Most of us who know the work history of our ancestors appreciate the gains made over the past 100 years with regard to fewer hours of work, a higher standard of living, and the opportunity to enjoy family time. However, many employees and their advocates, and some judges, are promoting causes calculated to further help workers but which actually are job killers. This creeping activism is destroying business across the country and, if not checked, could lead to greater unemployment, lower wages, and increased homelessness.

Instituting the Minimum Wage

The minimum wage began as a minimum hourly rate that workers should receive for their labor. New Zealand first pioneered a minimum wage in 1894, and Australia followed in 1896. In the United States, Massachusetts was first to pass a minimum wage law in 1912. California passed its minimum wage law in 1916. By 1923, there were 15 other states that had minimum wage laws, along with the District of Columbia and Puerto Rico. Most of these laws were either stricken, repealed, or rendered ineffective after various court rulings held them unconstitutional.

All this changed in 1936 when, under political pressure, the U.S. Supreme Court upheld the State of Washington's minimum wage law, reinstating the path for minimum wage laws in other states. Shortly thereafter, Congress passed the Fair Labor Standards Act of 1938 (FLSA) establishing a federal minimum wage of $0.25/hour and compensation for overtime. In 1938, California's minimum wage was $0.33/hour. The FLSA applies across the nation, but also permits states to establish higher minimum wages or overtime rates.

Debates have continued over the years whether the minimum hourly wage regulations increase the level of unemployment because employers cannot afford to pay many lower skilled workers the minimum wage rates. One economist argued that the real minimum wage is zero which people would receive if they fail to find jobs when they try to enter the workforce, or they lose the jobs they already have.

On the other hand, the minimum wage has been extolled as raising millions of workers from the ranks of poverty. In 1998, President Bill Clinton said the recent increase in the federal minimum wage would "raise the living standards of 12 million hardworking Americans."

One thing is clear: both the passing and maintenance of the minimum hourly wage has been part of a long agenda of social legislation, which has extended well beyond the initial concept of minimum hourly rates to include premium compensation for overtime, so-called "living wages" for certain urban areas, meal- and rest-period premiums, and other wage enhancements linked to working conditions. Other changes to the law have resulted from judicial decisions at the court level (called "judicial activism" by some) and by "underground regulations" on the agency level without public approval or legislative process.

California Goes (Way) Beyond Federal Minimum Wage Standards

In addition to establishing higher minimum hourly rates of pay, the California legislature has established numerous laws setting a higher standard, including the following:

  • prohibiting employers from crediting an employee's tips toward the employer's minimum wage obligation (which is permitted by federal law) meaning that employers have to pay employees the state minimum wage for all hours worked without considering their tips – even when their tips result in pay far in excess of the state minimum wage;
  • through the Industrial Welfare Commission, setting maximum limits for meal and lodging credits against the state minimum wage in an effort to maximize take-home pay;
  • requiring a split-shift premium of one hour's minimum wage for employees having to work split shifts unless wage differentials make up the difference;
  • providing daily overtime for hours in excess of eight in a day, double time for hours over 12 in a day, and "reporting time" pay to employees for reporting for (but not receiving a full day's) work, ranging from two to four hours at their regular hourly rate of pay;
  • creating additional restrictions on duties for salaried exempt employees and requiring the regular overtime rate for salaried non-exempt employees to be 1/40th of the employee's equivalent weekly salary;
  • with a few narrow exceptions, expanding the definition of "hours worked" to include all time an employee is under the control of the employer, whether or not the employee is suffered or permitted to work;
  • holding (in Armenta v. Osmose) that employees paid by the hour must be paid at least the minimum wage for every hour of work, rejecting federal rulings permitting the averaging of sub-minimum wage rates with over-minimum wage rates; and
  • requiring employers to pay employees an hour of pay at their regular rate for each day an employee is required to work through a meal or rest period, or arguably, when certain other conditions (many of which are legally disputed) are not satisfied.

All the above laws provide enhanced protections to employees beyond the federal minimum wage, overtime laws, and "hours worked" standards. Employers who are ignorant of California's higher standards have been, and continually are, sued by employees individually or by class action litigation and fined by state agencies or private attorney general actions.

California Has Become A Laboratory For New Theories

Not content with California's significant protections beyond minimum federal standards, employee advocates, with occasional support from sympathetic judges and state agencies, have relentlessly sought to expand California's laws far beyond current standards, including the following:

Supplemental Minimum-Wage Pay For Piece-Rate Employees

In California, employees may be paid by salary, by the hour, by commission, by piece rate, or by "other method of calculation." Typically, employees paid by piece rate are paid a fixed amount for performing a certain task, completing a service, or making a product to certain specifications. Unless the employee is also paid for some tasks by the hour, the employee typically will not keep track of the time spent on each piece. But the employer can, and should, establish conditions and expectations for when a piece rate is payable. The employer must require the employee to record all hours worked during the week. For minimum-wage compliance, the employer generally will total piece-rate dollars for the week, which then are divided by total hours worked. If the resulting hourly rate of pay is less than the state minimum wage, then the employee's pay must be supplemented accordingly.

Historically, this has been a relatively simple formula. The California Labor Commissioner's enforcement position initially permitted employers, as does federal law, to credit the piece-rate dollars across all hours worked, even time spent for clean-up or mandatory meetings. Recently, the Labor Commissioner changed its position, requiring employers to pay a separate hourly (at least the state minimum) wage for time spent by employees on all "non-piece rate" activity directed by the employer. This position has been published in an internal guidebook without public approval and is an "underground regulation."

Not surprisingly, piece-rate employees who are not content with the weekly minimum-wage guarantee, have proceeded to sue their employers for minimum wage pay not only for time spent at meetings, but for preparatory and clean-up time, and idle time during the work day, even when their regular rate of pay under the traditional formula far exceeds the state minimum wage. Employee advocates have argued that employees can "pack" their idle moments with extra minimum-wage pay, even when they consist of very short periods of time, such as rest periods, preparatory time, or clean-up time. In support, they rely upon an appellate decision (Armenta v. Osmose), which employers contend does not apply because the decision involves employees paid solely by the hour, not by piece rate.

Although employers contend that employee advocates clearly misread Armenta in this respect, confusion has resulted as trial judges or federal courts seeking to interpret California law, or Armenta, may reach differing results. In an effort to avoid litigation expense, some employers have modified their piece-rate pay plans to include payment by the hour at the minimum wage for all hours worked, plus adding extra pay for piece rate production. Employers with piece-rate plans seeking to avoid litigation should consult legal counsel in light of the current litigation climate.

Supplemental Minimum-Wage Pay For Commission-Paid Employees

Much like arguments made by piece-rate employees, commissioned salespersons may contend that, even though their commissions earned on Friday brought their weekly hourly rate far above the minimum wage (and the commissioned-salesperson overtime-exemption rate), they should be paid at the minimum wage for all hours worked on Monday, Tuesday, Wednesday, and Thursday, plus for time spent on any preparatory or administrative tasks performed for any day of the week when there was no work leading to paid sales transactions.

Employers reject these arguments, countering that, much like piece rate employees, money earned for commissions for the Friday sale is spread across all hours worked in the week, even those hours which did not involve direct sales effort or result in, or cover work on, a successful sales transaction resulting in an earned commission. Employers contend that these arguments, if successful, would change the essential nature of employees paid solely by production.

Creating Off-the-Clock Work

In order to pack their pay checks with additional pay, some employees may later claim that they performed additional work at home, such as completing reports, making phone calls, or communicating with their BlackBerry, for which they were not compensated. Interestingly, usually the employee has not recorded the time on the time record. If employers with knowledge of these "off clock" activities instructed employees not to record the time, that would be illegal. But this appears to be the exception and not the norm.

Employees often reconstruct this "off clock" work time after leaving employment and raise the issue for the first time after termination. For this reason, it's important that you instruct employees regarding the company's prohibition of "off-clock" work (meaning unrecorded working time) policies and require employees to acknowledge the accuracy of their time records each pay period. This will go a long way toward successfully defending or eliminating these kinds of complaints.

Converting On-Call Time To Working Time

In California, the mere fact that an employee is "on-call" and wears a pager or cell phone does not necessarily mean that the employee is working, or that the time on-call is "hours worked." If the employee is permitted to be away from the office, has minimal disruptions, is relatively free to engage in personal tasks without significant restrictions, and is not required to respond in an unreasonably short period of time, the time spent "on call" generally will not be considered hours worked, although any time actually spent responding will be credited towards hours worked.

A number of factors may apply in deciding whether the employee's restrictions were so great that the employee was "on duty." For example, service employees may choose to stay in uniform, or remain close to the office, while on call, but if these choices are not mandated by the circumstances of the job, and the employees had greater freedom to do personal errands, they will not be permitted to challenge their off-duty status by reliance on these factors. In any event, employees who successfully establish that their on-call time was working time may recover additional compensation (at least the state minimum wage) plus overtime. To protect from such claims, seek legal counsel and develop written on-call policies that are compliant with legal standards and acknowledged by employees.

Violating Labor Code Obligations

There are a number of other ways employees may seek to pack their work weeks with minimum wage claims, including taking less than 30 minutes for lunch deliberately, even though the employer has scheduled a 30-minute lunch, in an attempt to convert the time to hours worked (or collect meal-period premiums under California law).

Under federal law, a bona fide meal period generally must last at least 30 minutes or the time will be considered hours worked. But it's unlikely that federal investigators would credit a deliberate "short lunch" unknown to the employer as a method to increase their wages. And it's ironic that employees seeking the protections of the Labor Code actually violate the Labor Code when they do not keep adequate time records, deliberately violate meal period regulations, conceal their overtime, or engage in other actions in order to fabricate wage claims and pad their compensation with additional wages purportedly due. Employers harmed by employee time card fraud or other conspiratorial activity may have remedies under California law.

Conclusion

What began as simply the "minimum hourly wage" has now grown in California to include minimum standards in a variety of areas regulating employment conditions. As wage/hour compliance takes high priority for employers, employees nonetheless exact an increasingly higher price with regard to each and every requirement of the law. In addition, aggressive trial lawyers are constantly seeking new theories upon which to create minimum wage violations, either by contending that an employee was not paid for all hours worked, or that the contractual method of pay could not legally extend to all working hours, opening the possibility for minimum wage supplementation where arguably no supplementation should be required.

Clearly, the creativity of trial lawyers may serve to illustrate their desperation. They have run out of garden-variety minimum-wage violations as many employers have become more careful to comply with the law. Given the present legal climate, and the continually changing legal standards, it certainly makes good sense for employers to vigilantly conduct their own audits to make sure their internal procedures contain the necessary safeguards with regard to minimum wage and other wage/hour compliance.