Wage and Hour Claims Continue To Plague Employers

Background

Seven years ago the Farmers Insurance case exploded on the scene, heralding an onslaught of multi-million dollar wage and hour verdicts and settlements. A California state court jury awarded a class of claims adjusters $90 million. After appeals, attorney fee litigation and accumulation of interest, Farmers "settled" the case in September 2004 for about $200 million.

One might have expected that widespread coverage of the result would lead employers to reevaluate their wage and hour practices to make sure that they were in compliance. No doubt many have done so, but the continuing stream of hefty verdicts and settlements shows that many employers still are not conforming their practices to the rules.

Recent Verdicts and Settlements

Here are six cases from the first six months of 2008 to illustrate the point:

A federal judge in San Francisco gave preliminary approval to a $7.7 million settlement for information technology support workers at Cadence Design Systems. The class members claimed not to have received overtime because they were misclassified as exempt employees. Higazi v. Cadence Design Systems, Inc., No. C-07-2813-JW (U.S. Dist. Ct. N.D. Cal. 2/27/2008).

A federal judge in Los Angeles awarded $5.2 million to reporters and salespersons for the Chinese Daily News. The reporters had been misclassified as exempt creative professionals. The salespersons were not exempt as commissioned employees. The employer had not paid overtime nor required the employees to take meal periods. Wang v. Chinese Daily News, Inc., No. CV-04-1498-CBM (U.S. Dist. Ct. C.D. Cal. 2/27/2008).

Smart & Final agreed to pay $3.5 million to settle a class action filed in a Los Angeles state court by hourly employees for unpaid overtime, off the clock work, and missed meal periods. The employer must also pay fees and costs of $1,050,000. (Smart & Final had paid $22 million to settle an overtime class action on behalf of other employees in 2005.) Meyer v. Smart & Final, No. BC361174 (L.A. Superior Ct. 5/30/2008).

The Coco's restaurant chain agreed to pay a class of general, assistant and associate managers $1,965,000 to settle overtime claims. The employees claimed that they were improperly classified as exempt. Wilde v. Catalina Restaurant Group Inc., No. BC347513 (L.A. Superior Ct. 3/18/2008).

A Los Angeles jury awarded awarded a recycling center's yard manager $525,475 for unpaid overtime, interest and penalties. He had been classified as non-exempt, although he spent more than half his time performing manual labor. The jury award included amounts for non-wage claims. Yi v. Pomona Valley Recycling Center, No. BC353168 (L.A. Superior Ct. 2/6/2008).

A private arbitrator awarded six dancers at a topless club $687,500 for the club's failure to pay minimum wage, overtime, vacation or benefits. The club claimed that the dancers were independent contractors working under a dancer performance lease. Fuller v. 6630 Lankershim Inc., No. BC357064 (L.A. Superior Ct. 3/10/2008).

What You Should Do

The errors made by the employers in the six cases probably resulted from ignorance of the applicable rules. The errors were basic -- mistakenly classifying workers as independent contractors when they were employees, mistakenly classifying employees as exempt when their job duties made them non-exempt, failure to pay overtime as required by California law, and failure to require employees to take their 30-minute meal periods.

We have distilled the most important rules into a two-page document entitled "10 Tips for Avoiding Wage and Hour Violations," which is available here. For more detailed explanations of the rules, consult the resources listed below. If you want professional help to determine whether your practices are in compliance, contact us for a human resource audit.

Resources

Farmers Court of Appeal Decisions

A091134 (adjudication of non-exempt status) 3/5/2001

A096721 (appeal from jury verdict) 2/9/2004

A110274 (ruling on prejudgment interest) 1/24/2006

A110311 (plan of distribution) 3/15/2006

Fair Labor Standards Act

DOL FLSA Compliance Assistance

DOL Wage and Hour Division

DOL Wage and Hour Regulations

California Law

DLSE Policy and Interpretations Manual

DLSE Opinion Letters

IWC Wage Orders

EDD Employment Determination Guide

Employee Privacy Interest in Text Messages

The Ninth Circuit Court of Appeals has ruled that public employees may have a privacy interest in text messages sent over a system contracted for by the employer. Although the employer had adopted a general electronic communication policy that informed employees their communications were not confidential, the employer's day-to-day practice created an expectation of privacy that was enforceable in an invasion of privacy lawsuit.

The Ontario Police Department provided some of its officers with two-way alphanumeric pagers. Its "Computer Usage, Internet and E-mail Policy" informed all employees that use of city-owned equipment and services was limited to city-related business, and that information delivered over its systems was considered city property. The city's contract with the text messaging service provider required the city to pay overage charges for any pager that used more than 25,000 characters per month. The lieutenant who administered the contract had a practice of collecting any overage charges from the employees who used more than 25,000 characters. If an employee paid the overage charges, the lieutenant would not inquire whether the use was for city-related business. If the employee resisted paying on the grounds that all the usage was city-related, the lieutenant would audit the messages to confirm the representation. As a result, employees reasonably believed that the city would not review their text messages if they paid the overage charges.

After the service had been in place for several months, the police chief obtained transcripts of all text messages for two officers who had repeatedly exceeded the 25,000-character limit. He audited the messages to determine if they were work-related, and determined that many were not. One of the police officers that was investigated and those with whom he exchanged text messages (including his wife) sued for invasion of privacy under the Fourth Amendment. Although the federal district court absolved all defendants of liaiblity, the Ninth Circuit ruled that the city had violated the plaintiffs' right of privacy as a matter of law.

While the opinion is limited to public employers since it involved the Fourth Amendment, California courts frequently follow federal precedent in interpreting the privacy right derived from the California Constitution. That privacy right applies to private, as well as public, employers. See Hill v. NCAA, 7 Cal. 4th 1 (1994).

Quon v. Arch Wireless Operating Co., Case No. 07-55282 (9th Cir. Jun. 18, 2008)