Commission-Based Employees in California Must Receive Separate Pay for Rest Breaks

Last week, in Vaquero v. Stoneledge Furniture, LLC, Case No. B269657, the California Court of Appeal decided that hourly employees that are exclusively compensated on a commission basis must also be separately paid for required rest periods.

Under California law, employers must provide their non-exempt workers with paid ten-minute rest breaks for each four hours of work (or major fraction thereof). In Vaquero, two former sales associates brought suit alleging that they had not been paid for the rest breaks that Stoneledge provided. Under Stoneledge’s commission plan, the employer tracked all hours worked by the commissioned salespersons and compensated them in one of the two ways:

  • If the sales associate’s earned commissions exceeded the guaranteed minimum [$12.01 per hours worked], then the associate would receive the actual commissions earned based on a “percentage of sales”;
  • Alternatively, if the sales associate’s earned commissions fell below the guaranteed minimum, then the sales associate would be compensated based on a $12.01 per hour basis, which would serve as an advance against future commissions.

In other words, in the event a commissioned salesperson failed to make the equivalent of $12.01 per hour, Stoneledge would provide that worker with an advance that would be paid back through clawed back deductions from future paychecks. However, to ensure that its sales associates were never paid less than the $12.01-per-hour guaranteed minimum, Stoneledge’s plan never took repayment if it would result in payment of less than guaranteed minimum.

In moving for summary judgment, Stoneledge asserted that the rest period claim failed because of its guaranteed minimum plan: “all time during rest periods was recorded and paid as time worked identically with all other work time,” such that sales associates were paid at least $12.01 per hour even if they made no sales at all. The trial court agreed, concluding that “Stoneledge’s payment system specifically accounted for all hours worked. . . and guaranteed that [sales associates] would be paid more than the $12 an hour for those hours [such that w]ith this system there was no possibility that the employees’ rest period time would not be captured in the total amount paid each pay period.”

The Court of Appeals, however, disagreed with the trial court, finding that the Stoneledge’s plan did not properly compensate the commissioned salespersons for rest break time in part because the “plain language of Wage Order No. 7 requires employers to count ‘rest period time’ as ‘hours worked for which there shall be no deduction from wages.’” In so finding, the Vaquero Court cited Bluford v. Safeway, Inc.(2013) 216 Cal. App. 4th 864, a case that involved Safeway truck drivers who sued Safeway for, among other things, failing to provide paid rest periods. In Bluford, Safeway paid the drivers “based on mileage rates applied according to the number of miles driven, the time when the trips were made, and the locations where the trips began and ended,” and, similar to Stoneledge, Safeway asserted that its compensation system subsumed payments for rest periods into the mileage rates Safeway negotiated in the drivers’ collective bargaining agreement, but none of the bases on which Safeway paid its drivers directly compensated them for rest periods.   The Bluford court determined that because the applicable wage order similarly prohibited employers from “deduct[ing] wages for rest periods,” employers “must separately compensate employees for rest periods where the employer uses an “activity based compensation system” that does not directly compensate for rest periods.

Relying on Bluford, the Court of Appeal in Vaquero first determined that “nothing about commission compensation plans justifies treating commissioned employees differently from other [hourly] employees,” and then held that “Wage Order No. 7 requires employers to separately compensate employees for rest periods if an employer’s compensation plan does not already include a minimum hourly wage for such time.” Among other things, the Vaquero court reasoned that the “commission agreement used by Stoneledge [was] analytically indistinguishable from a piece-rate system in that neither allows employees to earn wages during rest periods. Indeed, the purpose of a rest period is to rest, not to work.” Finally, in reaching its conclusion that Stoneledge’s commission plan did not separately compensate its sales associates for rest breaks, the Vaquero court highlighted the fact that the commission agreement did not compensate for rest periods taken by sales associates who earned a commission instead of the guaranteed minimum.

Takeaways

Going forward, California employers with commissioned-based compensation plans and those with piece-rate compensation plans should review and revise such plans to ensure that they separately account for – and pay for rest periods – to comply with California law and Wage Order 7. Further, employers should ensure that this separate break-out of paid rest periods is not subject to any deduction.

 

Trump Admininstration’s New DHS Immigration Enforcement Criteria And The Future of Travel/Visa Ban

After a short lull in immigration policy action, things are changing again. Last week the Trump Administration informed the 9th Circuit Court of Appeals that it would issue a new Executive Order (EO) on the travel/visa ban this week which will replace the initial EO and moot the 9th Circuit’s national temporary restraining order. The new EO is expected late this week and has not been released in draft form. The Trump Administration has offered some information about the new EO as follows: it will not take effect immediately upon issuance, to allow for preparations and avoid the chaos that ensued when the initial EO took effect immediately; it will apply to the same seven countries (Iran, Iraq, Libya, Somalia, Sudan, Syria, Yemen); it will clarify how it applies to dual citizens of a listed country and another country that isn’t on the list; it will be clear that lawful permanent residents of the US are not affected by the EO; it may allow some refugees from Syria. These points address the most obvious legal and operational deficiencies of the initial EO. Continue reading

Physician Heal Thyself: California Sets Nation’s Highest Standard For Health Care Workplace Violence Prevention

The facts are distressing: according to federal Occupational Safety and Health Administration statistics, over half of all reported workplace violence incidents occurred against workers in healthcare and social assistance. Nurses are attacked at more than 3 ½ times the average national rate of occupational violence. Continue reading

Looking Ahead: Immigration & International Programs Under the Trump Administration

President Trump’s recent Executive Order 13769 (EO) on immigration caused tumult for many colleges and universities when it was implemented. With more than 20 lawsuits challenging the EO, on Feb. 9 the 9th Circuit Court of Appeals upheld a national temporary restraining order (TRO) granted by U.S. District Court in Washington state. While this is a major victory for the rule of law and constitutional separation of powers, it’s only temporary. Additional court rulings and executive orders on immigration are expected, and the approach is difficult to predict.

 

 

 

Trump Labor Nominee, Andrew Puzder, Withdraws

Andrew Puzder, the fast food CEO that Donald J. Trump nominated to be Labor Secretary, abruptly withdrew his name from consideration today following revelations that he was physically abusive to his wife and that he employed an undocumented worker at his home.  Puzder had reportedly lost the support of several Republican senators, guaranteeing that his nomination would fail.   Continue reading

Take a Seat: Takeaways from Bank of America’s $15 Million Suitable Seating Settlement

As we previously blogged here, in April 2016, in Kilby v. CVS Pharmacy, Inc., the California Supreme Court ruled, without providing much guidance, that suitable seating is required “when the nature of the work reasonable permits the use of seats.” Last fall, Bank of America (BofA), in a similar representative action, agreed to settle a suitable seating lawsuit for $15 million, filed on behalf of all of its California non-exempt tellers.  The settlement provides some interesting insights about settlements of class and representative actions, and provides some guidance on the suitable seating requirement under California law.

The Players: The settlement involved two cases that were filed between 2011 and 2013.  In April 2011, two plaintiffs, Rhonique Green and Olivia Giddings, filed a putative class action complaint in Los Angeles County Superior Court (the Green action), seeking damages and civil penalties under the California Private Attorneys’ General Act (“PAGA”) on behalf of themselves and all current and former BofA California tellers.  The plaintiffs alleged BofA required them to stand while working, in violation of California’s Wage Order, even though there was “ample space behind each counter to allow for the use of a stool or seat by Bank of America’s tellers during the performance of their work duties.”  BofA removed the Green case to federal court.  In October 2013, Nicole Garrett filed another complaint (the Garrett action) against BofA in Alameda County Superior Court, seeking civil penalties through a PAGA “representative action.”  The Green action was stayed pending resolution of the Garrett action.

Who Got Paid: Upon settlement of the Garrett Action, after $5 million (1/3 of the settlement) plus litigation costs went to plaintiffs’ counsel, 75% of the settlement was distributed to the State of California (the Labor Workforce Development Agency, or “LWDA”), leaving 25% to the allegedly aggrieved employees.  The three named plaintiffs each received a $25,000 enhancement before the remaining 25% was divided among the representative group of employees.

Interesting Features of the Settlement: In addition to the $15 million settlement, BofA agreed to non-monetary terms that should help prevent future suitable seating litigation against it.  Specifically, BofA agreed to provide suitable seating for its tellers at all California BofA branches.  BofA agreed to inform tellers (via managers and meetings with tellers) that they have the right to use seats while working when the nature of their work reasonably permits sitting.  Under the settlement agreement, the term “reasonably permits sitting” requires BofA to provide seats to tellers when they are working on the teller line and/or at a teller window, including when they are assisting customers. However, the “suitable seating” provision does not apply when it is not possible for the teller to remain seated while performing his or her job, such as when the teller is printing.  Also under the agreement, BofA now instructs tellers to advise management if a seat is not available so management can promptly provide a suitable seat.  Last, BofA agreed to post documentation regarding its suitable seating policy for employees to access along with other policies and procedures.

The Bottom Line: The terms of this settlement don’t necessarily have a ripple effect beyond BofA and the putative class, and the agreement does not do much to illuminate the “suitable seating” requirement.   The law is still fairly undefined as to when the workplace “reasonably permits the use of seats.”  Because of that uncertainty, and the substantial potential damages and penalties that may be sought in a PAGA or class-wide suitable seating action, employers should evaluate whether their workplace reasonably permits the use of seats, using the Court’s reasoning in Kilby v. CVS Pharmacy, Inc. as a guide. If such provision of seating is warranted, then the next step is to prepare a written suitable seating policy; to disseminate and inform employees of this policy and the availability of suitable seating, and to provide suitable seating pursuant to that policy. Further, because the law is murky as to when work “reasonably permits” seating, employers should conduct such an analysis with the aid of counsel.

 

 

Another Great Unknown: the Future of LGBT Protections Under President Trump

During the first few weeks (or even months) in office, President Trump will have a lot of key issues (e.g., healthcare and immigration) on his agenda.  What we do not know is whether President Trump and his administration will focus on transgender or sexual orientation rights.  In fact, we have no clear indication on what President Trump’s position is on transgender rights (though he went on record during a town-hall-style campaign event to state that transgender people should be allowed to use the bathroom they feel is appropriate).  What we do know is that President Trump will have the opportunity to appoint the new chair at the Equal Employment Opportunity Commission in July 2017 when the term of its current chair, Jenny Chang, expires, if not sooner.   The new chair, with likely budget cuts from Congress, could lead the EEOC to an about-face from the current EEOC direction of applying Title VII to workplace discrimination claims based on gender identity and sexual orientation.

In the last several years, following the momentum built by federal courts upholding transgender rights under Title VII (e,g., Smith v. City of Salem (6th Cir. 2004), Schroer v. Billington (D.C. Cir. 2008), and Glenn v. Brumby (11th Cir. 2011)), the EEOC has interpreted the prohibition against sex discrimination under Title VII of the Civil Rights Act of 1964 as providing protection to lesbian, gay, bisexual, and transgender people, even though there is no explicit language extending the protections to gay and transgender rights.  (See Macy v. Dept. of Justice (EEOC 2012), Lusardi v. Dep’t of Army (EEOC 2015)).  Applying that interpretation, the EEOC has filed lawsuits against a number of employers for sexual orientation or gender identity discrimination.  In October 2016, the EEOC published its Strategic Enforcement Plan (SEP) for Fiscal Years 2017-2021. (https://www.eeoc.gov/eeoc/plan/sep-2017.cfm). In the SEP, the EEOC outlined its enforcement and guidance strategies for various employment issues and outlined that it continues to prioritize, among other issues, “protecting lesbians, gay men, bisexuals and transgender (LGBT).”  The EEOC under the Trump Administration is likely to alter its course in vigorously enforcing such issues, choosing instead a narrower view of “sex” discrimination under Title VII since the United States Supreme Court has yet to weigh in on whether such individuals are protected under Title VII.

Interestingly, however, any changes that may be made in the direction of the EEOC may not slow the push to interpret “sex” discrimination to include sexual orientation and gender identity. If the Seventh Circuit in Hively v. Ivy Tech Community College and Second Circuit in Christiansen v. DDB Worldwide join the Sixth, District of Columbia and Eleventh Circuits in determining that Title VII protects employees from discrimination based on sexual orientation, this would signal that the U.S. Circuit Courts are the new vanguard of an expansive interpretation of Title VII’s protections, potentially supplanting the active role that the EEOC has played throughout the Obama Administration. Of course, the issue of the scope of Title VII may thereafter wind its way to the U.S. Supreme Court, and how the high court would rule, particularly when the current judicial vacancy is filled, is very much an open question.

The Trump Administration’s strategies and appointments will undoubtedly impact transgender and sexual orientation discrimination protections under Title VII, but the administration’s ultimate strategic direction as to Title VII, as well as a broad range of policy positions, is largely unknown at present. For now, we watch and wait.

 

Bill Ross Gives Update From The State Bar Business Law Section’s Corporations Committee – SEC Files Charges For Hacking Into Law Firm Networks

FOR THE FIRST TIME SEC CHARGES PERSONS FOR HACKING INTO LAW FIRM COMPUTER NETWORKS

On December 27, 2016, the Securities and Exchange Commission announced charges against three Chinese nationals for trading on the basis of material nonpublic information. According to the SEC’s complaint filed in the United States District Court for the Southern District of New York, the individuals hacked into the private networks of two prominent unidentified New York-based law firms and stole confidential information regarding merger and acquisition discussions involving several public companies. The defendants then traded on the information, amassing approximately $3 million in profits. In a related action, on December 27, 2016 the U.S. Attorney for the Southern District of New York announced criminal charges against the individuals and the arrest of a fourth person, and indicated that the individuals had targeted at least seven law firms.

The SEC action is the first time it has charged anyone with hacking into the computer network of a law firm. The defendants allegedly installed malware on the computer networks that enabled them to circumvent access and related security controls, then compromised the user accounts of information technology employees at the law firms and thus gained access to nonpublic emails at the firms, including the email accounts of the leaders of the M & A practice group. The defendants allegedly covered up their breaches of the network by deceptive acts, such as disguising their activity as routine network traffic, thereby preventing detection by the security systems of the law firms.

Antonia Chion, Associate Director of the SEC’s Division of Enforcement, stated: “This action … serves as a stark reminder to companies and firms that your networks can be vulnerable targets.”  Manhattan U.S. Attorney Preet Bharara said: “This case of cyber meets securities fraud should serve as a wake-up call for law firms around the world: you are and will be targets of cyber hacking, because you have information valuable to would-be criminals.”

This e-Bulletin was prepared by William Ross, of counsel to Hirschfeld Kraemer LLP, where he represents clients on corporate matters. 

Arbitration Agreements Front and Center: United States Supreme Court Set to Resolve Ongoing Row over Legality of Class Action Waivers

As readers of this blog will note, we have previously noted a split among the U.S. Circuit Courts on the issue of whether class action waivers in arbitration agreements are legal or not: the Second, Fifth (see here) and Eighth Circuits have held that such waivers are legal (relying upon the Supreme Court’s holding in AT&T Mobility LLC v. Concepcion, among others), while others (including, most recently, the Ninth Circuit in Morris v. Ernst & Young, LLP), accepting the arguments of, notably, the National Labor Relations Board, have held that such waivers are not legal.  (In an opinion that is logically consistent with those of the other circuits that have held such waivers illegal, the Ninth Circuit in Morris held that Section 7 of the National Labor Relations Act (“NLRA”) and its promise of protected “collective action” renders class action waivers in arbitration unlawful—despite the lack of required “clear congressional intent” for the NLRA to trump the Federal Arbitration Act, as the Supreme Court discussed in AT&T Mobility and also in American Express Company v.Italian Colors Restaurant.)

Today, the Supreme Court granted a petition to consider, in a consolidated appeal, which Circuit’s position will prevail.

For employers, this decision to grant review, though not surprising, is absolutely critical.  If the Supreme Court agrees with the NLRB and invalidates such waivers, this would open up a window for class action litigation or class arbitration that had seemingly closed with AT&T Mobility.  This would clearly be a discouraging turn of events for employers.  Yet the current state of affairs is nearly as bad because of the degree of uncertainty regarding class action waivers: are they enforceable or unenforceable?  To say this lack of certainty makes managing employees and employment litigation difficult would be an understatement.

What comes next?  As Yogi Berra once said, “It’s tough to make predictions, especially about the future.”  This past election cycle has proven Mr. Berra correct. What we can say is that the current vacancy on the Supreme Court (and when it is filled, and who fills it) looms large for this decision.  Stay tuned.