Today the California Supreme Court issued its decision in Mendiola v. CPS Security Solutions, Inc., addressing the issue of whether security guards working 24-hour shifts have to be paid for all 24 hours or whether 8 hours of sleeping time (during which the security guards are simply on-call) may be uncompensated.  The Court held that the entire 24-hour shift was compensable hours worked. 

Facts

CPS Security Solutions employed security guards to provide services at various construction sites.  The guards were designated as “trailer guards” who effectively lived on site in CPS-provided residential trailers.  The trailers were equipped to live in, with heating and air-conditioning, kitchens and bathrooms, furniture, etc.  The trailer guards were permitted to keep their personal belongings in the trailers and the trailers were equipped with locks.  During the week, the security guards were scheduled for 16 hour shifts, 8 hours of which was considered an active patrol shift and the other 8 hours was “on-call” time.  On the weekends, the security guards were scheduled for 24 hour shifts, 16 hours of which was active patrol and 8 hours of which (from 9:00 p.m. to 5:00 a.m.) was on-call time.  Pursuant to the employer’s on-call agreement signed by the security guards, the security guards were not paid for on-call hours unless they were actually required to perform work during those hours, in which case the security guards were paid for the actual work time.  However, if during their on-call hours the security guards did not get at least five hours of uninterrupted (sleep) time, they would be paid for the entire 8-hour on-call shift.

CPS placed certain restrictions on the security guards’ activities during on-call hours.  Specifically, the security guards were not permitted to have children, pets, and alcohol were not permitted on the premises, and adult visitors were allowed only with the permission of the CPS client.  Additionally, if the guard wanted to leave the job site, he or she could do so only by first notifying dispatch and providing information on where the guard would be and for how long and then was required to wait for a reliever to arrive before actually leaving the job site.  Then, the guard had to remain within a 30-minute radius of the job site and be available via pager or radio telephone to respond to any calls and return to the job site as needed.  While on the job site during on-call hours, the trailer guards were permitted to use their on-call time to read, watch television, eat, sleep, talk on the phone, and/or engage in myriad other personal activities.  

Some of the security guards filed a class action against CPS, alleging CPS violated California law by not paying them for their full on-call hours.  CPS defended their pay practice as compliant with California law, arguing that California law does not require payment for on-call time in these circumstances. 

The trial court certified a class action and ultimately ruled that the class was entitled to pay for all on-call hours, both during weekdays and on weekends.

Court of Appeal Decision

CPS appealed the trial court’s ruling to the court of appeal.  That court agreed with the trial court that the weekday on-call hours were compensable hours worked, but held that the on-call hours on the weekends were properly excluded from compensable hours worked.  In holding that the weekday on-call hours had to be compensated, the court applied established California caselaw holding that on-call hours must be compensated if the employee is substantially restricted in the ability to use the time for personal pursuits.  In this case, the court held that the trailer guards’ personal activities were substantially restricted because the guards generally were required to remain on-site, were not allowed to have children, pets, or alcohol on the premises, and were also limited in their ability to have adult visitors. Additionally, the guards could not leave the premises unless they were able to secure a relief worker and even then, they had to wait for the relief worked to arrive.  Once off premises, the guards had to remain within a 30-minute radius of the job site and carry a pager or telephone and remain available to respond and return to the job site immediately in the event of a page.  For all of these reasons, the court held that the on-call time was primarily used for the benefit of the employer and not for the guards.  As such, the on-call time had to be compensated.

Although the same restrictions on on-call time that applied to the weekday shifts also applied to the weekend on-call hours, the court reached a different conclusion about whether the weekend on-call time was compensable.  This is because the court applied a federal regulation, 29 CFR 785.22, which permits employees who are required to be on duty for 24-hours to enter into agreements to exclude up eight hours of regularly scheduled sleep time from hours worked.  This regulation was previously followed and applied by a California Court of Appeal in Seymore v. Metson Marine, 194 Cal.App.4th 361 (2011), where that court held that ship crewmembers lawfully agreed that 8 hours of sleep time during their 24-hour shifts would not be compensated.  Based on these authorities, the CPS court held that CPS’ on-call policy of excluding 8 hours of sleep time on the 24-hour weekend shifts was lawful.

California Supreme Court Reversal

Today the California Supreme Court reversed the Court of Appeal’s decision and held that CPS’ policy of not compensating security guards for on-call time on the weekends was unlawful and that there is no “sleeping time” exclusion under the applicable wage order.  The Court expressly “disapproved” the Seymore case for its contrary holding (though that holding has been good law for the past 3 years).  The Court also rejected the applicability of the federal regulation allowing sleep time to be excluded from compensable hours worked.  The Court held that there was no reason to import that federal regulation into the applicable wage order (Wage Order 4) and emphasized that California law has a more expansive definition of “hours worked” than under federal law.  California law, unlike federal law, focuses on the extent of employer control over an employee to determine whether the employee’s time must be compensated.  As such, the Court held that under Wage Order 4 and California law, the on-call time on the weekends had to be analyzed the same as the on-call time during the weekdays, producing the same result – i.e. because the trailer guards are substantially restricted in their use of the on-call time for personal pursuits, they are under sufficient employer control to make all of the time compensable as hours worked. The fact that the trailer guards were working a 24-hour shift and could sleep part of the time was basically irrelevant.

The Court acknowledged that different wage orders, such as the wage order applicable to ambulance drivers and attendants (Wage Order 9), contain different language than Wage Order 4, and allow for employers to exclude 8 hours of sleep time from compensable hours worked in a 24-hour shift in certain circumstances.  However, the Court held that Wage Order 4 contains no such exception and that Wage Order 4 controlled in this case.

Notably, prior to this lawsuit being filed against CPS, CPS actually sought and obtained the California Labor Commissioner’s guidance on the legality of their on-call policy and pay practice, and the Labor Commissioner endorsed the policy as lawful in 1999.  A couple of years later, a newly appointed Labor Commissioner reversed the prior Labor Commissioner’s endorsement and opined that CPS’ policy was not lawful.  The reversal prompted CPS to file an action in court for declaratory relief to have its policy deemed lawful.  Prior to trial, the Labor Commissioner and CPS settled and entered into a Memorandum of Understanding effectively agreeing (again) that CPS’ policy was lawful.  In these circumstances, it is obviously outrageous for CPS to retroactively be held liable for back pay. This is particularly true given that prior to today’s “disapproval” of the Seymore case, California courts endorsed the federal regulation allowing sleep time during a 24-hour shift to be excluded from compensable hours.  However, the California Supreme Court didn’t see it this way and refused to limit its holding to apply prospectively only.  The Court held that the Labor Commissioner’s view was not entitled to deference [of course, other employee-friendly Labor Commissioner interpretations conveniently were somehow entitled to deference] and suggested that the confusion in this area may have stemmed from unclear wording of Wage Orders, defunding of the Industrial Welfare Commission, and inadequate funding of DLSE enforcement.  The Court stated that these problems are the province of the Legislature to fix, not the courts.  [Apparently, it’s okay for California employers to pay the price for legislative and agency shortcomings in the meantime.]

What Now       

Employers that have employees working 24-hour shifts should carefully review their pay practices in light of the CPS decision, paying particular attention to the Wage Order specifically applicable to their industry to determine whether there is any lawful basis for excluding sleep time from compensable hours worked.  Employers that have employees who are on-call (regardless of whether or not a 24-hour shift contemplating sleep time) should similarly review their pay practices and the level of restrictions placed on employees during on-call time to ensure that employees are being paid properly for on-call time, where necessary.