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.
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 Governor Gavin Newsom Signs Series of Noteworthy Employment Bills
Sunday, October 13, 2019, was the last day for Governor Gavin Newsom to approve or veto bills passed by the state Legislature. This year’s approved employment-related bills generated quite a buzz, and for good reason. This e-Update surveys some of the most significant changes that will impact California employers. Paul, Plevin will review these and other new laws at the firm’s annual Employment Law Update on Friday, November 1st at the Hilton San Diego Resort & Spa on Mission Bay.
All new laws take effect January 1, 2020, except as indicated below.
Assembly Bill 5 – Employee versus Independent Contractor Status
Assembly Bill 5 codifies the “ABC” test adopted in Dynamex Operations v. Superior Court to determine whether a worker is an employee or independent contractor. The Dynamex decision was limited to only certain parts of the Labor Code, but Assembly Bill 5 extends the “ABC” test to virtually all California workers, excluding certain specifically enumerated industries and occupations (e.g. doctors, investment advisors, and hairdressers). In addition to various complete exceptions, this bill allows contracts of certain employers and industries to be governed by the more forgiving Borello multi-factor “economic realities” test, provided they meet a set of listed requirements.
Assembly Bill 9 – More Time To Bring Discrimination and Harassment Claims
The Stop Harassment and Reporting Extension Act extends the period for an aggrieved employee to file a complaint alleging harassment, discrimination, or other unlawful practices with the Department of Fair Employment and Housing (DFEH) from one year to three years. The new limitations period does not apply to claims that have already lapsed if a complaint was not filed with the DFEH.
Assembly Bill 51 – Prohibition on Mandatory Arbitration Agreements
This new law makes it a criminal misdemeanor for an employer to require an applicant or employee to enter into an agreement to arbitrate any claims under the Fair Employment and Housing Act or the California Labor Code. Arbitration agreements in place before January 1, 2020 will still be enforceable, as long as they are not extended or modified after that date. While the drafters of the bill attempted to avoid preemption by the Federal Arbitration Act, that question will likely be tested in the federal courts.
Assembly Bill 673 – Recovery of Civil Penalties
Employees will be able to obtain penalties as part of a Labor Commissioner hearing to recover unpaid wages. Under the current law, penalties must be paid to the State, but this new law allows workers to personally collect the penalty instead. An employee, however, still cannot “double dip”; he or she has to choose between recovering statutory penalties under these provisions or enforcing civil penalties under the Private Attorney General Act.
Assembly Bill 749 – “No Rehire” Provisions Prohibited in Settlement Agreements
This new law prohibits an agreement to settle an employment dispute from containing a provision that prohibits, prevents, or otherwise restricts the claimant from working for the employer against which the claimant filed a claim, or any affiliated entity. An employer and employee are permitted, however, to agree to end a current employment relationship or restrict the employee from obtaining future employment with the employer, if the employer made a good faith determination that the employee engaged in sexual harassment or sexual assault. Further, an employer is not required to continue to employ or rehire an employee if there is a legitimate, non-discriminatory or non-retaliatory reason for terminating or refusing to rehire the employee.
Assembly Bill 1554 – Flexible Spending Accounts
This new law requires employers to notify, in a prescribed manner, an employee who participates in a flexible spending account of any deadline to withdraw funds before the end of the plan year. “Flexible spending accounts” include but are not limited to: (1) dependent care flexible spending accounts; (2) health flexible spending accounts; and (3) adoption assistance flexible spending accounts. The required notice shall be provided by two different forms, one of which may be electronic.
Senate Bill 142 – Lactation Accommodations
This new law, largely based on the San Francisco ordinance for lactation accommodations passed in 2017, further expands protections for lactating workers by requiring employers to provide a lactation room, other than a bathroom, that shall be “in close proximity to the employee’s work area, shielded from view, and free from intrusion.” The lactation room must also (1) be safe, clean, and free from toxic or hazardous materials; (2) contain a surface to place a breast pump and personal items; (3) contain a place to sit; and (4) have electricity. Employers must also provide access to a sink with running water and a refrigerator in close proximity to the employee’s workspace. This law also requires employers to develop and implement a lactation accommodation policy, include it in employee handbooks, and provide it to new employees or when an employee raises parental leave. Employers with fewer than 50 employees may seek an exemption to these new requirements if they can demonstrate undue hardship.
Senate Bill 778 – Sexual Harassment Training Deadline Extension
This bill is emergency legislation, and therefore took effect immediately upon signing on August 30, 2019. This new law delays the deadline to complete supervisor and non-supervisor sexual harassment training under the FEHA from January 1, 2020 to January 1, 2021. However, new non-supervisory employees must still be provided at least one hour of sex harassment training within six months of hire, and new supervisory employees must be provided training within six months of the assumption of a supervisory position.
Senate Bill 83 – Expansion of Paid Family Leave
This new law extends the maximum duration of paid family leave (PFL) benefits from six weeks to eight weeks beginning July 1, 2020. Workers paying into the California State Disability Insurance (SDI) program may receive such PFL benefits to (1) care for a seriously ill child, spouse, parent, grandparent, grandchild, sibling, or domestic partner, or (2) to bond with a minor child within one year of the birth or placement of the child through foster care or adoption. Additionally, this new law allows state government employees that pay into the Nonindustrial Disability Insurance (NDI) program to receive six weeks of paid leave. Further, this law requires the governor to propose by November further benefit increases—in terms of duration and amount—and job protections for individuals receiving PFL benefits.
Senate Bill 188 – Hairstyle Discrimination
The Creating a Respectful and Open Workplace for Natural Hair (CROWN) Act, expands the definition of “race” under the FEHA and the Education Code to include both hair texture and protective hairstyles that are closely associated with race. The Act bans not only general employment discrimination, but also dress codes and grooming policies that prohibit “natural hair, including afros, braids, twists, and locks,” which would have a disparate impact on black applicants and black employees. FEHA exceptions for bona fide occupational qualifications and security regulations still may apply. California is the first state to codify this rule.
Paul, Plevin, Sullivan & Connaughton LLP
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.
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.
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.
Paul, Plevin, Sullivan & Connaughton LLP
California’s Piece-Rate Compensation Law Survives Court Challenge
On January 4, 2019, the California Court of Appeal rejected a request to declare the state’s piece-rate compensation law unconstitutionally vague. The 2016 law, codified as Section 226.2 of the California Labor Code, requires employers to compensate piece-rate employees separately for so-called “nonproductive” work time that is not directly related to the activity being compensated on a piece-rate basis.
The statute requires separate compensation for rest and recovery periods mandated by state law, as well as “other nonproductive time.” Nisei Farmers League brought suit seeking to have the statute declared unconstitutional, arguing the phrase “other nonproductive time” is unconstitutionally vague because it doesn’t say whether such activities as “traveling between work sites, attending meetings, doing warm-up calisthenics, putting on protective gear, sharpening tools, waiting for additional equipment, or waiting for weather to change” are “nonproductive” time within the meaning of the statute. The Court of Appeal rejected the argument, finding the phrase in question was expressly defined by the statute as time under the employer’s control not directly related to the activity being compensated on a piece-rate basis, and there was no constitutional requirement to define precisely what activities fall within the definition.
The 2016 legislation is a codification of earlier appellate court decisions holding that piece-rate workers must be separately compensated for rest breaks. A February 2017 appellate decision reached a similar conclusion as to the nonproductive work time of employees classified as exempt from overtime under the commissioned employee (a/k/a “inside sales”) exemption. (Employees classified as exempt under the “outside sales” exemption are not subject to minimum wage, overtime, or meal/rest break requirements.) All employers with piece-rate and/or inside commissioned sales employees in California should take immediate steps to ensure they separately compensate these employees for all rest breaks and other nonproductive time.
The case is Nisei Farmers League v. California Labor & Workforce Development Agency, No. F075102 (Cal. App. January 4, 2019.)
Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA
California Governor Jerry Brown Signs #MeToo Bill Package Affecting Employers
Governor Brown Signs #MeToo Bill Package Favoring Employees in Harassment Litigation and Settlements, Expanding Anti-Harassment Training Requirements, and Protecting Employers From Defamation Claims
On September 30, 2018, Governor Brown acted on the last of over 1,200 bills that the Legislature passed this year, including a slate of #MeToo inspired laws. This e-Update surveys the most significant changes.
Although the Governor’s reaction to the #MeToo legislation was mixed, the laws taking effect on January 1, 2019 will significantly affect California employers.
Senate Bill 1300 is most impactful. It establishes that a single incident of harassment may satisfy the requirement that harassment be “severe or pervasive.” The law also directs trial courts that sex harassment cases should generally be resolved by a jury trial. Further, the law makes it harder for an employer that prevails in a discrimination or harassment suit to recover its attorneys’ fees. Finally, the law limits an employer’s use of confidentiality and non-disparagement agreements in harassment and discrimination settlements.
Governor Brown also signed Assembly Bill 2770, which aims to protect employees and employers from certain defamation claims. A.B. 2770 deems three specific communications privileged: (1) an employee’s credible report of sexual harassment to an employer; (2) communications between an employer and “interested persons” (like witnesses or victims) about sexual harassment claims; and (3) an employer’s statements to prospective employers that a decision to not rehire an individual is based on the employer’s finding that the individual engaged in sexual harassment. All communications must be made without malice to be privileged.
The Governor also signed Senate Bill 820, which prohibits any provision in a settlement agreement that would prevent the disclosure of facts related to sexual assault, harassment, or discrimination. The law excepts only provisions that shield the claimant’s identity or the settlement amount.
Another new bill is Senate Bill 1343, which expands employer training obligations. Currently, employers with 50 or more employees must provide anti-harassment training to supervisory employees within six months of hire and every two years. The new law extends the training requirement to employers with five or more employees. The law also requires that non-supervisory employees receive one hour of training, starting in January 2020.
Paul, Plevin will review these new laws at the firm’s annual Employment Law Update on November 2, 2018.
What This Means
These laws are certain to alter harassment litigation in California. The new ban on non-disclosure provisions in harassment cases is certain to make early settlement more precarious as it will no longer ensure a publicity-free resolution. The new laws will also impede the dismissal of sex harassment claims. Finally, employers must now expand their harassment prevention efforts by training both supervisory and nonsupervisory employees every two years.
Employers have until January 1, 2020 to provide the first mandated training, which must be repeated every two years thereafter. PPSC regularly offers customizable compliance trainings both on-site and at our offices. For more information, see our website.
We note that some of the bills vetoed by Governor Brown this year, such as the bill prohibiting mandatory arbitration of harassment claims, are likely to be presented again in 2019 before a new Governor and Legislature. Paul, Plevin will continue to track these legislative proposals and provide updates on developments that affect California employers.
This E-Update was co-authored by Desi Kalcheva and Mary Allain. For more information, please contact Ms. Kalcheva, Ms. Allain or any Paul, Plevin attorney by calling (619) 237-5200.