Top Wage and Hour Developments U.S. Employers Need to Know

Minimum Wage Increase Campaigns Continue

On September 4, 2014, fast food workers in dozens of cities across the U.S. protested outside restaurants as part of the effort to raise the starting minimum wage to $15 per hour. The protests were the seventh in a series of one-day strikes since November 2012. Earlier this year, on May 15, protests were held in more than 200 cities in over 30 countries. Organized primarily by the Service Employees International Union ("SEIU") in the U.S., the campaign went global after the SEIU partnered with the International Union of Food, Agricultural, Hotel, Restaurant, Catering, Tobacco and Allied Workers’ Associations ("IUF"), a federation of 396 trade unions in 126 countries. As a result, demonstrations targeting global companies were not limited to a single location or even city. Rather, protests took place at companies’ regional headquarters and operations around the world and spread through social media.

In the U.S., the movement is seeing results at the state and local levels. On November 4, 2014, voters in four states and one city –Alaska, Arkansas, Nebraska, South Dakota, and San Francisco - approved ballot measures to gradually increase the minimum wage.Michigan had already approved a state-wide minimum wage increase to $8.15 per hour, taking effect on September 1, 2014. Minnesotaraised the State’s minimum wage up to $9.50 per hour by 2016. Illinoisapproved a non-binding measure.

California city councils in Berkeley, Oakland, Richmond and Los Angeles are considering whether to raise the wage floor. Meanwhile, several U.S. cities have already passed minimum wage ordinances, including:

  • Seattle - up to $15.00 per hour effective over the next 3 - 7 years
  • San Francisco - currently $10.74 per hour, increasing to $15.00 per hour by July 2018
  • Berkeley - currently $10.00 per hour, increasing to $12.53 per hour by October 2016
  • San Jose - currently $10.15 per hour, increasing to $10.30 per hour in 2015
  • California’s state-wide minimum wage was already scheduled to increase on July 1, 2014, to $9.00 per hour, and $10.00 per hour in 2016, with a corresponding increase to the state-wide minimum salary for exempt administrative, executive, and professional employees

More broadly, the global minimum wage movement underscores a fundamental shift taking place in the scope of the labor risk companies face. Recognizing that national unions are no longer effective to campaign against global companies and their wide-reaching supply chains, union leaders are developing a network of relationships and coordinating across borders to advance their agendas. Against this backdrop, it is no longer sufficient to view and respond to labor protests in isolation based on where they occur in the world. Rather, companies increasingly must monitor developments on a global level and adopt a globally coordinated labor strategy.

For more information about the global minimum wage movement and strategies to avoid becoming the target of corporate campaigns see our report, Minimum Wage Campaign Highlights Need for Multinationals to Adopt a Global Labor Strategy.  

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State Meal and Rest Break Law Held Enforceable on Interstate Driving Company

In Dilts v. Penske Logistics, the Ninth Circuit settled a split in the lower federal courts, and held the Federal Aviation Administration Authorization Act of 1994 (“FAAAA”) does not preempt California’s meal and rest break requirements with respect to motor carriers. A class of delivery drivers and installers sued Penske, an interstate motor carrier, alleging the Company violated California’s meal and rest break laws. Penske argued state meal and rest break laws such as California’s were preempted under the FAAAA because the state laws imposed timing requirements on when and how long a driver must take a break and, therefore, restricted the routes that the motor carrier could select. The court disagreed and ruled that California’s meal and rest break laws were not preempted because they are not sufficiently related to the prices, routes, or services of an interstate motor carrier.

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Workweek Does Not Need to Match Schedule to Maximize Overtime Payments

In Johnson v. Heckman Water Resources (CVR), Inc., the Fifth Circuit U.S. Court of Appeals rejected an overtime claim by two employees alleging their employer’s use of a Monday-Sunday workweek to calculate overtime violated the FLSA as to them based on their non-standard work schedule. The employees were non-exempt, and worked 12-hour shifts for 7 consecutive days beginning every other Thursday. The employees contended that their workweek under the FLSA should reflect their seven day consecutive work schedule, beginning on Thursday and ending on Wednesday, and that they are therefore entitled to more overtime pay. The Fifth Circuit disagreed. FLSA regulations only require that a workweek be a fixed and regularly recurring period of 7 consecutive 24-hour periods for a total of 168 hours. Further, the regulations specify that the workweek need not coincide with the calendar week but may begin on any day and at any hour of the day, and that employers may establish different workweeks for different employees. The court held that nothing in these regulations requires an employer to establish different workweeks for the employees at issue. Rather, the employer has the right to establish a workweek, can begin the workweek on any given day, and the mere fact that an established workweek does not maximize overtime compensation does not, on its own, violate the FLSA.

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Entry-level Audit Positions Held Exempt by Second Circuit

In this quarter, the Second Circuit U.S. Court of Appeals held inPippins v. KPMG that junior-level “Audit Associates” at KPMG were properly classified as exempt under the learned professionals exemption of the Fair Labor Standards Act (“FLSA”).

Affirming summary judgment for KPMG, the court held that the Audit Associates’ job duties met all three prongs of the learned professionals exemption, which applies to workers who primarily perform work requiring advanced knowledge in a field of science or learning that is customarily acquired through a prolonged course of specialized instruction. Notwithstanding their degrees and professional certifications in accounting, the employees had argued they were not exempt professionals because, in their entry level positions, their work was not “predominantly intellectual in character” and did not require them to exercise “discretion and judgment”. In a case of first impression, the Second Circuit determined that “the learned professions exemption applies if workers rely on advanced knowledge of their specialty to exercise discretion and judgment that is characteristic of their” intellectual field. For example, while the employees argued that none of their prior schooling was necessary for them to perform their job duties with KPMG, the court found that the average biochemistry major could not understand the plaintiffs’ training materials at KPMG. With respect to discretion, the court held they were exempt even if ultimate judgment is deferred to higher-ranking employees.

Thus, as exempt employees, the Audit Associates were not eligible for overtime pay. In fact, the court concluded that Audit Associates are “precisely” the types of well-compensated professionals that the regulations seek to exempt from the FLSA.

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Continuing Professional Training Time Held Non-Compensable

The Eighth Circuit federal appeals court recently held in Petroski v. H&R Block Enterprises, LLC, that tax professionals were not yet “employees,” and therefore not entitled to compensation, during pre-employment training time. In this case, H&R Block required seasonal tax professionals to complete annual professional training in order to be eligible for rehire, and the tax professionals sought to be compensated as employees for this training time. In deciding that the tax professionals were not employees during this training time, the 8th Circuit noted that H&R Block received no immediate advantage from the training, the tax professionals did not complete work for H&R Block’s clients during the training, they did not replace any regular employees during the training, and the completion of the training did not expedite H&R Block’s business.

In addition, the 8th Circuit noted that the training did not create skills that were nontransferable, and the non-compete agreement signed by the tax professionals did not prevent them from using the knowledge acquired from the training with other companies. The 8th Circuit also held that there was no genuine issue of material fact concerning whether the tax professionals understood that they were not entitled to be paid for the training, partly because the employee handbook made clear that the training was not a guarantee of employment.

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State News

ILLINOIS

Illinois Places Limits on Employer's Use of Payroll Cards as Method of Wage Payment

Effective January 1, 2015, the Illinois Wage Payment & Collection Act (“the Act”) will be amended to expressly recognize payroll cards as a valid method of wage payment. Illinois employers who choose to utilize this form of payment will (among other requirements) be obligated to provide employees with written disclosures, to offer employees alternate methods of wage payment, and to abide by the fee restrictions set out in the Act.

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Illinois Amends Regulations Regarding Paycheck Deductions

Among the various exceptions to the general prohibition against payroll deductions, Illinois law allows employers to make payroll deductions provided it obtains the employee’s written authorization at the time the deduction is made. In August 2014, Illinois issued a new regulation that clarifies this requirement and eases the administrative burden on employers who have spread out deductions over multiple pay periods. Pursuant to this new regulation, Illinois employers may enter into written agreements with employees that permit a series of recurring deductions without having to obtain the express written consent of the employee prior to each deduction.

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CALIFORNIA

California Adopts State-Wide Sick Pay Law

California became the second state in the nation to adopt a state-wide paid sick leave law, joining Connecticut and with several other states to follow.

Click here to read more about California’s new sick pay law.  

California Supreme Court Casts Doubt Upon Statistical Sampling in Misclassification Class Actions

On May 29, 2014, the California Supreme Court issued its long-awaited opinion in Duran v. U.S. Bank National Assn, 59 Cal. 4th 1 (2014), a watershed decision addressing not just the use of statistical sampling to prove class-wide liability for misclassification of exempt employees (a hot button issue for years) but also the management of individual issues in complex wage-hour class actions.

In Duran - which the supreme court noted was only the secondmisclassification case in California certified as a class action to be tried to verdict - the plaintiffs alleged US Bank (“USB”) loan officers were misclassified as exempt from overtime wages under California’s “outside sales” exemption. Under that exemption, an employee who “customarily and regularly” spends more than half of his or her working time on sales activities away from the employer’s place of business is exempt from overtime.

The trial court certified a class of 260 loan officers and devised a plan to determine the extent of USB’s liability class-wide by extrapolating from a random sample. The random sample boiled down to just 21 plaintiffs. During the trial’s liability phase, the court heard testimony about the work habits of these 21 plaintiffs and prohibited USB from introducing evidence regarding any plaintiff outside of this sample. Based on testimony about the small sample group, the trial court found that the entire class had been misclassified. During the trial’s damages phase, the court extrapolated the average amount of overtime reported by the sample group to the class as a whole, resulting in a verdict of approximately $15 million and an average recovery of over $57,000 per person.  

A California appeals court reversed the trial court’s decision and the California Supreme Court agreed, holding the trial court’s approach to sampling was “profoundly flawed” and violated USB’s due process rights. In particular, the Supreme Court held that a “class action trial management plan must permit the litigation of relevant affirmative defenses, even when these defenses turn on individual questions.”Duran, 59 Cal. 4th at *25.

If a defense depends upon questions individual to each class member, the statistical model must be designed to accommodate these case-specific deviations. If statistical methods are ultimately incompatible with the nature of the plaintiffs’ claims or the defendant’s defenses, resort to statistical proof may not be appropriate. Procedural innovation must conform to the substantive rights of parties. Id. at *40.

The Supreme Court also noted that misclassification cases pose especially sticky manageability issues since liability itself is predicated on individual fact questions, such as the mix and degree of job duties performed. “Only in an extraordinary situation would a class action be justified where, subsequent to the class judgment, the members would be required to individually prove not only damages but also liability.” Id. at *30 (internal quotations omitted). Accordingly,Duran reinforces the proposition that a class should not be certified absent credible evidence that an employer’s uniform policy or consistent practice violates wage-hour laws.  

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Departing From Iskanian: Federal Courts Hold Arbitration Agreements With Waivers are Enforceable

As we reported last quarter, in June of this year, the California Supreme Court held in Iskanian v. CLS Transportation Los Angeles, LLC, that employees cannot be forced to waive their right to bring a civil lawsuit under California’s PAGA law, and arbitration agreements containing class action waivers are unenforceable as to representative PAGA claims. This quarter, several federal district courts in California have rejected Iskanian, holding arbitration agreements with PAGA waivers are enforceable under the Federal Arbitration Act (“FAA”). InLangston v. 20/20 Cos., Case No. 14-1360, 2014 U.S. Dist. LEXIS 151477(C.D. Cal. Oct. 17, 2014), employees brought a class action and PAGA complaint alleging they were misclassified as independent contractors. 20/20 moved to compel arbitration on the basis that employees had all signed arbitration agreements at the time of their employment containing broad waivers that prohibit class and collective actions. Joining two other federal district courts in California, the Central District court found the agreement was enforceable to bar all of Plaintiffs claims against 20/20 in court, and compelled arbitration.

In the meantime, CLS Transportation Los Angeles, LLC has petitioned the U.S. Supreme Court for writ of cert in Iskanian. Iskanian’s response is due November 24, 2014.

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California Court of Appeals Confirms Partial Day Use of Vacation/PTO in Any Time Increment Permissible for Exempt Employees

In Rhea v. General Atomics, a California appellate court confirmed that employers may require salaried exempt employees to use accrued vacation/PTO for partial day absences in any increment of time. At times during the relevant time period, General Atomics’ annual leave policy allowed General Atomics to deduct annual leave for partial-day absences of any length. Plaintiff filed a class action challenging the policy, claiming it violated the salary basis test under California law. The court of appeal upheld the trial court’s grant of summary judgment, holding that exempt employees satisfied California’s salary basis test notwithstanding the use of paid vacation/PTO for partial-day absences. The court of appeal expanded a 2005 decision, Conley v. Pacific Gas & Electric Co., which upheld an employer’s policy of requiring exempt employees to use their accrued vacation time to offset partial day absences of at least four hours. Answering the question left open in the PG&E case, the court held in this case that there was nothing to suggest that a policy requiring salaried exempt employees to use vacation / PTO for partial day absences of less than four hours would lead to a different result.

As such, the court held applying paid vacation/PTO in any time increment does not impact employee’s exempt classifications.

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Employers Must Reimburse Employees Who Use Their Personal Cell Phones for Work

In August, in Cochran v. Schwan’s Home Service, Inc., a California appellate court held employers who require California employees to use personal cell phones to make work-related calls must reimburse those employees for a reasonable percentage of their cell phone bills under California Labor Code § 2802. Section 2802 requires employers to indemnify employees for necessary expenses and losses incurred as a direct consequence of discharging their duties. In Cochran, a service manager for Schwan’s Home Service filed a putative class action seeking reimbursement costs for the work-related use of the employees’ personal cell phones. The trial court denied certification due to a lack of commonality of claims, ruling that in order to determine commonality a court would have to inquire as to what type of cell phone plan each employee purchased, whether that plan was purchased because of their work usage, and who paid for the cell phone plan.

On appeal, the California Court of Appeal overturned the trial court, holding that employees are entitled to reimbursement for making work-related phone calls on a personal cell phone under Labor Code § 2802, regardless of whether the phone bill is paid for by a third person or at all. The Court of Appeal also held that it is irrelevant whether the employee changed plans to accommodate work-related cell phone usage, or whether the employee has an unlimited calling plan. The Court of Appeal held that the details of the cell phone plan do not factor into the liability analysis; rather, “an employee need only show that he or she was required to use a personal cell phone to make work-related calls, and he or she was not reimbursed.”  

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California Employers Cannot Allocate Commissions Over Separate Pay Periods for Exempt Commissioned Sales Employees

In Peabody v. Time Warner Cable, 59 Cal. 4th 662 (2014), the California Supreme Court unanimously held an employer may not attribute commission wages paid in one pay period to other pay periods in order to satisfy California’s commissioned sales exemption requirements. Under California’s commissioned sales employee exemption, exempt commissioned sales employees must be paid compensation that exceeds 1.5x the minimum wage, with more than half of compensation in commissions. In Peabody, the employer paid its commissioned sales employees at least minimum hourly wages each pay period, and paid commissions every other pay period. Averaged over the month in which they were earned, the sales employees did receive more than 1.5x the minimum wage between their hourly pay and commissions.

On appeal, however, the California Supreme Court held that for those employees classified as exempt under the commissioned sales employee exemption, the salary-commission mix must be satisfied in each pay period. An employer cannot satisfy this minimum compensation obligation by allocating commissions paid in earlier or later pay periods to shortfalls in the current pay period, even if the work done to earn the commission was in the previous pay period. The Court also reaffirmed that, under California law, commissioned sales employees must be paid at least twice each month.

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Certain Employers Who Use Staffing Agencies and Contractors Statutorily Liable for Wage and Safety Violations

On September 28, 2014, Governor Jerry Brown signed A.B. 1897 into law. The new law provides that companies who utilize the services of workers supplied by a labor contractor shall share with the labor contractor all civil legal liability and responsibility for payment of wages, failure to report and pay all required employer contributions, worker contributions, and potential income tax withholdings, and failure to secure valid workers’ compensation coverage. The law also prohibits the company from shifting to the labor contractor any legal duties or responsibilities related to workplace health and safety. The law is designed to supplement any other liability or requirements established by statute or common law and specifies that any waiver of its provisions will be considered contrary to public policy and deemed void and unenforceable.

Accordingly, workers provided by a staffing company no longer have to prove joint employer liability in order to collect from the contracting company who uses the workers. Such temporary or leased workers must simply provide notice to the company where they were assigned at least 30 days prior to filing a civil action naming the company as co-liable. The law does not prohibit contractual indemnification provisions with staffing companies for indemnification of liability created by the staffing company’s acts. The law also does not apply to companies with a workforce of less than 25 employees, including those supplied by the staffing companies, or companies with 5 or fewer workers supplied by a staffing company at any given time.

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State/City Minimum Wage Increases

This quarter brought several increases in the State and local minimum wages:

  • California’s state-wide minimum wage increased on July 1st to $9.00 per hour, with a corresponding increase to the state-wide minimum salary for exempt administrative, executive, and professional employees to $37,440 annually.
  • California’s Computer Software Exempt Employee’s minimum salary increased, effective January 1, 2015, up to $41.27 an hour or $85,981.40 annually, reflecting a 2.2% increase in the California Consumer Price Index.
  • Berkeley’s minimum wage is $10 an hour effective Oct. 1, 2014. Berkeley’s city-wide minimum wage will increase over the next two years on October 1, 2015, to $11 an hour, and on October 1, 2016 to $12.53 an hour.
  • In San Jose, the minimum wage increases to $10.30 per hour on January 1, 2015.