ALERT NEWSLETTERBy Richard J. Simmons, Matthew M. Sonne & Daniel McQueen
Attorneys with Sheppard, Mullin, Richter & Hampton, LLP, Los Angeles
- Wrongful Termination
- EEO, FEHC and DFEC Matters
- Family Leaves
- INS and Immigration Rules
- Newest Laws
- Wage-Hour Matters
- Employment Contracts
- National Labor Relations Act
- EEO Developments
- Worker's Compensation
- Recent Court Cases
- Labor Code Rules
- Workplace Violence
- Personnel Practices and Handbooks
- COBRA and HIPAA Rules
The ALERT is written by attorneys who are experts in their fields. It is the perfect resource to help individuals stay on the cutting edge of their professions. Its subscribers include:
- HR Officials
- Compensation Managers
- Corporate Counsel
- Personnel Directors
- Controllers and Payroll Personnel
- Accounting Representatives
- Management Consultants
- Enforcement Agencies
DLSE RESCINDS CONTROVERSIAL OPINION REGARDING THE ABILITY OF EXEMPT EMPLOYEES TO USE VACATION IN PARTIAL-DAY INCREMENTSBy Richard J. Simmons, Partner
Sheppard Mullin Richter & Hampton LLP
California and federal law contain overtime pay exemptions for executive, administrative and professional employees. In order to qualify as exempt, employees must meet requirements regarding their duties and salary. For example, they ordinarily must spend over half their time on exempt duties and receive a minimum amount that is paid on a "salary basis." Currently, the minimum is $28,080 a year under state law.
In 2002, former Labor Commissioner Art Lujan issued a letter that narrowly construed state law to prevent exempt employees from using vacation and paid time off ("PTO") benefits when they miss a partial day of work. The letter also addressed the amount of notice employers must provide before requiring employees to use vacation or PTO. Because the letter appeared flawed and eliminated flexibility that exempt employees desired, Richard J. Simmons of Sheppard, Mullin, Richter & Hampton LLP and others asked the Division of Labor Standards Enforcement ("DLSE") to reverse its position. We are pleased to report that these efforts have been partially successful.
Labor Commissioner Donna Dell has now reevaluated the 2002 opinion and depublished it. The development affects exempt employees and, to a lesser extent, nonexempt employees too. It is generally quite favorable.
1. The 2002 Opinion That Created The Controversy
On August 30, 2002, Labor Commissioner Lujan issued a controversial opinion regarding the salary requirements of state law applicable to exempt employees. The opinion examined four separate questions.
It first addressed whether an employer may shut down operations for a full seven-day workweek without paying the exempt employees' salaries for the workweek. Based on an earlier letter dated March 1, 2002, the DLSE concluded "that a weekly salary test may be used to meet the California requirements for a monthly salary." Accordingly, an employer may deduct a full week of salary as a consequence of a full week shutdown without jeopardizing the exemption.
The second question inquired whether an employer must allow exempt employees to use accrued vacation or PTO in order to be paid for a full week shutdown. The DLSE opined that the right of employees to take vacation or PTO would depend on the employment agreement or policy on the use of such benefits since it is not mandated by state law.
The third question raised a more controversial issue. It addressed whether employers may require exempt employees to use their accrued vacation or PTO if no work is available for a full week. The DLSE explained that its "historic enforcement policy" regarding employer-mandated usage of vacation or PTO provides that employers "must give the employee a minimum of nine months notice" prior to the week in which the time must be taken. The nine-month advance notice rule appeared highly arbitrary and unrealistic.
The fourth question involved the most controversial issue. It focused on (a) whether an exempt employee who takes a partial day off may use accrued vacation or PTO for the partial day and (b) whether the employee's salary can be deducted for the hours missed if no accrued vacation or PTO is available. The DLSE first agreed with the federal standards that prohibit deductions from the actual salary for partial days missed by exempt employees. However, it then deviated from the federal standards regarding the use of vacation and PTO benefits. Specifically, the DLSE refused to allow employees to use vacation or PTO in partial day increments, even when they wished to do so. Further, it stated that the outcome did not differ whether the partial day off "is the result of the employee freely choosing to leave work early for personal reasons, or the result of the employer sending the employee home."
In a statement that appeared inherently flawed and illogical, the August 30, 2002 letter stated that "state law does not permit the deduction of accrued vacation or PTO when the employer already has an independent obligation to pay the exempt employee's salary." This flawed reasoning constituted the foundation for the DLSE's conclusion that, in contrast to federal law, exempt employees could not be allowed or required to use vacation or PTO benefits in partial day increments. While the state and federal enforcement policies regarding the inability to take deductions from an employee's salary for a partial day missed were compatible, the DLSE's departure from the federal standards regarding the use of vacation and PTO benefits for partial days missed was troublesome to put it charitably.
2. New DLSE Development
In asking the DLSE to review the 2002 letter, Richard J. Simmons of Sheppard Mullin Richter & Hampton LLP and others argued that it was illogical and unjustifiably eliminated flexibility that exempt employees often desire. After examining the applicable authorities, Labor Commissioner Donna Dell agreed. She determined that the reasoning and conclusions in the 2002 letter were flawed. In fact, an internal memorandum issued by Labor Commissioner Dell on May 31, 2005 expressly disagreed with her predecessor's conclusions.
The reevaluation of the issue occurred in the context of a review of prior opinion letters under the Administrative Procedure Act. Based on that review, Labor Commissioner Dell has "removed" the highly controversial opinion letter from the DLSE Enforcement Manual and website. While certain concerns still exist regarding the advance notice that employers must provide before mandating the use of vacation and PTO, the development is generally quite positive.
In her memorandum, Labor Commissioner Dell reached two significant conclusions. First, she addressed the feature in the 2002 letter which stated that employers must provide at least nine months notice before requiring employees to use their vacation or PTO. She determined that no legal authority supported the position taken in the 2002 letter regarding the nine-month notice standard. Second, she addressed the interpretation in the 2002 letter that prevented exempt employees from using vacation or PTO in partial day increments. The memorandum states that the 2002 letter was "clearly flawed because taking fully-paid vacation time off without any reduction in salary cannot be distinguished as a forfeiture of wages solely on the basis that it is taken in a partial day rather than a full day."
Unfortunately, the memorandum does not eliminate the problems with advance notice where employees are asked to use their vacation or PTO. It states that "reasonable notice" of employer-mandated usage of vacation or PTO is necessary. Such notice apparently must be at least "one full fiscal quarter or 90 days, whichever is greater." That policy apparently is not limited to exempt employees and may often be difficult to satisfy, e.g., where reductions in staffing needs are not foreseeable far in advance. Nevertheless, while requiring employees to use benefits may raise significant concerns, it appears that employees can be allowed to use their vacation or PTO without regard to the "reasonable notice" standard. For example, it is likely that nonexempt employees will often prefer to use such benefits in many instances to avoid taking the time off without pay.
Several issues in this area remain confusing and debatable. Employers are therefore advised to consult their legal counsel before modifying any compensation or vacation policies.
© 2005 Richard J. Simmons. All Rights Reserved.
THE SAV-ON DECISION:CALIFORNIA SUPREME COURT LEAVES DOOR OPEN FOR CLASS ACTION LAWSUITSBy Richard J. Simmons, Partner
Sheppard Mullin Richter & Hampton LLP
In the last several years, California employers have been besieged with class action attacks in the wage-hour field. These lawsuits have raised numerous theories, such as claims that employers violated the law by misclassifying employees as exempt and by failing to pay overtime, to provide meal and rest periods, to provide required uniforms, to reimburse employees for expenses or to comply with California's unique vacation pay requirements. Incredibly, more than 1,500 class actions were filed after Governor Davis took office in 1999. This was not a mere coincidence. Many of the bills he signed into law created new bases for litigation and simplified the ways in which employees and former employees could sue their employers on either an individual or class-wide basis. The last anti-business bill he signed before leaving office, nicknamed the "Sue Your Boss Law," is symbolic of the Davis legacy.
With so many wage-hour class action lawsuits in the pipeline, it was inevitable that one would reach the California Supreme Court. The first case to do so, Sav-on Drug Stores, Inc. v. Superior Court, 2004 D.J. 10627 (2004), was decided on August 26, 2004. The Supreme Court's decision had been eagerly anticipated by businesses and plaintiffs' attorneys alike. Advocates from both sides urged the Supreme Court to issue broad rulings regarding the propriety or impropriety of class actions in the wage and hour field, such as in exemption cases. The Supreme Court brushed aside the invitations from both sides in a manner that can be expected to lead to a continued flood of litigation. As usual, employers will be forced to foot the bill.
1. The Supreme Court Recognized The Broad Discretion Of Trial Courts To Allow Or Disallow Class Actions
In its unanimous decision, the Supreme Court declined to lay down broad statements as to the appropriateness of class actions in wage-hour cases, either in general or in exemption cases in particular. Instead, it emphasized that trial courts have broad discretion to determine whether class actions are appropriate on a case-by-case basis.
In doing so, the Supreme Court reiterated several basic principles. First, public policy supports the enforcement of California's minimum wage and overtime laws. Courts will do nothing to impede that policy. Second, public policy encourages the use of class actions in appropriate cases.
Significantly, the Supreme Court emphasized that trial courts do not decide who should prevail on the ultimate issues in a case (e.g., whether employees are exempt or not exempt) at the phase of litigation when they evaluate whether the case should proceed on a class-wide basis. Therefore, the trial court in Sav-on determined that a class action was appropriate, but did not decide the merits of the plaintiffs' case. Further, because the trial court did not do so, it was not necessary for the Supreme Court to decide whether the plaintiffs were or were not exempt. It simply concluded that the trial court did not abuse its discretion when it certified the class.
By declining to offer broad statements about the appropriateness of class actions or new insights as to exemption standards, the Supreme Court's decision left advocates on both sides disappointed. The net effects of the decision will be sorted out over the next few years. However, both sides generally agree that, once a trial court decides whether or not to certify a class, it will be far more difficult to successfully appeal that decision. Another fact is clear. The case certainly does not discourage plaintiffs from bringing class-wide claims.
The lawsuit was filed by two managers on behalf of themselves and other managers and assistant managers in California. They alleged that Sav-on Drug Stores had misclassified them as exempt and failed to pay them overtime. The trial court determined that they could pursue their claims on a class-wide basis. The court of appeal disagreed.
The issue addressed by the Supreme Court was whether the trial court's decision to grant the plaintiffs' motion for class certification should be overturned due to an abuse of discretion. The plaintiffs argued that the company had uniformly misclassified managers as exempt on the basis of their title and job descriptions without reference to their actual work, and that the company's store operations were "standardized." They asserted that they routinely worked overtime and performed nonexempt work in excess of 50% of the time. They thus claimed they were entitled to overtime.
In opposing class certification, the company argued that whether any individual member of the class was exempt or nonexempt depends on which tasks that person actually performed and the amount of time spent on each task. Because the amount of time spent by each employee on exempt activities varied significantly from store to store and individual to individual, based on multiple factors, the company argued that meaningful generalizations could not be made. It followed that the exemption issue could not be resolved on a class basis.
The trial court granted the plaintiffs' motion and certified a class of all current and former salaried managers who worked for the company during the relevant time period. The class was estimated to include 600 to 1,400 members. After the company appealed, the court of appeal issued a writ of mandate commanding the trial court to vacate its order granting class certification. The Supreme Court reversed the judgment of the court of appeal, concluding that it did not give the proper level of deference to the trial court. It determined that the trial court's ruling should not have been disturbed in the absence of an abuse of discretion.
3. Class Action Standards The Supreme Court began its discussion by reviewing the standards for class certification that apply under Section 382 of the Code of Civil Procedure. It noted that the party seeking class certification has the burden to establish the existence of both an ascertainable class and a well-defined community of interest among class members. The "community of interest" requirement, in turn, embodies three factors:
(a) Predominate common questions of law or fact;
(b) Class representatives with claims or defenses typical of the class; and
(c) Class representatives who can adequately represent the class.
The Supreme Court emphasized that the class certification question is "essentially a procedural one that does not ask whether an action is legally or factually meritorious."
a. The Role of Trial Courts
The Supreme Court used these basic principles as a launching off point to address the broad discretion given trial courts to make the ultimate decisions as to when and whether to grant class certification motions. Ordinarily, the plaintiffs seeking to represent a large group of current and former employees want the case to proceed as a class action. When a motion for class certification is filed, the trial court must decide whether the issues that may be jointly tried, "when compared with those requiring separate adjudication, are so numerous or substantial that the maintenance of a class action would be advantageous to the judicial process and to the litigants."
b. A Class Action Was Found Appropriate
The trial court in Sav-on determined that the plaintiffs had established that common issues predominated. It thus ruled that a class action was "superior to alternate means for a fair and efficient adjudication of the litigation." After identifying the three-factor test, the Supreme Court did not find it necessary to evaluate items (b) or (c) (i.e., whether the plaintiffs had claims typical of the class or were adequate representatives) because the employer did not challenge those issues. The central issue in dispute was thus whether the trial court abused its discretion in concluding that common issues predominated.
4. A Class Action Was Justified Because Common Issues Predominated
It should be emphasized that the Supreme Court did not state that class actions are appropriate in all wage-hour cases or in all exemption cases. It simply concluded that the trial court did not abuse its discretion by determining that a class action was justified in the case before it because common issues predominated over individual issues.
In the context of its analysis, the Supreme Court offered a fascinating observation regarding the magnitude of the trial court's discretion. It suggested that the trial court's decision should have been upheld on appeal whether it had granted or denied the motion to certify the class. In other words, it did not matter whether it certified the class by crediting the plaintiffs' evidence (as it did) or refused to do so based on the defendant's evidence. As long as a trial court has substantial evidence to support its conclusion, its decision is proper and entitled to deference by an appellate court.
Because trial courts are likely to differ in their assessment of the evidence presented (as the trial court and appellate court did in Sav on) the outcome of cases may be difficult to predict. One fact is clear. The standard announced by the Supreme Court will make it extremely difficult to appeal class certification decisions in future cases, whether they grant or deny class certification.
5. Class Action Fights
Employers who are forced to defend class action lawsuits cannot persuasively contend that class actions are always inappropriate in wage-hour cases. They must instead attempt to convince the trial court that class certification is simply inappropriate based on the facts of the case in dispute. Some of the issues that will be raised in future cases are described below.
a. Do Common Issues Of Law Or Fact Predominate Over Individual Issues?
The ability to convince a court may be influenced, at least in part, by the nature of the underlying claims involved in a case. Employers will try to convince courts that individual issues of law and fact predominate and make a class action inappropriate.
For example, significant factual variations are likely to be involved in a typical case involving meal and rest period claims where numerous factors govern eligibility for meal and rest periods, exemptions, timing, length of meal and rest periods, waivers, whether rest periods were "authorized" and "permitted" for each employee, and other standards.
Such material factual variations were not found in Sav-on, which involved an exemption question where company-wide standardization, and uniform classification policies, job titles, and job descriptions were alleged to exist. Under the specific facts involved, the trial court found that common issues predominated and could be resolved based on common proof.
b. Do Other Bases Exist To Oppose Class Certification?
It should be remembered that the trial court determined that common issues predominated over the individual issues in the case. The court was therefore not required to resolve other issues that may form a critical part of the "community of interest" and class certification analysis in other cases. Consequently questions whether the class representatives' claims or defenses are typical of the class and whether they can adequately represent the class may become battleground issues in other cases. For example, if a named class member sues for wrongful discharge and overtime pay while other class members have only overtime claims, the named member's claims arguably are not "typical."
c. Is There A Basis To Challenge The Trial Court's Decision?
Because the Sav-on decision makes it clear that a trial court has broad discretion to evaluate the efficiencies and practicalities of permitting class actions, the trial court's assessment of the issues in each case will control. It can be expected that courts will differ in the manner in which they resolve these questions. Once a decision is made to grant or deny a class certification motion, the trial court's ruling on class certification will not be disturbed unless (i) the ruling is not supported by substantial evidence; (ii) improper criteria were used; or (iii) erroneous legal assumptions were made.
6. Additional Lessons From Sav-on
Individuals interested in the employment law field may learn many lessons from the Supreme Court's decision. They include the following:
(a) Sav-on involved a challenge to the executive exemption from California's overtime rules. The Supreme Court did not decide the merits of the case or whether the employees were exempt or nonexempt.
(b) The Supreme Court determined that the trial court did not abuse its discretion in granting class certification. However, the decision does not suggest that class actions are appropriate in every wage-hour case. Conversely, it does not suggest that they are usually inappropriate.
(c) The decision does not articulate principles that offer helpful insights about the standards that will be used in future cases to determine when individuals qualify as exempt executive, administrative, professional, or outside sales employees.
(d) Nothing in the decision is likely to discourage attorneys from continuing to file class action cases. It is predictable that such cases will continue to be filed in large numbers in the future.
(e) Employers who use standardized operations and procedures, uniform job descriptions, and uniform job titles that do not reflect an individualized analysis of each person may find themselves more susceptible to class action lawsuits on exemption claims. In contrast, those who make individualized determinations that reject a cookie cutter approach may be less susceptible to class claims.
(f) Due to the tremendous deference given to trial courts, employers should devote significant energy to opposing class certification motions when they are filed or, if such a motion is granted, seeking decertification. Factors that may play a role in such decisions include (i) judicial economy; (ii) manageability of the case as a class action; (iii) the relative costs and benefits of proceeding in a class action or in numerous separate actions; (iv) whether common issues predominate and common evidence and proof can be presented; (v) standardization of operations, titles, and job duties in exemption cases; (vi) the presence of uniform policies and practices; (vii) whether there is an ascertainable class; (viii) whether the named plaintiffs and their legal counsel can adequately represent the class; and (ix) whether their claims or defenses are typical of those of the class.
(g) The Supreme Court did not consider every basis to challenge class certification. The battleground issues in future cases may center on whether the plaintiff's claims are typical and whether they are adequate representatives, as well as whether common issues of fact and law predominate over individual issues.
(h) Employers may encounter problems if they reclassify employees from salaried exempt to nonexempt status without changing their duties or job descriptions, or if they change other policies without a plausible explanation that is unrelated to prior wrongdoing. They may be confronted with arguments that their actions constitute admissions of prior wrongdoing. They can argue that the doctrine of subsequent remedial measures should prevent such actions from being admitted into evidence. Nevertheless, their interests may be best served where they can articulate legitimate reasons for the changes they adopt.
(i) Employers should evaluate practices that are most likely to affect large numbers of employees and are therefore the most obvious targets of class actions. Examples include policies relating to exemptions, meal and rest periods, vacation pay, benefits, paystubs, leave policies, and expense reimbursement practices.
(j) Employers should not assume that employees are exempt based solely on industry practice or their job titles, job descriptions, policies, agreements, or the employee's personal preference to be "exempt" and receive a salary. Audits and proactive strategies should be evaluated, including the possibility of time and motion studies, self-evaluations and appraisals, and the use of employee declarations and attestations with respect to issues that are likely to be targeted in class action lawsuits.
7. Practical Considerations
The Sav-on decision did not make broad statements regarding the appropriateness of class actions in wage-hour cases or provide an in depth analysis of when employees will qualify as exempt. The decision does not provide a road map for employers or a menu of responsibilities that employers can inventory to review their day-to-day business practices. However, the deference given to trial court decisions and the refusal of the Supreme Court to identify serious impediments to class action litigation will not discourage such lawsuits. Indeed, it can be predicted that class actions will continue to be filed in large numbers.
Furthermore, with the enormous changes to California employment laws that took effect under Governor Davis, employers have an enormous task in identifying and complying with their varied legal obligations. The Private Attorneys General Act of 2004 ("PAGA") (aka the "Sue Your Boss Law"), was recently amended in some respects, but presents even greater challenges for employers than previously existed. It offers employees and their attorneys enormous financial incentives to sue employers over hundreds of statutory infractions, including violations that do not result in any economic harm to employees.
In light of the Sav-on decision, the devices available to attorneys to file class actions and representative actions under California law, and the sweeping changes in the wage-hour field during the Davis Administration, California employers in all industries are strongly advised to conduct internal compliance audits as quickly as possible. Employers should consult with their employment counsel to discuss the scope, targets, and parameters of such audits.
© 2004 Richard J. Simmons. All Rights Reserved.
SEXUAL HARASSMENT TRAINING LEGISLATION SIGNED INTO LAWBy Richard J. Simmons, Partner
Sheppard Mullin Richter & Hampton LLP
On September 29, 2004, Governor Schwarzeneggar signed innovative legislation into law that requires employers with 50 or more employees to provide training and education to their supervisory employees. The legislation, AB 1825, requires employers to initiate steps to comply with the new training mandate for supervisory employees who are employed as of July 1, 2005, as well as to new supervisors. It is explained below.
1. Employer Coverage Standards
The new rules are embodied in Government Code Section 12950.1. They amend the California Fair Employment and Housing Act (“FEHA’) and apply only to employers “regularly employing 50 or more persons or regularly receiving the services of 50 or more persons providing services pursuant to a contract.” It, therefore, applies to relatively large employers, including those who utilize the services of leased or temporary employees. The rules also apply to persons acting as agents of an “employer,” directly or indirectly, the State of California, or any political or civil subdivision of the state, and cities.
The 50-employee threshold is higher than the five-employee standard that generally applies for the FEHA to cover an employer. Thus, smaller employers are not covered by the training mandate even though they remain subject to the FEHA.
2. Effective Date
AB 1825 is scheduled to take effect on January 1, 2005, but provides employers time to fulfill their initial training and education mandates. The first obligation applies to supervisory employees who are employed as of July 1, 2005. These supervisors must receive the required training by January 1, 2006, unless they receive credit for prior training and education that was provided after January 1, 2003. For the credit to apply, the prior training must satisfy the new standards applicable under the legislation.
The second obligation applies to all new supervisory employees hired or promoted into supervisory positions. New supervisors must be trained within six months of their assumption of a supervisory position.
Additional sexual harassment training and education must be provided periodically after the first phase of training is completed. After January 1, 2006, covered employers must provide training and education to each supervisory employee at least once every two years.
3. The Training and Education Mandate
The new law explains the type of sexual harassment training that must be provided to supervisory employees. First, it must consist of at least two hours of classroom or other effective interactive training and education regarding sexual harassment. The law does not specify whether the two hours must occur in a single period. It does not prohibit training on other subjects outside of the two-hour window. However, it appears that the two hours of harassment training should not be diluted by including unrelated topics in that time period.
Second, the training and education must include information and practical guidance regarding the federal and state statutory provisions concerning (a) the prohibition against sexual harassment, (b) the prevention and correction of sexual harassment, and (c) the remedies available to victims of sexual harassment. The training must also include practical examples aimed at instructing supervisors in the prevention of harassment, discrimination, and retaliation. It must be presented by trainers or educators with knowledge and expertise in the prevention of harassment, discrimination, and retaliation.
The law provides that the new mandate establishes a “minimum threshold” that is not intended to discourage or relieve employers from providing longer, more frequent, or more elaborate training and education regarding workplace harassment. Similarly, it is not intended to discourage employers from providing additional training on other forms of unlawful discrimination in order to meet their obligations to take all reasonable steps necessary to prevent and correct harassment and discrimination.
4. Special Rules for the State
The statute provides specific rules that must be followed by the State of California for its own employees. It requires the state to incorporate the training into the 80 hours of training provided to all new supervisory employees pursuant to Government Code Section 19995.4(b).
5. Definition of "Supervisor"
The new legislation requires employers to provide training and education to supervisory employees. Presumably, the FEHA's definition of "supervisor" set forth in Government Code Section 12926(r) will be used to determine the scope of the training obligation. It is defined to mean "any individual having the authority, in the interest of the employer, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees." It also includes individuals with the responsibility to direct other employees, adjust their grievances, or effectively recommend that action if "the exercise of that authority is not of a merely routine or clerical nature, but requires the use of independent judgment."
Employers should keep this definition in mind when determining the individuals they should train. Many employers may choose to conduct training for all employees rather than simply supervisors.
6. Effect of Training
The new law makes it clear that the provision of training will not operate as a complete defense to harassment claims. Similarly, the failure to provide adequate training, although a violation of the law, will not result in automatic liability. It states that a claim that a particular individual or group of individuals were not trained “shall not in and of itself result in the liability of any employer” in a sexual harassment case. Conversely, an employer’s compliance with the training requirements will not insulate the employer from liability for sexual harassment. If an employer violates the requirements of the new law, the Fair Employment and Housing Commission must issue an order requiring the employer to comply.
© 2004 Richard J. Simmons. All Rights Reserved.
DLSE ISSUES NEW OPINION ON TRAVELING OUT OF TOWN ON BUSINESSBy Richard J. Simmons, Partner
Sheppard Mullin Richter & Hampton LLP
The state and federal wage and hour laws require that all nonexempt employees be paid for their "hours worked." However, the state and federal standards have long differed in their approach to determining how overnight business trips must be compensated. The subject is addressed in Chapter 7 of the Wage and Hour Manual for California Employers, Tenth Edition, by Attorney Richard J. Simmons of the law firm of Sheppard, Mullin, Richter & Hampton, LLP.
On February 15, 2002, the California Division of Labor Standards Enforcement ("DLSE") issued an advice letter on the subject. It responded to a question posed by an employee as to whether compensation was required "for time spent traveling to and from an out-of-town, overnight business trip in connection with a training class" that the employer required the employee to attend. The facts and conclusions are summarized below.
The employee represented that he was a nonexempt employee who worked in California and was required to attend training classes in San Antonio, Texas. The classes were held during normal work hours on Monday and Tuesday. All of the travel took place outside the employee's normal work hours of Monday to Friday, 9:00 a.m. to 5:30 p.m. The employee traveled from California to Texas on the preceding Saturday, from 11:15 p.m. to 6:30 p.m. pacific daylight time. He spent Sunday sightseeing in San Antonio, and returned from Texas to California at the conclusion of the training on Tuesday evening, from 6:00 p.m. to 1:00 a.m. (Wednesday morning) central daylight time. On the trip to Texas, the employee spent a half hour eating lunch, and on the return trip spent a half hour eating dinner. The travel plans were approved by the supervisor.
The employer maintained a staff manual that provided, "time spent traveling as a passenger on a plane, train, bus, car, or taxi cab to a business destination outside your normal business hours is not considered to be paid time." The employee sought an opinion as to whether the company policy conformed with California law.
The DLSE concluded that the policy violates California law in that the time spent traveling to and from a business meeting or other event where attendance was required by the employer constitutes hours worked, whether or not the travel takes place during regular work hours, and whether or not the business trip includes an overnight stay. The DLSE acknowledged that the conclusion would be answered differently under federal law.
2. The State Enforcement Policy
The DLSE opinion explained that state wage and hour law differs in many respects from federal law. This includes the extent to which various activities are treated as "hours worked" under state law.
a. The Subject-To-The-Control Test
The opinion relied, in part, on the California Supreme Court's decision in Morillion v. Royal Packing Co., 22 Cal. 4th 575 (2000), and the definition of "hours worked" in the Wage Orders of the Industrial Welfare Commission ("IWC"). The term "hours worked" is defined to include "the time during which an employee is subject to the control of an employer" and "all the time the employee is suffered or permitted to work, whether or not required to do so." The opinion concluded that "compulsory travel time constitutes time during which the employee is 'subject to the control of an employer' and thus constitutes compensable 'hours worked,' whether or not the employees are free to read a newspaper or engage in other personal pursuits while riding in a bus as passengers."
b. Overnight vs. All-In-A-Day Travel
The opinion also noted that state law does not distinguish between hours worked during "normal" working hours and hours worked outside "normal" working hours. Nor does it distinguish between hours worked in connection with an overnight, out-of-town assignment or hours worked in connection with a one-day out-of-town assignment. Such distinctions under the federal regulations were found inconsistent with state law. The opinion contained the following passage:
"Under state law, if an employer requires an employee to attend an out-of-town business meeting, training session, or any other event, the employer cannot disclaim an obligation to pay for the employee's time in getting to and from the location of that event. Time spent driving, or as a passenger on an airplane, train, bus, taxi cab or car, or other mode of transport, in traveling to and from this out-of-town event, and time spent waiting to purchase a ticket, check baggage, or get on board, is, under such circumstances, time spent carrying out the employer's directives, and thus, can only be characterized as time in which the employee is subject to the employer's control: Such compelled travel time therefore constitutes compensable 'hours worked.' On the other hand, time spent taking a break from travel in order to eat a meal, sleep, or engage in purely personal pursuits not connected with traveling or making necessary travel connections (such as, for example, spending an extra day in a city before the start or following the conclusion of a conference in order to sightsee), is not compensable."
c. Employers Can Pay a Different Rate of Compensation
The opinion explained that employers can establish different rates of pay for travel time and for other types of work. It noted that the rate at which time spent traveling must be paid depends upon the nature of the compensation agreement. If the employer has agreed to pay a fixed hourly rate of pay for any work performed, the travel time must be paid at that regular hourly rate, or, if applicable, the required overtime rate based upon that regular rate. In contrast, an "employer can establish a separate rate for travel before the work is performed, provided that no rate of pay can fall below the state minimum wage."
© 2002 Richard J. Simmons. All Rights Reserved.