Take a Seat (if Reasonable): The California Supreme Court “Clarifies” Employee Seating Requirements

In April, in Kilby v. CVS Pharmacy, Inc., the California Supreme Court weighed in, at the request of the Ninth Circuit, on elements of two California Wage Orders that have, until now, received relatively little notice, and have escaped much judicial interpretation—the requirement that seating is to be made available to employees “when the nature of the work reasonably permits the use of seats.”  (Emphasis added.) Unfortunately, the Court’s decision raises at least as many questions as it answers.

Before the Court were two main questions, both concerning the seating requirements of California Wage Orders: what does “nature of the work” mean when determining if employee seating is required, and, in this same context, what does “reasonably permits” mean?

The defendants, CVS Pharmacy (in a class action where the named plaintiff was a customer service representative) and JP Morgan Chase Bank (in a class action where the named plaintiffs were bank tellers), argued that “nature of the work” required a “holistic” analysis, where one basically could add up the overall duties and tasks of an employee, and consider the overall position and title, and determine whether, all things considered, the provision of seating was required.

The Supreme Court sided, not surprisingly, with the position of the California Department of Labor Standards and Enforcement in its amicus brief. Essentially, the Court said that you need to look at each discrete task and determine whether the nature of each task permits the use of seating.  If, for example,  a retail employee spends 90 percent of her working time stocking merchandise and 10 percent of her time ringing up sales at a cash register, and if we further assume that the “totality of the circumstances” (discussed more below) makes clear that seating is reasonable for the cashier work, but not for the stocking work, then the employer would need to provide seating for the time that the employee is performing cashier duties—regardless of the employee’s title (e.g., “stockperson” ), the fact that the majority of her tasks did not reasonably permit seating, or otherwise.

This interpretation of “nature of the work” naturally flows into the adjoining language of the Wage Orders—“when the nature of the work reasonably permits.”  (Emphasis added.)  And this is the part of the decision likely to cause California employers significant angst.  The Court basically said that whether the nature of the work “reasonably permits” an employee to sit is based upon the “totality of the circumstances,”—in other words, a determination of what is reasonable must be based upon all of the material facts.  But the Court did not provide any useful examples of what this might look like in the real world.  The Court did say that the business judgment of the employer, as well as the physical layout of the workspace, were factors to be considered when looking at this “totality of the circumstances,” but no single factor was dispositive.  (Notably, the defendant-employers argued that the test should be whether an employer’s business judgment was “legitimate” and not “pretextual,” harkening  to the standard for employment discrimination cases under the California Fair Employment and Housing Act and Title VII of the Civil Rights Act of 1964, but this suggestion received little attention from, or discussion by, the Court.)

Takeaways: this decision is most certainly a mixed bag. On the one hand, the clarification that “nature of the work” refers to discrete tasks, and not an overall, holistic analysis provides useful guidance.  Employers will have the burden to assess and analyze their employee positions to determine what “work” (tasks) merit seating.  But for many such tasks, the nature of the task itself (such as cashiering versus stocking) will provide a guidepost, if not a bright line.  The only bright line appears to be that the burden of proof will be on the employer—in other words, it is an employer’s burden to prove that compliance with the seating requirement is “infeasible because no suitable seating exists.”

The real conundrum for employers is that their judgment, i.e., what is “reasonable” in the totality of the circumstances, will almost certainly be second guessed by judges and juries, often in the context of class actions, and such judgment as to whether employee seating is reasonably permissible is one factor among many, and is entitled to no deference. On a related matter, the fact that the physical layout of a workspace is itself not dispositive further complicates the reasonableness analysis: it leaves the door open, for example, that a reconfiguration or enlargement of a work area, such as an enlargement of a cashier area to accommodate seating, may be “reasonable” under the law.

Also, a less discussed, but still impactful part of the Court’s decision was its discussion of the Wage Orders’ language that “[w]hen employees are not engaged in the active duties of their employment and the nature of the work requires standing, an adequate number of suitable seats shall be placed in reasonable proximity to the work and employees shall be permitted to use such seats when it does not interfere with the performance of their duties” —in other words, that when there are “lulls in operation” and such an employee is not “actively engaged in any duties,” seating must be provided.  It appears that the same totality-of-circumstances and reasonableness analysis would apply to an employer’s determination of whether an employee was or was not “actively engaged” in duties.  Is a customer service employee in a retail storefront actively engaged in the duty of providing customer service (including, for example, being welcoming) when there are no customers in the store, but where the store interior and the employee are visible from passersby?  This would seem to rest, in part, on an employer’s business judgment, and such judgment, under this decision, is not entitled to deference, but is only one factor among many.

Future decisions from the California courts will hopefully provide more structure and guidance to employers’ “reasonableness” analysis. Until then, in homage to Auguste Rodin’s  famous “Thinking Man” sculpture, employers and human resources professionals may want to put their heads in their hands and think…while sitting, of course.

Monte Grix

$15 is the New $10: California’s Minimum Wage Increase, and the Balancing Act with the New Federal Salary Threshold for Exempt Employees

We recently blogged about the U.S. Department of Labor’s dramatic increase in the salary threshold for exempt employees.  The federal changes put California in the unusual position of having (at least as to one corner of the wage and hour universe) less favorable standards than federal law.  But have no fear—California has recently raised its own minimum wage, which surpasses the federal standards.  Together, the federal and California state law changes will have costly affects for California employers who employ exempt employees earning less than $47,476 by December 1, 2016.  California employers should start planning now to make adjustments for compliance with both state and federal exemption laws.

What is California’s Minimum Wage?  The current minimum wage for employers with at least 26 employees in California is $10.00 per hour – but not for long!  Beginning January 1, 2017, the minimum wage will increase annually until it reaches $15 per hour by January 1, 2022:

  • January 1, 2017 through December 31, 2017: $10.50 per hour.
  • January 1, 2018 through December 31, 2018: $11 per hour.
  • January 1, 2019 through December 31, 2019: $12 per hour.
  • January 1, 2020 through December 31, 2020: $13 per hour.
  • January 1, 2021 through December 31, 2021: $14 per hour.
  • Beginning January 1, 2022: $15 per hour.

How Does the FLSA Regulation Affect California Employers with Exempt Employees?  Under California’s salary basis test, exempt employees must (among other requirements) earn at least twice the state’s minimum wage, meaning that under the current $10 per hour minimum wage, exempt employees must earn an annual salary of $41,600 ($10 per hour x 2 x 40 hours per week x 52 weeks per year).  But due to recent amendments to the FLSA, it is not enough to simply follow the scheduled annual increases to the state minimum wage.

The new FLSA regulation, which takes effect December 1, 2016, more than doubles the current federal salary threshold for exempt employees from $455 a week to $913 a week or $47,476 per year.  Historically, federal exemption regulations did not have a major impact on California employers since their requirements were much lower than the state level – until now.  This federal threshold exceeds California’s minimum exemption salary until the state minimum wage reaches $12.00 per hour on January 1, 2019.  However, the DOL will update the minimum salary threshold for exempt employees every three years, starting January 1, 2020, compelling employers to re-assess compliance under the FLSA standard once again.

This regulation will force many California employers to choose between raising the salary of exempt employees to the federal threshold of $47,476 (until it increases again in 2020) or reclassifying employees entirely to hourly (and therefore eligible for overtime pay).  For those who choose the latter option, keep in mind that the state minimum wage will reach $15.00 per hour by 2022.

What Can Employers Do Now?  Employers are encouraged to start assessing their workforce and compensation policies to prepare for dramatic annual increases to compensation for exempt employees who are at or close to the current state minimum allowable salary.  Though entry level managerial positions are likely to be the most affected by the federal increase in the exempt salary threshold, employers should consider conducting an audit, through counsel, of their workforce to determine what portion of their workforce will be affected by the new regulation and whether re-classifying some workers as non-exempt is the less-costly option.

Ferry Lopez

Misappropriation of Trade Secrets: Make a Federal Case Out of It (Under the Defend Trade Secrets Act)

 

Last month, President Obama signed the Defend Trade Secrets Act (“DTSA”) into law, which permits plaintiffs to bring civil claims for misappropriation of trade secrets in federal court.  While trade secret theft has been a federal crime since 1996, civil claims for such theft were, until now, generally available only through the state courts.  That state-level relief is provided though the Uniform Trade Secrets Act, which was adopted, modified and interpreted differently by California and 47 other states—resulting in varying levels of protection among the different jurisdictions.  The DTSA brings true uniformity to trade secret lawsuits to the extent that complaints are brought at the federal level.  At the same time, the new law adds a layer of complexity for companies seeking to protect trade secrets: since the DTSA does not preempt state law, trade secrets issues are now governed by federal and state law.

Significant aspects of the new law include:

Whistleblower Immunity

The DTSA provides civil and criminal immunity for employees, contractors and consultants who disclose trade secrets to a government official or an attorney “solely for the purpose of reporting or investigating a suspected violation of law” or in a court filing made under seal.  In addition, employers must give notice of this immunity in any confidentiality or trade secret agreement entered into with an employee or contractor after May 11, 2016.   Employers who fail to do so will not be able to recover exemplary damages or attorneys’ fees provided for in the DTSA.

Employee Mobility

Under an “inevitable disclosure doctrine” in effect in many states, employers are able to enjoin employees from accepting employment elsewhere by showing that the employment would inevitably lead to a disclosure of the employer’s trade secrets.  California courts have rejected this doctrine as an unlawful restraint on employee mobility.  The DTSA also rejects the doctrine by specifying that federal courts may not use the doctrine to enjoin individuals from entering into employment relationships.  However, the Act permits courts to impose conditions on a new employment relationship where there is evidence of threatened misappropriation—a higher bar than an injunction premised on “inevitable disclosure,” i.e., merely on the basis of an employee’s knowledge.

Ex Parte Seizure

The DTSA provides employers with a new powerful tool to protect trade secrets that is currently not available under California state law: ex parte orders for the seizure of property necessary to prevent propagation or dissemination of a trade secret.   However, the usefulness of this tool is limited by the requirements for the issuance of such an order.  To issue a seizure order, a court must find that:

  • another form of equitable relief would be inadequate because the party to be enjoined would evade, avoid, or otherwise not comply;
  • an immediate and irreparable injury will occur if such seizure is not ordered;
  • the harm to the applicant outweighs the legitimate interests of the person against who seizure would be ordered and substantially outweighs the potential harm to third parties;
  • the applicant is likely to succeed on the merits;
  • the person against whom seizure would be ordered has actual possession of the trade secret;
  • the application describes with reasonable particularity the matter to be seized;
  • the person against whom seizure would be ordered would destroy, move, hide, or otherwise make such matter inaccessible to the court; and
  • the applicant has not publicized the requested seizure.

Additionally, the order itself must detail these findings of fact and meet various other requirements.  In short, an ex parte seizure order will be permitted only in “extraordinary circumstances,” and a plaintiff hoping to use the seizure process should complete a full factual investigation before seeking this relief.

The DTSA applies to any claims for alleged trade secret misappropriation crossing state and national borders that occurred on or after May 11, 2016.  Going forward, employers will need to carefully consider the benefits of proceeding with trade secret theft claims in federal court.  More immediately, employers should, with the aid of counsel, review their employment and confidentiality agreements to ensure that the agreements contain either the required DTSA immunity notice or a cross-reference to the employer’s policy document for reporting a suspected violation of law.

-Jacob Swiss

California Teachers Seek Rehearing Before Full U.S. Supreme Court Regarding Constitutionality of “Agency Shop” Fees for Non-Union Employees

 Attorneys for the Plaintiff California public sector teachers in the case of Friedrichs v. California Teachers Association have taken the extraordinarily rare step of petitioning the Supreme Court for a rehearing, and have also requested that such rehearing take place after the Court obtains a full complement of Justices capable of reaching resolution by a five-Justice majority.  The request for rehearing was prompted by the Court’s one sentence decision in theFriedrichs  case on March 29, 2016, upholding the judgment of the Ninth Circuit without decision by an “equally divided Court.”  The split decision left intact, for now, the constitutionality of “agency shop” fees for non-union member public employees who are represented by a union.  It had been highly anticipated when the case was heard by the Court in January 2016 that a majority of the Court, including Justice Antonin Scalia, would vote in favor of Plaintiffs to reverse the Ninth Circuit in a 5-4 decision.  Such a decision would have also potentially reversed the Supreme Court precedent upon which the Ninth Circuit’s decision was based, Abood v. Detroit Board of Education.  However, the chances of reversal dimmed with the unexpected death of Justice Scalia a month later. 

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At issue in Friedrichs is the right of public employee unions to require non-union members to pay compulsory “agency shop” fees.    Agency shop arrangements require non-union employees, who are represented by a union that has won the right to bargain for all employees (union members and non-union members) in the bargaining unit, to pay an “agency fee” as a condition of continued employment.  Under Abood, the “agency fee” may be assessed in order to pay for union activity related to bargaining for rights of all employees in the bargaining unit.  However, the “agency fee” assessed cannot be used to pay for a union’s political activity, including lobbying and support of political candidates.  Agency shop fee arrangements are currently permitted in over 20 states, including California, and affect millions of public employees.  The teacher plaintiffs in Friedrichs have asserted that requiring employees who choose not to join the union to pay an agency fee to the union to support even bargaining-related activities violates their free speech rights under the First and Fourteenth Amendment rights.

 

The last time the Supreme Court granted a similar rehearing petition was in 1947.   However, even if the rehearing petition is ultimately denied, several agency fee cases are winding their way through the courts and could eventually be heard by a full Supreme Court.  For now, the result in Friedrichs leaves a question still hanging over the ultimate continued viability of Abood on this important labor relations issue. 

Jayne Benz Chipman

 

Final Regulations from the U.S. Department of Labor Raise Exempt Employee Salary Threshold to $47,476 and Extend Overtime Protections to 4 Million Employees

Yesterday, the U.S. Department of Labor (DOL) released the long-awaited Final Rule on overtime pay applicable to employers across the country, which, when implemented on December 1, 2016, is expected to extend overtime pay protections to over 4 million workers within the first year.

Most significantly, the Final Rule increases the salary level for the white collar exemption to the federal overtime pay requirements under the federal Fair Labor Standards Act (FLSA) to $913 a week or $47,476 annually for a full-year worker. (This is the rare case where federal law is now more favorable to employees than California, as the new salary level exceeds California’s minimum salary level for exempt status, which as of January 1, 2016 is $800 a week and $41,600 annually.) The new FLSA salary level represents a slight reduction from the expected level of $50,440 per year, which was identified by the DOL in its proposed rule last year; however it still more than doubles the previous salary level for this exemption.

The FLSA requires most employees be paid at least the federal minimum wage for all hours worked and overtime pay at time and one-half of their regular rate of pay for all hours worked over 40 in a workweek. However, the FLSA provides an exemption from both minimum wage and overtime pay for workers employed in certain jobs, including executive, administrative and professional employees (referred to as the “white collar” exemption). For an employee to be exempt: (1) their job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (“duties test”); (2) they must be paid on a salary basis not subject to reduction based on quality or quantity of work (“salary basis test”); and (3) their salary must meet a minimum salary level, which after December 1, 2016, will be $47,476 annually for a full-year worker (“salary level test”).

Key Provisions of the Final Rule

  • The new minimum salary level threshold has been set at $47,476 per year.
  • For the first time, employers may use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the salary level, provided such payments are paid on a quarterly or more frequent basis. Employers are permitted to make a “catch-up” payment.
  • Employers must be in compliance with the new regulations by Thursday, December 1, 2016. As the effective date is a Thursday, any salary increases to ensure continued use of the exemption for weekly/biweekly employees must be made for the workweek (or pay period) that includes December 1.
  • The DOL did not make any changes to the existing job duties test to qualify for exemption (although some states, such as California, already have a more stringent standard requiring that more than half the employee’s time be spent performing exempt functions).
  • The compensation level for highly compensated employees (HCE) subject to a more minimal duties test was raised from its previous amount of $100,000 to $134,004 annually (the annual equivalent of the 90th percentile of full-time salaried workers nationally).
  • The salary level will increase automatically every three years, beginning on January 1, 2020.  Each update will raise the standard threshold to the 40th percentile of full-time salaried workers in the lowest-wage census region (currently the South), estimated to be $51,168 in 2020. The DOL will post new salary levels 150 days in advance of their effective date, beginning August 1, 2019.

DOL Resources on the Final Rule

The Final Rule is scheduled to be published in the Federal Register on May 23, 2016. The DOL has prepared and posted guidance on the Final Rule on the DOL Wage and Hour Division Webpage on the Final 2016 Overtime Rule, including Fact Sheets for the Non-Profit and Higher Education sectors, as well as for States and Local Governments.

Action Items for Employers

Employers should become familiar with the new regulations, as misclassification of employees as exempt from FLSA overtime requirements is a costly mistake. Employers should conduct an audit of all exempt job positions to identify all of the employees in their organization who currently earn less than $913 per week or $47,476 annually, and calculate the costs involved if the salaries of those positions were increased to the threshold minimum level.

In light of the number and type of implicated positions, employers should evaluate options available and develop a proposed course of action. Options may include increasing salary levels to meet the threshold level, evaluating and realigning employee workload, tracking and compensating overtime for all hours worked in excess of 40 per week above a salary, re-classifying employees as non-exempt, reductions in force, or outsourcing certain functions.

Employers should evaluate each impacted position on a position-by-position basis to ensure that positions are properly classified as exempt in the first instance, and any reclassifications take into account both State and federal requirements. Most likely, employers will consider adopting a combination of the above.

The McDonald’s NLRB Case: At The Intersection Of Hot Legal And Political Issues

Despite popular belief, the fate of fast food franchises around the country does not rest in the hands of Lauren Esposito, an unelected administrative judge for the National Labor Relations Board (NLRB).  Whatever decision Judge Esposito reaches, it will be appealed to the full NLRB and then again to a federal appeals court for review.  Continue reading

Hirschfeld Kraemer files amicus brief in suit challenging Department of Labor’s new “Persuader Rule”

The Department of Labor recently issued a final “persuader rule” under the Labor-Management Reporting and Disclosure Act (“LMRDA”).  The new rule expands the reporting and disclosure requirements of firms involved in persuader activities – where an object is to persuade employees concerning their rights to organize and bargain collectively.  Changing a long-standing understanding that indirect activities, such as drafting communication to employees, coordinating meetings and the like for employers involved in union organizing, were not covered by these reporting requirements, the new rules new expressly include planning or coordinating supervisor activity, providing persuader materials and even conducting seminars or training for supervisors or other training activity even where the consultant/lawyer does not directly meet with employees.  Both employers and lawyers would need to file disclosure statements concerning fees, content of consultation and similar information long believed to be privileged.     Continue reading

U.S. Supreme Court Agrees to Review Ninth Circuit Ruling Denying FLSA Exempt Status To Service Advisors at Automobile Dealerships

Navarro v. Encino Motorcars, LLC, is a wage and hour case brought by five service advisors who worked at a California automobile dealership, seeking overtime pay under the Fair Labor Standards Act (FLSA) and state law.  The dealership obtained dismissal of the FLSA claims, citing FLSA section 13(b)(10), which exempts from federal overtime “any salesman . . . primarily engaged in selling or servicing automobiles or trucks.”  But last March, the Ninth Circuit Court of Appeals reversed the dismissal and held that service advisors do not qualify for the exemption.  Its decision was notable because it reversed more than 40 years of case law, and even previous Department of Labor (DOL) interpretations, holding that service advisors qualify for this exemption because they are sales personnel who are primarily engaged in servicing automobiles.  The Ninth Circuit’s principle rationale for finding the exemption inapplicable was a recent change by the DOL in its interpretation of the exemption to exclude service advisors.  The Ninth Circuit held that because the DOL is the agency charged with interpretation of the FLSA, its interpretation of an ambiguous statute is entitled to deference.

The dealership then petitioned the U.S. Supreme Court for certiorari review.  Given the widespread impact of this decision on the industry, which has depended on the exemption for decades, the petition was supported by amici curiae (friends of the court) National Automobile Dealers Association (NADA), California New Car Dealers Association (CNCDA), and automobile dealers associations in each of the other states in the Ninth Circuit, who filed a brief urging the Supreme Court to review the case.  On January 15, 2016, the Supreme Court agreed to review the Ninth Circuit’s decision.  The Supreme Court’s grant of certiorari likely signals its skepticism of the Ninth Circuit’s decision, particularly given the long history of industry reliance on the exemption.  Stay tuned.

Felicia Reid of Hirschfeld Kraemer represents amici NADA, CNCDA and the other dealer associations in the Supreme Court proceedings.

California Court Approves FLSA Formula For Flat Bonuses

The California Court of Appeal provided employers with a small New Year’s gift for 2016: on January 14, in Alvarado v. Dart Container Corporation of California, it affirmed that an employer’s formula for calculating overtime, based upon federal law rather than upon a formula in the California Department of Labor Standards Enforcement (DLSE) Manual, was lawful.  Continue reading

What Does California’s New E-Verify Law Mean For Employers?

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Our blog post on January 5, 2016 summarized California’s new E-Verify law and other updates.  So what should California employers do differently now with respect to I-9s and E-Verify?  Enrollment in E-Verify remains voluntary under federal and California law except for federal contractors with the FAR provision in their contract.  California’s new law (AB 622) added significant penalties at the state level for E-Verify violations in addition to federal penalties.  Continue reading