Jury Awards $51 Million to an Age Discrimination Plaintiff: What Can We Learn?

By Lynne Anderson

A New Jersey jury awarded a mid-level manager $51.4 million(!) on January 26, 2017, after a short four-day trial. New Jersey juries have awarded age discrimination plaintiffs multi-million dollar verdicts in the past – but $51 million is roughly five times any prior award. Press coverage on the verdict speculates that this may be the highest jury award ever, throughout the country, in a single-plaintiff age discrimination case. While the post-trial motions and appeals are yet to be filed, there are some initial takeaways from this case.

As with most age discrimination lawsuits, this case arose out of a reduction in force (RIF). Robert Braden had been employed by Lockheed Martin, and its predecessors, for 28 years when he was let go in July of 2012 as part of a company-wide RIF. Six months later, Mr. Braden filed a charge of age discrimination with the EEOC based on the fact that he was the oldest of 6 people in a company unit, and the only one fired from that unit. He alleged that he was selected for the layoff at age 66 while the two other employees holding his same title, both significantly younger (ages 42 and 38), were allowed to keep their jobs. He also alleged that the company had a practice of giving younger workers better reviews and raises to keep them at the company, while older workers were given lower ratings and raises since they “had nowhere else to go.” He subsequently withdrew his claim with the EEOC so he could sue Lockheed Martin, which he did in federal court in Camden, New Jersey in 2014.

Lockheed Martin vigorously defended the claims, citing to Mr. Braden’s record of below average performance and lack of work for his skill set as the legitimate, non-discriminatory reasons for his termination. However, the jury clearly did not believe Lockheed Martin’s witnesses, awarding Mr. Braden almost $50 million in punitive damages based on the jury’s determination that the company acted in reckless disregard for discrimination laws. Mr. Braden also received $520,000 for lost wages/benefits, and an additional $520,000 for emotional distress. The jury verdict also entitles Mr. Braden to file an application seeking to have Lockheed Martin pay his attorneys’ fees.

Why was this jury so outraged that it punished Lockheed Martin to the tune of $50 million dollars in punitive damages? Hard to tell. However, a review of some of the underlying facts do remind employers of the importance to “peel the onion” and test the decision-making process when implementing RIFs. This is critically important as the law is clear: if a jury determines that the employer’s proffered legitimate reasons for the decision to terminate are false, the jury can reasonably infer that the employer is lying to cover up discrimination.

For example, Mr. Braden was able to proceed to trial when his lawyers convinced the Court to deny Lockheed Martin’s summary judgment motion by highlighting that the decision-makers offered what appeared to be conflicting and contradictory reasons for the decision to select Mr. Braden for the RIF. While implementing RIFs can be a bit of a fire drill, this jury verdict provides the business reason to slow down, insure that the decision-making criteria is objective and as uniform as possible, and test the basis for the decision.

Finally, this must all be contemporaneously documented as memories will fade. It is worth noting that Lockheed Martin cited to the fact that it had a process, and procedures, in place to prevent age discrimination in the RIF, including an adverse impact analysis done by HR in conjunction with the company lawyers and EEO group. However, Lockheed Martin’s F.R.C.P. 30(b)(6) company witness testified that Mr. Braden did not go through the company’s standard RIF process. Companies also need to realize that juries will likely not appreciate the unique nature of how they operate their businesses, and will focus on facts that “make sense” to them. Mr. Braden emphasized that he held the exact same title as the two younger workers retained by the company – therefore, age must have been the difference in the decision to pick him and not them. Lockheed Martin did attempt to distinguish the younger employees as being the same in title/name only, citing to the fact that they held more responsible positions, and had different/more valuable skill sets than Mr. Braden. The jury clearly was not persuaded. Roles within companies are dynamic, but if job titles and descriptions remain static the distinction is often lost on a third party such as the EEOC, the DOL or a jury.

Mr. Braden also emphasized another issue that is common in RIF age discrimination cases, the allegation that Lockheed Martin added a new person into his position within a year of his termination, despite claiming that a lack of work was one of the reasons for his termination. He also cited to evidence of “stray remarks” as evidence of a practice of paying older employees less. In addition to the comment cited above, he also claimed that his supervisor told him that he was directed to give Mr. Braden a low evaluation because “This guy [Braden] has been here too long. We need to get rid of him.” Stray remarks can be discounted, but we trial lawyers would prefer not to have any such remarks to explain away to the jury. Regular and robust anti-harassment for managers is helpful to prevent such remarks from occurring in the first place – and to demonstrate that your company does not act in reckless disregard for discrimination laws if a rogue employee makes a senseless remark.

There is one positive aspect of Mr. Braden’s case for those of us that are employment defense “wonks.” Judge Renee Bumb determined that the “but-for” jury instruction causation standard used for ADEA claims should also be used for the state law age claim under New Jersey’s Law Against Discrimination (NJLAD). While unpublished, her well-reasoned opinion does provide a roadmap for the legal justification to reject the plaintiffs’ bar’s position that the NJLAD requires a lower standard of causation, namely that there is causation if the jury finds that age “played a role” or was a “motivating factor” in the decision to fire a plaintiff.

The case is Robert Braden v. Lockheed Martin Corporation, Civil Action No. 14-4215-RMB-JS (D.N.J. 2014).

Third Circuit Makes it Easier to Prove ADEA Disparate Impact Claims By Use of Subgroups of Older Workers

By Lawrence J. Del Rossi 

The Third Circuit Court of Appeals recently issued a precedential decision, Karlo, et al. v. Pittsburgh Glass Works, LLC, that likely will make it easier for subgroups of older workers to bring lawsuits under the Age Discrimination in Employment Act (“ADEA”), on a “disparate impact” theory of liability.  It also creates a split with the Second, Sixth and Eighth circuits, paving the way for greater uncertainty for national employers.

The Karlo Decision – Comparison of Subgroups Permitted For Disparate Impact Analysis  

The defendant Pittsburgh Glass Works, LLC instituted reductions in force that resulted in the termination of approximately 100 employees.  The plaintiffs, a group of workers all over the age of 50, brought a putative ADEA collective action, asserting, among other things, disparate impact claims.  To establish a prima facie case for disparate impact under the ADEA, a plaintiff must (1) identify a specific, facially neutral policy, and (2) proffer statistical evidence that the policy caused a significant age-based disparity. The plaintiffs alleged that they had identified a policy that disproportionately impacted a subgroup of employees older than 50.  However, because the policy favored younger members of the protected class (i.e., employees older than 40 but younger than 50), adding them into the comparison group did not show any statistical evidence of disparity.  The district court initially certified a collective action, but subsequently granted a motion to decertify and then granted summary judgment to the employer.

On appeal, the Court characterized the central question as, “whether so-called ‘subgroup’ disparate-impact claims are cognizable under the ADEA.”  It answered in the affirmative and vacated the district court’s dismissal orders.  The Court concluded that ADEA disparate-impact claims are not limited to forty-and-older comparisons.  A comparison of “subgroups” of older workers within a particular age band (e.g., over 50) is permissible to show a specific, facially neutral employment practice caused a significantly disproportionate adverse impact based on age.  Relying on the “plain text” of the ADEA as interpreted by the Supreme Court and the ADEA’s “remedial purpose,” the Third Circuit explained that various forms of evidence can establish disparate impact based on age, including “forty-and-older comparisons, subgroup comparisons, or more sophisticated statistical modeling, so long as that evidence meets the usual standards for admissibility.”  It rejected the notion that the risk of “gerrymandered evidence is so great that it can override” the ADEA’s statutory language prohibiting discrimination based on age.

Circuit Split

The Court in Karlo expressly acknowledged that its decision is “at odds” with rulings from other circuits, including the Second Circuit, Lowe v. Commack Union Free School District (1989), the Sixth Circuit, Smith v. Tenn. Valley Authority (1991), and the Eighth Circuit, EEOC v. McConnell Douglas Corporation (1999).  While it was reluctant to create a circuit split, the Court cited three “compelling” grounds on which to diverge: (1) those decisions pre-date and contradict Supreme Court precedent, (2) they confuse “evidentiary concerns with statutory interpretation,” and (3) they “incorrectly assume that recognizing subgroups will proliferate liability for reasonable employment practices.”

Takeaways

The Karlo decision hits upon a number of complex issues when dealing with reductions in force, particularly the use and analysis of statistical evidence to establish disparate impact claims.  The decision could have a significant impact on any employer that has a facially neutral policy that in practice favors workers over the age of 40, but disfavors one or more “subgroups” of those workers, e.g., workers over the age of 50 or 60, etc.  It is unclear from Karlo, for example, to what extent a court would limit the age parameters of the subgroups or the number of subgroups in the comparison set.  Employers in the Third Circuit that are planning to conduct reductions in force must consider carefully the statistical impact to different age “subgroups” within the larger group of forty-and-older workers.  As Karlo highlights, “[m]ore exacting analysis may be needed in certain cases, and subgroups may answer that need.”

In addition, one unique challenge that national employers could now encounter is a reduction in force that impacts workers across state lines with conflicting statistical analysis and evidentiary rules, e.g., New York in the Second Circuit versus New Jersey in the Third Circuit.

Finally, it is noteworthy that at the beginning of its opinion, the Karlo court commented that the employer had not trained its decision makers on how to implement the RIF, did not have any written guidelines or policies related to the RIF, did not conduct any disparate-impact analysis, did not review prospective RIF terminees with counsel, and did not document why any particular employee was selected for inclusion in the RIF.  Employers should document the decision-making process, conduct a disparate-impact analysis, and consult with counsel regarding the scope and impact of the RIF on prospective terminees.

Paid Sick Leave Law in Morristown, New Jersey Became Effective on January 11, 2017

By: Vik C. Jaitly and Dan H. Aiken

This Ordinance, which was passed in September 2016, requires employers in Morristown, New Jersey to provide a certain amount of paid sick time per year depending on the size of the employer. Generally, employees who work more than 80 hours a year in Morristown will be covered under this Ordinance. The Morristown Ordinance is the 13th local paid sick leave ordinance enacted within New Jersey, following similar ordinances in the towns and cities of Bloomfield, East Orange, Elizabeth, Irvington, Jersey City, Montclair, Newark, New Brunswick, Passaic, Paterson, Plainfield, and Trenton.

The below chart provides the amount of paid sick time that employers are required to provide under this Ordinance:

Total No. of Employees Amount of Time Maximum
10 or more employees 1 hour of paid sick time for every 30 hours worked 40 hours a year
Fewer than 10 employees 1 hour of paid sick time for every 30 hours worked 24 hours a year
Exception: Regardless of the number of people employed by the employer, if the employee is a child care worker, home health care worker, or food service worker 1 hour of paid sick time for every 30 hours worked 40 hours a year

The Ordinance also specifies when, how, and for what purpose an employee may use any such paid sick time.  For example, an employee may use this time for his or her own mental or physical illness, injury, health condition, need for medical diagnosis care or treatment of a mental or physical illness, or an employee’s need for preventative care.  This time can also be used to provide care for a family member with a mental or physical illness.  Family members include an employee’s child (biological, foster, step, adopted, or legal guardianship), grandchild, spouse, domestic partner, civil union partner, parent, grandparent, and sibling.

Finally, the Ordinance also contains certain notice, recordkeeping, and anti-retaliation provisions.  All employers are required to give a written notice to each new employee regarding their rights under the Ordinance.  Such notice must describe the employees’ rights under the paid sick time ordinance, and the notice must be provided in English and in the primary language of at least 10% of the employer’s workforce.  The Ordinance also requires employers to display the notice in a conspicuous and accessible place at the workplace.  The Town of Morristown released a sample Notice that includes these above requirements, which can be found here.

To provide additional information on this Ordinance, and to assist employers and employees understand their rights and obligations, the Town of Morristown has also released an FAQ page, which can be found here.

It is crucial for employers to understand that this Ordinance applies to any employee who works 80 or more hours in the Town of Morristown, regardless of where your business is registered or located.  Therefore, employers will need to put in place a recordkeeping system that accurately tracks accruals and usage of paid sick leave time for employees that are covered under this Ordinance.  Additionally, employers should ensure compliance with the notice and posting requirements as outlined above.

 

Laboring Under New Laws

By Mark E. Terman

*Originally published by CalCPA in the January/February 2017 issue of California CPA — the original article can be found here.

Few things in this world can be certain, except that the California Legislature will expand regulation of employers each year and the sun will come up tomorrow. In an apparent pendulum swing, 569 bills introduced in 2016 mention “employer,” compared to 224 in 2015 and 574 in 2014. Most of those bills did not pass, and of the ones that did, most were not signed into law by Gov. Brown. Essential elements of selected bills that became law affecting private employers, effective Jan. 1, 2017, unless otherwise mentioned and organized by Senate and Assembly bill number, follow.

California Minimum Wage Ascending to $15
SB 3 sets a state minimum wage for non-exempt employees that will escalate annually over the next several years. As of Jan. 1, the state minimum wage at employers with 26 or more employees increases to $10.50 per hour, and then increases 50 cents per hour on Jan. 1 of each following year until and including 2022, when the rate will reach $15 per hour. For employers of 25 or fewer employees, state minimum wage will remain $10 per hour until Jan. 1, 2018, when it will increase to $10.50, and then escalate 50 cents per hour each year until and including 2023 when the rate will arrive at $15 per hour.

Beginning July 1, the state director of finance is to determine each year whether economic conditions can support the next scheduled increase. If conditions cannot support an increase, the governor can—no more than twice—temporarily postpone the increase schedule for a year. After the final scheduled escalation year, the state minimum wage can remain the same or increase based on any increase in consumer inflation as determined by the director.

Changes in state, but not local, minimum wage also impact classification of most exempt workers. In addition to strict“duties tests” for administrative, executive and professional wage and hour exemptions, a salary of at least twice the state minimum wage must be paid to meet the “salary basis test.” As of Jan. 1, the annualized salary rate that employers with 26 or more employees must pay to meet the exempt salary requirement will advance to $43,680, up from $41,600.

For employers with smaller workforces, the $41,600 amount of the exempt salary requirement will remain in place until Jan. 1, 2018, when it will move up to $43,680. With each escalation, the required salary also will rise. At a $15 state minimum wage, the exempt salary requirement will be $62,400.

Also affected by SB 3 is the retail, inside-sales exemption, which requires employees be paid at least 1.5 times the state minimum wage, and at least half of their other earnings be from commissions.

At the same time, the trend of municipalities creating and increasing their own minimum wage for companies that have employees working in their jurisdiction continues. For example, by July 1, the city and the County of Los Angeles require employers with 26 or more employees to raise the local minimum wage to $12 per hour, up from $10.50, and then comply with other scheduled annual increases up to $15 per hour by July 1, 2020. Los Angeles employers with fewer employees, or nonprofit corporations who obtain approval to pay a deferred rate, do not start paying more than the state minimum wage until July 1, 2018.

Minimum wage for employees in San Francisco will increase to $14, up from $13, on July 1, 2017. Many other cities—including Berkley, Oakland, Malibu, Santa Monica, El Cerrito and San Diego—have enacted local minimum wage laws. In addition, living-wage laws may require higher minimum wages be paid as a condition of contracting with local, state or federal agencies. Employers should monitor each of the requirements to assure compliance.

As of press time, a federal court enjoined implementation of a new federal rule that would have increased by Dec. 1, 2016, the salary basis requirement for exempt workers status under the Fair Labor Standards Act to $47,476. This would have been higher than the California exemption salary amount will be for at least two years. For now, California employers are not legally required to either increase salaries to satisfy this federal exemption rule or to reclassify employees as non-exempt.

No Sunset on Overtime Pay for Personal Attendant Domestic Workers
The Domestic Worker Bill of Rights (AB 241) added Labor Code Sec. 1454, effective Jan. 1, 2014, (and caused amendment to Wage Order 15-2001). It entitles a domestic work employee who is a “personal attendant” overtime pay at the rate of one-and-one-half times their regular rate of pay for hours worked in excess of nine hours in any workday or more than 45 hours in any workweek. A domestic worker who spends at least 80 percent of his or her time supervising, feeding and dressing a child or person who needs assistance due to advanced age, physical disability or mental deficiency is considered a personal attendant. SB 1015 removes a Jan. 1, 2017, sunset provision from the law. As such, these overtime rules will remain in effect into the future.

Immigration Related Unfair Practices Expanded
SB 1001 adds Labor Code Sec. 1019.1 to existing prohibitions of unfair immigration practices. This bill constrains employers, who are verifying that workers have the necessary documentation to lawfully work in the United States, from requesting of such workers more or different documents than are required under federal law, refusing to honor documents tendered that on their face reasonably appear to be genuine, refusing to honor documents or work authorization based upon the specific status or term of status that accompanies the authorization to work, or reinvestigating or re-verifying an incumbent employee’s authorization to work using an “unfair immigration practice.” Applicants and employees may file a complaint with the Division of Labor Standards Enforcement. Any person who is deemed in violation of this new law is subject to a penalty imposed by the labor commissioner of up to $10,000, among other relief available.

Wage Anti-discrimination Law Now Applies to Race and Ethnicity
Under the Fair Pay Act in effect since Jan. 1, 2016, employers are prohibited from paying an employee at wage rates less than the rates paid to employees of the opposite sex in the same establishment for equal work on jobs the performance of which requires equal skill, effort and responsibility, and which are performed under similar working conditions.

The Fair Pay Act provides for exceptions such as, the wage differential is based upon one or more of the following factors:

  1. A seniority system;
  2. A merit system;
  3. A system that measures earnings by quantity or quality of production; and
  4. A bona fide factor other than sex, such as education, training or experience.

The later factor will apply if the employer shows that the factor is not the result of a sex-based differential in compensation, is job related to the position, and is consistent with business necessity.

SB 1063 amends Labor Code secs. 1197.5 and 1199.5 to expand requirements of the Fair Pay Act to employees’ race or ethnicity, in addition to gender. In other words, the same rules now apply to prohibit wage differential based on race or ethnicity. Like existing Fair Pay Act sex-based prohibitions, the amendment bans employers from discriminating or retaliating against employees who report or assist with others’ affected by race or ethnicity-based wage differentials; provides the same enforcement rights; and includes protections for employees to disclose, inquire or discuss wages.

AB 1676 amends the Fair Pay Act (Labor Code Sec. 1197.5) to provide that an employee’s “prior salary shall not, by itself, justify any disparity in compensation” under the bona fide factors above.

Non-California Choice of Law and Forum in Employment Contracts Voidable
SB 1241 adds Labor Code Sec. 925 to prohibit employers from requiring an employee who primarily resides and works in California, as a condition of employment, to enter into agreements (including arbitration agreements) to:

  • Adjudicate claims arising in California in a non-California forum; or
  • Deprive the employee of the substantive protection of state law during a controversy arising in California.

Any provision of a contract that violates this new law is voidable by the employee, the dispute will be adjudicated in California under California law and the employee is entitled to recover reasonable attorneys’ fees incurred enforcing Sec. 925 rights. This section applies to any contract entered into, modified or extended on or after Jan. 1, 2017.

There’s an exception to Sec. 925: It does not apply to any contracts with an “an employee who is in fact individually represented by legal counsel in negotiating the terms of an agreement to designate either the venue or forum in which a controversy arising from the employment contract may be adjudicated or the choice of law to be applied.” Thus, in the case of more executive-level employees, who often retain independent counsel to negotiate employment agreements, employers may still be able to make use of forum-selection and choice-of-law provisions.

Workplace Smoking Restricted Further
California law already prohibited smoking of tobacco products inside an enclosed place of employment for certain employers. ABX2-7 amends Labor Code Sec. 6404.5 to expand that enclosed space prohibition to all employers of any size, including a place of employment where the owner-operator is the only employee. “Enclosed space includes covered parking lots, lobbies, lounges, waiting areas, elevators, stairwells and restrooms that are a structural part of the building.” A “place of employment” does not include:

  • 20 percent of the guestroom accommodations in a hotel, motel or similar transient lodging establishment;
  • Retail or wholesale tobacco shops and private smokers’ lounges;
  • Cabs of “motortrucks” or truck tractors;
  • Theatrical production sites, if smoking is an integral part of the story in the theatrical production;
  • Medical research or treatment sites, if smoking is integral to the research and treatment being conducted;
  • Private residences, except licensed family day care homes; and
  • Patient smoking areas in long-term health care facilities.

Violations are punishable by a fine not to exceed $100 for a first violation, $200 for a second violation within one year and $500 for a third and for each subsequent violation within one year.

Overtime Pay Increasing for Agricultural Workers
Existing law affords ag workers who work more than 10 hours per day overtime pay at one-and-one-half times the regular rate of pay. AB 1066 (Phase-In Overtime for Agricultural Workers Act of 2016) amends Labor Code Sec. 554 to, among other things, provide a gradual phase-in of overtime pay expansion to agricultural workers.

For employers with 26 or more employees, beginning Jan. 1, 2019, and continuing until Jan. 1, 2022, the phase-in provides for annual reduction of the daily overtime threshold by a half-hour per day until reaching eight hours, and the weekly overtime trigger by five hours per week until reaching 40 hours. As such, on Jan. 1, 2019, agricultural workers working more than 9.5 hours per day or in excess of 55 hours in any one workweek are to receive overtime pay at one-and-half times their regular rate of pay.

By Jan. 1, 2022, the annual phase-ins will conclude with agricultural workers working more than eight hours per day or in excess of 40 hours in any one workweek receiving overtime pay at one-and-half times their regular rate of pay. In addition, beginning Jan. 1, 2022, agricultural workers working more than 12 hours per day are to receive overtime pay at twice their regular rate of pay.

Finally, this bill authorizes the governor to delay the implementation of the phase-in schedule if he or she also suspends the implementation of the scheduled increase in the California minimum wage (see, Minimum Wage Ascending, above). For employers with 25 or fewer employees, the phase-in schedule begins on Jan. 1, 2022, and continues annually through Jan. 1, 2025.

All-gender, Single-user Restrooms
By March 1, 2017, AB 1732 requires all single-user toilet facilities in any business establishment, place of public accommodation or government agency to be identified with signage as all-gender toilet facilities. For the purposes of this section, “single-user toilet facility” means a toilet facility with no more than one water closet and one urinal with a locking mechanism controlled by the user. This bill also allows inspectors, building officials or other local officials responsible for code enforcement to inspect for compliance.

More Restriction on Criminal History Inquiry of Job Applicants
Under existing law, an employer cannot ask an applicant about an “arrest or detention that did not result in conviction, or information concerning a referral ;to, and participation in, any pretrial or post-trial diversion program, or concerning a conviction that has been judicially dismissed or ordered sealed pursuant to law.”

AB 1843 amends Labor Code Sec. 432.7 to prohibit employers from asking applicants to disclose, or using as a factor in determining any condition of employment, information concerning or related to “an arrest, detention, process, diversion, supervision, adjudication or court disposition that occurred while the person was subject to the process and jurisdiction of juvenile court law.”

This bill also alters the definition of “conviction” to exclude “any adjudication by a juvenile court or any other court order or action taken with respect to a person who is under the process and jurisdiction of the juvenile court law.” In addition, this bill contains some exceptions for health care facilities involving final adjudications of recent sex crimes and specified controlled substances crimes.

More Talent Services Act Artist Protection
AB 2068 amends Labor Code secs. 1703 and 1703.4 to provide further protect of artists’ information and photographs in any form of communication, such as “an online service, online application, or mobile application of the talent service or one that the talent service has the authority to design or alter.” AB 2068 also requires:

  • The talent service to act, within 10 days, on requests of the artist made by any form of electronic communication, including text messages, to remove information or photographs from the talent service’s website, online service, online application or mobile application (collectively “electronic medium”) or an electronic medium the talent service has the authority to design or alter; and
  • That the artist may cancel the contract within 10 business days from the date of the talent service contract or the date on which the artist commences utilizing the services under the contract, whichever is longer.

Domestic Violence, Sexual Assault or Stalking
By July 1, 2017, AB 2337 requires employers with 25 or more employees to provide specific information in writing to new employees upon hire, and to other employees upon request, of their rights to take off time from work and not suffer adverse employment action from doing so under Labor Code Sec. 230.1 (relating to victims of domestic violence, sexual assault or stalking). This bill also requires that, on or before July 1, 2017, the labor commissioner develop and post on its website a compliant form of notice that employers may elect to use. Employers are not required to comply with the notice requirement until the labor commissioner posts the form.

Wage Statement Requirement for Exempt Employees
Labor Code sec. 226 requires employers to provide their employees along with each paycheck an accurate itemized statement in writing containing information listed in the statute, including hours worked, unless the employees are paid solely a salary and are properly exempt from overtime.

AB 2535 clarifies that hours worked are not required to be recorded on wage statements of employees exempt from minimum wage and overtime under a specified exemption for: executive, administrative or professional employees; the “outside sales” exception; salaried computer professionals; parents, spouses, children or legally-adopted children of the employer; directors, staff and participants of a live-in alternative to incarceration rehabilitation program for substance abuse; crew members employed on commercial passenger fishing boats; and national service program participants. This bill does not change the requirement to include total hours worked by non-exempt employees in their itemized wage statements for each pay period.

Bond Required to Contest Minimum Wage Citation
Labor Code Sec. 1197.1 authorizes the labor commissioner to issue, upon inspection or investigation, a citation against an employer who has paid its employees less than the minimum wage. The citation must specify the nature of the violation, and the labor commissioner is to take steps to enforce the citation and to recover the civil penalty assessed, wages, liquidated damages and waiting time penalties.

An employer can contest a citation through the superior court. AB 2899 amends the statute to require that, prior to contesting a citation, the employer must post a bond with the labor commissioner in an amount equal to the unpaid wages assessed under the citation, excluding penalties. The bond must be in favor of the employee and will be forfeited to the employee if the employer fails to pay the amounts owed within 10 days from the conclusion of the proceedings if the citation is not reversed.

What’s Next?
Employers should consider how these new laws impact their workplaces, and then review and update their personnel policies and practices with the advice of experienced attorneys or human resource professionals.

The California Supreme Court Rejects “On Duty” Rest Breaks

By Philippe A. Lebel

Two weeks ago, just in time for the holidays, the California Supreme Court issued its (published) decision in Augustus v. ABM Security Services, Inc. (opinion available here).  In Augustus, the Court held that California law does not permit employers to require employees to take on-duty or on-call rest breaks.

The Augustus decision will have significant impact for thousands of California employers who have employed on-duty or on-call rest breaks as part of their business operations, especially in the healthcare, security, hospitality, and retail sectors.

California’s Rest Break Requirements (In General)

Although not directly addressed in California’s Labor Code,[1] California’s Industrial Welfare Commission’s industry-specific Wage Orders require employers to authorize and permit their non-exempt employees to take a net 10 consecutive minute rest break for each four hour work period or major fraction thereof.  Insofar as practicable, the rest breaks should be taken in the middle of each four work period.[2]

Background of Augustus

In Augustus, the plaintiffs worked as non-exempt security guards for defendant ABM Security Services, Inc. (“ABM”).  The putative class worked at a variety of different locations, including residential, retail, office, and industrial sites throughout California.  Guards’ principal duties were to provide an immediate response to emergency and/or life safety situations and to provide physical security for their assigned locations.

As part of their jobs, guards were required to keep their pagers and radio phones on – including during rest breaks – and to remain vigilant and responsive to calls when needs arose. According to ABM, urgent or time-sensitive needs which required guards to remain on-duty or on-call included a variety of circumstances, including where a building tenant wished to be escorted to the parking lot, a building manager had to be notified of a mechanical problem, or the occurrence of some kind of “emergency situation.”

Plaintiffs sued ABM, alleging the company failed to provide them compliant rest breaks. The trial court granted summary judgment for plaintiffs, and awarded the plaintiffs approximately $90 million, but the Court of Appeal reversed.

Issues Presented to the California Supreme Court

Augustus presented two issues to the California Supreme Court:  (1) must rest breaks required by California Wage Orders be provided by employers on an off-duty basis; and (2) may employers require non-exempt employees to remain on-call during rest breaks.

The California Supreme Court’s Decision

The California Supreme Court began by addressing whether California law required employers to provide off-duty rest breaks. The Court noted that, unlike the section of the relevant Wage Order relating to meal periods, the section on rest breaks did not explicitly require that they be off-duty.  However, the Court’s examination of the plain meaning of the word “rest,” as well as other language in the Wage Order and Labor Code, led it to conclude that rest breaks needed to be off-duty.  In particular, the Court relied on the fact that Labor Code section 226.7 prohibits employers from requiring any employee to work during any meal or rest period.  The Court also noted that the relevant Wage Order contained language to the effect that rest breaks needed to be counted as time worked.  The Court reasoned that this language – counting rest breaks as work time – would be unnecessary if they were not intended to be off-duty.  The Court also rejected ABM’s argument that an on-duty rest break was consistent with language in the Wage Orders permitting employers – in rare instances – to require employees to take on-duty meal periods.  In the Court’s opinion, the absence of language authorizing on-duty rest breaks was telling.  Accordingly, the Court held that rest breaks must be off-duty.

The Court next considered whether employers could satisfy their obligations to relieve employees from duties and employer control during rest breaks where the employers nonetheless required employees to remain on-call. ABM attempted to distinguish situations where an employer required an employee to continue working from a situation where an employer merely required an employee to remain available if a need arose.  The Court was unpersuaded.  The majority noted that, given the practical realities of a 10-minute break period, employees were already somewhat constrained in terms of what they could do.  The Court found that the additional limitations on employees – from pagers, radios, and/or being vigilant and responsive – were “irreconcilable with employees’ retention of freedom to use rest periods for their own purposes.”  Thus, the Court held that on-call rest breaks were not compliant.

Takeaways

The Augustus decision will have significant impact on employers who employ on-duty or on-call rest breaks due to staffing shortages and/or single-employee shifts.  Employers who cannot relieve non-exempt employees of all duties during required rest breaks may need to pay rest break premiums if they cannot find a way to provide an alternative off-duty rest break.  Employers who use on-duty or on-call rest breaks may wish to consult an employment lawyer to evaluate strategies to avoid liability going forward.

 


[1] While rest break requirements are not set forth in the Labor Code, Labor Code section 226.7 makes it unlawful for an employer to require an employee to perform work during any break period.

[2] The above Wage Order rest break rules apply to the vast majority of non-exempt employees.  However, there are exceptions for employees employed in certain 24-hour residential care facilities as well as employees covered by the Wage Order applicable to the motion picture industry.