Preparing for the Future of the Overtime Eligibility Rule

By Mark Foley and Matthew Fontana

One of the most significant wage and hour actions of the Obama administration—promulgating a new rule on overtime eligibility—remains frozen in legal limbo as the Trump administration decides whether to repeal and replace it or propose an alternative solution. With such uncertainty, what should employers do to ensure they are in compliance when the Trump administration finally takes action?

First, employers need to understand why the new overtime rule is not in effect. A federal district judge in Texas stayed the rule’s implementation on November 22, 2016, just nine days before it would have become effective nationwide. The judge held that the Department of Labor exceeded its regulatory authority by establishing a salary threshold under which employees were automatically overtime eligible regardless of their job duties. The Department of Justice appealed that decision, and the Texas AFL-CIO filed a pending motion to intervene in the event the Trump administration decides not to challenge the judge’s decision in the appeal’s court. After obtaining two filing extensions, the DOJ has until May 1 to file a brief stating its position on the appeal.

Second, employers should be aware of the Trump administration’s potential options. Its first decision is whether to defend the rule at the appellate level, first to the Court of Appeals for the Fifth Circuit, and then potentially to the U.S. Supreme Court. While that decision will not be publically announced until the May 1 filing, signs are suggesting that the DOJ will not defend the rule and will instead argue that the federal district judge’s opinion should stand.

The current administration’s second decision is whether the DOL should rescind the new overtime rule or promulgate a revised rule. Central to that decision is the perspective of the new proposed labor secretary nominee, Alexander Acosta. While it is unclear exactly what Mr. Acosta favors, multiple reports suggest a likely scenario that would involve the withdrawal of the current rule and the promulgation of a more modest proposed overtime rule with a reduced salary threshold. For example, some Republicans have discussed a new overtime salary threshold of $35,000 rather than $47,476. Because the new overtime rule is not effective, repeal and replacement of it can be accomplished by a notice published in the federal register rescinding the current proposed rule and providing a period of notice and comment for the administration’s new overtime rule.

Employers should continue to prepare for some type of increase in the overtime salary threshold. While it is unlikely that the Obama administration’s $47,476 overtime threshold will survive the current administration, it is probable that there will be a modest increase in the overtime threshold from its current $23,600. As a result, employers should be prepared to update plans to alter compensation and job duties of employees who could be implicated by an increase in the overtime threshold. The good news is that a more modest increase will likely affect fewer employees and cause employers less disruption. lowering employers’ compliance costs.

Drinker Biddle and Reath’s labor and employment attorneys will continue to monitor these developments and provide updates.

Trump’s Supreme Court Nominee Will Likely Be Key Vote in Class Action Waiver Dispute

By Thomas J. Barton

The United States Supreme Court finally agreed earlier this year to resolve whether the National Labor Relations Act (NLRA) prohibits class action waivers in employee arbitration agreements. This ruling will have an immediate and far ranging impact on employers. The Trump presidency will likely play a crucial role in the outcome of what will be the first of many challenges to the expansive federal agency policies under the former Obama administration.

Employers have increasingly required employees to sign agreements to have their employment disputes resolved through private arbitration rather than through a lawsuit in state or federal court. The most critical aspect of these agreements has been the provisions by which the employee agrees to resolve his or her dispute on an individual basis rather than by means of a class action. When enforced, class action waivers are a potent weapon to stem the tide of wage and hour and employment discrimination class actions, which otherwise can result in claims involving thousands of workers and multimillion dollar settlements.

During the past five years, the federal appellate courts have disagreed on the validity of class action waivers causing confusion for national companies. Under President Obama, the NLRB took the position that workers have a right to engage in “concerted, protected activity” and therefore cannot waive their rights to engage in collective and class action proceedings to enforce these collective rights. In doing so, the NLRB, as it often did under the former administration, reached outside of its traditional role of resolving disputes between management and unionized workforces, to strike down arbitration provisions applicable to non-unionized workers.

In 2013, the Fifth Circuit in D.R. Horton v. National Labor Relations Board rejected the NLRB’s position and upheld the use of class action waivers. Undeterred, the activist NLRB continued to challenge class action waivers without success in the Second and Eighth Circuits in Sutherland v. Ernst & Young and Murphy Oil USA v. NLRB, respectively.

Last year, the NLRB finally received support for its position. The Seventh and Ninth Circuits found that “concerted activities” under the NLRA included participation in class and collective remedies. In other words, these courts struck down class action waivers because they prevented employees from joining together in a class action to assert their common rights. The Seventh and Ninth Circuits bolstered their rulings by declaring that the NLRB was entitled to “judicial deference” in its interpretation of the NLRA. Thus, a split occurred among the circuits that the Supreme Court will resolve. To add further to the confusion, there is another decision pending before the Third Circuit, which may be decided this spring.

Trump recently nominated Judge Neil Gorsuch to the Supreme Court to fill Justice Scalia’s seat. Judge Gorsuch currently sits on the Federal Court of Appeals for the Tenth Circuit. If nominated, many experts believe that Judge Gorsuch will be the deciding vote in what is currently viewed as a four-to-four tie among the justices.

As expected, Trump’s appointment is a conservative jurist whose decisions, on the whole, are pro employer. Not surprisingly then, Judge Gorsuch has a history of reigning in federal agency authority. Of particular note is his opinion in NLRB v. Community Health Services, where he rejected the policy of deference to the NLRB and felt that the NLRB had taken a position beyond its statutory mandate. Gorsuch’s appointment does not bode well for the NLRB’s recent aggressive positions including, its position on class action waivers.

Further tipping the predictive scales in favor of employers, Judge Gorsuch’s past rulings have favored upholding arbitration agreements. In Ragab v. Howard, Judge Gorsuch filed a dissent in a case where the majority refused to enforce an arbitration agreement, because, as he wrote, the “parties clearly intended to arbitrate their claims.” By extrapolation, Judge Gorsuch may be inclined to enforce the parties’ agreement to arbitrate their claims on an individual basis rather than through the means of a class action mechanism. While no one can predict the outcome in this case, the odds are that Judge Gorsuch will vote to uphold the validity of class action waivers.

In terms of timing, the Supreme Court will not likely issue a decision until October or November of this year. In the meantime, employers are left with conflicting precedents. Given the predicted outcome, employers probably should not alter their practices or policies of requiring arbitration agreements with class action waiver provisions. Nor should employers shy away from adopting arbitration policies that include class action waivers. Depending on the jurisdiction where a putative class action is filed, employers should continue to attempt to enforce class action waivers and seek a stay of the litigation, if appropriate, now that the Supreme Court has agreed to hear the case.

If you have any questions or concerns about this alert, please do not hesitate to contact the author or your usual Drinker Biddle contact.

Bag Check Claims: Not Quite Yet in the Bag for California Employers

By Cheryl D. Orr and Jaime D. Walter

California employers that perform bag checks on employees in order to deter theft breathed a sigh of relief in 2015 after a California federal court’s ruling in Frlekin v. Apple Inc., No. C 13-03451, 2015 WL 6851424 (N.D. Cal. Nov. 7, 2015), which provided that state law does not require that Apple compensate hourly employees for time they spend undergoing security checks. The ruling followed another favorable decision in December 2014, when the U.S. Supreme Court held in Integrity Staffing Solutions, Inc. v. Busk, 135 S. Ct. 513, 518 (2014) that security checks do not constitute compensable work activities under federal law. After years of increased attention having been paid to bag check actions, the decisions slightly cooled the plaintiffs’ bar’s enthusiasm for such actions. But despite the victories, California employers should not let their guard down quite yet. A number of recent high-value settlements continue to make bag check claims attractive.

Busk and Frlekin

In Busk, the Supreme Court provided that post-shift activities, such as bag checks, were compensable under the Fair Labor Standards Act if they constituted an “integral and indispensable” part of an employee’s job responsibilities. Because the bag checks in Busk had neither an integral nor indispensable relationship to the employees’ responsibilities, which involved retrieving shelved products and packaging them for delivery, they did not constitute compensable activities under federal law. Employees could retrieve and package items without security screenings, reasoned the Court.

As it is difficult to imagine many situations in which a court would deem antitheft security checks to be integral or indispensable to an employee’s job, Busk allowed employers to more confidently treat security checks as noncompensable. That confidence eroded a bit, however, when a federal district court in California held in Miranda v. Coach, Inc., No. 14-cv-02031-JD, 2015 WL 1788955 (N.D. Cal. Apr. 17, 2015) that Busk’s ruling did not apply to California labor law. As a result, when the Northern District of California later held that year that Apple’s bag checks did not constitute “work” under California law, employers rejoiced. The Frlekin court reasoned that the bag checks did not constitute “hours worked” because, among other things, employees were not “suffered or permitted to work.” Echoing the reasoning in Busk, the court explained that the bag checks were in no way related to the employees’ job responsibilities and were only “peripheral activities relating to Apple’s theft policies.” Moreover, the employees did not have to complete any job duties during the bag checks; they simply had to wait passively while other people searched their belongings.

Developments and Takeaways Following Frlekin

Although Busk essentially closed the door on bag check claims that arise under federal law, Frlekin is on appeal and bag check litigation—although not as popular—continues. A suit brought against Macy’s last year involves bag check claims, and the Northern District of California granted motions for class certification of bag check actions involving Converse and Nike last year. Coach, Burlington Coat Factory, Old Navy, CVS, and Real Time Staffing Services all settled bag check actions for amounts that ranged from $300,000 to $12.75 million.

The Ninth Circuit will likely hold a hearing in Frlekin in May 2017. While we would not be surprised if the court were to affirm the ruling, even if it does, the opinion may not entirely foreclose bag check litigation in California, as employees may attempt to factually distinguish their employers’ bag check policies from that imposed by Apple.

To reduce the risk of bag check exposure, employers should consider ways to allow employees to remain clocked in while undergoing bag checks. If practical difficulties make that option too burdensome, employers may want to review Frlekin and consider adopting a policy similar to Apple’s.

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.

Resolving Split, Second Circuit Denies FLSA-NYLL Liquidated Damages Double Recovery

By William R. Horwitz

Last week, the U.S. Court of Appeals for the Second Circuit resolved a split among the four New York district courts regarding whether a plaintiff can recover cumulative liquidated damages awards under both the Fair Labor Standards Act (federal law) and the New York Labor Law (state law) for the same wage and hour violation.  In Chowdhury v. Hamza Express Food Corp., 2016 WL 7131854 (2d Cir. Dec. 7, 2016), the Court held that a plaintiff cannot receive double recovery.  The decision will have a significant practical impact on wage and hour litigation.

The Facts

In Chowdhury, the plaintiff, a deli worker, filed a lawsuit against his employer for, among other things, allegedly failing to pay him for overtime work in violation of the Fair Labor Standards Act (“FLSA”) and the New York Labor Law (“NYLL”).  During the litigation, the employer repeatedly failed to comply with the district court’s orders, prompting the court to strike the Answer, enter default judgment against the employer, and proceed to an evidentiary hearing to calculate the plaintiff’s damages award.  After the hearing, the court awarded plaintiff $42,997.50 ($21,498.75 for unpaid overtime wages and $21,498.75 for liquidated damages).  Plaintiff appealed, arguing that he was entitled to an additional $21,298.75 in liquidated damages, because he was entitled to recover liquidated damages under both the FLSA and the NYLL.

The Law

Under both the FLSA and the NYLL, non-exempt (hourly) employees are generally entitled to receive pay at the rate of time-and-a-half for each hour they work over 40 hours in a week.  A plaintiff who succeeds on a claim under either statute typically recovers compensatory damages (unpaid wages) and reasonable attorneys’ fees and costs.

Under the FLSA and the NYLL, a successful plaintiff may also recover liquidated damages.  Specifically, the FLSA entitles a successful plaintiff to liquidated damages in an amount equal to 100% of unpaid wages, unless the employer demonstrates “that the act or omission giving rise to such action was in good faith” and that the employer “had reasonable grounds for believing that [such] act or omission was not a violation of the [FLSA].”  29 U.S.C. § 260.  Similarly, the NYLL entitles a successful plaintiff to liquidated damages in an amount equal to 100% of unpaid wages, “unless the employer proves a good faith basis to believe that its underpayment of wages was in compliance with the law.”  N.Y. Lab. Law § 198.

The Decision

In Chowdhury, the Second Circuit observed that “[t]he NYLL is silent as to whether it provides for liquidated damages in cases where liquidated damages are also awarded under the FLSA.”  The Court considered the fact that permitting cumulative liquidated damages under the FLSA and the NYLL would permit an award of “200 percent in liquidated damages in addition to any underlying wage liability.”  The Court reasoned that, “[h]ad the New York State legislature intended to provide a cumulative liquidated damages award under the NYLL, … it would have done so explicitly in view of the fact that double recovery is generally disfavored where another source of damages already remedies the same injury for the same purpose.”

The Court explained that the legislative history of the NYLL supports this reasoning.  According to the Court, the legislature recently amended the statute twice (in 2009 and 2010) to align it with the FLSA.  Now, the liquidated damages provisions of the FLSA and NYLL are “identical in all material respects, serve the same functions, and redress the same injuries.”  As a result, absent any indication to the contrary, the Court held that it interprets the NYLL’s liquidated damages provision “as satisfied by a similar award of liquidated damages under the federal statute.”

The Court affirmed the district court’s liquidated damages award.

Conclusion

Under both the FLSA and the NYLL, liquidated damages awards can substantially increase a plaintiff’s recovery.  However, the Chowdhury decision definitively limits an employer’s exposure, clarifying that liquidated damages should equal 100% – not 200% – of unpaid wages.  The difference is large in a single plaintiff case, and may be staggering in a case involving multiple plaintiffs or, even worse, a hybrid class and collective action.  Also, by resolving this unsettled question, the Chowdhury decision enables parties to calculate potential damages and exposure more accurately, which should help them make better settlement and strategy decisions.