California Minimum Wage and Exempt Salary Basis Increases

  • Effective January 1, 2014, the minimum pay rates for employees classified under California's Computer Software Exemption increased as follows:
    • The minimum hourly rate increased to USD 40.38 (up from the current rate of USD 39.90)
    • The minimum monthly salary increased to USD 7,010.88 (up from the current rate of USD 6,927.75)
    • The minimum annual salary increased to USD 84,130.53 (up from the current rate of USD 83,132.93)
  • Effective January 1, 2014, the minimum pay rates for employees classified under the Licensed Physician Exemption increased to a minimum hourly rate of USD 73.57 (from the current rate of USD 72.70)
  • Effective January 2014, the new San Francisco minimum wage increased to USD 10.74 per hour.
  • Effective January 2014, the new San Jose minimum wage increased to USD 10.15 per hour.
  • Effective July 1, 2014, the minimum wage in California increased to USD 9.00 per hour. This will impact overtime rates, insurance premiums for workers compensation, and the salary exception for exempt employees. To meet the salary requirement for exempt status in California under the administrative, professional, and executive exemptions, an employee's annual salary must be at least USD 37,440 starting on July 1, 2014.

Action: California employers should review their compensation scales to ensure they are paying these minimum wages or salaries, and that their wage postings are current.

Courts Clarify Compensation Requirements for Piece-Rate Workers

Recent California state and federal district court decisions clarify the pay requirements for workers paid on a piece rate basis.

In Gonzalez v. Downtown LA Motors, a California appellate court held that an employer must pay a separate hourly rate of at least minimum wage for the non-piece rate time. This differs from the FLSA, which permits minimum wage compliance by ensuring an average hourly rate for the pay period that is at least minimum wage. Employers in California cannot use the FLSA's compensation scheme, but instead must focus on each employee's individual hours (or minutes) of the day and ensure employees receive minimum wage for non-piece rate time.

In Bluford v. Safeway Stores, Inc., a California appellate court held that rest breaks must be separately compensated if missed and cannot be built into mileage and activity rates. Because the employer's pay system did not provide for such rest break payments, the court directed certification of a class of truck drivers.

Similarly, in Quezada v. Conway Freight, Inc., a federal district court ruled that truck drivers paid on a piece rate must be separately compensated for work time that is not covered by the piece rate. Conway employed truck drivers to transport freight and calculated the drivers' driving time compensation by multiplying a pre-set mileage rate by the number of miles in a trip. Conway also paid drivers a separate hourly rate for work performed at Conway's facilities, such as loading and unloading freight. However, Conway's policies explicitly stated that  drivers were not compensated for pre-and post-trip vehicle inspection time, paperwork completion, or for the first hour of wait time over the course of a shift. Instead, Conway argued that this time was compensated by the per-mile driving rate. The appellate court found that Conway's failure to pay employees for these activities violated California law and that plaintiffs were entitled to the minimum wage for duties or activities otherwise uncompensated under the parties' contractual agreement.

Planning Tip:  California courts are increasingly holding that piece rate employees must be paid at least minimum wage for all non-piece rate activities, including those to which the piece rate doesn't apply. This is true even when employees are, on balance, receiving at least minimum wage for all hours worked. Accordingly, companies with California employees paid on a piece rate (which can include employees paid solely on commission or other non-time measure) must keep accurate records of compensable rest breaks and other "non-productive" work hours, and pay employees minimum wage or missed rest break premiums for this time.

California Wage and Hour Laws Raise New Barriers and Increase Penalties

New laws and recent developments serve as a reminder to employers in California to stay vigilant to minimize wage and hour risk.

Effective January 1, 2014, a new California law will make it even more difficult for employers that prevail in cases over non-payment of wages, benefits, or pension contributions to recover their attorney's fees.  Employers must now show that the employee sued them in bad faith before being able to recover prevailing party attorney's fees.

Effective January 1, 2014, employers that wrongfully withhold amounts from employee wages and wilfully or with intent to defraud do not remit the withheld amounts are subject to fines and/or imprisonment. 

Late last year, a California court awarded treble damages to a wholesale representative under the seldom-used Independent Wholesale Sales Representatives Contractual Relations Act of 1990, which provides that a manufacturer or distributor who wilfully fails to enter into a commission contract with a wholesale sales representative, or who wilfully refuses to pay the wholesale sales representative commissions in accordance with a written contract, can be liable for treble damages. Under the statute, such commission contracts must specify the rate and method by which the commission is computed, the time when commissions will be paid, the territory assigned to the sales representative, any exceptions to the territory and customer assignments, and what deductions will be made from commissions that are not required by state or federal law. The statute applies to contractors or non-employee sales agents who solicit orders on the wholesaler’s behalf and are compensated in whole or in part by commission, subject to limited exceptions. A "wholesaler" is a company engaged in the business of producing and selling its own products, or purchasing or invoicing products, intended for resale to or use by consumers of the state.

Planning Tip: California's wage and hour laws differ from federal law in numerous respects, and compliance can be a "gotcha" to nationwide employers. These developments are a reminder that employers in California should be uber-vigilant to ensure compliance with statutory wage and hour requirements in order to avoid risks under California's heightened damages and penalties claims.