The Supreme Court rejected the plaintiffs’ argument that a rest period needed to precede any mandatory meal break.  Instead, the Supreme Court held, “Employers are thus subject to a duty to make a good faith effort to authorize and permit rest breaks in the middle of each work period, but may deviate from that preferred course where practical considerations render it infeasible.”  Given that Brinker involved review of decisions regarding class certification, the court declined to speculate about what kind of considerations would be sufficient to justify departing from providing breaks during the middle of a work period.  The Supreme Court did not alter the unchallenged principle that rest breaks can be waived.

The Supreme Court addressed two critical issues with respect to unpaid, duty free, meal breaks.  First, the court held an employer complies with the applicable laws so long as it “relieves its employees of all duty, relinquishes control over their activities and permits them a reasonable opportunity to take an uninterrupted 30-minute break, and does not impede or discourage them from doing so.”  Explicitly rejecting plaintiffs’ argument that employers were required to forcibly prevent employees from working during meal breaks, the Court went on to hold that employers are NOT obligated to police breaks to ensure work is not performed.  Should an employee voluntarily choose to work through their meal break and the employer “knew or reasonably should have known that the worker was working through the authorized meal period,” the employer would be required to pay the employee for the time worked, but they would not be liable for the statutory premium pay applicable when the employer fails to provide the break at all.

Second, with respect to timing, the Court rejected plaintiffs’ argument that employees are entitled to a second meal break five hours after their first meal break.  In Brinker, for example, the employees had a single meal period early in their shift followed by six to eight hours of work during which they did not have a meal break.  “Under the wage order, as under the statute, an employer’s obligation is to provide a first meal period after no more than five hours of work and a second meal period after no more than 10 hours of work.” 

This decision brings clarity to an area of California law that has long been fodder for class actions and Private Attorney General Act claims.  The precision with which the Supreme Court addressed rest periods should encourage all employers to review applicable policies in their handbooks to make sure they comply with the newly articulated rest period rules.  The holdings regarding meal breaks should come as a relief to many employers because it relieves them of the cumbersome duty to police employee mealtime activities.  Also, employers in many fields, not least health care and hospitality where shifts often begin and end at unconventional times, should appreciate the greater flexibility to schedule meals.

To be sure, aspects of the Brinker decision will make class certification more difficult to achieve in the future.  However, Justice Werdegar, the author of the decision, took the unusual step of penning a separate concurrence to specifically counsel that Brinker was not intended to be a per se bar to class certification of cases based on denial of rest periods or meal breaks.  Employers will no doubt continue to face claims based on established practices discouraging employees from taking meal breaks or rest periods.  Likewise, employers should expect the courts to be facing cases requiring them to define the parameters of the good faith exceptions to scheduling rest periods at times other than the middle of work periods.

On Thursday, April 19, at 9:00 a.m. Pacific Time, Squire Sanders will be conducting a webinar to discuss Brinker in greater detail and answer questions.  To register, please click here. 

Opinion is divided over who is benefited by raising the minimum wage as reported by Martin Kaste in Raising The Minimum Wage: Who Does It Help?    However, it is clear that it will cost more for employers to pay entry lever workers in these states which affects approximately one million workers as reported by Catherine Rampell in Wage Floor is Increasing in 8 States in New Year.

The Federal minimum wage remains unchanged at $7.25 per hour.  However, if your workers are in a state that has a minimum wage above the Federal rate, you must pay workers the higher rate.  A complete list of minimum wage rates for all states can be found at the U.S. Department of Labor.

Assembly Bill 1136: IIPP Update for Health Care Facility Employers (Effective Jan. 1, 2012):  AB 1136 [pdf] requires a health care facility employer to update its injury and illness prevention programs to adopt and include safe patient handling policies meaning that the IIPP should include patient protection and health care worker back and musculoskeletal injury prevention plans.

Assembly Bill 22:  Limitations on Employee Screening in Employment (Effective Jan. 1, 2012):  Previously, California law generally allowed employers to request credit reports for employment purposes so long as written notice was presented to the applicant or employee for whom the report was sought.  AB 22 [pdf] now prohibits employers and prospective employers from using consumer credit reports to screen applicants or to make other personnel decisions.

Eight positions are exempted from this requirement including certain financial institutions, managerial positions (those which qualify for the executive employee overtime exemption), law enforcement positions, positions that involve sensitive information or access to $10,000 or more of cash including where the employee would be a named signatory on the employer’s bank or credit card account or otherwise be an agent in financial transactions, and positions for which credit information is otherwise required by law to be disclosed or obtained. If an exception applies, the employer must provide the employee or applicant with written notice specifying the basis for requesting the report, informing the person of the source of the report, and providing a box to check to request a free copy of the report.

Senate Bill 757: Discrimination in Health Insurance for Domestic Partners (Effective Jan. 1, 2012):  Under the California Insurance Equality Act, insurance companies must provide the same coverage for registered domestic partners as for spouses. SB 757 [pdf] closes a gap in that law as, for the past several years, out-of-state policies issued to employers who maintain their principal place of business and the majority of employees outside the state did not provide the same benefits to registered domestic partners.  Now, every group health insurance policy provided to a California resident, regardless of where the contract is entered into, must offer equal coverage for spouses and registered domestic partners.

Assembly Bill 1236:  Limits on Employer Use of E-Verify (Effective Jan. 1, 2012):  Under AB 1236 [pdf], the “Employment Acceleration Act of 2011”, California employers cannot be required by a state, city, county, or special district, to use a federal electronic employment verification system (specifically E-Verify) to verify their employees are authorized to work in the United States in order to receive a government contract or obtain a business license, or as a penalty for violating licensing laws.  There are certain exceptions, for instance when the employer is required by federal law to use E-Verify or as a condition of receiving federal funds.  The stated purpose of the law is to save employers costs and expenses.

Assembly Bill 1401: Minors in the Entertainment Industry (Effective immediately):   Currently, the labor commissioner must furnish his or her written consent in order for a minor under the age of 16 to participate in certain projects.  AB 1401 [pdf] establishes a temporary work permit program for minors in the entertainment industry, to be administered by the Labor Commissioner, that allows the parent or guardian of a minor performer to obtain a temporary permit for the minor's employment under certain circumstances.

And A Few Were Actually Vetoed!!   Some may find it instructive to see some key bills the Governor did veto.  Probably most notable was AB 325, a bereavement leave bill that would have prohibited employers from refusing to grant employees up to three days of unpaid bereavement leave.  The Governor noted that the vast majority of employers already voluntarily provide such unpaid leave, but codifying the practice would have created yet another private right to sue.  Similarly, the Governor vetoed SB 931, which would have authorized payment to employees using a payroll card on the ground that the law would have created costly, complicated new requirements for use of payroll cards by employers.  The Governor also vetoed AB 267, which would have made choice of law provisions in employment contracts void as a matter of public policy, on the ground that California law already prohibits application of laws that substantially diminish California employees' rights.

Senate Bill 459:  Penalties for Misclassification of Employees as Independent Contractors (Effective Jan. 1, 2012):  Take note of SB 459.  During recent years, there has been nationwide scrutiny, at both the federal and state levels, of employers suspected of intentionally and routinely misclassifying workers as independent contractors, rather than employees, in order to cut costs.  It is not surprising federal and state governments have made this a focus issue given that misclassification decreases income and payroll tax revenues.   Under SB 459, employers who engage in “willful misclassification” are subject to civil penalties.  "Willful misclassification" is defined as "avoiding employee status for an individual by voluntarily and knowingly misclassifying the individual as an independent contractor."

SB 459 also makes it unlawful for employers to charge a fee or deduct from the paychecks of misclassified individuals any fee or to make deductions from compensation for any reason (including for goods, materials, or space rental) unless doing so would be permitted were the employee properly classified.

The important part, of course, is the hammer.  SB 459 authorizes the Labor and Workforce Development Agency ("LWDA") to determine that an employer has violated the law.  If a “willful misclassification” is found by the LWDA or a court, the law creates a civil monetary penalty range of not less than $5,000 and not more than $15,000 per violation, in addition to any other fines or penalties permitted by law. Similarly, if either the LWDA or court determines that an employer has engaged in a pattern or practice of willful misclassification, civil penalties of not less than $10,000 and not more than $25,000 may be assessed for each violation, in addition to other penalties and fines permitted by law.  Employers found to violate the law must display a notice prominently for one year on their websites or in an area generally accessible to employees or the public stating that:  (1) it committed a serious violation of the law by engaging in willful misclassification of employees; (2) it has changed its business practices to avoid committing similar violations; (3) the notice is pursuant to court order; and; (4) that any employee who believes that he or she is being misclassified as an independent contractor may contact the LWDA.   

Finally, if an employer violates the law and is a licensed contractor pursuant to the Contractors' State License Law, the LWDA or court shall transmit a certified copy of the order to the Contractors' State License Board which must initiate disciplinary action against a licensee.

The law does not stop there: it also imposes joint and several liability upon any person who, for money or anything else of value, knowingly advises an employer to treat an individual as an independent contractor to avoid employee status where that individual is later found to be an employee.  Employees who provide advice to their employers and attorneys providing counsel and advice are excluded from the new provision.

The penalties under the law are very severe.  Employers are advised to conduct an audit of those individuals they have classified as independent contractors. 

Assembly Bill 1396:  Written Commission Agreements (Effective Jan. 1, 2013):  Under AB 1396, if an employer and employee enter into a contract of employment, whereby services are to be performed within California and the method of payment to the employee includes commissions, the commission agreement must be in writing.  The agreement must set forth the method by which commissions will be computed and paid, and it must be signed by the employee.  Employers without written commission agreements should start acting now to reduce their practices into writing.  Employers with written commission agreements should review their content for compliance with AB 1396. 

Assembly Bill 469:  “Wage Theft Prevention Act of 2011” (Effective Jan. 1, 2012):  California employers currently must post specified wage and hour information in a conspicuous location for employees to see it.  A copycat of a recent New York law, under new AB 469, employers must now provide newly hired non-exempt employees with certain documentation, at hiring, that states:  the rate and basis of employee pay (including overtime rates); whether pay is hourly, by shift, salary, commission, or otherwise; whether allowances are claimed as part of minimum wage; the designated payday; the employer’s name (including d/b/a’s); employer’s physical address and mailing address if different; contact information for the employer’s worker’s compensation carrier. The employer must notify each employee in writing of any changes to the information in the notice within seven (7) calendar days of the changes unless the changes are set forth in another writing within the same time period (for instance in written wage statements).  We can expect the Labor Commissioner will provide a disclosure template that employers may follow.  The bill also provides new penalties for noncompliance, for instance:  in addition to civil penalties, employers who violate the minimum wage law are liable for restitution of wages paid to the affected employee; it is a misdemeanor to willfully violate wage statutes or orders or to willfully fail to pay a court judgment or final order of the Labor Commission for wages due; employees may recover attorneys’ fees and costs incurred to enforce a judgment for unpaid wages.  Moreover, the statute of limitations for the Division of labor Standards Enforcement (“DLSE”) to commence any collection action for statutory penalties or fees is increased from one year to three years.

Finally, AB 469 creates new document retention requirements and requires employers to maintain payroll records for three years (versus the prior two years).  It also forbids employers from prohibiting employees from maintaining personal records of hours worked or piece-rate units earned.

Other Non-Legislative Key Updates:  Increase in Hourly Rates for Employees to Qualify for Overtime Exemption (Effective Jan. 1, 2012):  Under California law, certain computer software employees, and also licensed physicians and surgeons, are exempt from state overtime requirements if they receive a minimum hourly, monthly or yearly rate. The rate is determined annually based upon changes to the California Consumer Price Index for Urban Wage Earners and Clerical Workers. The DLSE has adjusted the rates these individuals must be paid to be considered exempt.  For computer professionals, there is a 95-cent increase, from $37.94 to $38.89 per hour (translating into a monthly rate increases from $6,587.50 to $6,752.19 and an annual salary increase from $79,050 to $81,026.25 per year).  For licensed physicians and surgeons, the DLSE announced a $1.73 increase in the hourly rate for licensed physicians and surgeons, from $69.13 to $70.86 per hour.

Although unpaid internships are often a way for people eager to get a “foot in the door” to the entertainment business, many companies outside Hollywood accept interns as well.  As reported by Ross Perlin in the New York Times, many companies have a line of students and unemployed college graduates waiting at their door and desperate for experience, a resumé boost and possibly a paid position in the future.  U.S. News and World Report even tracks which universities produce the most interns, although it is not clear which are paid.  Unfortunately, what sounds like a win-win -- interns gain experience and skills and employers get free help -- can in reality be an expensive wage and hour headache if interns actually perform any work. 

Failing to pay interns who function as employees can result in claims for back wages plus overtime, penalties for missed meal and rest periods (where required by State law), recordkeeping and paycheck violations, and failure to pay wages on time.  Worse yet, interns might also pursue claims under ERISA for 401k benefits and health insurance contributions.  They might also seek unemployment benefits after their engagement is over as well as compensation directly from the employer for any workplace injuries whereas an unpaid intern would not likely be covered by a workers’ compensation insurance policy. 

Employers offering internships or thinking about implementing an internship program should understand the Department of Labor’s (“DOL”) internship test.  Each of the following 6 factors must be met to create a bona fide internship; if just one is not met, the relationship defaults to an employment relationship and the trainee would then need to be paid (with benefits as appropriate):

1.         The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;

2.         The internship experience is for the benefit of the intern;

3.         The intern does not displace regular employees, but works under close supervision of existing staff;

4.         The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;

5.         The intern is not necessarily entitled to a job at the conclusion of the internship; and

6.         The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

To satisfy the DOL criteria for interns, employers should benchmark their internship programs to be more of a clinical-style education as opposed to “on the job training.”   In a perfect world (under the DOL test), the intern might train or practice performing the job but would not provide a “benefit” to the employer by actually generating work product for clients or customers.  He or she might spend time shadowing employees or drafting memoranda related to hypothetical problems that would not be used by the company in its day-to-day business.  The memos would provide the trainer an opportunity to provide feedback to the intern and assess progress as if it were a school assignment. 

Although such a program would deny the sponsoring employer the benefit of free labor, that would of course be exactly what the Department of Labor rules are designed to assure.  So why would an employer go the expense and inconvenience of running such a program in circumstances where one measure of its success is that its business can actually be impeded?  At a minimum, the opportunity to supervise interns will give the employer a much greater insight into the interns’ work ethic, collegiality and creativity – qualities hard to assess from a resume and interview.   

And lest you think things must be better outside the US, have a look at Patrick Thomas’ post about a similar dispute arising in the UK under its National Minimum Wage Act.

Special thanks to Michael Kelly for his assistance with this post.

• penalties of  $5,000 – 15,000 for the first misclassification (penalties of  $10,000 - $25,000 for repeat violators);
• mandatory posting of a notice that the employer has violated the law on an Internet website and/or in view of the public including an invitation for other potentially misclassified persons to contact the Labor and Workforce Development Agency for an entire year; and
• additional fines and penalties.

An employer’s third-party advisors such as financial, accounting or human resources professionals will be jointly and severally liable with employers for fines and penalties; lawyers providing legal advice to employers are exempted from this provision.  

Also on Governor Brown’s desk is AB 469, the “Wage Theft Prevention Act.”  This law mandates that employers provide written notice to each employee of his/her wage rate, payday and the name and address of the employer.  In addition to this basic information, employers must also provide written notice of any change in the rate of pay for an employee within 7 days unless the change is reflected in the employee’s wage statement.  While many employers already use offer letters to confirm wage rates, they should revisit the offer letters to confirm that they meet these new requirements such as including the payday which until this law would only have been required to be posted for employee reference. 

Finally, under AB 469, employers who fail to pay employees properly by misclassifying them or failing to pay overtime, will now be subject to penalties for up to three years instead of one.  The law also increases the penalties for an employer’s failure to pay judgments obtained by employees who filed and were awarded unpaid wages and/or penalties.  Employees who are forced to pursue collection of unpaid judgments from their employers would be entitled to attorneys’ fees and costs as well.

California is not the only entity seeking to enforce its labor laws against employers who are perceived to cut corners and violate workers’ rights.  On September 19, 2011, the U.S. Department of Labor announced that Secretary of Labor Hilda Solis and the Internal Revenue Service signed a memorandum of understandingto further solidify the agencies’ commitment to pursue and punish employers who misclassify workers.  The DOL also announced that it’s Wage and Hour Division has agreed to coordinate with leaders from Connecticut, Maryland, Massachusetts, Minnesota, Missouri, Utah and Washington.  The Division also expects Hawaii, Illinois, Montana, and New York attorney general to be on board soon as well.

Glamorous industry sectors, such as sports, fashion, film, television and other media sectors, have never had a problem filling their low-level vacancies.  Such is the attraction of these roles that candidates have long been willing, indeed anxious, to show their commitment by working long hours for no reward except the distant promise of maybe one day getting the chance of possibly being considered for eligibility for an essentially menial position, certain in their own minds that this will lead to their big break into a tiny presenting role on some obscure satellite channel, or meeting Victoria Beckham.  

Now, however, with high unemployment levels and the chance that increasing numbers of school leavers will choose to avoid rising university tuition fees by plunging straight into the workforce, stories of people working for free to secure even just a chance of later paid employment are more widespread and less confined to the traditionally oversubscribed sectors. Before companies jump at the chance to man their desks with free labour, however, a cautionary tale for employers has recently been reported on the Guardian website, which one Keri Hudson would be well placed to recount.  

Ms Hudson was hired by TPG Web Publishing to help with its online review site. She received no pay for six weeks, at which point she resigned. Her duties in this time included managing online content, and also managing other interns at the same time.  Even though she agreed at the outset that the stint would be unpaid an Employment Tribunal recently awarded Ms Hudson just over £1,000 by way of wages and holiday pay for her time with TPG. She had successfully argued that she was not performing the sort of duties normally associated with an unpaid internship (i.e. none), but was, in fact, a worker. Under the National Minimum Wage Act [link] anyone who is a ‘worker’, i.e. anyone working under a contract (whether written or verbal) must be paid the minimum wage. There are exemptions for university students on placement years and some individuals working for charitable or voluntary bodies, but other than that pretty much everyone who works in the business is entitled to be paid.

Therein lies the cautionary tale for employers, however big or small. The duties the individual is asked to perform are key. Asking Ms Hudson to manage anything, let alone other interns, was always likely to give the game away. Having interns to do anything unsupervised is similarly risky – it just looks too much like “work”. Companies should try to ensure that unpaid interns are only taken on to shadow employees and that they contribute nothing to a business beyond an ability to make tea and the sort of desperate enthusiasm which comes with the lack of any paid

What does this mean for employers in the U.S.?  Requiring employees sign arbitration agreements that include waivers of class actions could greatly reduce the litigation risk of large, costly employment litigation.  In the past few years, class action attorneys have continued to bring hundreds of wage and hour and ERISA class actions against employers in the U.S.  This week’s decision by the United States Supreme Court gives employers a tool to fight back and prevent large scale class actions.  However, it is important to note that some laws, e.g. Sarbanes-Oxley whistleblower provision, prohibit waiver of rights by arbitration and would not be affected by the Supreme Court’s decision.  For more detailed information please see our Alert: Supreme Court Opens the Door to Enforcing Class Action Waivers and Bars in Arbitration Agreements.  

In Kasten, the plaintiff (Kasten) received three warnings within a 12-month period for failing to properly clock in.  On the third warning, his supervisors told him that another violation would lead to his termination.  Kasten claimed his inability to properly clock in and out was due to the location of the company’s time clocks—a location which, Kasten claimed, violated the FLSA.  Kasten, however, never lodged a written complaint about the time clocks’ location with his employer or the Department of Labor; he only made oral comments to his supervisors.  Kasten was later disciplined a fourth time for the same issue and subsequently fired.  Kasten sued his former employer, claiming he was terminated in retaliation for having complained about the company’s FLSA violations.  The Supreme Court’s decision resolves a decades-long split between the circuits as to whether an oral complaint of FLSA violations is sufficient to be the basis of a retaliation claim. 

Now that oral complaints are protected nationwide, an informal conversation between an employee and a supervisor regarding wages or working hours could be the basis for a future FLSA retaliation claim.  This promises to create new difficulties for employers because by their nature, many of these conversations go undocumented.  So what should employers do?  Employers will need to train supervisors to recognize complaints that fall under the ambit of the FLSA and implement practices for documenting such informal complaints. 

Democrat Diane Savino, longtime union leader and former SEIU lobbyist, sponsored the Bill, which Senate Democrats described in a press release as enacted to protect “hard-working men and women from unscrupulous employers who steal their earnings by paying less than minimum wage, misclassifying them as independent contractors, forcing them to work off the clock and various other schemes.” 

The WTP Act adds significant annual and follow-up notice requirements employers must provide to their employees.  Current law requires that employers give newly hired employees written notices detailing their pay days, pay rates, and if applicable, their overtime pay rates. The WTP Act requires that all employees get follow-up notices annually, on or before February 1, which must contain several additional pieces of information, such as the basis of the individual’s pay rate (hourly, shift, daily, weekly, piece, commission); the employer’s name; the physical address of the employer’s main office; the employer’s telephone number; and any other information the New York Labor Commissioner deems necessary. The notices must be in the employee’s primary language. The law also requires a 7-day advance notice of any pay changes, and it increases both civil remedies for retaliation and criminal penalties and fines for violations.

Some employers are hopeful that, as a result of expected budget cuts, the DOL might just curb its appetite for wage and hour audits.  After all, fewer dollars mean fewer resources for government workers to pursue and lead labor-intensive, onsite investigations.  Right?

Not exactly.

Before employers become too relaxed about wage and hour compliance, they need to read the fine print.  As reported by Dietrich Knauth at Law 360, "The budget also requests $50 million for an effort headed by the Wage and Hour Division and the Occupational Safety and Health Administration to fight misclassification of workers as independent contractors."  The adminstration has consistently criticized employers for denying misclassified workers the legal benefits and protections of employees.

Besides, wage and hour audits -- unlike many other DOL initiatives -- actually have the potential to generate revenue for the government.  And in a downturn economy where revenue slashing initiatives are the rage, the DOL might just step up fines and penalties.  Which means employers should be prepared with self-audits and compliance initiatives.  2011 won't be a year to rest!