Court of Appeal: Meal/Rest/Wage Statement Class Action Should Be Certified

Safeway compensated truck drivers based on a compensation formula rather than a straight hourly rate: 

The collective bargaining agreements also obligated Safeway to utilize what it calls an activity based compensation system to determine the drivers‟ wages. Pay was calculated based on (1) mileage rates applied according to the number of miles driven, the time of day the trips were taken, and the locations where the trips began and ended; (2) fixed rates for certain tasks (e.g., rates for number of pallets delivered and picked up); (3) an hourly rate for a predetermined amount of minutes for certain tasks (e.g., paid for 10 minutes at hourly rate for set-up time at each store); and (4) an hourly rate for delays (e.g., breakdowns, impassable highways, time spent at scales, or other causes beyond the driver‟s control).

Drivers logged their mileage and activities for each trip manually on trip sheets. They also logged their activities into an onboard computer system known as the XATA system. Through XATA, Safeway tracked the drivers' moves, including their stops. The drivers input codes into XATA to record specific reasons for delays. Neither the trip sheets nor the XATA system, however, provided a place or means to record meal or rest periods.

 
So, the compensation system did not include separate payment for contractually and legally required rest periods.  Safeway argued that the paid rest periods were included in its compensation formula, presumably because the payment for miles and tasks assumed the rest periods would be taken during these activities.  Safeway also had drivers sign time cards to acknolwedge they were authorized and permitted to take rest periods. 
The trial court refused to certify a sub-class of rest period claims.  But the court of appeal reversed.  The court held Safeway's system of compensation was akin to a piece rate method of compensation.  And, the court decided, California law does not allow paid rest periods to be included in piece rates because it was an improper averaging of compensation: 

under the rule of Armenta v. Osmose, Inc. (2005) 135 Cal.App.4th 314, 323 (Armenta), rest periods must be separately compensated in a piece-rate system. Rest periods are considered hours worked and must be compensated. (Cal. Code Regs., tit. 8, §§ 11070, subd. 12; 11090, subd. 12.) Under the California minimum wage law, employees must be compensated for each hour worked at either the legal minimum wage or the contractual hourly rate, and compliance cannot be determined by averaging hourly compensation.

The court expressly held that there was a common issue for determining liability - that the compensation system did not compensate employees for paid rest periods separately. The court did so by holding that piece rates may not include payment for rest periods. That is another way of saying that there was no payment for rest periods as a matter of law.

With all respect to the court of appeal, this decision seems to over-analyze the merits of the case.  The court seems to be saying the common proof is that all rest periods were paid incorrectly as a matter of law.  Without saying so, therefore, the court essentially granted summary judgment for the plaintiff rather than just class certification. 

While we're talking about the merits, I am not sure I understand why the piece rate payment cannot include implied payment for rest periods, as Safeway testified it did. An hourly pay rate does not expressly include payment for rest periods either.  During the hour that an employee takes a rest period, he is paid the same hourly rate, but simply works less.  During the hour that an employee does not take a rest period, she receives the same rate as if she did take one. Employers likely set their hourly rates under the assumption that the employee will take a rest period during one of every four hours worked.  The hourly rate therefore "averages" compensation, which the cout said could not be done.   Anyway, I don't get a vote.  So, I descend from my soap box, dejected.

The court also certified a meal period sub-class class on the basis that there was a common issue regarding whether Safeway adequately provided second meal periods before 2006, which is when the case was filed.  The court did not reach the plaintiff's argument that Safeway did not do enough to ensure drivers were relieved of duty, because the one common issue was enough for class certification.  This part of the decision may not be all that significant to employers who adequately provide for both meal periods per Brinker.  Safeway changed practices in 2006.

Finally, the court of appeal decided the wage statement sub-class should be certified.  The court agreed that the wage statement did not adequately spell out wage rates applicable to miles driven, such that the employees would have to refer to their own trip sheets to verify whether they received adequate compensation and engage in mathematical calculations:

Plaintiff‟s argument goes to the structure of the wage statements. As a result, his and the other drivers‟ claims of injury on account of the wage statements will be resolved by means of common proof. The structural omissions in the wage statements, and their alleged violation of Labor Code section 226, are, like employer policies, the types of matters best resolved by class adjudication.

There have been other decisions regarding  piece rates lately. See, e.g., here.  Employers should review their compensation plans to ensure compliance with minimum wage, overtime, meal and rest period laws.

This case is Bluford v. Safeway Stores, Inc. and the opinion is here.

Court of Appeal - Managers Supervising While Performing Non-Exempt Tasks Are Non-Exempt

Safeway stores employ assistant managers who supervise many employees and have responsibility for hiring, supervising, budget compliance, etc.  But the stores' "operating budgets" and other policies allegedly require assistant managers to work the cash register and perform bookkeeping duties at times.  The assistant managers can supervise associates while "multi-tasking" / working the checkout line.

The plaintiff, Linda Heyen, was an assistant manager. The trial court found she worked about 54 hours a week, and spent a great deal of time at the check stand and performing bookkeeping tasks, even though she was able to supervise the store simultaneously.  An advisory jury concluded that Safeway did not prove Heyen was exempt.  The trial court instructed the jury that it should consider the primary purpose for "mixed" activities - those that involved both non-exempt work and supervision.

Safeway argued this:

So long as the manager is still actively functioning in his/her managerial capacity, and addressing his/her attention to managerial tasks such as observing how the store is running and considering how to make the store perform more efficiently and profitably, how to best model and train the store's employees in proper service activities, how to resolve any employee or operational problems that have arisen or are arising, and instructing employees in that regard, etc., all that time should be considered to fall on the 'exempt' side of the ledger—even if the manager is helping customers or handling product at the same time.

The court engaged in a detailed analysis of federal regulations, the wage order, and California case law, which you can read in the opinion. The punch line is this:

the federal regulations cited in Wage Order 7 expressly recognize that managers sometimes engage in tasks that do not involve the "actual management of the department [or] the supervision of the employees therein." (§ 541.108(a).) In those circumstances, the regulations do not say, as Safeway would have us hold, that those tasks should be considered "exempt" so long as the manager continues to supervise while performing them. Instead, the regulations look to the supervisor‟s reason or purpose for undertaking the task. If a task is performed because it is "helpful in supervising the employees or contribute[s] to the smooth functioning of the department for which [the supervisors] are responsible" (§ 541.108(a), (c)), the work is exempt; if not, it is nonexempt.

The court also found that when the company's expectations regarding the budgeted non-exempt hours, production standards, etc. virtually or expressly require the exempt manager to take on non-exempt tasks, the employer cannot argue that the employee did not live up to its expectations by performing non-exempt work.

So, employers, "working" / floor management, leads, etc. are more likely to be classified as "non-exempt" after this opinion, particularly when these managers are performing duties that non-exempt workers are simultaneously performing.   I predict the price of cheesy-poofs will be increasing or the checkout lines are going to be a little longer.

The case is Heyen v. Safeway and the opinion is here.

Court of Appeal: Union Contracts Must Clearly and Unmistakably Waive Rights Under California Vacation Law

It's California employment law 101 that employers must pay out all "vested" vacation time when an employee's employment ends.  No "use it or lose it" and no limits on "carry over" are allowed under Labor Code Section 227.3.  There's an exception in the statute though, which says the statute applies "[u]nless otherwise provided by a collective-bargaining agreement."

What does "otherwise provided" mean?  Well employer Celite had a collective bargaining relationship, and their agreement provided as follows, according to the Court of Appeal:

Celite granted its employees between one and five weeks of vacation annually. Each January, Celite calculated a yearly "vacation allotment" based on each employee's length of employment and the number of hours they worked the year before. [The] employees terminated from Celite were entitled to "receive whatever vacation allotment is due them upon separation."[fn] For 25 years, both Celite and the Union understood this provision to refer to the "vacation allotment" as defined above. Accordingly, Celite paid terminated employees for the vacation time already allotted to them for the year of their termination, but did not pay them the vacation time they had accrued toward the next year's allotment.

The description above suggests that the contract required payment of whatever vacation balance the employee had, but did not take into account "accrual" of vacation during the current year.  Pretty clear to me.

 

Not clear enough for the Court of Appeal, though, and I don't get a vote.  The Court decided that because vacation pay is a significant state-law right, any waiver of 227.3's requirements had to be "clear and unmistakable." Here's what the Court said:

To be clear and unmistakable, a waiver must do more than speak in "'[b]road, general language." (Vasquez, supra, 80 Cal.App.4th at p. 435.) It must be specific, and mention either the statutory protection being waived or, at a minimum, the statute itself. (Accord, Hoover v. American Income Life Ins. Co. (2012) 206 Cal.App.4th 1193, 1208.) The Agreements here neither mention pro rata vacation pay nor cite section 227.3. Celite points out that the Agreements "affirmatively address" vacation payments upon termination. But discussing a topic while at the same time saying nothing about the statutory right at issue does not affect a clear and unmistakable waiver of that right.

So, please check your union contracts and either negotiate a clear provision that waives Section 227.3 expressly and, preferably, quotes the statute.  This is why California release agreements quote Civil Code Section 1542, in case you've ever wondered about that.

On the bright side, the Court of Appeal decided the employer did not act "willfully" by following the collective bargaining agreement and, therefore, was not on the hook for "waiting time" penalties.  The court said that this was the first opinion deciding the standard for waivers under Section 227.3, and so the employer's mistake of law was not "willful."

Some times I wonder what all those class action plaintiff lawyers are doing after Brinker and Dukes v. Walmart put a damper on things.  (Ok, not really).  Well, here is the Court of Appeal riding to the rescue. 

It may be that the California or even U.S. Supreme Court may review this case, but the odds are long. If this case stays on the books, all union contracts prescribing a vacation payout provision that is less generous than Section 227.3 are subject to attack.  Make with the bargaining, employers.

The case is Choate v. Celite Corporation, and the opinion is here.

Court of Appeal: Rare Opinion on Inside Sales Exemption

Tyrone Muldrow and a class of recruiters sued their employer, Surrex Solutions Corporation,  for unpaid overtime, meals and breaks.  The trial court held that the employees were exempt undre the "inside sales exemption" and that the company had adequately provided meals and breaks.  The Supreme Court issued a "grant and hold" order pending the decision in Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1037.

On remand after Brinker, the Court of Appeal reaffirmed its earlier decision.  It's blogworthy because of the discussion of the "inside sales exemption" under the wage order .

The exemption is contained in both wage order 4 and wage order 7.  The court did not address which wage order applies, but quoted from wage order 7:

California Industrial Welfare Commission (IWC) Wage Order No. 7-2001 exempts from this statutory overtime compensation requirement "any employee whose earnings exceed one and one-half (1 1/2) times the minimum wage if more than half of that employee's compensation represents commissions." (Cal. Code Regs., tit. 8, § 11070, subd. (3)(D).)

Under federal law, this is known as the "inside sales" or "7(i)" exemption.

For the above exemption to apply, the employees had to be "selling" a product or service. 

Appellants' primary job duty was to recruit "candidates" for employer "clients." Surrex's clients would place "job orders" with Surrex and appellants would search for potential candidates to fill the job orders. Appellants would use various resources to find candidates, including an internal database that Surrex maintained and various "on-line job boards."

The court decided that these recruiters were "selling" the recruiting services, and that the other activities they engaged in were part of the sales process.

The court then decided that the compensation the recruiters received were "commissions" because they were sufficiently related to the sales price - the revenue the business received for placements:

the sole argument that appellants offer to support their contention that the term "commissions" in the commissioned employees exemption (Cal. Code. Regs., tit. 8, § 11070, subd. (3)(D)) should be construed as excluding commission systems such as Surrex's, is that such a formula is "too complex." Appellants' contention that the Surrex's commission system is "too complex" is neither factually accurate nor legally relevant. The formula was clearly stated in the employees' employment agreements and, in most cases, could be calculated simply by knowing the candidate's "bill rate" and "pay rate" (both of which the consulting service managers, themselves, negotiated).15 In any event, appellants fail to cite any authority for the proposition that complexity is, or should be, a factor in determining whether a compensation scheme constitutes a commission under relevant California law.

The court also decided that the commission plan was "bona fide" because the commissions regularly exceeded draw.

So, the court decided that the trial court was correct because the inside sales exemption applies.


There are a couple of things the court did not decide that might have affected the outcome. First, the court did not appear to actually decide if Wage Order 4 or 7 is the correct one. The court quoted from Wage Order 7, which applies to all employees working in the "mercantile" industry.   The definition of "mercantile" applies to the sale of goods, not recruiting agencies. From the Wage Order: "'Mercantile Industry' means any industry, business, or establishment operated for the purpose of purchasing, selling, or distributing goods or commodities at wholesale or retail; or for the purpose of renting goods or commodities."

Rather, Wage Order 4 applies to occupations such as office workers, if an industry order does not apply.

The applicable Wage Order actually does not affect the exemption under California law because that exemption is contained in both Wage Order 4 and 7. (The Court should have cited the correct one, though).   The issue, though, is that the federal "7(i)" exemption applies only to "retail" establishments. In fact, the applicable Department of Labor regulations specifically exclude employment agencies from the definition of a retail establishment. See regulation here.  I can't say for certain that Surrex is not a "retail" establishment under federal law, but someone probably should take a look at that issue if he/she hasn't already. 

This is one of the few instances in which California law is less generous than federal law. Although an employee may be exempt under California law, if an employee is not "exempt" under federal law, then federal law will require overtime for work performed over 40 hours in a work week. I may have missed something, but the court's opinion does not seem to address federal law, or the wage order issue. Yet, the court does acknowledge the existence of the 7(i) exemption at footnote 14 of the opinion. Annnyyyway, I may be nuts, or someone has some splaining to do, or both! The message to our dear readers remains:   Please do not apply the inside sales exemption unless you consider both state and federal law.
 The case is Muldrow v. Surrex Solutions Corp. and the opinion is here.  

California - New Wage Rates Announced for Computer Exemption

Under Labor Code Section 515.5, some computer software employees are considered exempt if they meet certain duties and compensation criteria.  The compensation rate is supposed to vary with the rate of inflation.

The California Division of Labor Statistics and Research has just adjusted the minimum pay rates for the exemption for 2012:

Old hourly rate:  $37.94
New rate:  $38.89

Old monthly salary: $6,587.50
New monthly salary: $6,752.19

Old annual salary: $79,050.00
New annual salary  $81,026.25

The DLSR's memorandum announcing the change is here.

Thanks to the Cal Chamber for pointing this out.

Greg

Brinker!! Argument is 11/08/11

The California Supreme Court will hear arguments in Brinker v. Superior Court (see a bunch of posts here) regarding employers' obligations to provide meal periods.  Argument is November 8 in San Francisco.  I'm so excited, I need a rest period.  Docket is here.

DGV