on-site in residential trailers equipped with beds, bathrooms, kitchens, heating and air conditioning. On weekdays, guards worked 16-hour shifts consisting of eight hours on patrol and eight hours on-call. On weekends, they worked 24-hour shifts consisting of 16 hours on patrol and eight hours of on-call “sleep time.”
During on-call shifts, guards were required to remain on site. They were not allowed to have children, pets, or alcohol on site, and had to obtain prior approval to receive adult visitors. CPS did not pay the guards for any on-call time unless they were asked to perform work.
In 2008 guards filed class action lawsuits, arguing that Industrial Welfare Commission Wage Order 4, which governed their work, required CPS to pay them for all the on-call time, including sleep time. The trial court agreed, finding all the guards’ on-call time was compensable “hours worked.”
CPS appealed, citing previous appellate decisions, including Seymore v. Metson Marine, Inc., a 2011 case approving the exclusion of “sleep time” based in part on a federal regulation (29 CFR 785.22) that authorizes employers to enter into agreements with employees working 24-hour shifts to designate up to eight hours as on-call “sleep time” and exclude it from compensable “hours worked.” The state appellate court agreed with CPS as to the sleep time issue, holding that CPS could exclude the sleep time from compensable hours worked.
The California Supreme Court held that all the guards’ on-call time—including the sleep time—constituted compensable hours worked under California law. The Court noted the absence of any language in Wage Order 4 justifying a sleep time exclusion (unlike Wage Order 9, which provides a sleep time exclusion for ambulance drivers and attendants). The court expressly “disapproved” Seymore v. Metson Marine as wrongly decided, finding no justification for incorporating the federal regulation into California law given California’s broader definition of “hours worked,” which includes not only working time but also time an employee is “subject to the control” of an employer.
This case is yet another reminder that California wage and hour laws differ from federal law in many important respects, and compliance with federal law does not necessarily protect an employer from wage claims brought under California law. Any company employing workers in California, especially companies based outside the state that may be less familiar with California wage laws, should review their wage practices on a regular basis.
Employers that schedule employees for unpaid on-call time should review whether the employees are sufficiently restricted such that they need to be paid, or the employees’ restrictions reduced, to meet the requirements of this new ruling.