Holding that “hours worked” under California Labor Code and Industrial Welfare Commission (“IWC”) Wage Order No. 4-2001 (“Wage Order 4”) include all time spent at the employer’s workplace and under the employer’s control, such as sleep time, the California Supreme Court has ruled that security guards were entitled to compensation for all on-call time, including sleep time. Mendiola v. CPS Security Solutions, Inc., et al., No. S212704 (Cal. Jan. 8, 2015). Significantly, the Court refused to incorporate into Wage Order 4 the federal regulation allowing exclusion of sleep time from hours worked and disapproved prior California case law applying the federal regulation to employees working 24-hour shifts.

Background

CPS Security Solutions, Inc. provides security services at construction sites, including trailer guards who spend the night at the assigned jobsite in residential trailers. Trailer guards investigate alarms and other suspicious circumstances and their presence helps to prevent vandalism and theft. Tim Mendiola worked as a trailer guard for CPS. 

Upon hiring, Mendiola signed an on-call agreement outlining his hours of work. The agreement designated eight hours per day, generally from 9:00 p.m. to 5:00 a.m., as on-call hours. On weekends, trailer guards worked 24-hour shifts; 16 hours of active patrol from 5:00 a.m. to 9:00 p.m. and eight hours of on-call time from 9:00 p.m. to 5:00 a.m. CPS compensated the trailer guards only for on-call time spent actually responding to alarms and investigations. However, if a trailer guard spent at least three hours engaged in investigations during the on-call period, the guard would be paid for the entire eight hours.

The agreement also provided that, if a trailer guard wanted to leave the jobsite, the guard needed to notify a dispatcher, provide information regarding his or her whereabouts, carry a pager or cell phone and respond to any calls from CPS, and stay within a 30-minute radius of the site. Trailer guards could engage in personal activities while on call in the trailers; however, children, pets, and alcohol were not permitted, and adult visitors were permitted only if authorized by CPS’s clients.

Mendiola, on behalf of himself and other employees, sued CPS for alleged unpaid wages and overtime, claiming that CPS’s on-call policy violated Wage Order 4. The trial court issued a preliminary injunction ordering CPS to pay the trailer guards for all on-call time, and CPS appealed. The Court of Appeal affirmed the trial court with respect to the weekday on-call time, but reversed with respect to the weekend on-call time, ruling that the weekend on-call time constituted non-compensable sleep time. Both parties appealed to the California Supreme Court granted review.

Applicable Law

Wage Order 4 requires that employers “pay to each employee . . . not less than the applicable minimum wage for all hours worked in the payroll period.” “Hours worked” is defined as “the time during which an employee is subject to the control of an employer, and includes all the time the employee is suffered or permitted to work, whether or not required to do so.” 

Whether on-call time constitutes hours worked depends on the level of the employer’s control over its employees. Gomez v. Lincare, Inc., 173 Cal. App. 4th 508 (Cal. Ct. App. 2009). In assessing an employer’s control, courts examine several factors, including whether there was an on-premises living requirement, the nature of any geographical restrictions on the employee’s movements, the frequency of calls and required response time, the ability of the employee to trade on-call duties, pager or cellular phone use, and whether the employee engaged in personal activities.

Wage Order 4 does not provide any exclusion for sleep time from hours worked. Wage Orders 5 (covering residential care workers) and 9 (covering ambulance drivers) provide specific sleep-time exclusions. Under the federal Fair Labor Standards Act (“FLSA”) regulations, where an employee is required to be on duty for at least 24 hours, an employer and employee may agree to exclude “a bona fide regularly scheduled sleeping period of not more than 8 hours from hour worked, provided adequate sleeping facilities are furnished by the employer and the employee can usually enjoy an uninterrupted night’s sleep.” 

In Monzon v. Schaefer Ambulance Service, Inc., 224 Cal. App. 3d 16 (Cal. Ct. App. 1990), the California Court of Appeal ruled that ambulance drivers were not entitled to compensation for sleeping periods under Wage Order 9 and the federal sleep-time regulation. In Seymore v. Metson Marine, Inc., 194 Cal. App. 4th 361, 381 (Cal. Ct. App. 2011), the Court of Appeal, extending Monzon, ruled that ship crew members were not entitled to compensation for sleep time under the federal sleep-time regulation, which it found applicable to all employees who work 24-hour shifts.

Time Compensable

CPS argued that the trailer guards’ on-call hours were not compensable because they were free to engage in personal activities during that time, unless actively engaged in an investigation. The employer urged the Supreme Court to incorporate into Wage Order 4 the federal sleep-time regulation excluding from hours worked the guards’ sleep time.

Addressing the issue of on-call time, the Supreme Court concluded the trailer guards’ on-call time was compensable hours worked because CPS exercised significant control over its employee’s activities. The guards were required to live onsite as a condition of employment, were expected to respond promptly to alarms in uniform, and were limited in their ability to leave the premises. Guards could not easily trade on-call responsibilities, and CPS restricted nonemployee visitors, pets, and alcohol use. Although the guards could engage in some personal activities, such as showering, eating, reading, and watching television, the Court found significant the “guards’ mere presence was integral to CPS’s business.” Thus, the Court held that all on-call time constituted compensable hours worked.

Turning to sleep time, the Court ruled that agreements to exclude sleep time from compensable hours worked are permitted only where specifically authorized by California law. The Court refused to incorporate into Wage Order 4 the federal sleep-time regulation. In so ruling, the Court noted, “Federal regulations provide a level of employee protection that a state may not derogate. Nevertheless, California is free to offer greater protection.” The Court cautioned California courts against adopting federal standards in the absence of “convincing evidence” that the IWC intended to do so. 

Wage Order 4 does not include a specific exclusion for sleep time, but the IWC included sleep time exclusions in Wage Orders 5 and 9, the Court noted. This demonstrated that “the IWC knew how to explicitly incorporate federal law and regulations when it wished to do so,” the Court said. The absence of similar language in Wage Order 4 “seriously undermine[d] the notion that the IWC” intended to incorporate the federal sleep time regulation.

Further, the Court disapproved Seymore’s application of the federal sleep-time regulation to all employees who work 24-hour shifts and limited Monzon to its facts, which involved ambulance drivers. 

Accordingly, the Court concluded that CPS could not exclude the guards’ sleep time from compensable hours worked under Wage Order 4.

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California employers whose employees work 24-hour shifts should review their payroll practices to ensure compliance with the Wage Orders applicable to their industry. Employers also should consider auditing their policies and actual practices regarding on-call time, paying close attention to any restrictions placed on on-call employees’ activities, so that employees are paid correctly for all hours worked.