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January 2005

The Commissioned Sales Exemption

A client came to us recently to inquire about the lawfulness of his employer's progressive discipline policy. He wasn't actually seeking our services for a wage and hour issue, but we nonetheless asked him what kind of hours he kept, and whether he ever received overtime pay.

"Yeah, I've heard about some of those overtime lawsuits," he said, "but I don't have one. You see, I'm on a straight commission."

Five minutes later, we had concluded that his employer's progressive discipline policy was quite lawful, but its overtime policy violated California wage and hour law. Yes, it is common knowledge among salespeople that overtime pay is not due to a commissioned salesperson. Common knowledge, however, is not always correct.

Under California law, the "commissioned sales exemption" does not apply unless (i) the employee is an "outside" salesperson, who spends more than half of their time engaging in sales activities outside the employer's place of business; or (ii) the salesperson makes more than 1 ½ times the minimum wage, and more than half of that employee’s compensation represents commissions.

More importantly, the "commissioned inside sales exemption" only applies to workers who are employed in the mercantile industry (covered by Wage Order 7) or in professional, technical, clerical, mechanical and similar occupations (covered by Wage Order 4). Who are those?

The "Mercantile Industry" means any industry, business, or establishment operated for the purpose of purchasing, selling, or distributing goods or commodities at wholesale or retail; or for the purpose of renting goods or commodities. Obvious examples include retail stores, leasing companies and automobile dealerships.

The "Professional, Technical, Clerical, Mechanical, and Similar Occupations" include professional, managerial, supervisorial, laboratory, research, technical, clerical, office work, and mechanical occupations, such as accountants; agents; appraisers; artists; attendants; audio-visual technicians; bookkeepers; bundlers; billposters; canvassers; carriers; cashiers; checkers; clerks; collectors; communications and sound technicians; compilers; copy holders; copy readers; copy writers; computer programmers and operators; demonstrators and display representatives; dispatchers; distributors; door-keepers; drafters; elevator operators; estimators; editors; graphic arts technicians; guards; guides; hosts; inspectors; installers; instructors; interviewers; investigators; librarians; laboratory workers; machine operators; mechanics; mailers; messengers; medical and dental technicians and technologists; models; nurses; packagers; photographers; porters and cleaners; process servers; printers; proof readers; salespersons and sales agents; secretaries; sign erectors; sign painters; social workers; solicitors; statisticians; stenographers; teachers; telephone, radio-telephone, telegraph and call-out operators; tellers; ticket agents; tracers; typists; vehicle operators; x-ray technicians; their assistants and other related occupations listed as professional, semiprofessional, technical, clerical, mechanical, and kindred occupations.

Do those descriptions cover your employer's place of business? It is important to note that what matters is not what an employee's job may be. What matters is the primary purpose of the business for which the employee works.

For example, a person who sells parts for a Ford dealership would likely be governed by the mercantile industry's commissioned salesperson exemption under Wage Order 7. A person who does precisely the same work for an automotive repair shop would not. Auto repair shops are governed by Wage Order 9, pertaining to working conditions in the transportation industry. That wage order contains no commissioned salesperson exemption.

Likewise, someone paid a commission to drum up business for a print shop would be exempt under Wage Order 4. Someone who does the same for a restaurant's banquet hall (covered by Wage Order 5 -- hospitality industry), or a health club (Wage Order 2 - personal service industry), would be entitled to overtime pay.

If you are working long hours on a straight commission (or a "draw against commission") basis, you might have a significant amount of back pay due to you. If you are in the restaurant, auto repair, manufacturing, farming, filmmaking or construction industries -- in other words, unless Wage Orders 4 or Wage Order 7 apply to your employer -- you are entitled to overtime pay if you work overtime hours, in spite of what your manager may be telling you.

If you aren't sure whether the commissioned sales exemption applies to you, and you would like to know, send us an email, or contact our firm. Perhaps we can help you.

Senate Republicans Trying to Move Class Actions Into Federal Court

Early next month, the U.S. Senate is expected to debate a bill seeking to shift class action lawsuits from state to federal courts. The bill would bestow upon federal courts jurisdiction over all class-action lawsuits involving more than $5 million, provided that the plaintiffs live in a different state than the defendants.

A similar proposal failed in the Senate last year due to Democratic opposition. An increased Republican majority makes the bill much more likely to pass this time around. Tennessee Senator Bill Frist hopes to have the bill approved by the Senate Judiciary Committee and introduced to the full Senate by February 7, 2005. Meanwhile, the House of Representatives eagerly awaits the bill's passage. House Speaker Dennis Hastert openly plans to "get this thing done as quickly as possible," adding that he isn't saying that they are planning "to scoot it through, but I think that's kind of our intent." Six similar bills have passed the House since 2002, only to have the measure die in the Senate. Democrats do not expect to muster enough votes to defeat the bill this time around, even in the Senate.

The measure may include exceptions where two-thirds of the plaintiffs live in the same state, the case is filed in a state in which at least one defendant is domiciled, or the injuries happened in that state. These proposed exceptions could leave most wage and hour class actions unaffected by the change. However, many employee and labor groups are pushing for a blanket exemptions for wage-and-hour cases. Such cases are usually brought in state court because state laws provide greater employee protections than federal law, and rarely, if ever, involve the kinds of "lawsuit abuse" that class action opponents usually cite in support of the suggested reforms.

The cries of "lawsuit abuse" generally arise from a small number of widely reported consumer class actions which have resulted in sizeable attorney's fee awards for the class counsel, and nothing but discount coupons and, maybe, an apology for the class claimants. In an attempt to curb such abuses, the pending bill also includes provisions designed to make sure that plaintiffs and class members, rather than attorneys, will be the primary beneficiaries of any class action settlement.

In wage and hour class actions, however, the class counsel usually share in a percentage of the recovery, but the settlements typically result in significant cash payouts for the employees on whose behalf the class action is brought. For example, in the recently reported janitors' class action, the typical class member is expected to receive $9,000 or more, in cash, not coupons or future discounts.

We believe the bill's impact upon wage and hour class actions might be insignificant. We will be watching it closely nonetheless.

Time For Friends of Labor To Be Heard

The Schwarzenegger administration is seeking to pass new regulations which would jeopardize the right of most California workers to take lunch breaks. The new regulations cannot be passed until after public hearing are held and comments are received. Now is the time to be heard.

The proposed regulation would provide as follows:

Division 1. Department of Industrial Relations
Chapter 6. Division of Labor Standards Enforcement
Subchapter 11. Meal and Rest Periods
§13700. Meal and Rest Periods
(a) Definition. As used in this section, “work period” means that period of time during which an employee is subject to the control of the employer. A work period begins at the time an employee begins work and ends at the time the employee either takes a meal period or stops work for the day. A new work period begins each time an employee resumes work after taking a meal period.
(b) Requirement to Provide Meal Periods
(1) An employer shall be deemed to have provided a meal period to an employee in accordance with Labor Code Section 512 if the employer:
a. Makes the meal period available to the employee and affords the opportunity to take it; andb. Posts the applicable order of the Industrial Welfare Commission; andc. Maintains accurate time records for covered employees, as required by the posted order;
(2) As a further precaution beyond the criteria required under (b)(1), an employer may inform an employee in writing of the circumstances under which he or she is entitled to a meal period in a way that permits the employee to acknowledge in writing thathe or she understands those rights.
(c) Beginning of a Meal Period
(1) Employment of less than 6 hours per day an employer may not employ an employee for a work period of more than five hours per day without providing the employee with a meal period of not less than 30 minutes. If the total work hours per day of the employee are no more than six hours, the meal period may be waived by mutual consent of both the employer and employee.
(2) Employment of more than 6 hours, but less than ten hours, per day.Unless provided otherwise by an applicable order of the Industrial Welfare Commission, a meal period as required by Labor Code Section 512(a) may begin before the end of the sixth hour of the work period.a. An employer may not require an employee to begin a meal period after the end of the sixth hour of work, except as provided in Labor Code sections 512 (b) or (c).b. If an employee requests a meal period to begin after the end of the sixth hour of work, an employer is not in violation of Labor Code 512 so long as the employee was provided the availability and opportunity to take a meal period before the end of the sixth hour of work.
(3) Employment more than ten hours but less than twelve hours per day.An employer may not employ an employee for more than 10 hours per day without providing a second meal period of not less than 30minutes, except that if the total hours worked is no more than 12 hours, the second meal period may be waived by mutual consent of the employer and the employee only if the first meal period was not waived.
(4) Examples
Example 1: A non-exempt employee begins work at 8:00 a.m. andworks without a meal period until 1:00 p.m. The employer is required to provide a meal period to the employee at this point ,as the employee will work more than 5 hours. However, if the employee’s work will end no later than 2:00 p.m., the meal period may be waived by mutual consent of the employer and the employee.Example 2: A non-exempt employee begins work at 8:00 a.m. and works without a meal period until 1:10 p.m. The employee has worked over 5 hours and is entitled to a meal period. The employee has not requested the meal period to begin after the end of the sixth hour of work. Without the employee’s request, the employer may not require the meal period to begin after 2 p.m. as this would beafter the end of the sixth hour.Example 3: A non-exempt employee begins work at 8:00 a.m. and is provided a meal period, which begins at 10:30 a.m. The beginning of the meal period ends the initial work period of that employee’s work. Upon returning to work at 11:00 a.m., the employee commences a new work period. The employee then works until 4:00 p.m. If the employee continues work beyond this point, the employer is required to provide another meal period to the employee, as the work period will exceed five hours. However, if the employee’s work will end by 5:00 p.m., the second meal period may be waived by mutual consent of the employer and the employee.Example 4: A non-exempt employee begins work at 8:00 a.m. and works without a meal period until 1:00 p.m. After taking a half-hour meal period, the employee returns to work at 1:30 p.m. and works until 6:30 p.m. If the employee works beyond this time, the employer is required to provide a second meal period to the employee. However, because the total hours worked by the employee in the day exceeds 10 hours, but not more than twelve, the second meal period may be waived by mutual consent of the employer and the employee as the first meal period was not waived.
(d) Penalty for Failure to Provide Meal or Rest Period. Any amount paid or owed by an employer to an employee under Labor Code section 226.7, subdivision (b), for failing to provide the employee a meal period or rest period in accordance with anapplicable order of the Industrial Welfare Commission is a penalty and not a wage.(e) Severability. If the application of any provision of this regulation, or any section, subsection, subdivision, sentence, clause, phrase, word or portion thereof should be held invalid or unconstitutional or unauthorized or prohibited by statute, the remaining provisions thereof shall not be affected thereby, but shall continue to be given full force and effect as if the part so held invalid or unconstitutional had not been included herein.Authority: Sections 53, 54, 55, 59, 95, 98, 98.8, 1193.5, and 1198.4, Labor Code.Reference: Sections 226.7 and 512, Labor Code

Three public hearings have been scheduled to permit all interested persons the opportunity to present statements or arguments, either orally or in writing, relevant to the proposed action noted above. The Division of Labor Standards Enforcement (DLSE) requests, but does not require, that persons who make oral comments at the hearing also submit a written copy of their testimony. The hearings will be held at the following times and places:

Los Angeles
Date: Friday, February 4, 2005
Time: 9:00 a.m.
Place: Ronald Reagan State Building, Auditorium
300 South Spring Street, Los Angeles, CA 90013

San Francisco
Date: Tuesday, February 8, 2005
Time: 9:00 a.m.
Place: Hiram Johnson State Building, Auditorium
455 Golden Gate Avenue San Francisco, CA 94102

Date: Monday, February 14, 2005
Time: 9:00 a.m.
Place: Fresno State Building, Room 1036
2550 Mariposa Mall Fresno, CA 93721

Any interested person, or authorized representative, may submit written comments to the DLSE relevant to the proposed regulatory action. The written comment period closes at 5:00 p.m. on Monday, February 14, 2005. All comments must be submitted in writing (by mail, fax, or email) and received by that time at the DLSE's headquarters office. Submit comments to:

Allen Perlof, Senior Deputy Labor Commissioner
Division of Labor Standards Enforcement, 9th Floor West
Post Office Box 420603
San Francisco, CA 94142
Email: [email protected]
Fax: (415) 703-4807

Don't let this opportunity to speak out pass you by.

TGI Friday's Case Sent To Mediation

The class certification motion in Hernandez v. Main Street and Main, Inc. will be heard after a mediation session currently set for February 24, 2005. The parties have selected Orange County Superior Court Judge Robert Jameson as their mediator. Judge Jameson is retiring from the bench effective February 1, 2005. The case involves as many as 10,000 current and former employees of the largest T.G.I. Friday's franchisor in California, who seek reimbursement, wages and penalties arising from meal period, rest period and uniform violations. Currently, although no formal notice has been given to the class, more than 300 putative class members have submitted sworn declarations in support of the action.

Demanding a Release For Wage Obligations

We often hear from employees who think that they have signed away their claim for back wages because their employer demanded a release before they could receive their final payroll check. Usually, they are seeking consultations not for wage claims, but to see if they have a wrongful termination claim. The bad news, sometimes, is that their firing was lawful. The good news, sometimes, is that the release they signed was invalid.

The factual scenario is usually a variation on this theme: the employee is due a certain amount of wages. The employer offers less, and refuses to pay even the lower amount unless the employee signs the release. Under what circumstances is that release going to be upheld?

The standard for enforceability of a mandatory wage claim release is simple. If the release only absolves the employer of liability for the wages being paid, or if the release is given in connection with a full and complete payment of all wages due, then the release will be enforceable. If not, the release isn't worth the hot air coming out of the defense lawyer reading it into the record.

The language of the law can be found in California Labor Code § 206.5

No employer shall require the execution of any release of any claim or right on account of wages due, or to become due, or made as an advance on wages to be earned, unless payment of such wages has been made. Any release required or executed in violation of the provisions of this section shall be null and void as between the employer and the employee and the violation of the provisions of this section shall be a misdemeanor.

The code's imposition of misdemeanor liability can give rise to punitive damages. Under Civil Code § 3294, punitive damages are recoverable where a plaintiff can prove malice, fraud or oppression. That standard is generally met where a defendant's conduct is "in blatant violation of law or policy." Tomaselli v. Transamerica Ins. Co. (1994) 25 Cal.App.4th 1269, 1287.

So an employee who was shorted on his or her final wages does not need to worry about the existence of a release. To the contrary, the employer's heavy-handed tactics could leave the company liable for substantially more than the wages that were originally due. If you would like to have your situation reviewed to see if you have a claim, drop us an email and we would be happy to give you an evaluation.

State Farm To Pay $135 Million In Back Overtime

Since the landmark decision in Bell v. Farmer's Insurance, holding that typical insurance adjusters are "production workers" who are entitled to overtime pay, most large insurance companies have revised their policies to either reduce adjustors' work schedules to 40-hour weeks and 8-hour days, or have begun paying overtime to adjusters who work longer hours. Still, it has been too little and too late for the large-scale violators to avoid liability for back pay owing to adjusters who worked long hours under the old policies. While most insurers continue to argue that their adjusters are exempt administrative employees, since the Bell case, courts have routinely granted summary judgment or summary adjudication motions in favor of the claims adjusters. Invariably, once the companies lose thos motions, settlements follow.

State Farm Insurance is the latest to come to terms with its adjusters. Earlier this month, Los Angeles County Superior Court Judge Anthony Mohr approved a $135 million settlement in an overtime class action involving 2,600 claims adjusters in California. Typically, the employees would work six to seven hours of overtime each week. Many worked weekends. Until the policy changed, none of the adjusters ever received overtime pay. Because the adjusters worked such long hours, for such a long period of time, the average award for each plaintiff submitting a claim is expected to be approximately $34,000. Those with the maximum claim -- workers who were denied overtime pay for eight years -- could expect a settlement of as much as $64,000 each.

The State Farm case is one of the oldest wage and hour class action cases still pending in California. The case was filed in 2000; the settlement was reached in 2004, after the court ruled in favor of the class on a determination of whether the adjusters were exempt from overtime pay entitlement.

Review Granted in Smith v. Superior Court

On January 19, 2004, the California Supreme Court granted a petition for review in Smith v. Superior Court (2004) 123 Cal.App.4th 128. As a result of the decision, the previously published opinion in Smith is superseded and is no longer citable law.

Smith was a California wage and hour case brought by hair model who worked for a single day at a cosmetic company's one-day show. The workers were not promptly paid. California law provides employers who terminate their workers' employment must pay the employees their final pay immediately upon termination, except for certain limited circumstances under which an employer may have up to 72 hours to calculate the wages due to certain kinds of workers. When the employer is late in paying final wages, penalties begin to accrue.

In Smith, the plaintiff, on behalf of a group of fellow models, asserted a claim for such pay and penalties in a class action. The Los Angeles County Superior Court rejected the Labor Code penalty claims, granting a summary adjudication motion in favor of the employer on the ground that the ending of a fixed term employment was not a termination or resignation that triggers the prompt pay requirements.

The plaintiff petitioned the Court of Appeal for a writ of mandate. The Court of Appeal agreed to hear the writ, but ruled against the employee, holding that being "discharged," for the purpose of statutes requiring immediate payment of wages, did not include completion of a set period of employment or specific task, and that the model, therefore, was not a "discharged" employee.

The relevant code sections include Labor Code §§ 201 and 203:

201:  If an employer discharges an employee, the wages earned and unpaid at the time of discharge are due and payable immediately. An employer who lays off a group of employees by reason of the termination of seasonal employment in the curing, canning, or drying of any variety of perishable fruit, fish or vegetables, shall be deemed to have made immediate payment when the wages of said employees are paid within a reasonable time as necessary for computation and payment thereof; provided, however, that the reasonable time shall not exceed 72 hours, and further provided that payment shall be made by mail to any employee who so requests and designates a mailing address therefor.

203. If an employer willfully fails to pay, without abatement or reduction, in accordance with Sections 201, 201.5, 202, and 205.5, any wages of an employee who is discharged or who quits, the wages of the employee shall continue as a penalty from the due date thereof at the same rate until paid or until an action therefor is commenced; but the wages shall not continue for more than 30 days. An employee who secretes or absents himself or herself to avoid payment to him or her, or who refuses to receive the payment when fully tendered to him or her, including any penalty then accrued under this section, is not entitled to any benefit under this section for the time during which he or she so avoids payment.

For some reason, the litigants didn't consider Labor Code § 202 to be relevant. The Court of Appeal focused on the word "discharge," and held as follows:

In this case, we conclude that an individual hired for one day at a flat fee to model in a hair show is not “discharged” by the hair show promoter, within the meaning of Labor Code section 201, when the hair show is finished and the model leaves. Accordingly, the hair show promoter is not required, under Labor Code section 201, to pay the model “immediately” upon completion of the hair show and the model is not entitled to a “waiting time penalty” pursuant to Labor Code section 203, if the model is not promptly paid. Therefore, we deny the model’s petition for writ of mandate challenging respondent trial court’s grant of summary adjudication of the causes of action based on a violation of the Labor Code.

This decision was a terrible holding that completely undermined the rationale of Labor Code § 203's "waiting time" penalty. If allowed to stand, it could completely end waiting time penalties for any employees engaged for a fixed time, including monthly, weekly or "per diem" workers, or certain "day-to-day" temp workers who employers purport to hire each day, for a term of one day only.

In California, many industries make per diem hires on a regular basis. Unless the Supreme Court reverses the lower court's decision, employers will have little incentive to promptly pay the wages of their fixed term workers, whose only recourse for unpaid wages will be a complaint -- and long wait -- with the Labor Commissioner's office, or a small claims court lawsuit. This rule will hurt some of California's most vulnerable employees: in the agricultural industry, where workers often do not speak English and have little political power or understanding of the California legal system; and in the entertainment industry, where the fear of blacklisting causes most workers to accept even egregious Labor Code violations simply so they can continue to work in their chosen profession.

However, there remains one glimmer of hope for fixed term employees, even if the Supreme Court agrees with the narrow holding that such workers should not be deemed "discharged" at the conclusion of their engagement. For some reason, the employee did not contend the alternative legal theory that the end of her term constituted "quitting." The court noted that

"this petition concerns only the causes of action based on a violation of Labor Code sections 201 and 203, which require the immediate payment of wages to an employee upon the employee's "discharge" and impose a penalty for the failure to timely pay. L'Oréal conceded for purposes of the summary adjudication that Smith was an employee. Therefore, we do not decide this issue. Smith does not argue that she "quit," within the meaning of Labor Code section 202, subdivision (a). [FN1 - Labor Code section 202, subdivision (a) provides in general for payment of wages within 72 hours if an employee quits.] Thus, we need only decide whether Smith was "discharged" within the meaning of Labor Code section 201."

Perhaps the reason Smith did not argue that she "quit" is because she had a written contract for a fixed term. Section 202 expressly excludes employees with a written contract for a fixed term from the waiting time penalties. However, few per diem employees have written contracts, and this exception would apply to few of them. If Smith was not among them, she may come to regret not have argued the applicability of Labor Code § 202.

Developments in Classwide Arbitration

There is a significant and unresolved dispute in California over whether arbitration agreements can prohibit the pursuit of employee claims as a class action. The California Supreme Court has made it clear that such clauses are a violation of public policy, and such provisions may be stricken as unconscionable if procedural unconscionability is also present -- and procedurally unconscionability is almost always present. However, the interplay between California public policy and the Federal Arbitration Act may render the public policy moot. Until the law becomes better settled, the battleground remains in the trial courts and the arbitration forum.

Though public policy does favor arbitration, in general, judicial praise for the class action procedure has been equally fervent. "This court has repeatedly emphasized the importance of the class action device for vindicating rights asserted by large groups of persons." Izzi v. Mesquite Country Club (1986) 186 Cal.App.3d 1309, 1320. Denial of a class action in cases where it is appropriate may have the effect of allowing an unscrupulous wrongdoer to retain the benefits of its wrongful conduct. Vasquez v. Superior Court (1971) 4 Cal.3d 800, 808.

If the agreement is silent about classwide arbitration, a California court may order classwide arbitration in appropriate cases. Keating v. Superior Court (1982) 31 Cal.3d 584, 608-614, reversed on other grounds in Southland Corp. v. Keating (1984) 465 U.S. 1, 16 [104 S.Ct. 852, 861, 79 L.Ed.2d 1]; Blue Cross of California v. Superior Court (1998) 67 Cal.App.4th 42, 52; Lewis v. Prudential-Bache Securities, Inc. (1986) 179 Cal.App.3d 935, 945-946. Moreover, the court has the discretion to delay such an order until after the trial court resolves the issue of class certification. Sanders v. Kinko's, Inc. (2002) 99 Cal.App.4th 1106, 1114.

In 2003, the U.S. Supreme Court's decision in Greentree Financial Corp. v. Bazzle (2003) 123 S.Ct. 2402, held that the arbitrator, rather than the trial court, must decide whether an arbitration agreement permits classwide arbitration of claims. Many employers responded to that decision by including clauses that said that all arbitration claims must be brought individually, not in a representative or class action.

The California Supreme Court will be considering these issues presenting in the case of  Discover Bank v. Superior Court of Los Angeles County (2003) 105 Cal.App.4th 326 (Case No. S113725). In that case, the trial court ruled that a consumer's acceptance of an arbitration clause which waived the right to advance a class action violated public policy and would not be enforced. The Court of Appeal reversed, holding that the Federal Arbitration Act preempts any otherwise applicable California law determining class action waivers to be substantively unconscionable. The appeal to the California Supreme Court is fully briefed and the parties are awaiting a hearing date.

In the private sector, at least one major third-party arbitration group has come down on the side favoring classwide arbitration. JAMS has decided not to accept any arbitrations involving contracts that require a waiver of classwide claims unless that provision, itself, is waived by the participants. "JAMS unequivocally takes the position that it is inappropriate for a company to restrict the right of a consumer to be a member of a class action arbitration or to initiate a class action arbitration," the company says. "The implementation of this policy means that JAMS will not enforce these clauses in class action arbitrations and will require that they be waived in individual cases." Of course, JAMS makes more money on a classwide arbitration than it would on a small individual case, but that clearly would not might not have influenced their decision.

Wage and hour law practitioners in California, particularly those who handle employment-related class actions, encounter these issues frequently, and will eagerly await a decision in Discover Bank, as well as further word from JAMS and other large arbitration and ADR firms.

Berkeley Living Wage Law Will Stand

On Monday, the U.S. Supreme Court decided against hearing a challenge to the City of Berkeley's living-wage ordinance. The court's decision (RUI One Corp. v. City of Berkeley, 2005 DJDAR 291) means that a Ninth Circuit Court of Appeals opinion upholding Berkeley's ordinance will stand.

The 9th Circuit's 2-1 decision held that Skates on the Bay at the Berkeley Marina, a restaurant owned by appellant RUI One Corp., which leased its premises from the City of Berkeley, must pay its employees the living wage enacted by the city, even though the restaurant had signed a lease with the city before the living wage law was passed. RUI had challenged the October 2000 law which extended living-wage obligations to all businesses that leased property from the city, including all of the tenants located in the popular marina. Employers will five or fewer employees, or with gross annual sales of less than $350,000 are exempt.

California minimum wage is $6.75 per hour, well above the federal minimum, but the Berkeley Living Wage Law requires affected employers to pay their workers $9.75 per hour, plus health benefits, or $11.37 per hour without health benefits.

RUI, represented by the Los Angeles office of Gibson, Dunn & Crutcher, claimed that the law violated the Contract Clause and the Equal Protection Clause. The Equal Protection Clause protects persons, including corporations, from arbitrary and capricious government action. The Contract Clause prevents the government from illegally administering its contracts with private persons or entities. The Ninth Circuit rejected both claims. The Contract Clause was not violated because the new law did not impair any terms of the agreement, and the contract expressly required RUI to comply with any city ordinances. The Equal Protection Clause was never violated because the ordinance passed the "rational basis test."

While the Supreme Court's decision against reviewing the Circuit Court's opinion does not, in itself, create a precedent, the decision leaves the Ninth Circuit's ruling as a binding precedent in all District Courts in the Ninth Circuit, including California, where several cities -- most prominently, Santa Monica -- are considering similar laws.

Tip-Pooling: Not Always Legal; Not Always Illegal

The little known law found at California Labor Code § 351 was enacted to protect all tipped employees from the over-reaching employers. It prohibits employers from maintaining any tip-pooling policy which requires employees to distribute or share any part of their tips with any owner, manager or supervisor of the business. Thus, any system under which any person with supervisory capacity over the tipped employees can collect or receive any portion of any tips paid, given to or left for another employee is illegal.

Moreoever, the law prohibits employers from accounting for such tips "on the back end" by decreasing or deducting from the wages of an employee who receives gratuities. A tip left by a customer is the "sole property of the employee or employees to whom it was paid, given or left for," regarding of the type of business or the rules imposed by the employer.

This does not mean that all tip-pooling policies are unlawful. A tip-pooling policy that requires employees to share tips with other non-supervisory employees may be perfectly lawful. Typical pooling programs that comply with the law include restaurant policies requiring food servers to share tips with bussers or bartenders, or casino tip pools shared by every card dealer working a particular shift. However, if tips are pooled in any way that allows the fingers of a supervisor, owner or manager into the tip jar, the tipped employees may have a valuable claim for wages, interest and penalties under the Labor Code.

Prevailing Wages Due To Workers On Public Levee Maintenance Contract

On January 13, 2005, the Third District Court of Appeal issued its published opinion in the case of Reclamation District No. 684 v. State Dept. of Industrial Relations (Foundation for Fair Contracting) upholding the right of workers on public levee maintenance projects to be paid prevailing wages.

Reclamation District No. 684 had hired a manufacturing firm, Holt Repair and Manufacturing, Inc., to place fill on a levee adjacent to a road as a flood control effort. After the work was completed, the Foundation for Fair Contracting ("FFC") sought a determination from the California Department of Industrial Relations ("DIR") as to whether the project was a public work subject to prevailing wage laws. The DIR Director is authorized to determine, pursuant to a request by an interested party, whether a "specific project or type of work to be performed" is covered under the prevailing wage laws as a public work. (Cal. Code Regs., tit. 8, §§ 16001-16002.5)

The DIR Director determined that it was a public work. The District appealed, and after the DIR denied the appeal, the District petitioned for writ of mandate. The trial court denied the petition and the court of appeal upheld the denial.

Two statutes applied: Labor Code § 1771 sets forth the basic rule regarding the payment of prevailing wages on public works. It states, with certain exceptions, that "not less than the general prevailing rate of per diem wages for work of a similar character in the locality in which the public work is performed, and not less than the general prevailing rate of per diem wages for holiday and overtime work fixed as provided in this chapter, shall be paid to all workers employed on public works." It expressly provides that "[t]his section is applicable to contracts let for maintenance work." And Labor Code § 1720 generally defines "public works" as "[c]onstruction, alteration, demolition, installation, or repair work done under contract and paid for in whole or in part out of public funds . . . ." (§ 1720, subd. (a)(1).) 6 It includes work done for reclamation districts, but does not include "the operation of the irrigation or drainage system of any irrigation or reclamation district . . . ." (§ 1720, subd. (a)(2).)

The court of appeal applied these statutes to the District's contract and held that a reclamation district was a public entity subject to the prevailing wage laws, and that work to maintain the levee qualified as a public work. In so ruling, the court distinguished such work from routine operation of the irrigation or drainage system of a reclamation district. Here, the purpose of the work done was to maintain a levee to protect an area from flooding. This was a work of improvement because it involved maintenance, rather than the day-to-day business of running the system, by doing such things as the turning of valves that permit an irrigation or drainage system to function. Thus, workers employed on such works must be paid no less than the general prevailing rate of per diem wages.

The published portion of the opinion also included a good discussion of the application of the Administrative Procedure Act and its relation to the quasi-legislative powers granted to the DIR Director for the determination of prevailing wage obligations on a project-by-project basis.

Notices Under The Labor Code Private Attorneys General Act of 2004

On August 11, 2004, Governor Schwarzenegger signed into law Senate Bill 1809 which amended the Labor Code Private Attorneys General Act of 2004, Labor Code §§ 2699, et seq., to require certain written notices to be given prior to the commencement of litigation to recover penalties under that act.

Specifically, Labor Code § 2699.3 provides that

(a) A civil action by an aggrieved employee pursuant to subdivision (a) or (f) of Section 2699 alleging a violation of any provision listed in Section 2699.5 shall commence only after the following requirements have been met: (1) The aggrieved employee or representative shall give written notice by certified mail to the Labor and Workforce Development Agency and the employer of the specific provisions of this code alleged to have been violated, including the facts and theories to support the alleged violation.

Those written notices, that are required under the Labor Code Private Attorneys General Act of 2004 to be sent to the Labor and Workforce Development Agency, can be sent by certified mail to the following address:

Labor and Workforce Development Agency
801 K Street, Suite 2101
Sacramento, CA 95814

A Fresh Take on the Scope of Arbitration

The recent case of Balandran v. Labor Ready, Inc. provides an interesting look at the scope of arbitration clauses. Labor Ready, Inc., a service which employs temporary laborers to work for third parties, had a clause which it required its workers to sign, that provided for arbitration of certain claims, defined in the clause as "any disputes arising out of my employment." Elsewhere, Labor Ready provided in an application, that each applicant agrees that he or she is not considered employed until they have been assigned to work on a job.

Female applicants filed suit against Labor Ready and one of its customers, claiming discrimination on the ground that only male workers were sent to that customer. The defendants filed a petition to compel arbitration, based on that arbitration clause. The defendants lost in the trial court and appealed. The appellate court decided that the defendants were bound by their own definition of "employment" in the job application. Since the plaintiffs were not assigned to the job, they were not considered employees, and their discrimination claim did not "aris[e] out of [their] employment." This was one of many arbitration cases lost by Littler Mendelson last year, including the unpublished case in which we succeeded in avoiding arbitration for employees of the Red Lobster restaurant chain.

This holding is likely to be limited in scope of the facts of that case, and, in particular, the verbiage in Labor Ready's job applications. However, the holding could easily apply to claims over certain types of wage claims, in particular, meal and rest period claims.

Many arbitration agreements expressly exclude from the scope of arbitration, any claims "pertaining to working conditions." The goal of this exclusion is to prevent employees from demanding arbitration -- at the employer's sole expense, pursuant to the Armendariz case -- over matters such as reporting times, office temperatures, restroom conditions and other petty disputes. However, the scheduling of breaks could easily be considered a working condition, and claims pertaining to such conditions might very well remain outside the obligation to submit to arbitration.

Prudential Overall Supply Settles Class Action by Company Drivers

A group of more than 500 company truck drivers for Prudential Overall Supply are set to receive their shares of a $6.6 million settlement over failure to pay overtime and permit the drivers to take their meal breaks. The Fresno County Superior Court issued its ruling granting final approval of the settlement last week. The settlement agreement had been reached in July, after the case had been pending for three years. Drivers will receive their checks later this month.

Among other things, the drivers alleged that they had to work through their lunches, but that the company was clocking them out while they worked, as if the meal break had been taken. This problem is surprisingly common, particularly among companies that classify their drivers as independent contractors. If you would like to have your situation reviewed to see if you have a claim, drop us an email and we would be happy to give you a free evaluation.

First Wage Bill of 2005

Assemblywoman Sally Lieber has introduced a new minimum wage bill, the first wage and hour bill of the new year. AB 48 is currently only a skeleton.

Existing law requires establishment of a minimum wage for all industries of not less than $5.75 per hour on and after March 1, 1998. Under existing law, the Industrial Welfare Commission is authorized to determine minimum wages in accordance with a prescribed procedure that includes the selection of wage boards to consider and make recommendations regarding wage issues. The current minimum wage for all industries is $6.75 per hour. This bill would state the intent of the Legislature to increase the minimum wage effective on and after January 1, 2005.

The text merely states:


SECTION 1.  It is the intent of the Legislature to enact egislation that would increase the minimum wage for all industries effective on and after January 1, 2005.

Sources claim that the bill will seek an increase in the range of $1-per-hour, to $7.75 per hour. A similar two-phased increase was vetoed by Governor Schwarzenegger in September 2004. This time, however, Lieber reportedly hopes to tie future increases to a cost-of-living index, so that the minimum wage would rise along with inflation.

The federal minimum wage is a mere $5.15 per hour. Lieber argues that raising the state's minimum wage could benefit all taxpayers by reducing demand on public services by more than a million low-paid workers. Republicans are expected to oppose the measure, and a veto will likely follow if it passes.

Identity Theft Protection Added to Labor Code § 226

Labor Code § 226(a) provides that:

Every employer shall, semimonthly or at the time of each payment of wages, furnish each of his or her employees, either as a detachable part of the check, draft, or voucher paying the employee's wages, or separately when wages are paid by personal check or cash, an accurate itemized statement in writing showing (1) gross wages earned, (2) total hours worked by the employee, except for any employee whose compensation is solely based on a salary and who is exempt from payment of overtime under subdivision (a) of Section 515 or any applicable order of the Industrial Welfare Commission, (3) the number of piece-rate units earned and any applicable piece rate if the employee is paid on a piece-rate basis, (4) all deductions, provided that all deductions made on written orders of the employee may be aggregated and shown as one item, (5) net wages earned, (6) the inclusive dates of the period for which the employee is paid, (7) the name of the employee and his or her social security number, except that by January 1, 2008, only the last four digits of his or her social security number or an existing employee identification number other than a social security number may be shown on the check, (8) the name and address of the legal entity that is the employer, and (9) all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee.  The deductions made from payments of wages shall be recorded in ink or other indelible form, properly dated, showing the month, day, and year, and a copy of the statement or a record of the deductions shall be kept on file by the employer for at least three years at the place of employment or at a central location within the State of California.

The last part of (7) is newly enacted. This requirement -- that employers omit all but the last four digits of employees's social security number on their paystubs -- does not go into effect until 2008. By then, one would hope that every large employer in the state would know about it. The certainly will have plently of defense firm newsletters to warn them.

Should they choose to disregard the new identity theft protections, they could face penalties of up to $100 per employee, per pay period, to a maximum of $4,000 to each worker.

The Law on Rest Periods

The California Industrial Welfare Commission Wage Orders provide virtually every non-exempt worker in the State of California with the right to an uninterrupted, paid rest period of ten minutes for every four hours of work, or "major fraction thereof." The wage order language is virtually the same for each industry:

(A) Every employer shall authorize and permit all employees to take rest periods, which insofar as practicable shall be in the middle of each work period. The authorized rest period time shall be based on the total hours worked daily at the rate of ten (10) minutes net rest time per four (4) hours or major fraction thereof. However, a rest period need not be authorized for employees whose total daily work time is less than three and one-half (3 ½) hours. Authorized rest period time shall be counted as hours worked for which there shall be no deduction from wages.

(B) If an employer fails to provide an employee a rest period in accordance with the applicable provisions of this Order, the employer shall pay the employee one (1) hour of pay at the employee's regular rate of compensation for each work day that the rest period is not provided.

Contrary to what some managers tell their employees, there is no "restaurant exception." Restaurant workers are covered by the Public Housekeeping Wage Order.

What does a "major fraction thereof" mean? During the first four hours, the wage order itself answers the question. If you worked less than 3 ½, you need not take a break. If you worked more than 3 ½ hours, you get a break. After that, the threshhold is "more than half" of the period. Thus, your second break is earned once your shift is more than two hours into the second four hour period; in other words, after the six-hour mark. A third break is due after the tenth hour of work.

How To File a DLSE Wage Claim

Because of various fee-shifting statutes, such as Labor Code § 218.5, people with relatively modest wage claims can afford to hire an attorney, or even find one willing to take a case on a contingent fee basis. Furthermore, oftentimes a person will have a wage claim that is common to every employee at his or her place of work, which can lead to a class action that allows the employees to afford the services of a competent and experienced attorney to represent them.

However, some wage and hour violations simply do not justify hiring an attorney. For those small cases, unique to their own facts, and/or against small employers, a Labor Board claim is the right way to go.

Eligible Claims: you can take the claim to the DLSE if it arises out of: unpaid wages, commissions or bonuses; wages paid with a check returned by the bank for insufficient funds; withholding or delaying the payment of a final paycheck; failure to pay for unused vacation time upon termination of employment; unauthorized deductions from paychecks (i.e., for breakage, shortages or "penalties" for unsatisfactory work); unpaid or unreimbursed business expenses; or failure to provide a meal periods or rest periods.

Starting the Process: An employee or former employee may file an individual wage claim by submitting the proper form to the DLSE. Please be sure to provide all information requested on the claim form. Sign and date the claim form. Attach copies -- but not originals, and not your only copies -- of any documents you have to support your claim. Once your form is complete, file it by mail or in person -- fax or email will not suffice -- at the DLSE office that handles wage claims for the area in which you worked. To find out which office would take your complaint, check with the DLSE.

Time deadlines: a claim based on an oral agreement must be filed within two years from the date the claim arose; a claim based on a written agreement must be filed within four years from the date the claim arose; and a claim for minimum wage, unpaid overtime, and other statutory claims must be filed within three years from the date the claim arose.

Procedure: the process involves filing the claim; attending a pre-hearing conference (at which point some claims settle); and a "Berman hearing", at which point the employee and employer may call witnesses and testify before a deputy Labor Commissioner, who will subsequently render a decision.

Exempt Employee Holiday Pay

Holiday pay for exempt, salaried, employees can be confusing to both employee and employer. The general rule, however, is simply. If a salaried exempt employee is ready, willing and able to work, the employer may not deduct from his or her salary if the business is closed for less than a full workweek. Thus, for example, when a business closes on the Friday after Thanksgiving or any other Thursday holiday, or the Monday before a Tuesday holiday, or any other one-day closure, the hourly employees need not be paid, but the salaried employees are credited with, and paid for, a full workweek. The same rule applies for deductions taken in the form of compelled use of vacation time or "paid time off." Exempt employees may be denied pay if the business closes for an entire workweek, as long as the employee performs no work during that week, and as long as the deduction from payroll does not reduce that employee's monthly compensation to an amount below the required minimum for his or her exemption.