Navigating Wage & Hour Claims in California

WAGE & HOUR CLAIMS, CONCERNS & CLASS ACTIONS IN CALIFORNIAManaging Employees With SuccessJune 2011Presented by Al Landegger & Michael S. Lavenant

TOP THREE WAGE AND HOUR CLAIMS YOU SHOULD EXPECT TO BE SUED FOR AND HOW TO AVOID CLAIMS 1. Overtime • Misclassification • Unpaid Overtime • Off The Clock Work 2. Meal & Rest Periods 3. Unreimbursed Expenses

TOP THREE WAGE AND HOUR CLAIMS YOU SHOULD EXPECT TO BE SUED FOR AND HOW TO AVOID LITIGATION • Topics to be covered • Wage & Hour Class Actions • Reasons class actions for wage and hour claims are increasing • Significant decisions • Unique issues for wage and hour claims • Preventative advice and strategic litigation issues • Misclassification • Standard Exemptions • Off the Clock Work • Donning & Donning • Preliminary & Postliminary • Automatic deductions • Meal & Rest Periods • Unreimbursed Expenses

Explosion of Wage & Hour Class Actions • Reasons for Increase: • Eight-Hour-Day Restoration and Workplace Flexibility Act of 1999 • Private Attorney General Act of 2004 • Class Action Fairness Act of 2005 • Revised FLSA Regulations • Key Court Decisions • Attractive Court Verdicts/Settlements

Appellate Court Decisions • Cortez v. Purolator Air Filtration Products (2000) 23 Cal.4th 163 [4 Year SOL] • Bell v. Farmers Insurance Exchange (2001) 87 Cal.App.4th 805 [Production/Administrative Dichotomy] • IBP v. Alvarez (2005) 546 US 21 [Donning & Doffing] • Murphy v. Kenneth Cole Productions (2007) 40 Cal.4th 1094 [Labor Code 226.7 Wage/Penalty]

Appellate Court Decisions • White v. Starbucks (2007) 497 F.Supp.2d 1080 [Permit and authorize meal periods] • Brinker Restaurants v. Superior Court (2008) [State court recognizes flexibility in meal and rest periods as well as employee time keeping requirements] • Gattuso v. Harte-Hanks Shoppers (2007) 42 Cal.4th 554 [Alternative methods of expense reimbursement approved] • Schachter v. Citigroup (2009) 47 Cal.4th 610[Economic realities of compensation agreement controls]

Unique Issues InWage & Hour Claims • Burden is on employer to establish exemptions and record hours worked • Employer must also force employees to take unwanted meal periods • Vast difference between FLSA and California Labor Code • Confusing laws and Labor Commissioner interpretations • Technical violations create liability • Most laws provide for recovery of attorneys’ fees to employees, not employers

Example of Exposure • Labor Code Section 226 requires 9 items: • Gross wages • Total hours worked • Piece rate and number of units • All deductions • Net wages • Pay period • Name of employee and EIN or last 4 digits of SSN • Name and address of employer • All hourly rates and hours worked for each rate • Missing any one above can result in penalties [$50/$100/$4000]

Overtime Rules • Preliminary Considerations: • “Workday” and “Workweek” • “Workday” is defined as “any consecutive 24-hour period commencing at the same time each calendar day.” • A “workweek” is “any 7 consecutive days, starting with the same calendar day each week.” A “workweek” is a “fixed and regularly recurring period of 168 hours, 7 consecutive 24-hour periods.”

Overtime Rules • Preliminary Considerations: • “Shift” is defined as “designated hours of work by an employee, with a designated beginning time and quitting time.” This has ramifications, particularly with respect to alternative workweeks. • Once the workweek is established, it cannot be changed unless the change is intended to be permanent and not designed to evade overtime requirements. Each workweek stands alone, and simply having a 2-week pay period does not allow the employer to average the 2 weeks’ hours.

Overtime Rules • Generally, premium pay to non-exempt employees in California is required in five different situations: • Over 8 hours of work in a work day (time and one-half) • Over 40 hours of work in a workweek (also consistent with federal law) (time and one-half)

Overtime Rules • Cont. • The first 8 hours of work on the 7th consecutive day of work in a workweek (time and one-half) (note that the employee must work all 7 days in the workweek: merely working 7 consecutive days, if the days cross over into another workweek, will not qualify the employee for the 7th day premium) • Over 12 hours of work in a work day (double time) • Over 8 hours of work on a 7th consecutive day in a workweek (double time) (private employers only)

Overtime Rules • Cont. • Federal law only has a 40-hour week. • “Anti-pyramiding” rules provide that employers need not combine more than one rate of overtime compensation (example: employee works 42 hours in a week, including 10 hours on one day). The 41st and 42nd hour must be compensated, but they will be deemed equivalent to the 9th and 10th hour on the one day of overtime worked, so only one set of overtime need be paid.

Overtime Rules • Limited Exceptions for Overtime: • Alternative Workweek Schedules • Employees may be allowed a set schedule or menu of options that would allow employees to work up to 10 hours in a day (no more than 40 hours in a workweek) without the payment of overtime. • Make-up Time provisions • Employee is allowed to work up to 11 hours in a day without overtime payment if they are “making up” time they lost in the SAME WORKWEEK due to personal circumstances. • Employee must make the request – Employer is not permitted to coerce or intimidate employees in their decision. • Employers are permitted to have a policy and form.

Which Wage Order? • Which Wage Order Applies - IWC Classifications • Industry vs. Occupational Wage Order • Industry Wage Order - Wage Order 1-3, 5-13 are “industry” wage orders. • These wage orders cover ALL employees of companies that conduct business within a particular industry - even office or administrative staff. • If the business is comprised of several industries, more than one wage order may be applicable to the different portions of the integrated business.

Which Wage Order? • Which Wage Order Applies - IWC Classifications • If a business is not covered by a particular “industry” as defined in the wage order, then an occupational order may apply. • Occupation Wage Order - Wage Order 4, 14-17 are occupational wage orders. • These wage orders cover only particular jobs. • Wage Order 16 and 17 are new to California and cover industry that previously may have been exempted from the wage orders. • Businesses that are not subject to an “industry” wage order may be covered by more than one occupational wage order.

Employee Misclassification • There are only three major overtime exemptions in California. • Executive • Administrative • Professional • These are similar BUT DIFFERENT under federal law. • Employer must comply with the one that provides the most protection for the employee. • The job description is helpful, but only the start of the analysis.

Employee Misclassification • These three exemptions are similar BUT DIFFERENT under federal law. • Employer must comply with the one that provides the most protection for the employee. • The job description is helpful, but only the start of the analysis.

Employee Misclassification • Executive Exemption: • Salary Test: • Must earn salary minimum of $33,280. • Employee is paid for QUALITY of work not QUANTITY of work. • Duties Test: • Supervise 2 or more employees. • Exercise discretion and independent judgment in management. • Must be engaged in these activities more than 50% of their time.

Employee Misclassification • Administrative Exemption: • Salary Test: • Must earn salary minimum of $33,280. • Employee is paid for QUALITY of work not QUANTITY of work. • Duties Test: • Provide direction on the operations of the enterprise – not the service or sale of goods. • Exercise discretion and independent judgment. • Must be engaged in these activities more than 50% of their time.

Employee Misclassification • Professional Exemption: • Salary Test: • Must earn salary minimum of $33,280. • Employee is paid for QUALITY of work not QUANTITY of work. • Duties Test: • Must be licensed in one of the enumerated professions recognized by the State of California. • Exercise discretion and independent judgment. • Must be engaged in these activities more than 50% of their time.

Employee Misclassification • Salesperson Exemption: • Outside Sales: • Employee is completely exempt from overtime. • Employee is also exempt from meal and rest periods. • Employee must spend more than one-half of their time outside of office.

Employee Misclassification • Salesperson Exemption: • Inside Sales: • Employee may be exempt from overtime. • Must earn at least one and one-half times the minimum wage for all hours worked and more than half of that employee’s compensation represents commissions. • Still subject to all other protections – meal and rest breaks.

Employee Misclassification • Special Rules for Out of State Employees: • Sullivan v. Oracle Corp.: • California Supreme Court is reviewing issue of whether non-exempt employee that is based outside of California but performs work in California is entitled to overtime pursuant to California law or the federal Fair Labor Standards Act which does not: • Require premium unless the employee works more than 40 hours in a week • Require meal or rest periods • May also have an impact on “borderline” FLSA-exempt employees who would be classified as non-exempt employees in California.

Employee Timekeeping • Off-The-Clock Work • Employer’s obligation to record all time worked. • Employee should be directed not to perform work that is not accounted for in the timecard. • Employee should sign timecard, acknowledging true and accurate recordkeeping. • Travel Time • Training, meetings, lectures, conferences. • NOTE: Employee can have different rates for different type of work – such as travel time at minimum wage.

Employee Timekeeping • Unauthorized Overtime • Employees who work unauthorized overtime MUST be paid premium pay, but can be disciplined.

Preliminary & Postliminary • Donning and doffing • Preparing equipment • Security screening

Donning & Doffing • Conflicting authority as to whether donning/doffing “protected gear” is a principal activity. • DOL--if the employer requires donning and doffing of protective gear at the employer’s premises then it is a principal activity. • …whether required gear is ‘unique’ or ‘non-unique’ is irrelevant to the principal activity analysis.

Donning & Doffing • Ninth Circuit: “This ‘integral and indispensable’ conclusion extends to donning, doffing and cleaning of non-unique gear (e.g., hardhats) and unique gear (e.g., Kevlar gloves) alike.” • Tenth Circuit: donning and doffing safety glasses, earplugs, hard hat, and safety shoes, “although essential to the job, and required by the employer,” were non-compensable pre- and postliminary activities. • Second Circuit: “[t]he donning and doffing of generic protective gear is not rendered integral by being required by the employer or by government regulations…nuclear power plant employees need not be paid for time spent donning and doffing a helmet, safety glasses, and safety boots before and after their work shifts.

Preparing Equipment • Truck drivers entitled to compensation for such pre-trip activities as loading their trucks and conducting a pre-trip inspection of their vehicles. • Employees who use service vehicles may also be entitled to compensation for time spent loading and unloading the vehicle, fueling, and cleaning the vehicle where such tasks are necessary part of the job. • Note – New 9th Circuit decision in Rutti v. Lojack concerns at-home preparation and use of company vehicles.

Security Screening • Security screening activities may be necessary or “indispensable,” BUT they are not necessarily “integral” to the principal work and thus not compensable. • Construction workers need not be paid for time spent passing through airport security because such a security regime was required by law and did not benefit the employer.

Automatic Deductions • If the employee only clocks in at the start of the shift and clocks out at the end, the employer may be liable for unpaid wages if deduction was made by employer for break but break was never taken, or taken in the full amount. • Some employers automatically deduct from employees’ wages an amount for a non-compensable break or meal period. • California law and the FLSA requires that employees be compensated for all time worked.

Employee Breaks • Meal Periods: • Employee must receive 30-minute, duty-free meal period if they work more than 5 hours in a workday. • Period may be waived by mutual consent if the employee works 6 hours or less. • Absent exigent circumstances, period can not be waived if employee works more than 6 hours. • Employer should permit and authorize employee to take meal period. • Meal period starting and stopping times should be documented.

Employee Breaks • Meal Periods: • Employee who works 5 hours or less is not required to have a meal period. • Until the California Supreme Court decides the Brinker Restaurants decision, the requisite meal period should not be taken at a time when the employee will work more than 5 hours after returning from the first meal period without taking a second meal period. • A second meal period is required if an employee works more than 10 hours. • If more than 10, but less than 12, second meal period can be waived by written agreement if the first meal period was taken.

Employee Breaks • Rest Periods: • Employee must receive 10-minute, duty-free rest period for every 4 hours of work, or major fraction thereof. • Employer should permit and authorize employee to take rest period. • Rest periods and meal period cannot be pooled. • Rest period starting and stopping times do not have to be documented.

Employee Expenses • Labor Code Section 2802: • Provides that all expenses necessarily incurred by the employee in discharge of their duties to the employer must be reimbursed. • Use of Personal Automobile – Reimburse IRS rate. • Cell phone. • Personal computer or office equipment. • Uniforms. • Meals and Entertainment. • Liability.

Preventative Solutions • Conduct internal audit to determine areas of potential exposure • Review job descriptions/classifications • Follow record keeping requirements • Review payroll practices • Prepare & Regularly Review Employee Handbook • Review and understand applicable wage orders • Train HR personnel • Enforce meal/rest period policies

Preventative Solutions • Develop timekeeping procedures • Develop reimbursement policies • Uniforms • Mileage • Tools & Equipment • Consider varying evaluations, job descriptions, standards, rules and procedures by location or individuals • Communicate legal requirements to employees

Use of Experts • Several types of professionals can assist in the avoidance or defense of these claims: • Current management personnel • Timekeeping and Payroll companies • Legal counsel • Financial advisors • CPAs/Accountants • Other labor consultants or experts

Use of Experts • Current Personnel • Management level employees have unique knowledge concerning the application of company policies to day-to-day operations. • Supervisory employees are aware of the existence of information relevant to the claims. • Employees may have unique knowledge to impeach claimants.

Use of Experts • Timekeeping and Payroll Companies • May provide guidance on overtime issues; • May provide assistance on meal and rest period penalties; or • May assume liability for errors.

Use of Experts • Legal Counsel • Competent employment law counsel should be engaged from the beginning. • Key in providing necessary detection and avoidance training to HR, management and other supervisory personnel. • Prompt evaluation of claims will assist company in making an informed decision. • Issues of jurisdiction, forum, venue, or pleadings present at the outset of the case may impact outcome.

Use of Experts • CPAs/Accountants/Financial Advisors • Accountants may have records concerning payroll. • Assist in defending against claims that expenses were properly reimbursed. • Have ability to conduct exposure analysis. • Interpret financial stability of company to play a part in negotiated or court-approved settlement. • Financial Advisors provide benefit programs that create satisfied employees.

Use of Experts • HR/Labor Consultants • Can provide input as to the exempt status of employees named in claim. • Can determine if meal and rest periods are being followed. • Analyze whether all required expenses are being reimbursed properly. • Information Technology • Forensic experts can assist in locating documents vital to a defense even if it has been deleted. • Forensic experts can also play a role in meeting the obligation to preserve all electronic evidence and search for relevant data.

Q & A Questions? For more information contact: Alfred J. Landegger, Esq. Alfred@Landeggeresq.com Michael S. Lavenant, Esq. Michael@Landeggeresq.com LANDEGGER BARON LAVENANT & INGBER 15760 Ventura Blvd., Suite 1200 Encino, California 91436 751 Daily Drive, Suite 325 Camarillo, California 93010 Los Angeles Office: 818.986.7561 Ventura County Office: 805.987.7128

Navigating Wage & Hour Claims in California