On Feb. 4, 2019, the California Court of Appeal decided Ward v. Tilly’s, Inc., holding that employers must provide “reporting time pay” when requiring employees to call in prior to a potential shift to learn whether they must report to work — regardless of the amount of time the employee spends calling in and even if the employee does not physically report to work that day.

The decision upends decades of what was considered a well-settled interpretation and understanding of California law that a “reporting time pay” obligation can arise only if the employee physically comes to work, but is sent home early by the employer (usually due to lack of work). Unless and until the California Supreme Court overturns Ward or orders it depublished, the Court of Appeal’s decision is binding on California employers. Because Ward is the only published California appellate decision specifically addressing this on-call scheduling issue, employers will want to update their reporting policies to avoid potential liability — or even abandon their on-call scheduling policies altogether.

Background

In Ward, a former sales clerk alleged that a California-based retail store chain, Tilly’s, required her and its other employees to call their stores two hours before the start of an on-call shift to determine whether they were needed to work the potential shift. Tilly’s employees were allegedly instructed to “consider an on-call shift a definite thing until they are actually told they do not need to come in” — but Tilly’s did not include on-call shifts as part of the employee’s “scheduled day’s work” when it calculated wages unless the employee was actually required to work the on-call shift. Tilly’s did not consider an employee to have “reported to work” merely because the employee called into work as instructed under the on-call policy. The plaintiff also alleged that Tilly’s made calling-in mandatory and disciplined employees for late or missed call-ins.

The plaintiff filed a putative class action complaint alleging that California Industrial Welfare Commission (IWC) Wage Order 7-2001 (regulating wages, hours and working conditions in the mercantile industry) required that non-exempt retail employees be paid “reporting time pay” if (a) “an employee is required to report for work and does report, but is not put to work or is furnished less than half said employee’s usual or scheduled day’s work,” or (b) “an employee is required to report for work a second time in any one workday and is furnished less than two (2) hours of work on the second reporting.” The amount of reporting time pay owed is “half the usual or scheduled day’s work, but in no event for less than two (2) hours nor more than four (4) hours.” The plaintiff alleged that Wage Order 7 applied to the Tilly’s on-call shift system and, therefore, its employees were owed reporting time pay for those shifts, and failure by Tilly’s to properly compensate employees for those shifts resulted in violations of Wage Order 7 and California’s Labor Code and Business & Professions Codes.

Tilly’s moved to dismiss the plaintiff’s complaint on the grounds that the plaintiff was not entitled to reporting time pay as a matter of law. It argued that the phrase “report to work” as used in Wage Order 7 means when an employee physically appears at the workplace and, therefore, merely calling in to learn whether an employer needs an employee to come in for a shift does not constitute “reporting to work” and does not trigger reporting time pay obligations under Wage Order 7. The trial court agreed and dismissed the complaint without leave to amend. The plaintiff appealed, arguing that the obligation is triggered by any manner of reporting, whether in person, telephonic or otherwise. In a 33-page decision, the Court of Appeal agreed with the plaintiff.

Divided Court of Appeal: Employees Are Entitled to Reporting Time Pay

The Court of Appeal’s decision turned on the meaning of “report for work” as that phrase is used in Wage Order 7. Because the phrase is undefined in Wage Order 7, the court resorted to an interpretive analysis of its meaning — starting with the dictionary definition of “report.” However, varying definitions of “report” did not conclusively establish whether “report for work” requires the employee’s physical presence at a particular time and place or whether it is satisfied by the employee presenting himself or herself in whatever manner the employer has directed, such as by telephone. Accordingly, the court turned to the IWC’s legislative intent when it drafted Wage Order 7.

Tilly’s argued that the interpretation should be guided by the IWC’s understanding of the phrase “report to work” at the time it was adopted, in the 1940s. The court acknowledged that the IWC’s understanding of the phrase in the 1940s would have required the employee’s physical presence, given that telephones were not prevalent in workers’ homes at that time. However, it held that such an interpretation would ignore the significant advancements in technology since the 1940s, including the proliferation of the use of mobile phones decades after the reporting time pay requirement was enacted, and which makes telephonic reporting feasible. The court concluded that, had the IWC enacted the reporting-pay obligation in today’s technologically interconnected world, it would have understood the Tilly’s telephonic on-call shift system to trigger reporting time pay.

However, the court’s rationale does not depend solely on technological advancements. It reasoned that the Tilly’s on-call shift system, which required employees to “report” as ordered by calling in, created the same problem as that created by the on-site reporting systems in the 1940s — the employer gains a daily pool of willing employees at its disposal without having to provide a consistent scheduling system on which employees can depend for steady work. The court emphasized the financial impact the on-call shift system used by Tilly’s has on employees, including: (1) an employee’s inability to schedule shifts to work other jobs, attend classes at school and commit to social plans; (2) the cost of childcare or elder care the employee may be committed to arranging even if he or she is not called into work; and (3) an employee’s inability to commit to any other activity incompatible with making a phone call to the employer two hours before his or her potential shift. Guided by these public policy considerations, the court held that employees must be compensated with “reporting time pay” under Wage Order 7 when they are required to call their employers two hours before their shift to determine whether they are needed for work that day.

Justice Egerton authored a vigorous dissent in which he rejected the majority’s primary reliance on the advancements of technology in interpreting Wage Order 7 and cautioned against applying the court’s holding retroactively, stating: “Nothing turns on whether a cord or a cell tower connects the phone. The notion that phones were unfamiliar in the 1940s is ahistorical …. When the Legislature defunded the IWC effective July 1, 2004, cellular or mobile phones had been in use for some time.” Her dissent relied principally on a federal district court decision, Casas v. Victoria’s Secret Stores, LLC, that held, on nearly identical facts, that “call-in shifts” do not trigger reporting time pay under Wage Order 7. She reasoned that employers do not have on-call systems simply to “torture employees,” as these systems are backed by legitimate business needs and striking a balance between the competing needs of employees and their employers was a task for the legislature — not the court.

What Ward Means for Employers

The Ward decision means a California employer who requires employees to call in two hours before a shift to determine whether they are needed, and report to work if called in, is now obligated to pay each of these employees, at a minimum, for two hours of work even if the employees are informed that there is no work for them that day. But the scope of the decision is arguably limited to its facts. Indeed, the court’s two-justice majority expressly limited its holding to the on-call shift system used by Tilly’s (i.e., an on-call system requiring employees to call in and give two hours’ notice, making call-in and reporting mandatory, and disciplining employees for late or missed call-ins). The court stopped short of holding that simply calling in to work qualified as reporting for all purposes.

However, it is foreseeable that the plaintiff’s bar will attempt to analogize the on-call shift practices at Tilly’s to similar practices used by retailers and other employers. Consequently, in light of Ward, employers should review their on-call scheduling and payment practices to avoid the distinguishing features the on-call shift practices that were problematic in the Tilly’s case, including: (a) requiring employees to call in two hours before a shift to determine whether they are needed; (b) disciplining employees for late or missed call-ins; and (c) making call-in and reporting mandatory. Even then, given that the Court of Appeal’s decision, unless it is depublished or reversed by the California Supreme Court, is and will remain precedent that speaks directly to employers’ reporting time pay obligation. Given that the trend of the California Supreme Court in recent years has been to broaden what constitutes “compensable time” under California law, the most pragmatic route for employers might be to abandon call-in scheduling practices altogether — unless and until the California Supreme Court decides to weigh in on the issue.