California Governor Jerry Brown’s latest budget proposal contains important provisions which would make significant changes to the way litigation is conducted under The Private Attorneys General Act (PAGA).  In recent years, wage and hour litigation has seen an increase in PAGA claims.  PAGA allows “aggrieved” employees to recover civil penalties for California Labor Code violations which previously could only be collected by the Labor and Workforce Development Agency (LWDA).  In effect, PAGA allows current or former employees to enforce labor code violations through lawsuits against employers. If found liable, employers face thousands of dollars in penalties per employee, per pay period, up to one year and 33 days prior to filing their complaint.  As a result, PAGA lawsuits can quickly represent penalties in the millions of dollars for large companies despite what may be relatively minor technical violations.

Luckily for employers, Brown's 2016-2017 state budget proposal seeks to create a “PAGA unit” to review claims and settle them out of court when possible.  This would hopefully reduce the amount of PAGA litigation and also lead to the early settlement or rejection of non-meritorious claims.  However, under the proposal, the PAGA unit can object to PAGA court settlements and all PAGA settlements would have to be approved by the Court which could complicate settlements or prevent settlements which are overly beneficial to employers.

A recent decision out of a federal court in California left Taco Bell sick to their stomach after a jury awarded a class of workers a grande award of $496,000 for missed meal breaks for which they were only partially paid.  The plaintiff claimed that from 2003 through late 2007 Taco Bell had a policy of only paying a 30-minute premium when an employee was not permitted to take their meal break, instead of the full hour of premium pay that is required under California law. After a multi-week trial, the jury agreed, finding that approximately 134,000 employees were not provided a full hour of pay for missed meal breaks.

The plaintiffs also asserted additional alleging unlawful meal and rest period violations. Taco Bell had created a “Required Rest Break and Meal Period Matrix” that was printed in its employee handbooks. The plaintiffs alleged the handbook reflected a policy of providing meal breaks after five hours of work despite the fact that California law requires employees to take their lunch before the completion of five hours of work, if they work at least 6 hours. The Matrix also indicated that employee were only allowed one 10-minute rest break if they worked a shift longer than six hours but less than seven hours.

Last October, Senate Bill 358, also known as the California Fair Pay Act, was passed into law, amending California Labor Code section 1197.5.  This code was originally enacted in 1949 to prohibit gender based discrimination in pay.  The California Fair Pay Act was intended to strengthen the law’s protections by making it easier for an employee who has raised a claim of unequal pay to establish that they are not being paid the same amount as members of the opposite sex for work which requires substantially the same skill, effort, and responsibility under similar working conditions. 

If an employee makes such a showing, an employer must now show that the difference in pay is based on any or all of the following: 1) a seniority system; 2) a merit system; 3) a system which measures earnings by quality or quantity of production, or 4) a “bona fide” factor other than sex, such as education, training, or experience.  An employer must also show that the pay difference is tied to an absolute business necessity and that its reliance upon one, or several, of the four factors was reasonable and accounts entirely for the wage differential.  In other words, an employer can no longer point to one of the factors as a partial explanation for the wage differential.  This is a significant change that substantially increases the burden of proof faced by employers dealing with unequal pay claims.

Employers will need to be even more careful this year than in the past to guarantee compliance with all labor laws as enforcement agencies and plaintiffs’ attorneys are expected to be even more aggressive in filing class actions under the Fair Labor Standards Act (“FLSA”).  A recent report by Syracuse University indicates that following a record setting 2015 for FLSA wage-and-hour lawsuits filed in federal courts with almost 9,000 filings, 2016 is expected to be even worse, becoming the third straight year to see a rise in FLSA lawsuits and continuing the steady upward trend over the last fifteen years.  In fact, since 2000, FLSA filings in federal court have increased by over 450%.

It should come as no surprise that FLSA lawsuits are on the rise given minimum-wage increases in many states and municipalities, increasing scrutiny on worker classification, increased scrutiny on wage statements, an increased use of the dual employment doctrine, and a greater emphasis being paid to how and when employees are paid.  In California the passage of AB-1513, the raise in the minimum wage that took effect at the beginning of the year, the passage of multiple other employee-friendly regulations and laws in recent months, and the growing involvement of both federal and state agencies in prosecuting cases involving wage and hour violations all but guarantees that there will also be an increase of wage and hour class action and Private Attorney General Act lawsuits in 2016.

On January 15, the United States Supreme Court agreed to hear a dispute on whether certain car dealership workers should be entitled to overtime pay. In Encino Motorcars LLC v. Hector Navarro et al., Encino Motorcars, LLC (“Encino”) challenged a Ninth Circuit ruling that “service advisors,” defined as the workers at car dealerships who talk with customers about the service to be done on their cars, are not exempt under Fair Labor Standards Act (“FLSA”) and are entitled to overtime pay. Encino’s service advisors initially sued the dealership the dealership in 2012, alleging their job descriptions required them to greet with car owners and sell additional services beyond what prompted the customer’s visit, but asserted they did not sell cars or perform repairs.

In March 2015, the Ninth Circuit ruled that service advisors should be eligible for overtime pay because a U.S. Department of Labor (“DOL”) regulation only excludes salespeople and mechanics from overtime pay, and not service advisors. According to Encino, the Ninth Circuit ruling runs counter to previous rulings by the Fourth and Fifth Circuits, both of which declined to adopt the DOL’s definitions. The Ninth Circuit, says Encino, chose to rely on a DOL regulation that holds that service advisors are not exempt from receiving overtime because they do not “personally service vehicles,” instead of FLSA’s plain language that exempts “any salesman, partsman or mechanic primarily engaged in a selling or servicing automobiles” from overtime.

A California Appeals Court recently clarified how to calculate overtime which includes certain flat sum bonuses: Calculate them according to federal rules. In Alvarado v. Dart Container Corp. of California, Dart Container’s written policy stated that an attendance bonus of $15 per day would be paid to any employee who was scheduled to work a weekend shift and completed the full shift regardless of the hours worked beyond the normal scheduled length of a shift. (Please note that this is not a piece rate case.)

The Employer calculated the amount of overtime paid during a particular pay period by spreading out the attendance bonus over all hours worked during the pay period. By spreading out the bonus over all hours, the “regular rate” of pay used to calculate the rate at which “overtime premium” is paid was lowered compared to if the bonus was applied to a single day where large amounts of overtime were worked. The “overtime premium” was then added to the straight hourly pay for all overtime hours worked and the employee was paid for the overtime they worked in that pay period.

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