Wage and Hour Law Update : Wage & Hour Lawyer & Attorney : Jackson Lewis Law Firm : Minimum Wage, Overtime & Service Contracts

As analyzed in more detail  here, the California Supreme Court recently ruled that the California labor code provision prohibiting employers from taking or sharing in tips left for employees by customers – Cal. Lab. Code § 351 (“Section 351”) – does not provide  private litigants with a right to sue their employers directly for alleged misappropriation of tips. Lu v. Hawaiian Gardens Casino, Inc., No. S171442 (Aug. 9, 2010). 

In Lu, the defendant casino required card dealers to segregate 15 to 20 percent of their tips, which the casino deposited into a tip pool account for distribution to designated employees who provide services to customers.  Employees who received these segregated tips included chip runners, poker tournament coordinators, poker retention coordinators, hosts, customer service representatives, and concierges.  

The California Supreme Court took up Lu, after both the trial and first appellate court held that Plaintiff Lu had no private right to sue under Section 351, to settle a conflict with another intermediate appellate court which held that a private right of action existed under Section 351. See Grodensky v. Artichoke Joe’s Casino. The court addressed the limited question of whether Section 351 created a private right of action for employees.  Without ruling on the legality of the defendant’s tip pool policy, the Court found no private right of action for employees under Section 351, either explicitly or implicitly. However, the Court observed that employees can still pursue Section 351 relief through the Labor Commissioner, or sue for allegedly misappropriated tips under common law or other statutory theories.

Employers should continue to draft and administer their tip pooling policies carefully, in light of federal and state laws and regulations. This point is underscored by the fact that the FLSA provides a private right of action and 100% liquidated damages plus loss of any taken tip credit for misappropriated gratuities.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The surge of state wage and hour claims continues in California. Among the numerous California Labor Code provisions which has been the subject of repeated litigation is California Labor Code § 226(a) (“226”), which creates specific requirements concerning the content of employee wage statements. Included among its provisions is a requirement that wage statements indicate the “total hours worked by the employee, except for any employee whose compensation is solely based on a salary and who is exempt from payment of overtime.” Last month, a California appeals court analyzed this statute in the context of a claim brought by a non-exempt co-manager, who claimed that her wage statements violated this 226 requirement. Morgan v. United Retail, 2010 Cal. App. LEXIS 1194 (Cal. App. 2d Dist. June 23, 2010).

As recited by the court, the alleged unlawful wage statement contained the following information:

For employees who did not work any overtime hours during the pay period, their wage statements listed the total regular hours worked by the employee, which equaled the total number of hours worked. For employees who worked overtime hours during the pay period, their wage statements separately listed the total regular hours worked and the total overtime hours worked by the employee. However, the statements did not add the regular and overtime hours together and list the sum of those hours in a separate line.

Plaintiff Morgan’s claim, which had been rejected by the trial court on summary adjudication, was that this failure to combine non-overtime and overtime hours and provide a “separate line” indicating total hours constituted a violation of 226. 

The appeals court, after noting that no Court had previously analyzed a wage statement which “separately lists the total number of regular hours and the total number of overtime hours worked by the employee,” reviewed the existing decisions analyzing 226’s “total hours worked” requirement. Observing that the cases finding 226 violations focused on the inaccurate or misleading nature of the wage statements in question (such as wage statements providing an “average” number of hours worked, as opposed to actual hours worked), and citing a recent federal decision dismissing a 226 claim on a similar theory (Rubin v. Wal-Mart Stores, Inc., 599 F.Supp.2d 1176 (N.D.Cal. 2009)), the Court held that the failure to provide a separate line with the total hours did not constitute a violation. The Court rejected plaintiff’s contention that a violation occurred because the information provided was insufficient to calculate proper overtime, observing that the plaintiff and other putative class members were paid by the hour, and not on a “salary, commission, or piece-rate basis.”

Morgan provides some much-needed clarity regarding an employer’s obligations under 226. Inclusion of the “separate line” in wage statements (as Morgan indicates United Retail later did), reduces uncertainty and legal risk.  

Wage and hour compliance is a constant struggle due to the need not only to comply with the FLSA but also with all applicable state laws.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In a decision reiterating important independent contractor issues for employers, the Ninth Circuit Court of Appeals last week reversed a lower court decision holding that certain delivery drivers were properly classified as independent contractors under various provisions of the California Labor Code. Narayan v. EGL, Inc., 2010 U.S. App. LEXIS 14279 (9th Cir. July 13, 2010).

At the trial court level, Judge Ronald M. Whyte of the Northern District of California concluded that the drivers, although residents of California providing delivery services in California, were independent contractors under the laws of Texas, the governing law set forth in the drivers’ “Leased Equipment and Independent Contractor Services” agreement with EGL, a nationwide provider of logistics services.  In a footnote, the court further held that “[t]he result would be no different if California law governed.”

Reversing the decision, the Ninth Circuit observed that ‘[w]hether the Drivers are entitled to those benefits [under the Cal. Lab. Code] depends on whether they are employees of EGL, which in turn depends on the definition that the otherwise governing law--not the parties--gives to the term ‘employee’” (emphasis added). The Circuit Court held that the parties’ selection of Texas law to “govern” the contract applied only to disputes about interpretation of the contract (i.e, Texas contract law), not the application of employment statutes like the California Labor Code. Simply put, the Circuit Court held that the drivers’ claims under the Cal. Labor Code did not “arise” from the contract (i.e., did not call primarily for interpretation of that contract) – the contract was simply relevant evidence relating to their claims of employee status.  Finally, the Court reversed Judge Whyte’s ruling that the drivers were independent contractors (even under California law) because, in the Court’s view, he “did not apply the relevant factors [for IC status] identified by the Supreme Court of California to the facts in this case.”

While the Appellate Court’s failure to recognize the choice of law clause may not be relevant to most employers, the central holding and vital takeaway is very straightforward: independent contractor status is generally narrowly construed and currently under intense scrutiny. Further some aspects of the relevant analysis vary not only from state to state but from statute to statute. Additionally, and critically, the intent of the parties as reflected by the parties’ agreement is often of little importance to an administrative agency’s or court’s analysis, as Narayan clearly demonstrates.

All employers, and especially those with multi-state operations, must focus on the propriety of their organization’s use of contractors.   A more detailed analysis of this issue can be found here.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

As every California employer knows, wage and hour class actions in California are never-ending.  One basis for many of these class actions has been employers' alleged non-compliance with California meal and rest period requirements.  As to meal periods, the two overriding issues have been whether an employer is required to ensure non-exempt employees take their meal period or just offer such an opportunity and whether such meal period must be taken prior to completion of 5 hours of work.   This issue has significant financial ramifications to California employers as California law imposes a penalty of 1 hour of wages for each day an employee misses a meal period and for each day an employee misses a rest period.  The California Supreme Court is currently reviewing these issues in two consolidated cases and is expected to schedule oral argument in the coming months.  Once oral argument before the court occurs and the court hands down its decision within 90 days thereafter as required by California law, we hope there will be some clarity on these issues.

Robert Pattison, Managing Partner of Jackson Lewis' San Francisco office, has prepared a white paper discussing these issues in detail.  This white paper, which includes a statutory analysis and a discussion of the shifting positions of the State Labor Commissioner, can be accessed at this link. Most importantly, Jackson Lewis suggests that to ensure compliance pending this decision, California employers continue to ensure that no non-exempt employees works more than 5 hours without taking a meal period.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Subsequent to our post of April 6, the California DLSE issued a lengthy new opinion letter regarding trainees, available here. In it, the Division upholds the uncompensated “intern” status of participants in the Year Up program, a program in which a not-for-profit places 18-24 year olds in underserved communities to develop marketable skills in the information technology arena for 6 month assignments. The Division applied the six factor conjunctive test utilized under federal law in reaching its conclusion:

1)  The training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school;

2)  The training is for the benefit of the trainee

3)  The trainees do not displace regular employees, but work under close observation

4)  The employer that provides the training derives no immediate advantage from the activities of the trainees and on occasion his operations may actually be impeded

5)  The trainees are not necessarily entitled to a job at the completion of the training period

6)  The employer and the trainees understand that the trainees are not entitled to wages for the time spent in training.

See, e.g., Reich v. Parker Fire Protection Dist., 992 F.2d 1023, 1026 (10th Cir. 1993).

The opinion letter departs from the DLSE’s more expansive eleven-factor test, which included the additional factors below, observing that they “do not appear to be based upon any source statute or regulation from which they derive nor are the additional factors identified with specific case law.”

7)       Any clinical training is part of an educational curriculum;

8)       the trainees or students do not receive employee benefits;

9)       the training is general, so as to qualify the trainees or students for work in any similar business, rather than designed specifically for a job with the employer offering the program, i.e. upon completion of the program, the trainees or students must not be fully trained to work specifically for only the employer offering the program;

10)   the screening process for the program is not the same as for employment, and does not appear to be for that purpose, but involves only criteria relevant for admission to an independent educational program, and

11)   advertisements for the program are couched clearly in terms of education or training, rather than employment, although the employer may indicate that qualified graduates will be considered for employment.

While the DLSE’s willingness to abandon these supplemental factors is an encouraging sign, the difficulty of satisfying the original six-factor test remains. Few internship programs, whether offered through the not-for-profit sector or otherwise, are as fully compliant with the prevailing federal test as that offered by Year Up.

• Email This
• Print
• Comments
• Trackbacks
• Share Link