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The California Supreme Court recently issued a decision holding that employers must pay employees according to their “regular rate” rather than according to their straight-time hourly rate. The case applies retroactively and thus applies even to California employment cases that have already been decided and to previous miscalculations.

In the case, Ferra v. Loews Hollywood Hotel, LLC, the plaintiff filed a complaint against her employer, alleging that the employer improperly calculated her payment for non-compliant meal periods and rest periods. Under California law, employers must also provide employees with required meal, rest, and recovery periods. Under section 226.7 of the California Labor Code, if an employer fails to provide an employee with a compliant meal, rest, or recovery period, the employer must pay the employee an additional hour of pay at the employee’s “regular rate of compensation.” Under another section of the Code, California employers are required to provide their employees with overtime pay when employees work more than a certain amount of time. Overtime pay is calculated by multiplying the employee’s “regular rate of pay,” which factors in all wages and other non-discretionary earnings, such as non-discretionary bonuses and incentive compensation.

The Supreme Court’s Decision

California’s Supreme Court recently issued a significant decision concerning California meal periods for employees. In California, in general, employers must give employees with a 30-minute meal period after at least the fifth hour of work and after at least the tenth hour of work. If an employee is not provided a compliant meal period, then the employer must pay the employee an additional hour of pay at the regular rate for each workday during which the meal period was not provided. In practice, many employers round time punches to the nearest quarter of an hour, one-tenth of an hour, or five minutes.

In the case before the Court, the Court considered whether rounding time was permissible in the context of a meal period. In the case of a named plaintiff in the class-action lawsuit, the plaintiff’s employer used a timekeeping system that rounded the time punches to the nearest 10-minute increment. So if an employee clocked out for lunch at 11:02 and clocked in at 11:25, it would be recorded as 11:00 and 11:30. Thus, the employee’s meal period was only 23 minutes, as opposed to the full 30 minutes. An expert estimated that the use of the timekeeping system resulted in a denial of premium wages for short and delayed lunches amounting to over $800,000.

The Court maintained that employers could not round time in the context of meal periods. The court held that time rounding does not comply with the precise time requirements set out in Labor Code section 512 and Wage Order No. 4. The court reasoned that the relatively short length of a 30-minute meal period means that the potential incursion on that period is significant. The court held that the provisions concerning meal periods are intended to prevent even minor infringements on the meal period requirements, and rounding time does not meet that objective. The court held that even if the employer overpaid the members of the class for actual work based on the timekeeping, the issue is whether the rounding policy resulted in the proper payment of premium wages for meal period violations. The court also held that if an employer’s records indicate that no meal period was taken for a shift over five hours, there is a rebuttable presumption that the employee was not relieved of duty and no meal period was provided. Thus, the employer can assert this as a defense, and it is the employer’s burden to plead and prove that assertion.

In a momentous decision, the California Supreme Court ruled that employers must compensate employees for the time spent waiting and undergoing security searches of their belongings and technology devices. The decision signifies a major departure from the federal Fair Labor Standards Act. Under the federal standard, employers did not have to compensate employees for time spent undergoing mandatory security screenings. Although California employers should know that they must pay employees for time worked, many employers toe the line to avoid fully compensating their workers.

There is a growing number of California workers who have successfully challenged their employers’ unlawful compensation practices. While federal law does not provide as much protection to employees, California state law requires employers to compensate employees when the worker is under the employer’s control. Many California class-action lawsuits stem from employers refusing to compensate workers for time spent undergoing security and bag checks.

Two significant cases arose from employment lawsuits against Apple and Amazon. In the case against Apple, employees claimed that they were required to undergo mandatory security checks before leaving company property for any reason. The time spent waiting took anywhere between 5 to 45 minutes. The employees argued that this time could amount to nearly two hours of unpaid overtime a week and over 100 hours every year. In reviewing the case, the courts analyzed whether the waiting time was compensable under the “control standard.” Inquiries regarding whether the employee is under the employer’s control require the court to look at the totality of the circumstances. Some relevant factors involve whether the employer requires the activity, where the activity occurs, if the activity benefits the employer or employee and whether an employee may be subject to disciplinary measures if they do not comply. In the case against Apple, the court found that the search was mandatory, occurred at the workplace, involved significant control by the employer, and benefits the employer by deterring theft. As such, the California court of appeals held that the technology giant must pay the nearly 12,000 affected employees for the time they spent during these mandatory screenings.

The Ninth Circuit Court of Appeals recently decided a case involving a Federal Labor Standards Act (FLSA) claim that the employer claimed was barred due to an arbitration agreement between the employer and the alleged employee. The Ninth Circuit Court of Appeals is a federal appeals court located in San Francisco, California, and has jurisdiction over federal cases in California, Arizona, Nevada, and several other states. Thus, the decision affects California worker claims involving violations of the FLSA.

The Department of Labor filed an enforcement action against an employer, alleging that the employer and his companies violated the Fair Labor Standards Act. Specifically, the action alleged that the employer violated minimum wage, overtime, record-keeping, and anti-retaliation requirements by mis-classifying delivery drivers as independent contractors rather than employees. The employer filed a motion to compel arbitration based on an arbitration agreement signed by the employer and the delivery drivers. The court denied the motion to compel arbitration, and the employer appealed.

The appeals court held that a private arbitration agreement does not bar the Department of Labor from bringing an FLSA action. The FLSA allows the Department of Labor to seek monetary relief on behalf of employees. The court reasoned that the Department of Labor was not a party to the arbitration agreement, so it was not bound by the agreement. Therefore, the Federal Arbitration Act (FAA) does not require the Department of Labor to arbitrate the claim because it never agreed to do so.

Generally, a California employer is required to pay overtime if an employee works more than eight hours a day, more than 40 non-overtime hours in a workweek, a seventh consecutive day in a workweek—although some employees are exempt from overtime laws.

Alternatively, under California labor law, California employees may adopt an alternative workweek schedule upon the proposal of an employer. In this context, an alternative workweek schedule is any regular workweek schedule that requires an employee to work more than 8 hours in 24 hours without overtime—such schedules are standard in healthcare settings. An employee can agree to work up to 10 hours per day without overtime pay in an alternative workweek schedule. However, any hours an employee works beyond the alternative workweek hours or beyond 40 hours in a workweek are still subject to overtime pay.

Adopting an Alternative Workweek Schedule

California recently expanded its California Family Rights Act (CFRA), dramatically changing the legal landscape and available leave benefits to many employees in the state. Before enacting the CFRA, California law mirrored the federal Family and Medical Leave Act (FMLA). The newly expanded bill, signed by Governor Newsom, extends family and medical leave of absence requirements to employers with at least five employees in California. Further, the Act requires qualifying employers to provide unpaid protected family/medical/military leave to qualifying employees.

As the CFRA goes into effect, it will continue to impact the rights of California employees profoundly. The bill contains many significant changes, including the expansion of CFRA coverage to employers with five or more employees, rather than the previous standard of 50 or more employees. The new standard eliminates the requirement that employees work within 75 miles of the worksite. Further, the CFRA now includes additional family members from whom an eligible employee can take leave to provide care. These family members include siblings, grandparents, grandchildren, domestic parameters, and some qualifying adult children. The changes will also affect parents who work for the same employer. The CFRA provides that qualifying employers provide up to 12 weeks of leave in a 12-month period to each parent. Additionally, while FMLA covered leave for military duty, the pre-amendment CFRA did not provide leave for active military duty.

Prior to the change, the CFRA permitted employers to exempt the highest 10% earners in situations where the refusal to grant CFRA is necessary to prevent grievous economic injury. However, the new standard eliminates this 10% exemption option. Most notably, the changes eliminate some potential problems that arise when an employee attempts to evoke the CFRA and FMLA. The expansion will allow some employees to use leave under the CFRA and FMLA for a different qualifying reason. Finally, the new standard separates pregnancy disability leave into distinct rights under California state law, CFRA, and FMLA.

The California Supreme Court recently issued an opinion addressing whether belt sorting qualified as “public works” under California’s Labor Code (CLC). According to the record, the Los Angeles County Sanitation District (District) and a neighboring Recycling and Transfer facility operate the county’s transfer and disposal of trash. The defendant in this matter is a staffing agency that provides belt sorting workers to staff the two facilities. The defendant supervised the workers, who were not considered employees of the District. The plaintiffs filed a lawsuit against the defendant, alleging, amongst several issues, the company’s failure to abide by employment and wage law under section 1720(a)(2) of the CLC. In response, the defendants argued that the statute does not cover the District or the plaintiffs’ work. The trial court granted the motion, and the appeals court reversed the ruling.

California’s wage law works to “protect and benefit” those working on public works projects. From a public policy perspective, the law works to protect employees from substandard wages, allow union contractors to compete with nonunion contractors, and compensate nonpublic employees with higher wages to address the lack of job security and benefits they do not enjoy.

Under CLC, employers must provide prevailing wages to anyone “employed on public works”, including those working under a contractor or subcontractor on a project for public work. Section (a)(1) defines “public works’ to include construction, alteration, demolition, installation or repair work. Section (a)(2) further explains that public work is work done for “irrigation, utility, reclamation” and District improvement.

Recently, a national news source reported a finding by the National Labor Relations Board (NLRB) regarding Tesla’s illegal termination of a California employee. The findings affirmed a 2019 ruling that found that Tesla illegally threatened workers if they engaged in union activities. The employee, in this case, was organizing union participation by distributing pamphlets in the company’s California parking lot. Tesla fired the employee, attributing the termination to the employee’s posting of employees’ profiles on social media. About seven months after the termination, Elon Musk tweeted a statement that said, “why pay union dues & give up stock options for nothing?”

An NLRB administrative judge found that the termination was in retaliation for the employee engaging in union activities. Further, the judge ruled that the company engaged in employment law violations when it issued warnings to another worker for sending screenshots and sending them to the employee. Finally, the board ruled that Tesla’s confidentiality agreement contains an illegal provision that prohibits employees from speaking with the media without the company’s permission. The NLRB ruling requires Tesla to amend the provision in their confidentiality documents. Tesla has not issued a comment on the recent Board findings.

Certain federal and state laws protect California employees in organizing and joining a union. Unions are a critical way for employees to ensure that their employer negotiates in good faith over terms and conditions of employment, including work hours, and compensation. The National Labor Relations Act (NLRA) protects certain California employees from engaging in unionizing activities. Some protected activities include allowing employees to self-organize, form, join, or assist labor organizations, engage in collective bargaining agreements, and other related activities.

The law requires that employers provide non-exempt California employees the ability to receive meal breaks and rest periods. In some instances, employers must provide exempt employees with the right to take meal breaks. The law does not extend to certain workers such as farm and domestic workers, or personal attendants. Under the state’s wage and hour law, non-exempt employees must receive a thirty-minute meal break if they work more than five hours in a day. The employer must allow for the break within the first five hours of the workday. Those who work more than ten hours are entitled to a second 30-minute break. Similarly, employers must provide exempt employees with a ten-minute rest break for those working more than three and a half or more hours. Employers who violate these laws may be subject to a California employment lawsuit.

For instance, the Supreme Court of California recently decided two questions of law related to a class-action lawsuit against an employer for wage-and-hour violations. In this case, the defendant is a healthcare service and staffing company. The company assigned the plaintiff to work eight-hour days at various shifts. The defendant maintained a policy that the meal period was for an “uninterrupted” 30 minutes, and workers were relieved from job duties during and could leave the premises during this period. Further, the policy specified that supervisors should not discourage workers from using this meal period.

Although the policy seems to comply with the state’s wage and hour laws, an issue arose because the employees used an electronic timekeeping system that rounded their punched time to the nearest 10-minute allotment. For instance, if an employee clocked out for their break at 12:02 p.m. and returned at 12:25, p.m., the record would show a 30-minute break instead of a 23-minute break. This was most relevant when a nurse would take lunch at the end of their fifth hour of work. The defendants won their motions at trial on the basis that California’s wage-and-hour laws do not prohibit rounding.

California employees should familiarize themselves with the state’s strict mandates against non-compete and non-solicitation agreements. Unlike many other states, California Business and Professions Code section 16600 does not permit non-compete clauses, even if they are reasonable in scope and purpose. A non-compete clause or agreement, is also known as a “restrictive covenant.” These agreements dictate and restrict an employee’s actions after they are no longer working for an employer. In most cases, they work to restrict an employee’s ability to work for a competitor.

These clauses are against California employment law, and employers may be liable for wrongful termination if they terminate an employee who refuses to agree to the agreement. Public policy dictates that these agreements are unenforceable because of the fundamental power disparity between employers and employees. However, the bar on non-compete clauses generally only apply after termination, because employees have a common-law duty to their employer, while employed.

Despite these agreements’ illegality, California employers often present these agreements and take advantage of an employee’s lack of legal knowledge. Further, employers often evade liability for wrongful termination by utilizing a choice-of-law provision. This provision is an agreement that if the employer and employee are ever engaged in a dispute, they will use an agreed-upon state’s law to resolve the contention. However, California law prohibits employers from using choice-of-law provisions to get around the non-compete laws.

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