The Labor & Employment Group is dedicated to providing up-to-date, useful information to allow employers and human resources professionals to react to rapidly evolving case law, statutes, and regulations that control the California workplace. This blog’s objective is to serve as a forum to discuss labor and employment topics, issues and legal news.
Many employers routinely conduct background checks of potential and current employees. It comes to no surprise that in the current digital age, employers can obtain extensive background information on applicants and employees quicker than ever from third party reporting companies. However, employers must remain vigilant to avoid receiving information prohibited under federal, state, and local laws, and to follow the proper procedures.
In this age of expensive class-action litigation, many California companies have found solace in their arbitration agreements. Under certain circumstances, the enforcement of such agreements includes the dismissal of class action claims. This has largely been made possible by the Federal Arbitration Act (FAA) which requires judges to enforce a wide range of written arbitration agreements notwithstanding contrary state law. California courts have a long history of delivering rulings that attempt to narrow the scope and effect of the FAA. As one of the latest examples, the California Court of Appeal for the Fifth District held that truck drivers who complete only intrastate deliveries are exempt from the FAA because their work was part of a “continuous stream of interstate travel.”
In Nieto v. Fresno Beverage Company, Inc. (2019) 33 Cal.App.5th 274, a Fresno-based driver who delivered products for a beverage company filed a class action lawsuit against his employer alleging various wage and hour violations under California Labor Law. The employer responded by filing a petition to compel arbitration based on the written arbitration agreement the driver signed when he was hired. The employer argued that courts were required to enforce all arbitration agreements “involving” interstate commerce under the FAA, regardless of any contrary state law.
The driver argued that he was exempt from arbitration pursuant to Section 1 of the FAA, and thus should be able to maintain his class action in state court. Section 1 provides a narrow exemption from the FAA’s coverage to certain transportation workers “engaged in” foreign or interstate commerce. The employer contended that a delivery truck driver who does not personally cross state lines is, by definition, not “engaged in interstate commerce” or engaged in the movement of interstate commerce for purposes of Section 1 of the FAA, and therefore cannot qualify for the exemption.
The court sided with the driver, concluding that though the drivers’ individual deliveries were made entirely within the state of California, they were merely the final leg of a continuous journey of beverages to the employer’s warehouse from out-of-state. The Court held that “‘[i]nterstate commerce’ includes not only goods that travel across state lines but also ‘the intrastate transport of goods in the flow of interstate commerce.’” Nieto, 33 Cal.App.5th at 282-83. An actual crossing of state lines is not a necessary condition for the exemption to apply. The court cited cases like Palcko v. Airborne Express, Inc. (3d Cir. 2004) 372 F.3d 588, where the FAA exemption was applied to workers whose duties involved monitoring and directing drivers who physically delivered interstate packages, even though they weren’t driving at all. The court therefore found the driver to be a transportation employee exempt from the FAA. Consequently, the arbitration agreement was not enforced and the case was permitted to proceed as a class action in state court.
So what’s the takeaway for California employers? Given this Court of Appeals’ interpretation of the FAA, employees who facilitate the transportation of goods from out of state—as a driver, monitor, director or otherwise—are now more likely to successfully bring class actions against their employers, whether or not they signed bilateral arbitration agreements. The minimum degree of involvement required by employees in the transportation process is likely to be the subject of future litigation. In the meantime, arbitration agreements remain enforceable against employees who are not exempt from the FAA.
The Labor and Employment attorneys at Weintraub Tobin are happy to assist in the review and drafting of employment arbitration agreements. Feel free to contact us.
Mandatory arbitration agreements are a source of contention in employment law. However, since 2000, they are generally permissible in California. In response, the California Legislature has made repeated efforts to ban such agreements over the years. In the past, many such bills have passed both the state assembly and the state senate and have ended up on the Governor’s desk. However, none of the bills have been enacted into law. Nevertheless, Assemblywoman Lorena Gonzalez from San Diego has introduced Assembly Bill 51 (AB 51) in the current legislative session. This bill is nearly identical to the previous vetoed measures to make mandatory arbitration agreements illegal.
Current Status of AB 51
As of April 10, 2019, AB 51 has been referred to the California Assembly Appropriations Committee and has been placed on the suspense file. If the file is in suspense, it means the bill will be held in appropriations for further review (i.e., to determine whether the bill is worth the cost). Then, appropriations will have a hearing at some point to determine whether it comes off suspense, goes out of appropriations, and onto the assembly floor for a vote.
Likelihood of Passage
Much like the predecessor bills, AB 51 may end up on Governor Gavin Newsom’s desk. However, it is too soon to tell whether or not Governor Newsom will conform to his predecessors on this issue. Stay tuned.
For years, California courts have recognized the right of employers to use non-solicitation provisions in employment agreements to prevent employees from “soliciting” their coworkers to join them at a new employer. For instance, in 1985, a California appellate court in Loral Corp v. Moyes, 174 Cal.App.3d 268 (1985), held that a non-solicitation of fellow employees provision in an employment agreement was lawful because the co-workers were free to seek employment with a competitor, they just couldn’t be contacted first by the departing employee.
The enforcement of non-solicitation of co-worker provisions remained relativity consistent until November 2018 when a court in AMN Healthcare, Inc. v. Aya HealthCare Services, Inc., 28 Cal.App.5th 923, enjoined an employer from enforcing a co-worker non-solicitation provision against former employees. The Court held that the co-worker non-solicitation provision violated section 16600 of the California Business and Professions Code, which provides that agreements that restrain a person’s trade or profession are unenforceable. The AMN Healthcare Court relied heavily on the California Supreme Court’s ruling in Edwards v. Arthur Andersen LLP, 44 Cal.4th 937 (2008), which broadly struck down non-compete agreements preventing employees from competing with their former employer.
It remained an open question following the AMN Healthcare decision whether other courts would follow its holding concerning the unenforceability of an employee non-solicitation provision. For instance, would other courts limit its holding and decline to follow it because:
(1) The former employees who were being sought to be restrained by AMN were recruiters such that any prohibition on solicitation would necessarily restrain them in their profession as recruiters; and
(2) The former co-workers they were targeting for recruitment were temporary nurses who served short assignments so that enforcing the non-solicitation provision could limit those employees’ ability to obtain new work after their temporary assignments ended.
Now, two months later, another court appears to be following the lead of the AMN Healthcare court and is allowing a claim to go forward attacking a co-worker non-solicitation provision. In Barker v. Insight Global, LLC (Jan. 11, 2019 N.D. Cal.), Judge Beth Labson Freeman recently reversed herself and granted the plaintiff-employee’s motion for reconsideration to allow him to state a claim as a class representative against his former employer for the use of co-worker non-solicitation provisions in its employment agreements. Judge Freeman held that the recent AMN Healthcare decision (her initial order dismissing the claim came three months prior to the AMN Healthcare decision) was likely consistent with the current state of California law regarding these non-solicitation provisions, especially in light of the Edwards v. Arthur Andersen decision. She denied the defendant-employer’s motion to dismiss the former employee’s claim and ruled that plaintiff should be allowed to present a claim that the use of an employee non-solicitation provision in his employment agreement violated section 16600 and was therefore an unfair business practice.
The Barker case is still in the early stages but employers should be concerned that a court has decided to follow the holding of the AMN Healthcare decision. In light of these recent developments, employers should carefully review any non-solicitation provisions in their employment agreements with their attorneys to determine whether they are at risk at facing claims similar to those asserted in the AMN Healthcare and Barker cases.
California employers covered by the California Family Rights Act (“CFRA”) and/or the California New Parent Leave Act (“NPLA”) should take note that California’s Department of Fair Employment and Housing (“DFEH”) has issued two new documents that are relevant to the administration of an employee’s leave under these laws.
Family Care and Medical Leave and Pregnancy Disability Leave Notice.
The DFEH’s new Notice provides notice to employees that under the CFRA they can take up to 12 workweeks within a 12 month period for the birth, adoption, or foster care placement of their child or for their own serious health condition, or that of their child, parent, or spouse, if they meet the eligibility requirements for leave under the statute – which are: more than 12 months of service; 1,250 hours in the 12-month period before the date leave begins; and are employed at a worksite where the employer has 50 or more employees at that worksite or within a 75 mile radius. So far, nothing new right?
The Notice then goes on to advise employees that if the employer employs less than 50 employees, but at least 20 employees, at the worksite or within a 75 mile radius, the employee may have a right to take leave for the birth, adoption, or foster care placement of a child under the NPLA. Unfortunately, the Notice is a little vague in that it does not expressly notify employees that the NPLA also requires that they meet the other two eligibility requirements (more than 12 months of service with the employer and 1,250 hours of work in the 12 months prior to the date the leave is to begin). Instead, the Notice only refers to the CFRA when outlining those two eligibility requirements. Nevertheless, that NPLA is clear that such eligibility requirements must be met before an employee can take protected leave under the NPLA.
Certification of Health Care Provider [for California Family Rights Act (CFRA) or Family and Medical Leave Act (FMLA)]
The DFEH’s Health Care Provider Certification is straight forward and can be used for the serious health condition of the employee or if the employee needs CFRA/FMLA leave for the serious health care of his/her family member. IMPORTANT: California employers should use the DFEH’s Certification form (or another similar form) instead of the federal DOL FMLA-Medical Certification form because, unlike under the FMLA, employers are not entitled to obtain information about an employee’s (or their family members’) medical diagnosis under CFRA.
The Employment attorneys at Weintraub Tobin have years of experience assisting employers in preparing compliant and effective leave of absence policies and administration practices. Feel free to reach out to one of them today if we can be of assistance.
SACRAMENTO, Calif. — It started with installing some red and green LED lights. Then came the disco balls, neon eyeglasses and a gold Bluetooth karaoke microphone.
Daniel Flannery had transformed the car he drives for Uber and Lyft into a party on wheels.
“You put everything together, and it encourages people to loosen up,” he said. “Sometimes, I have people call me up and say, ‘We don’t want to go anywhere — we just want to drive around and sing.’”
Flannery, who drives to supplement his retirement income, said he loves the freedom that comes with it — setting his own schedule and adding his own flair to what he dubs his “Swag Rides.”
Much of that freedom comes from being classified as an independent contractor. But a 2018 California Supreme Court decision could change the nature of working in the gig economy while providing a model for other states.
The “Dynamex decision,” as it’s commonly called, established a new test for how businesses in California must classify workers. Depending on how the state legislature acts, employment experts say the decision likely will require a range of businesses — from ride-hailing companies to trucking firms to barber shops — to reclassify independent contractors as employees or to restructure their business models.
Critics argue the decision threatens to disrupt industries that have traditionally relied on independent contractors. Some contractors, like Flannery, say they are worried that being reclassified as an employee would limit the professional freedom they currently enjoy in their work schedule, habits and rates.
But labor advocates argue the decision can help ensure that the growing number of gig workers receive benefits, such as health insurance coverage, and workplace protections, such as a guaranteed minimum wage, overtime and workers’ compensation.
While some businesses have started reclassifying workers under the new court test, others are awaiting the outcome of an ongoing battle in the California legislature. Lawmakers might codify the test in state law, override the decision or create carveouts for specific industries.
“We want to clear up any confusion about the new test,” said Democratic Assemblywoman Lorena Gonzalez, who introduced a bill in December to preserve the court’s decision in the state labor code. “Instead of going piece by piece through the court system, we want to codify it in law.”
Employee vs. Independent Contractor
The new test established three criteria for employers to use to identify a worker as an independent contractor: The worker must be free from the employer’s “control and direction” in carrying out duties; must perform a job outside the employer’s usual line of work; and must regularly do the same type of work as will be done for the employer.
The court reached its decision in a lawsuit filed by drivers for Dynamex, a delivery and logistics company that ships goods to consumers. In 2004, the company reclassified its employees as independent contractors. Drivers now had to use their own vehicles and cover work-related expenses, such as liability insurance, fuel and vehicle repairs.
The drivers pushed back, taking legal action to preserve their status as employees. The court’s decision determined Dynamex’s drivers should be classified as employees. The decision set a precedent that would ostensibly apply to all employers in California.
The Dynamex test is modeled on nearly identical tests established in other states. Massachusetts changed its labor laws in 2004 to apply the same test criteria, which has sparked legal challenges by independent contractors aiming to be reclassified and by businesses that want to continue to classify workers as independent contractors.
New Jersey’s labor laws apply the same test, but state elected officials disagree over its application and enforcement.
In 2013, then-Gov. Chris Christie vetoed a bill that would have automatically classified truck drivers as employees and imposed harsh penalties against trucking companies that misclassified drivers. The Republican argued it would make New Jersey “unfriendly to the trucking industry.”
The requirement that a worker perform a job outside the employer’s usual line of work is the most crucial part of the test, said Lukas Clary, a Sacramento-based labor and employment attorney at Weintraub Tobin Chediak Coleman Grodin Law Corp.
“Almost all pre-Dynamex independent contractors were hired to perform work that is within the scope of the company’s business,” Clary told Stateline.
Clary said some industries, such as the trucking industry, see the new test as an “existential” threat.
“This decision will potentially put me out of business — and thousands of people like me,” said John Pitta, the owner-operator of a trucking business in Salinas.
Pitta drives a dump truck, a niche that makes his services in demand. He contracts with larger trucking companies as an independent contractor. He said he fears the Dynamex decision will dissuade large trucking companies from hiring him because they won’t want to classify him as an employee.
In July, the Western States Trucking Association, which represents large trucking outfits and independent truckers in 11 states, filed suit against the state of California in federal court, claiming the Dynamex decision is pre-empted by the Federal Aviation Administration Authorization Act of 1994. That law prohibits states from enacting laws “related to a price, route, or service of any motor carrier.”
“Trucking companies … will either have to dramatically increase their prices to account for all of the additional costs associated with hiring employees, or they will have to dramatically reduce the quantity and quality of services they provide,” according to the association.
Clary said many California businesses have started to reclassify their workers as employees, while others are attempting to adjust their business model.
“Misclassification can be extremely costly,” Clary said. “If enough workers are misclassified, the claims can be brought as class or representative actions, and the damages could be multiplied across the workforce.”
Drivers and Barbers
About 1 in 10 Californians in the previous year had participated in the gig economy, such as driving for companies like Uber and Lyft, a 2018 survey found. Conducted by the Public Religion Research Institute, a nonpartisan polling group, the survey found that nearly half the Californians who participated in the gig economy were low-income.
The decision should extend employee benefits, such as guaranteed minimum wage, health care coverage and overtime pay, to gig economy workers, argues Shannon Liss-Riordan, a class action attorney and partner at Lichten & Liss-Riordan, P.C. in Boston.
Liss-Riordan said she has filed lawsuits on behalf of workers against all major gig economy employers, including Uber, Lyft, Postmates and DoorDash.
Liss-Riordan is currently representing a worker in a lawsuit against Grubhub in the U.S. Court of Appeals for the 9th Circuit in California. The case seeks a declaration from the court that the worker is an employee under the new Dynamex test.
But Loni Mahanta, vice president of public policy development at Lyft, said in a statement that the company’s drivers “are independent contractors who decide when, where and for how long they wish to drive,” and that “they tell us that this flexibility is incredibly important to them.”
Flannery, the Uber and Lyft driver, said the flexibility goes beyond the lights and karaoke microphone in his car — he also has a medical condition that can prevent him from working, so he said he needs to have control over his schedule.
Uber, DoorDash and Grubhub did not respond to requests for comment.
Scheduling employees is becoming more difficult for employers, and the State seems to be hurtling toward predictive scheduling laws.
Last month, my partner Lukas Clary blogged about the recent California Supreme Court case, Ward v. Tilly’s, Inc., in which the Court ruled that “reporting time” pay is owed whenever an employee is required to “report” to work, even if that “report” is by phone, instead of physically showing up for work. In Tilly’s, the employer required employees to call in two hours before their shift to find out whether they were needed, or not. If needed, the employees would come to work; if not, Tilly’s did not pay the employees any compensation. The Court ruled that this was a violation of the applicable Wage Order, finding that Tilly’s requirement that employees phone in, triggered the obligation to pay the employee a “reporting time” premium (between one and four hours of pay).
Tilly’s “on call” practice was one of several ways that many employers, especially in the retail and hospitality industry, try to adjust schedules based upon unpredictable workforce needs. The Court’s decision in Tilly’s did not find that “on call” scheduling is unlawful – only that this practice does not avoid an employer’s reporting time pay obligations. The take away from this ruling for conservative employers is that any other affirmative “call in” required – such as sending a text, or requiring employees to log on to a scheduling app or portal – would probably be viewed the same way as the telephone report. But, Tilly’s left open a question – how far in advance, if at all, can an employer ask employees to confirm their schedule, without owing a premium? And, if any advance call-in triggers a reporting time obligation, what’s the alternative?
One possible alternative that has been proposed by some clever employers could be to schedule employees for “split shifts”. This means scheduling employees for two separate, shorter shifts during the workday – i.e., a morning shift, followed by a gap that is longer than a meal period, followed by another shift later in the day. This would, in theory, allow an employer to tell the employee during their first shift that the employee’s second shift is canceled. The employee would not technically “call in” or “report” for the second shift – that shift would simply have been canceled before the end of the employee’s early shift. Employees, especially in a tipped workplace, might even find this option preferable to an on-call arrangement, since they’d have more certainty of at least some work, and would potentially earn more money by comparison to receiving just the reporting time premium if they are called off for the whole shift.
This method is not without its own drawbacks. First, if the employee does work that second shift, then the employer would owe a ‘split shift’ premium. But, since split-shift premiums are paid at minimum wage, and are fixed at one hour (as opposed to being one to four hours), this may be less costly than reporting time pay. Also, because the premium can be offset, for employees who earn more than minimum wage, a split shift premium may cost the employer less than the reporting time premium for the same cancelled shift. (A “split shift” occurs only when an employee’s scheduled working hours are interrupted by one or more unpaid, nonworking periods established by the employer – other than bona fide rest or meal periods.) Second, a word of caution: employers must ensure that employees are truly “off duty” and relieved of all duties between shifts, or else they are entitled to minimum wage for the time the employee is waiting to work.
The California Court of Appeal addressed split shifts in a 2011 case involving workers who worked graveyard shifts in Securitas Security Services USA, Inc. v. Superior Court. That decision was employer-friendly, in that merely starting work on one day (i.e. Tuesday at 10:00 p.m.) and working continuously into the next day (i.e., Wednesday at 5:00 a.m.) does not trigger a split shift premium. But, here too, the court left open a fundamental question: how many hours must there be between two scheduled shifts, to avoid it being a “split” or being considered “on call” and on duty? There is no hard rule covered by federal or state law or the Wage Orders for most employees (except for certain positions, like airline pilots or truckers). This is a particular concern in a 24-hour facility, or a restaurant/bar open from morning to 2 a.m., where employees may be scheduled for “clopenings” – working until closing one day, and come back several hours later and open. This option, too, may also be going the way of the dinosaur.
The trend among cities like San Francisco, New York, and Seattle and the state of Oregon, is to regulate employee scheduling that leaves little flexibility or predictability for employees, putting the burden of unpredictable staffing needs fully on the employers. In 2017, for example, the city of Seattle outright banned “clopening” shifts, unless the employee consented, and was paid at 150% of their regular rate if shifts are separated by less than 10 hours.
Another alternative is to simply overschedule employees, and then cancel shifts before they “report” to work, or using “just in time” scheduling software to generate schedules with very little advance notice. Currently, California law does not prohibit these practices, and employers are permitted to cancel any employee’s shift without penalty as long as they have not reported to work (by phone or in person).
But, again, the trend is shifting toward regulating how much notice an employer can give an employee. The City of San Francisco – the first California city to enact predictive scheduling rules – passed the San Francisco “Predictable Scheduling and Fair Treatment for Formula Retail Employees Ordinance”. This ordinance applies to “Formula Retail Establishments” (including their janitorial and custodial staff) in the city with 20 or more employees in San Francisco and 40 employees worldwide. It requires covered employers to (among other things) provide “predictability pay” for both on-call work and schedule changes. Covered employers must provide employees with their schedules two weeks in advance, and if the schedule is changed within 7 days, to pay compensation of 1 to 4 hours depending on the amount of notice and length of the shift. On-call shifts – defined as a shift where the employee confirms their shift less than 24 hours in advance of the shift – are allowed, but the employer must provide 2 to 4 hours of pay if the employee is not called into work (with some exceptions). Further, on-call shifts must be written into the schedules.
As our clients often lament, the options available to employers are few and most are not without a cost – and lobbyists have been pushing since 2015 for state-wide predictive scheduling rules, bans or limitations on the use of on-call shifts, and requirements for advance notice of scheduling changes. It remains to be seen what the next legislative session will bring. Until then, employers using on-call, split shifts and other flexible scheduling devices are should work with legal counsel to ensure current practices are lawful and to keep themselves apprised of changes in the law, statewide and in cities and counties.
California’s minimum wage is set to increase annually over the next three years, and businesses large and small are feeling the pinch.
On Jan. 1, the minimum wage rose from $11 to $12 for companies with more than 25 employees, and from $10.50 to $11 for companies with 25 or fewer employees. The state minimum wage will increase to $15 in 2022 for companies with more than 25 employees and in 2023 for companies with 25 or fewer employees. That increase is up from $10 an hour — or $10.50 for companies with more than 25 employees — in 2017.
Labor advocates argue an increased minimum wage in California is necessary to keep up with the state’s rising cost of living. California has one of the highest poverty rates in the country, with 19 percent of its population — or about 7 million people —living in poverty, according to the U.S. Census Bureau.
But increasing the minimum wage is not as simple as an incremental 50-cent or dollar bump for a company’s lowest-paid employees. It also requires employers to pay increased workers’ compensation and payroll taxes. Additionally, a rising minimum wage often results in higher-paid workers’ wages to also increase. The state labor code, for example, requires certain exempt employees to make at least twice the salary of a minimum-wage worker. Increases in minimum wage, as a result, may require companies to also increase wages for many middle-tier employees.
Business cost increases from the continuing rise in the minimum wage have left a range of industries — from farms to restaurants — struggling to increase revenues without passing all of the burden onto the customer. Some companies with limited ability to increase revenue — such as nonprofits — have been left to renegotiate long-term contracts and find creative ways to raise money. California’s steady increase in the minimum wage could also factor into a company’s decision to relocate to California from another state.
“The thing about policy changes is you need to keep an eye on unintended consequences,” said Barry Broome, CEO of the Greater Sacramento Economic Council.
From farm to fork
Sacramento has proclaimed itself America’s Farm to Fork capital. California’s minimum wage hikes are impacting businesses across that supply chain.
Judith Redmond, co-owner of Full Belly Farm in Yolo County, said wages, benefits and payroll taxes make up about 65 percent of her farm’s expenses. Minimum wage increases are poised to increase those costs.
“We would love to pay our employees more,” Redmond said. “The farmworkers are probably working a whole lot harder than many people that earn a whole lot more. However, if we did pay our employees more, people would have to be willing to pay more for their vegetables, or agree that farms that grow fresh produce should move out of California.”
Additionally, the landscape of state and local minimum-wage requirements complicates transporting and selling goods from the farm, Redmond said. Full Belly’s truck drivers make well above minimum wage, Redmond said, but the farm typically sends a co-pilot to assist with loading and unloading the truck. If the truck travels to a local jurisdiction with a higher minimum wage —such as San Francisco, which has a $15 minimum wage — the co-pilot needs to mark his or her time card during the time worked in those jurisdictions to reflect the local pay rate.
The same goes for workers who staff booths at farmers markets.
“Many of those workers are interns, getting an education about agriculture while working at our farm and earning minimum wage,” said Redmond. “When they work at the farmers market, the law is that they would have to be paid the minimum wage of that (location) rather than the minimum wage of the state.”
n the other end of the farm-to-fork chain, area restaurants are also wrestling with minimum-wage increases.
Andy Smith, owner of the former Bread Store at 1716 J St., told the Business Journal that increases in minimum wages “absolutely” contributed to his decision to close the bakery and sandwich shop.
“As soon as minimum wage goes up, everything goes up — workers’ comp, payroll tax,” Smith told the Business Journal. “It’s not just a couple dollars increase.”
A cannabis dispensary operating under the name Kolas has been proposed for the location at 1716 J St. Smith, who owns the building at that address, will be the landlord for the new business.
Smith said restaurants like the former Bread Store have few options but to pass on cost increases to customers.
“A sandwich now is $8.59,” he said. “If I was here in two or three years, it would be 10 bucks.”
Ike’s Love & Sandwiches, a San Francisco-based sandwich chain that recently opened a location on 16th Street in Sacramento, chose to give patrons the option to pay a surcharge to cover increased costs from minimum wage increases.
“A voluntary surcharge of 75¢ will be added to every transaction in our support of the recent increases in minimum wage and benefits for our dedicated employees,” states a placard placed at ordering kiosks at the Sacramento location.
It’s unclear if the placards have been successful — or if the message was well-received. According to Ike’s spokeswoman Kelsey Koster, the chain is currently removing the placards from all locations, though she declined to elaborate on the motivation behind the decision.
Minimum wage increases present unique challenges for the nonprofit sector.
Nonprofits “receive a significant amount of funding from the government,” said Jan Masaoka, CEO of the California Association of Nonprofits, or CalNonprofits. “Those are typically long-term contracts and the wages they reimburse are stated in the contracts. When the minimum wage goes up, those contracts don’t go up.”
Nonprofits may be able to renegotiate those contracts, Masaoka said, but sometimes the contracting agency’s budget is tapped out.
According to a recent CalNonprofits survey, minimum wage workers make up about 11 percent of the nonprofit workforce. Masaoka said nonprofits are often compelled to raise the wages of workers who make just above minimum wage and some middle-tier exempt employees when a minimum wage hike goes into effect.
As a result, a smaller nonprofit’s expenses may increase by tens of thousands of dollars, according to Masaoka. For larger nonprofits, she said, “it’s hundreds of thousands and even millions of dollars.”
“People deserve to be paid more and need to be paid more, but that leaves the organization stuck between a rock and a hard place,” Masaoka said.
Some nonprofits are forced to cut back employee hours, training and volunteer recognition, she said. Organizations can try to increase their fundraising, Masaoka said, but that can be difficult.
Another option is to reduce salaries or hold off on pay increases for higher-paid workers. But that may threaten a nonprofit’s long-term sustainability.
“When you decrease the salaries of higher-paid workers, it reduces the likelihood they’re going to stay,” Masaoka said.
Roseville-based Pride Industries — a nonprofit with nearly 5,600 employees that provides disabled individuals with jobs in maintenance, manufacturing and custodial services — has had to reassess its approach to contracting and staffing as California’s minimum wage continues to increase.
“As our cost drivers increase, (it means) our customers want more for less,” said Steve Twitchell, senior vice president of marketing, business and development strategy. “In order to try to absorb that, we focus on innovation and technology to try to drive costs down.”
When providing manufacturing services, for example, Twitchell said Pride looks for opportunities for greater automation. When providing facilities management, Pride has introduced technology for more efficient scheduling and ticketing procedures.
Twitchell acknowledges that one potential consequence of implementing more automation and technology is staff reductions.
“At the end of the day, the more automation and innovation you introduce, the more the likelihood it will reduce labor,” he said.
Impacts on the region’s economy
While ensuring workers have a living wage is important, a spike in the minimum wage over a short period of time can be problematic for the broader economy, said Broome of the Greater Sacramento Economic Council.
One potential consequence: scaring off out-of-state companies looking to relocate to California.
“We had an 800-job Amazon supplier looking at West Sacramento that literally got down to signing the lease,” Broome told the Business Journal. “They left over the increasing minimum wage.”
The deal fell through in 2017, Broome said. He said the company worked through a relocation agency, so its identity remained undisclosed. Out of the 800 employees the company planned to bring to West Sacramento, according to Broome, the company planned to pay 200 about $12 an hour. The imminent minimum wage increases to $15 an hour by 2022, Broome said, ultimately scared off the company.
“If you add that up over time, you’re going into the millions,” Broome said, speaking about the additional costs the company would have faced from minimum-wage increases.
The company likely would have had to increase salaries for exempt employees, too. So-called “white-collar” exempt employees in California must make at least twice the minimum wage, according to the state labor code. In 2017, that minimum salary for exempt workers was about $43,700 at companies with more than 25 employees and $41,600 at companies with 25 or fewer employees.
By 2022, the minimum salary for exempt employees will be over $62,000 at companies with more than 25 employees and over $58,000 at companies with 25 or fewer employees. That represents a 40 to 43 percent increase in the minimum salary for exempt employees in the span of about five years, depending on the size of the company.
Lizbeth West, shareholder in the labor and employment practice at Weintraub Tobin Chediak Coleman Grodin Law Corp., said some of her clients have expressed concern about meeting the new salary requirements for exempt employees when the minimum wage reaches $15 an hour. She said some employers may look to drop employees’ exempt status to avoid the requirement.
“If you have an employee who meets exempt status requirements, (state law) doesn’t mandate that you classify them as exempt,” West said. “But if you don’t classify them as exempt, that adds other burdens.”
For non-exempt employees, the employer would have to maintain timecards, pay daily and weekly overtime and ensure employees take the appropriate meal and rest breaks. Failing to meet these requirements could expose employers to costly litigation, including suits under the Private Attorneys General Act.
“It really is going to be a case-by-case analysis, because (changing exempt status) may not help,” West said. “If an employee is working a lot of hours, they’ll have to be paid significant overtime, and that may end up costing more in the long run.”
Figuring out how many employees to schedule each day can be an inexact science. Unexpected surges or lulls in customers, employee absences due to illness or emergencies, and various other circumstances can impact personnel needs. Employers sometimes choose to navigate these situations by overscheduling and then cutting loose employees who are not ultimately needed. That approach, however, triggers “reporting time” obligations, under which those employees are entitled to a minimum amount of pay for reporting for work. But what does it mean to “report for work”? What if an employer allows employees to call in a few hours before a scheduled shift to determine whether they are needed? Are employees required to physically show up to trigger reporting time obligations, or do these phone calls constitute “reporting for work” for this purpose? The answer is the latter according to a recent California appellate court in Ward v. Tilly’s, Inc.
Tilly’s employed the plaintiff, Skylar Ward, as a sales clerk in one of its California stores. Tilly’s often scheduled Ward and other employees on “call-in” shifts. Under these shifts, employees had a designated beginning and end time, but were required to call the store two hours beforehand to determine whether they were in fact needed. If the employees were needed, they would show up and work the shift. If they were not needed at the time of the call, they would not have to show up.
Ward alleged that the call-in shifts violated the “reporting time” requirements found in Industrial Welfare Commission Wage Order Number 7, which regulates the retail industry. She sued on behalf of herself and all other Tilly’s employees who worked call-in shifts.
The case turned on what it means to “report for work” under the Wage Orders. In this case, Wage Order Number 7 provides that for each workday “an employee is required to report for work and does report, but is not put to work or is furnished less than half said employee’s usual or scheduled day’s work, the employee shall be paid for half the usual or scheduled day’s work, but in no event for less than two hours nor more than four hours.” Boiled down, that means if an employee “reports for work” and is not needed, or is cut loose less than halfway through their shift, there is a legal minimum amount the employee must be paid. Similar language can be found in almost all of the Wage Orders, which are broken down by industry and occupation.
Under Ward’s argument, she and other employees had “reported for work” each time they called in to see if they were needed. Therefore, for any shift that they called in and did not have to physically show up, Ward argued that the employees were entitled to reporting time pay. Tilly’s countered that to “report for work” under the Wage Order requires that the employees physically show up at the job location at the beginning of the shift.
The court agreed with Ward, holding that if an employee is required to phone into work in advance of a shift, that call constitutes reporting for work under Wage Order 7. Specifically, the court held that to “report for work” within the meaning of the Wage Orders is best understood as “presenting oneself as ordered,” whether by physically showing up, calling in, or otherwise.
In reaching its decision, the court noted that call-in shifts provide a huge benefit to employers by allowing them to “create a large pool of contingent workers whom the employer can call on if a store’s traffic warrants it, or can tell not to come in if it does not, without any financial consequences to the employer.” By contrast, the court held that such shifts “impose tremendous costs on employees,” who cannot commit to other responsibilities—such as working other jobs, scheduling classes, tending to childcare needs, and scheduling social activities—while on call. According to the court, these employer benefits and employee burdens are no different when an employee is required to physically show up or just call into the store in advance. Because the Wage Orders’ reporting pay obligations were intended to incentivize businesses to competently anticipate scheduling needs and not shift the burden of scheduling uncertainty to employees, the court held that the obligations are equally triggered by call-in requirements.
Next Steps for Employers
Employers who already utilize call-in shifts are going to need to immediately assess that practice. Unless the California Supreme Court decides to review or de-publish the Ward v. Tilly’s, Inc. opinion (which remains possible), then call-in scheduling without providing reporting time pay exposes employers to claims for unpaid wages and associated penalties. For medium and large-sized employers, a company-wide call-in policy could result in a class action lawsuit.
To avoid these risks, employers should consider eliminating call-in policies or committing to providing reporting time pay to employees who call in and are not needed. Alternatively, employers may consider ensuring that, even on slower shifts where some on-call employees are not needed, the employees report and work at least half of their scheduled shift before being let go. One other possible option would be for employers to predetermine a select group of employees who are available to work on short notice, and then contact those employees when it appears extra help is going to be needed. While none of these options present an ideal replacement for the convenience of call-in scheduling, the risk of liability associated with that practice mandates employers find the next best option.
With the ever increasing number of claims filed with the Department of Labor and California Labor Commissioner for unpaid overtime, and the increasing number of wage and hour class action lawsuits, the importance of correctly classifying employees as exempt or non-exempt is clear. This seminar is designed to help employers and HR professionals gain a more thorough understanding of the various exemptions available under California law and learn how to conduct an exemption analysis in order to reduce potential liability.
A discussion of the exemptions available.
Checklists for determining if your employees are exempt.
How to conduct a self-audit to ensure that employees are properly classified.
What to do if your employees have been misclassified.
What are the courts saying – highlights of decisions regarding exemption issues in California.
Location: Weintraub Tobin, 400 Capitol Mall, 11th Floor, Sacramento, CA
Webinar: This seminar is also available via webinar. Please indicate in your RSVP if you will be attending via webinar.
Parking Validation provided. Please park in the Wells Fargo parking garage, entrances on 4th and 5th Street. Please bring your ticket with you to the 11th floor for validation.
There is no charge for this seminar.
Approved for two (2) hours MCLE. This program will be submitted to the HR Certification Institute for review. Certificates will be provided upon verification of attendance for the entirety of the webcast.