United States: California’s Wage And Hour Class Action Epidemic: Updates And Solutions

Wage and hour class actions have moved to the forefront of employment litigation in California, due primarily to multimillion dollar settlements. Aside from the lucrative rewards, these class actions have spread in scope and popularity as they are easier to marshal than traditional employment related claims. With a singular focus on a particular job classification, a systematic process can be established. Even after resolving class action cases, Companies find on-going liability with "copy-cat" suits brought by different groups of workers alleging similar violations.

In California these wage and hour class actions have included claims of off-the-clock work, failure to pay overtime, misclassification of exempt positions or independent contractors, meal and rest break violations, failure to pay commissions or bonuses, paycheck stub violations, uniform violations and waiting time penalties. These complaints frequently include a claim of unfair competition under California Business and Professions Code section 17200 et. seq., which not only permits representative claims, but further increases the statute of limitations on non-penalty claims to four years. Some of the most recent developments have been discussed in greater detail below.

California employers are required to provide hourly employees with a 30-minute unpaid meal break and two ten minute rest breaks.¹ Under California Labor Code section 226.7, an employer incurs an hour of pay as violation for every meal or rest period it fails to timely provide an employee. With every missed meal break resulting in an additional hour of pay, the potential exposure can be significant.

This year, the California Supreme Court in Murphy v. Kenneth Cole Productions, Inc., 40 Cal. 4th 1094 (2007), held the additional hour of pay was a "wage" and therefore subject to a three-year statute of limitations. Murphy also held an employer could meet its burden to establish compliance by demonstrating they had not forced an employee to forgo a break or had not required an employee to work through break.

In July of this year, in a decision that favored employers, White v. Starbucks, similarly held the employee must show he was "forced to forego his meal breaks as opposed to merely showing that he did not take them regardless of the reason". White v. Starbucks, 2007 U.S. Dist. LEXIS 48922, (N.D. Cal. July 2, 2007). The court ruled employers are not required to ensure employees take their meal breaks but rather only that they must offer them to employees. The court reasoned to force employers to actively ensure all employees took their breaks "would be impossible to implement for significant sectors [of industries] in which large employers may have hundreds or thousands of employees working multiple shifts."

Despite this, in June, the Court in Perez v. Safety-Kleen Systems, put the burden on the employer finding "an employer must do something affirmative to provide a meal period, and may not merely assume such breaks are taken." Perez v. Safety-Kleen Sys., 2007 U.S. Dist. LEXIS 48308 (N.D. Cal. Jun. 27, 2007). In Perez, because the employer had no policy in place regarding meal breaks, never told employees to take breaks, and the plaintiffs were required to fill out a call log stating they were on duty all day long, the court held that the defendant did not provide proper breaks to its employees regardless of whether the opportunity for such breaks existed. Citing a DLSE Opinion Letter, the court held an employer’s obligation to provide employees with a proper meal period "is not satisfied by assuming that the meal periods were taken, because employers have ‘an affirmative obligation to ensure that workers are actually relieved of all duty’" ²

Most recently, last month, in an unpublished decision, Brinker Restaurant Corp. v. Superior Court, D049331 (CA 4rth App. Dist. 10/12/2007), the Fourth Appellate District of California held class certification should not be granted for a claim of rest period violations. The Court reasoned "employers are not required to ensure that employees take the rest breaks properly provided to them in accordance with the provisions of IWC Wage Order No. 5, …, and the court in the proper exercise of its legal discretion would have denied class certification, with respect to plaintiffs’ rest break claims because the trier of fact cannot determine on a class-wide basis whether members of the proposed class of Brinker employees missed rest breaks as a result of a supervisor’s coercion or the employee’s uncoerced choice to waive such breaks and continue working."

State and Federal regulations set forth specific factors to qualify for each exemption. For example, to be exempt from overtime pay under California law, employees must be "primarily engaged" in exempt duties which means that over 50% of their time should be devoted to exempt work.³ Further, the employee must meet minimum weekly salary requirements in order to qualify for the exemptions. Two recent decisions shed light on the importance of properly classifying employees as exempt.

In Harris v. Superior Ct., the court restrictively interpreted the administrative exemption when it highlighted the distinction between the administrative and production worker dichotomy. (See Harris v. Superior Ct. of Los Angeles County, 154 Cal. App. 4th 164 (2007)). The court held that California claims adjusters did not qualify under the administrative exemption and that they were merely "production" workers since most of their work involved the daily functions of the employer’s business operations. Id. at 176. The court reasoned the primary type of work the claims adjusters performed, including investigating and estimating claims, setting coverage boundaries, negotiating settlements, was not carried out at the level of management policy or general operations and therefore such employees did not qualify under the exemption as performing duties "directly related to management policies or general business operations". Id. at 178.

Similarly, in Eicher v. Advanced Business Integrators, Inc., the court found the employee was improperly classified under the administrative exemption because he frequently engaged in the day-to-day business functions of his employer, including customer service and executing the employer’s software programs. (See Eicher v. Advanced Business Integrators, Inc., 151 Cal. App 4th 1363 (2007)). The court again emphasized the distinction between administrative employees who "perform work directly related to management policies or general business operations" and production employees "whose primary duties are producing the commodities, whether goods or services, that the enterprise exists to produce". Id. at 1373.

Earlier this year the California Supreme Court in Gentry v. Superior Court (Circuit City), 2007 Cal. LEXIS 93786 (Aug. 30, 2007), decided that class action waivers may be deemed unenforceable. The court provided guidance for the trial court in determining whether such agreements can be enforceable, specifying that the following factors must be evaluated: (1) the size of the potential individual recovery; (2) the potential for retaliation against members of the class; (3) whether absent members of the class may not be informed about their rights; and (4) other "real world" obstacles to the vindication of class members’ right to overtime pay through individual arbitration.

Last month in Murphy v. Check ‘N Go of Cal. Inc., A114442 (Cal.Ct.App., 10/17/07), the court held a class action waiver in an arbitration agreement signed by a retail manager of Check N’ Go of California Inc. was unconscionable. The court upheld the trial courts’ decision and found the arbitration agreement as a whole was unenforceable as it "permeated with unlawful purpose" and was unconscionable.

B. Simple Solutions to Mitigate Damages and Avoid Pitfalls of Class Action Litigation

While keeping abreast of updates in employment law is essential, implementing change and mitigating potential risks is crucial. Employers can use existing resources to quickly and efficiently identify exposure and mitigate damages, by implementing some of the following:

1. Conduct an internal audit to determine areas of vulnerability: Because the employer bears the burden of proof, they should carefully weigh the benefits and risks associated with the classification of their employees. Employers should frequently conduct audits of their payroll practices and update their classifications to ensure positions are properly classified. This includes: a) becoming familiar with the regulations and updates; b) reviewing all exempt positions to determine if they are properly classified; c) monitoring work and relevant job descriptions for exempt employees to confirm exempt responsibilities; d) reclassify positions if necessary.
2. Implement changes by modifying and utilizing existing resources: Employers can use existing systems to better track hours of work. For example, existing resources such as computer systems and fob-keys can be used to mandate log-in and log-out procedures.
LI>Implement on-going training and education to spread understanding.
3. Mitigate the potential for misclassification by clearly defining job duties and responsibilities: Clearly defining responsibilities with training and performance evaluations that reiterate the same message are simple ways of guarding against violation.
4. Update record keeping practices: The successful defense of any class action lawsuit requires employers to maintain accurate and detailed records and documentation in the event such records are later needed to refute alleged claims. The more accurate the record keeping system is, the less chance of being presented with an exaggerated class action claim for overtime and unpaid wages. Time clocks or other reliable electronic systems may be the best route for an employer wanting to ensure accurate records.
5. Diversify practices: An easy way to defeat claims of class allegation is to demonstrate your practices vary by individuals and location. Provide local operations with greater discretion to implement geographic specific practices to create a record of diverse practices.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.