Wage Law

In a wage case, the employee's performance level is typically not an issue. Nonetheless, many employers seek to discredit an employee in an overtime, minimum wage, prevailing wage or other wage case by introducing evidence that the employee was a poor performer. For this reason, we generally like to have employees review their personnel files to see what complaints, if any, the employer found significant enough to record in a personnel file. If there are none, we might not even object to questions about performance, because we follow up with an interrogation of the manager to inquire why the "horrible" employee's personnel file was clean, and his or her reputation was never sullied by the employer until they had the audacity to demand their pay.

California Labor Code § 1198.5 guarantees all California employees the right to inspect their personnel files and records about their performance or any grievances. Employers must do one of the following to facilitate reasonable times and intervals for the employees to inspect their personnel files:

1. Keep a copy of each employee’s personnel records at the place where the employee reports to work;
2. Make the personnel records available at the place where the employee reports to work within a reasonable amount of time; or
3. Allow the employee to inspect the records at the location where they are stored with no loss of compensation to the employee.

In general, “reasonable times” will be considered to be during regular business hours of the office or at anytime during an employee's regularly scheduled work shift. Sufficient time should be afforded an employee to make a thorough inspection. In general, “reasonable intervals” are a minimum of once every year, but can be more frequent if there is cause to believe that the file has been altered or contains information that is pertinent to an ongoing investigation affecting the employee.

Exceptions to the inspection rule include: records about the investigation of a possible criminal offense; letters of reference; or records that were obtained before the employee’s employment, prepared by identifiable examination committee members, or obtained in connection with a promotional exam. The right generally does not inure to the benefit of employees of state agencies or public safety officers, but some public employees are covered, including employees of a city, county, special district, community redevelopment agency, or other political subdivision of the state.

Westside Concrete Company, Inc. v. Department of Industrial Relations (2004) 123 Cal.App.4th 1317 has been ordered depublished.

In Westside Concrete, the Court of Appeal reversed a lower court opinion that held that an opinion letter on meal periods was not an underground regulation. It set forth criteria for deciding which specific, narrow letters might be exempt, and which broader, general letters would not. The new Schwarzenegger-shaped DLSE decided not to seek Supreme Court review, choosing instead to review their opinion letters and withdraw several in "reaction" to the decision. With the DLSE sitting on its hands, four non-parties filed depublication requests.

If you would like to read Westside Concrete for yourself, you can view or download a copy of the opinion in pdf format or in Microsoft Word format.

There are currently five bills in committee in the state senate which affect wage and hour issues.

SB 101 is set for hearing in April.
It proposes various changes to California payroll stub requirements.

SB 174 may be acted on after March 12
It is merely a "shell" to increase minimum wage.

SB 285 is set for hearing in April.
It eases requirements for prompt payment of wages upon termination.

SB 862 may be acted on after March 26.
It is also a "shell" to increase the minimum wage to "not less than ____ ($____)
per hour."

SB 940 is set for hearing in April.
It amends the prevailing wage law to make the director publish such rates for residential public works projects.

The only one we're watching closely is SB 285. We have a number of cases arising out of delays in payment of terminated employees that give rise to waiting time penalties under Labor Code § 201. If this passes, terminated employees would have basically the same payroll rights that are given to employees who quit without notice, which isn't particularly fair, but it is consistent with the governor's agenda.

California courts have an outstanding internet presence, particularly with respect to appellate cases. One of our favorite features is the ability to look up Supreme Court cases by name or attorney or case number, and then enroll in an email notification list for that case. Last week, I received an email from the Supreme Court telling me that Discover Bank v. Superior Court (Boehr), case no. S113725, had been ordered onto the Supreme Court's April 7, 2005 calendar.

Review was granted long ago in Discover Bank v. Superior Court, previously published at 105 Cal.App.4th 326 (January 14, 2003). The case involved a claim arising out of a credit card agreement that included an arbitration clause. Los Angeles Superior Court judge Kuhl initially granted Discovery Bank's motion to compel arbitration and dismissed the class action pursuant to the arbitration agreement's class action waiver. However, she later granted the cardholder's motion for reconsideration and invalidated the waiver, finding that the parties' arbitration agreement, which prohibited classwide arbitration and directed arbitrators not to consolidate claims of different employees, was "manifestly and shockingly one-sided" and therefore substantively unconscionable.

On a petition for writ of mandate, the Court of Appeal held that the Federal Arbitration Act preempted any otherwise applicable California law, including judicial precedent, finding class action waivers to be substantively unconscionable and invalid. This required that the trial court's original order granting the motion to compel arbitration be reinstated in full. The plaintiff would therefore have to arbitrate on an individual basis and submit to the class action waiver. The plaintiff and various amicus curiae ("friends of the court") filed petitions to depublish the Court of Appeal decision. The plaintiff also filed a petition for review.

The petition for review (which also automatically depublished the appellate court's ruling) was granted in April 2003, with seven justices voting to grant review. By July 2003, the case was fully briefed. Then a flurry of amicus were submitted, and supplemental briefs were added, the last of which was filed late in 2004. Finally, last week, the Supreme Court set a hearing date of April 7. That date could be moved back, however. Discover Bank wasted little time filing an application to extend the hearing date.

Wage and hour law practitioners in California, particularly those who handle employment-related class actions, encounter these issues frequently, and eagerly await the argument and decision in Discover Bank.

The California Supreme Court has ruled that Code of Civil Procedure § 1281.2(c) permits a trial court to stay arbitration pending the outcome of related litigation. Cronus Investments v. Concierge Services (--- Cal.4th ---), March 10, 2005.

Section 1281.2(c) requires a court to order arbitration upon petition by one of the parties to an arbitration agreement,

“unless [the court] determines that:[¶] . . .[¶] (c) A party to the arbitration agreement is also a party to a pending court action . . . with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact.” If the court makes such a determination, it: “(1) may refuse to enforce the arbitration agreement and may order intervention or joinder of all parties in a single action . . . ; (2) may order intervention or joinder as to all or only certain issues; (3) may order arbitration among the parties who have agreed to arbitration and stay the pending court action . . . pending the outcome of the arbitration proceeding; or (4) may stay arbitration pending the outcome of the court action . . . .”

The Federal Arbitration Act (the "FAA", 9 U.S.C. §§ 1 et. seq.) preempts all state laws that apply of their own force to limit those agreements against the parties’ will or to withdraw the power to enforce them. (Perry v. Thomas (1987) 482 U.S. 483, 490-491) So why didn't the FAA preempt section 1281.2(c)?

Because of a 1989 United States Supreme Court case called Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ. (1989) 489 U.S. 468. In Volt, the Supreme Court had held that FAA did not preempt the application of section 1281.2(c) if the parties had agreed that their arbitration agreement would be governed by the law of California. In Cronus Investments, the parties did just that. Since the parties intended to bind themselves to state law, the Code of Civil Procedure applies. In fact, the court so held even though the agreement also provided that the designation of California law “shall not be deemed an election to preclude application of the [FAA], if it would be applicable.”

You can view the full opinion in Cronus Investments by opening or downloading the file in pdf or word format.

Cronus Investments is an employment case, but is not a wage and hour case. However, the rationale behind the Cronus Investments holding is quite interesting to anyone who faces an arbitration demand in an overtime, minimum wage, prevailing wage or similar cases.

The Perry case mentioned above involved California Labor Code § 229, which provides that private agreements to arbitrate wage collection claims are unenforceable. "Actions . . . for the collection of due and unpaid wages claimed by an individual may be maintained without regard to the existence of any private agreement to arbitrate." Perry found this to be preempted by the FAA, and specifically, 9 USCA § 2, which provides for enforcement of arbitration provisions in agreements affecting interstate commerce.

But what if, as they often do, the parties have a provision in the "agreement" (usually an employee handbook) that says California law governs the agreement? Perry did not address any such facts, and under Cronus Investments and Volt, an argument could be made that Section 229 applies, and the case can go to court.

The following statement was released today by the arbitration/mediation firm JAMS, the nation's largest provider of alternative dispute resolution services:

In November of 2004, JAMS announced a policy regarding the administration of arbitrations where there is a contract that contains a clause prohibiting consumers from joining class action arbitrations.

JAMS is withdrawing its policy for the following reasons:

The initial statement of the policy suggested to some that JAMS had deviated from its core value of neutrality. We want to reaffirm to all of our constituencies that we have a fundamental responsibility and commitment to absolute neutrality and the highest ethical and professional standards. Recent court decisions on the validity of class action preclusion clauses have varied by jurisdiction. In this legal environment, our attempt, as a national ADR provider, to bring uniformity to the administration of class wide arbitrations stemming from these clauses has created concern and confusion about how the policy would be applied. Accordingly, we are retracting the previously announced policy and reaffirm that JAMS and its arbitrators will always apply the law on a case by case basis in each jurisdiction.

There you have it: proof that JAMS, like AAA and every other arbitration service provider is concerned primarily about meeting the goals of its corporate repeat customers. Remember that the next time some company asks you to sign an arbitration agreement. They want you to sign it because they are convinced -- reasonably so -- that they will get a better deal from a repeat-business seeking ADR firm than they will get from a real judge or jury.

If you are an employee who is considering filing an arbitration claim against your employer, don't just assume that arbitration is your only option. There is little doubt that, if arbitration is not your only option, it is your worst option. That is why we almost always challenge the enforceability of arbitration agreements, often with great success. Like many other wage and hour law practitioners in California, we continue to closely follow the development of the law regarding mandatory arbitration.

Today, Republican Congressman John Boozman, whose district includes Wal-Mart's Bentonville, Arkansas headquarters, is sponsoring an amendment to a pending highway bill (H.R. 3, The Transportation Equity Act) that would extend the workday for truckers from 14 hours to 16 hours, provided that the trucker takes an unpaid two-hour break during the shift.

According to an AP report, Boozman claims that the breaks "will reduce driver layovers and improve both safety and efficiency." At a news conference on Tuesday, Teamsters vice-president John Murphy announced that the union has never received even a single complaint that union drivers do not have time for breaks. Current rules limit driver workdays to 14 hours, with a maximum of 11 consecutive hours of driving. Therefore, truckers can take up to three hours for loading and offloading their trucks, and/or eating and taking other mid-shift breaks.

Why would the Wal-Mart Congressman (Boozman's campaign received $48,152 in contributions from Wal-Mart employees during the last election, after getting $44,500 in the prior election) want such a change? Adding to the workday and inserting two-hour unpaid breaks means that retailers can have truckers spend more off-the-clock time waiting at loading docks. That helps Wal-Mart save labor costs.

But labor unions and highway safety experts say that the added hours of work would make roadways more dangerous. Drivers could be forced to work shifts such as 6 a.m. to 10 p.m., or 8 a.m. to midnight. Since many collective bargaining agreements permit employers to require trucker to work any shifts permissible under federal law, the change could quickly move many truckers into the new work hours. Putting those truckers, already fatigued at the end of 14 hour days, back on road for 2 more hours each day is a clear threat to the safety of truckers and those who share the highways with them.

Wal-Mart, which makes about $20,000 per minute in profits, and pays most store employees less wages than necessary to keep a family of three above the proverty level, continues to be the enemy of the working class. We hope that the Boozman Amendment to the House highway spending bill fails as quickly as the Santorum Amendment to the Senate bankruptcy bill.

[UPDATE: The proposed amendment lasted just ten minutes on the House floor before Boozman saw the light and withdrew it.]

Pennsylvania GOP Senator Rick Santorum, the hero of Lackawanna County, proposed an amendment to the pending bankruptcy "reform" bill (S.256) that could have actually lead to more Americans going broke. The bankruptcy bill, a big priority for Republicans and the credit card companies who finance their campaigns, is intended to make it more difficult for people to eliminate medical and other personal debts by declaring bankruptcy. And even worse, hidden in the Santorum Amendment were a number of provisions that could actually have resulted in companies being able to hire workers for no pay whatsoever. This is going to sound like an urban legend, the sort of thing that gets passed around by email, citing "Senate Bill 602P" or some such similar garbage. But it was true, very real, and could have become law faster than you can say "Class Action Fairness Act of 2005," or, in this case an amendment to the "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005," intended "[t]o promote job creation, family time, and small business preservation in the adjustment of the Federal minimum wage."

The short description and the main selling point made it sound like good legislation. The Santorum Amendment, the actual text of which we had trouble finding, proposed to raise the minimum wage by $1.10 per hour -- a change which is arguably well overdue. The last minimum wage raise was eight years ago. Since then, inflation has shaved 19.4% off the value of those wages, and minimum wage workers, who currently earn $10,700 a year, now find their income a full $5,000 below the poverty line for a family of three. During those same eight years, Congress raised their own salaries seven times, by a total of $28,500 per year.

So the minimum wage raise looked like a pro-worker proposal. But the AFL-CIO called it "a sham," because hidden in the fine print of the Santorum Amendment were a series of provisions that would cut wages for millions of Americans to as little as zero. How? There were two provisions which spelled disaster for the workers who could least afford disaster.

First, the amendment exempted any business with revenues of $1 million or less from regulation. The current exemption is $500,000. The difference would have meant almost seven million workers losing their protections under federal law.

Second, the amendment severely limited the right of tipped workers to get wages paid by their employers. The FLSA (Fair Labor Standards Act) currently specifies that states have the right to impose higher wage standards than those under the FLSA. The Santorum Amendment proposed to end that when it comes to tipped employees. Moreover, it actually proposed to ban states from requiring employers to pay tipped workers with any sort of guaranteed wage. Currently, tipped workers are guaranteed just $2.13 per hour in wages under the FLSA, and they can be required to credit their tips against the FLSA minimum. Most states have higher minimum wages for tipped employees, and do not require tip offsetting. California, for example, applies the same minimum wage to tipped employees and non-tipped employees alike, with no offsets for tips.

Under the Santorum Amendment, states could not pass or enforce laws requiring employers to pay wages to tipped employees. And many employers, such as individual restaurant owners, would be exempt from the federal minimum wage because they don't reach that $1 million revenue level. The potential for abuse would be tremendous. Restaurant workers make no tips while performing "side work," the extra work that a custodian or other full time employee might perform, but which restaurants often have servers, bussers and bartenders divide: tasks like cleaning drains, sorting utensils, folding napkins, collecting laundry, washing floors and similar menial tasks. Under the Santorum Amendment, that work would be essentially free. Do you think employers would take advantage of it? And paid breaks? Forget them. The labor would be free already anyway. Breaks would just mean you have to stay later to complete your remaining unpaid tasks once the tipping customers have left for the day.

There were several other horrible provisions. The amendment would also have increased the revenue level at which businesses would become subject to fines under various health and safety laws, to $7 million. Working conditions that have been barred by federal laws for the past several generations could have made a comeback. While this would mean that American businesses could again compete with Bangladeshi sweatshops, this is not what most Americans wanted when they cast their votes for the candidates who promised more jobs in their communities.

Finally, the 40-hour work week was to be eliminated from federal protection, to be replaced with 80-hour work "two-weeks." A company could work employees 50 hours a week at straight time, and avoid liability for overtime pay by having the employees work just 30 hours the following week. Supposedly, this is a "flexibility" that workers want. We haven't heard the clamor, however.

The Santorum Amendment quietly came up for a vote last night and was soundly rejected 61-38 (with Senator Mikulski not casting a vote). Its defeat is good news for America's hardworking poor. If you agree, you can send Senator Santorum an email by visiting his website. Tell him you aren't sorry he lost, and he should be ashamed of himself for even trying. In his defense, Santorum offered this pathetic spin: "I would hope candidly that we didn't pass either of these at this time," he said, referring to both his amendment and one proposed by Ted Kennedy. Of course, that "candid" hope didn't prevent him from introducing his amendment or voting for it.

Meanwhile, the bankruptcy bill continues to be debated, focusing largely on a controversy over whether abortion protesters should be allowed to file bankruptcy to avoid court fines for contempt.

Circuit City continues to make litigation decisions that shape the law of arbitration agreements in favor of employees. Earlier this year, in Al-Safin v. Circuit City Stores (9th Cir. Wash.) 394 F.3d 1254, a divided 9th circuit held that federal courts must apply state law to determine whether an arbitration clause in a contract is substantively unconscionable; and an arbitration clause that allows an employer to bind its employees to arbitrate, under rules yet to be formulated, is unconscionable under Washington state law. Therefore, the arbitration forum is lost to the employer, and the worker can proceed to state court for trial.

The case involved a Circuit City retail store employee who was hired in 1997. Before he was hired, he was required to sign several documents, including the Circuit City Dispute Resolution Agreement ("DRA") which included an arbitration agreement governed by the Circuit City Dispute Resolution Rules and Procedures ("DRRP"). "What are they?" an employee might ask An honest answer would be: "Whatever Circuit City declares them to be." Specifically, DRRP Rule 19 gave Circuit City the right to amend the DRA and/or the DRRP at any time, declaring that the DRA and DRRP in effect at the time a claim arose would govern the claim.

At the end of 1997, Circuit City revised the DRRP to provide that the governing rules would be those rules in effect at the time an arbitration application is filed and a fee paid to Circuit City. Circuit City fired the plaintiff in November 1998 and he filed suit shortly thereafter.

The district court denied a Circuit City motion to compel arbitration, basing its ruling on federal law. Circuit City appealed, and the 9th Circuit reversed, so to speak, ordering the district court to reapply state law in determining whether to enforce the DRA.

After a lengthy appellate process (and several beatings in other cases), Circuit City took another look at its DRA and DRRP in 2003 and withdrew provisions that several other courts had found to be unconscionable. One week later, it renewed its motion to compel arbitration.

The district court held that the DRRP from 1997 was applicable, and under Washington law, that agreement was substantively unconscionable. Circuit City, of course, appealed again. The 9th Circuit heard the appeal and held that the 1997 DRRP controlled, and it was unconscionable under state law. The employee may now proceed to trial in state court. You can view the full opinion here.

Under California law, the result would likely be the same. The critical juncture for determining whether a contract is unconscionable is the moment when it is entered into by both parties--not whether it is unconscionable in light of subsequent events. American Software, Inc. v. Ali (1996) 46 Cal.App.4th 1386, 1391. In Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, the court found an after-the-fact expression of willingness by the employer to amend the arbitration agreement to bring it into conformity with law to be wanting. Whether an employer is willing to now change a provision of an arbitration agreement so it conforms to law does not change the fact that an arbitration agreement as written and agreed to was unconscionable and contrary to public policy. Such a willingness can be seen, at most, as an offer to modify the contract; an offer that usually is not accepted by a former employee who now has the benefit of an attorney's advice. "No existing rule of contract law permits a party to resuscitate a legally defective contract merely by offering to change it." Armendariz (2000) 24 Cal.4th at 125.

We had a similar experience in our Red Lobster class action litigation, which turned out well for the employees. We'll have some exciting news for that class shortly.

Though employers do not like to pay for training time, it is usually compensable.

For an employer to avoid paying for training time, four general criteria must be met: (i) the training attendance must be before or after regular working hours; (ii) the employee must not be performing work during the training; (iii) attendance must be voluntary; and (iv) the training duties must not be directly related to the employee's job.

Frequently, however, employees are ordered to attend training -- retail sales employers are notorious for this violation -- but are told to attend the training on their own time. If the training is mandatory, the employee must be paid. If the employee is subject to the employer's control during the training, the employee must be paid. If the employee is trained during regular work hours, the training is on the clock.

One employer we recently sued had a policy of requiring its employees to attend a sales course, which cost the employees $500 each. The course explained, among other things, how to document and solicit sales of that particular employer's products, and the cost of "tuition" was paid over five pay periods via $100 payroll deductions. The employer was quick to settle once it hired legal counsel.

If you are a non-exempt employee, and your employer requires you to attend training related to your work, you are entitled to be paid wages for the time spent in mandatory training sessions, and if there is any expense incurred, including mileage and parking, you are entitled to reimbursement for those expenses. If you have any questions, feel free to drop us an email.

Division Five of the Second District Court of Appeal held yesterday that an employee who sues the successor of his former employer can be bound, under principles of equitable estoppel, to an agreement to arbitrate, even though the successor never became a party to that agreement.

In Alliance Title v. Boucher, the plaintiff/employee, Craig Boucher, had signed an employment agreement with Financial Title Company. Later, Financial sold its operations and assets to Alliance Title Company, Inc. Boucher was told he would work for Alliance and that he was required to allow modifications to the agreement by Alliance. When he refused, he was fired. He then sued both Financial and Alliance, who petitioned the court to compel arbitration.

The trial court denied the petition to compel arbitration because Alliance Title was not a party to the agreement. The Court of Appeal reversed, holding that a signatory to an arbitration agreement may be compelled to arbitrate his claims against a nonsignatory when the claims rely on the existence of the contract that contains the covenant to arbitrate.

You can read or download Alliance Title in word format or in pdf.

The case included wage issues, but the reason we mention it here is because the issue of arbitrability is often important in a wage and hour case, whether the case involves overtime pay, reporting time pay, meal period or rest period break violations, underpaid vacation or delays in final payroll upon termination. At times, the issue of whether one can litigate or arbitrate can be more important than the merits of the underlying case.

For example, we recently settled a class action lawsuit for $1.5 million more than the settlement of a companion suit against our defendant's sister company. The sister company was larger, had more employees, more violations, and greater liability. We, however, successfully beat back a motion to compel arbitration, whereas the sister company won its motion to compel arbitration in the companion case.

Why did it matter? It is widely perceived that arbitrators are unwilling to risk future business by rendering large plaintiff's awards. Judges and juries, on the other hand, feel much more free to rule based upon the facts and law applicable to their case, since they have no concern over whether the Littler Mendelsons of the world will ever consider paying them another fat arbitration fee. That difference matters a great deal.

Kimberly A. Kralowec, who is following these things closer than anyone I've seen, noted on her blog yesterday that the petition for rehearing in Benson v. Kwikset Corp. was denied, the the petition for rehearing in Californians for Disability Rights v. Mervyn's was denied, and the petition to publish the decision in Consumer Advocates v. DaimlerChrysler Corp. was denied. Those Prop 64 issues are going to get to the Supreme Court faster than a gay wedding appeal.

We participated in an initial mediation session last week with representatives of Main Street and Main, Inc., the largest franchisee of TGI Friday's restaurants in California. Main Street and Main broke the law by forcing employees to purchase uniforms until sometime in late 2002 or early 2003, and routinely prevented employees from taking meal or rest periods. Some 10,000 employees were affected. A pending motion for class certification is supported by more than 200 sworn declarations of current and former employees, including several managers.

The best offer submitted by Main Street and Main worked out to about $2 per employee, per month, over the course of the time period covered by the class action lawsuit filed in January 2003. The parties are still very far apart in their negotiations, and it appears likely that the case will proceed to a hearing on class certification next month.