California Employment Law

Employers take note! A Court held an employer’s ignorance of a higher minimum wage set by local ordinance can constitute a “willful failure to pay”, resulting in waiting time penalties. California courts are permitted to award an employee a waiting time penalty (of up to 30 days’ worth of the employee’s wages), if the employer “willfully fails to pay” the employee her full wages immediately (if discharged/terminated), or within 72 hours (if she quits)¹. A waiting time penalty can also be awarded when the employee’s final paycheck is for less than the proper wage (minimum wage, prevailing wage, or living wage).

In Diaz v Grill Concepts Services², the appellate court found that the restaurant’s failure to pay the required living wages to terminated employees amounted to a willful failure to pay, justifying waiting time penalties. The restaurant was located in a special zone by the airport that was subject to an ordinance requiring a living wage that was higher than California’s minimum wage. What constituted a living wage was determined by the ordinance and when the ordinance was amended, the required wage increased. The restaurant was sued by terminated employees who sought waiting time penalties.

A failure to pay is willful if the employer knows what it is doing and intends to do what it is doing³. The restaurant’s HR director suspected it might be underpaying its employees as she saw a newspaper article that referenced a higher wage. The restaurant made one inquiry to try to determine the requisite wage, but was told that an amendment to the ordinance was “in process.” The restaurant purportedly took no further action beyond periodically searching the internet to see if the ordinance had been amended. The Court found the employer’s ignorance coupled with a failure to determine the wage was a willful failure to pay, justifying waiting time penalties.

A link to UC Berkeley Labor Center’s Inventory of Minimum Wage Ordinances is here. According to the Berkeley Inventory, some municipalities with living wage ordinances include: Albany, Berkeley, Davis, Emeryville, Fairfax, Hayward Los Angeles, Los Angeles Airport Hospitality Enhancement Zone, Marin County, Oakland, Oxnard, Pasadena, Petaluma, Port Hueneme, Port of Los Angeles, Port of Oakland, Richmond, Sacramento, San Diego, San Francisco, San Jose, San Leandro, San Mateo County, Santa Barbara, Santa Clara County, Santa Cruz, Santa Cruz County, Santa Monica, Santa Monica Hotel Worker Living Wage, Sebastopol, Sonoma, Sonoma County, Ventura, Vernon, Watsonville and West Hollywood.

 


¹California Labor Code section 203.
²Diaz v Grill Concepts Services, Cal. Ct. App. 2nd District, 05/24/18 Case No. B280846.
³In re Trombley (1948) 31 Cal.2d 801, 807.

The California Supreme Court’s ruling this morning in Alvarado v. Dart Containers may have many employers scrambling to verify their overtime pay calculations. The Court rejected Dart’s complicated overtime calculations, which utilized a multiplier of 0.5 instead of 1.5, and which, in calculating the “regular rate” of pay to determine overtime pay, used a divisor of the total hours worked, including overtime. According to the Supreme Court, to account for overtime premium associated with a flat sum bonus, the correct calculation is the amount of the bonus divided by the regular hours worked by the employee, multiplied by 1.5.

Thus, to correctly calculate the total overtime compensation due to the employee, the calculation is as follows:

(overtime hours x regular rate x 1.5) + (bonus/regular hours worked x overtime hours worked x 1.5) = total overtime compensation

Importantly, this rule applies retroactively, exposing any company that incorrectly calculated overtime rates to statutory penalties, whether or not the mistake was made in good faith.

While still new enough that most employers don’t yet know what a “PAGA” claim is, a claim under PAGA (the four letter acronym for Private Attorney General Act) can indeed be a curse to those employers unlucky enough to have made its acquaintance. You see, under the Labor Code PAGA, aggrieved employees are allowed to file suit on behalf of the State of California Labor and Workforce Development Agency, themselves, and other employees to collect penalties for any violation of the California Labor Code.

If the Labor Code already specifies a civil penalty for violation of a specific provision, then an employee may attempt to collect that penalty for themselves and on behalf of other aggrieved employees. If the underlying Labor Code section does not specify the civil penalty, the PAGA penalty is equal to $100 for each employee per pay period for the initial violation, and $200 for each employee per pay period for each subsequent violation. Cal. Lab. Code §2699(f)(2).  Thus, given the breadth of the California Labor Code and the numerous opportunities for unintentional violations, the potential penalties are staggering. Even more, a successful employee will be awarded their attorney fees and costs.

Not only is there monetary incentive to assert PAGA claims (75% of the monies go to the State, and 25% to the employees), but plaintiff’s attorneys will often assert a PAGA claim as a backup in a class action because unlike class actions, a PAGA class does not have to be certified.  Additionally, PAGA claims are not waivable, whereas rights to assert class action are. Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014).

In July 2017, the PAGA claim became even more powerful.   In Williams v. Superior Court, 3 Cal.5th 531 (2017) the Supreme Court of California unanimously reaffirmed the broad scope of discovery in civil litigation, and held that plaintiff was entitled the name and contact information of all of the employer’s 16,500 employees, not just those of the workers in plaintiff’s store. In doing so, the Supreme Court rejected the notion that plaintiff must first show good cause or some likelihood of success on the merits before receiving such information. It reversed the trial court’s order that plaintiff must first answer deposition questions to establish some merit to plaintiff’s action before seeking that discovery.

The upshot of Williams is that a single employee, even on a weak or frivolous case, can force an employer to engage in extensive and costly discovery, and can expand the potential liabilities to such an extent that most employers cannot bear the risk of not settling.

With respect to PAGA, the saying “the best defense is a good offense” couldn’t be more true. Some Labor Code violations are considered “not serious” and are subject to a 33 day cure period before the employee may sue. Employers should contact their counsel immediately to ensure that the violations are properly corrected within that period. But even before a suit is filed, employers can mitigate their exposure to a PAGA suit by carefully examining their policies, procedures, and practices to preemptively spot any potential Labor Code violation and take corrective action.

Whether you have been sued under PAGA, or are simply looking to avoid a PAGA suit, we can help you.

Employers, it’s time to pull out the drafting pen and make an important change to your job application forms. Almost all job applications ask for basic information, including the applicant’s education and job history.  Under job history, application forms usually seek the names of prior employers, positions held, dates of employment, and salary history. But starting January 1, 2018, it will be illegal in California to ask, directly or indirectly, for an applicant’s salary history. Care must be taken to remove the salary history information requests from the application- even if the applicant does not fill out the information, the employer has improperly required the prohibited information. Care must also be taken to warn hiring managers and other job interviewers to avoid inquiry on past salaries in efforts to determine a salary offer. Further, an employer, upon reasonable request, is required to provide an applicant with the pay scale for the position. California employers should be prepared.

Finally, while the drafting pen is out, employers should also remove any questions regarding criminal convictions on their job applications.  This, too, has been prohibited.

The purpose behind this new law is to expand the equal pay protections of California’s pay equality mandates, including Labor Code Section 1197.5. Under section 1197.5, pay equality, on the basis of sex, race and ethnicity, is required for “substantially similar work, when viewed as a composite of skill, effort, and responsibility.” Use of salary history to set an employee’s wages is believed to perpetuate the pay gaps experienced by women and minorities, and therefore, has been banned. Further, although an employer may legally consider prior salary information disclosed voluntarily, without prompting, by an applicant in setting the compensation for that applicant, salary history alone may not justify any disparity in compensation; an employer still runs a risk of creating disparate pay for substantially similar work, and therefore, must tread carefully.

California employment rules are complex. Contact us if you need guidance in creating an equitable hiring and offer process, setting flexible and fair pay scales, drafting job descriptions, and/or updating your employment handbook or policies.