How an $80 Mistake Became an $88,410 Mistake

First District Court of Appeal

California's Labor Code is full of technical requirements that can trip up even those employers who are trying to comply with their obligations. And, because of the monetary penalties and attorney's fees that can be assessed for violations of those technical requirements, the consequences may be out of proportion to the seriousness of the wrongdoing. A recent decision from the Court of Appeal for the First Appellate District illustrates the problem.

Labor Code section 202 requires an employer to pay all wages due within 72 hours after the employee gives notice of his or her intention to quit. (If the employer discharges the employee, the wages are immediately, under section 201.) If the employer does not pay the final wages within the deadline imposed by the Labor Code, it is subject to waiting time penalties under section 203, which provides: "If an employer willfully fails to pay ... any wages of an employee who is discharged or who quits, the wages of the employee shall continue as a penalty from the due date thereof at the same rate until paid or until an action therefor is commenced; but the wages shall not continue for more than 30 days."

In Nichiki v. Danko Meredith, APC, Case No. A147733 (August 1, 2018), the employer mailed a handwritten check to its departing employee for her final wages, on November 18 (which was within 72 hours of reading an email from the employee announcing her resignation). In the dollar amount box, the amount was given as "2,880.31," the correct amount. But, the amount was spelled out as "Two thousand eight hundred and 31/100." Because of the discrepancy, the employee was unable to deposit the check. She emailed the employer about the problem on November 26. The employer issued a new check for the correct amount on December 5, 9 days later. After a hearing the Labor Commissioner ruled that the employee should recover waiting time penalties for 17 days, from November 18 to December 5, at a daily rate of $250 per day -- a total of $4,250. The employer appealed the ruling to Superior Court, which upheld the waiting time penalty of $4,250, and awarded $86,160 in attorney's fees under Labor Code section 98.2(c).

The Court of Appeal reduced the waiting time penalties to $2,250, for the nine days from November 26 to December 5. By statute, the words written on a check prevail over numbers, which made the original check $80 short. (See Cal. U. Com. Code, section 3114.) Although that mistake was inadvertent, the delay in paying the correct amount became willful once the employer received notice of the mistake on November 26.

The attorney's fees award under section 98.2 was appropriate. That section provides, that the reviewing court must award reasonable attorney's fees to the opponent of an unsuccessful appellant, whether that is the employer or the employee. However, an employee is deemed to be successful if the court awards an amount greater than zero. Because the result, even after the appeal, was an amount greater than zero, the employee is also entitled to the costs and attorney's fees incurred for the proceedings in the Court of Appeal.

The lesson for employers is that you should cut your losses. Once you determine that there has been a violation of the Labor Code, make the employee whole for the violation immediately.

On Call

Is an employee who is sitting around waiting to be called into work, "working"? A recent decision by a Los Angeles Superior Court judge prompts us to examine the applicable principles.

In a scenario that has been common in retail and food service establishments, an employer tells its employees that fluctuating demands make it necessary for some employees to be placed on call to await a summons to work, if they are needed. The employees are not paid unless they are actually called in to work. Although resistance from employees and state enforcement authorities has led some employers to back away from the practice, it is still fairly common and is the subject of several pending lawsuits. For example, see this article from the December 31, 2016 Forbes Magazine issue, which reports the announcement that several national retailers have abandoned the practice.

Under the federal Fair Labor Standards Act, employers must include all "hours worked" in their calculations to determine whether an employee is entitled to overtime. The Department of Labor's regulations on hours worked explain that "all hours are hours worked which the employee is required to give his employer." Those regulations describe the application of that definition to on call time as follows: "An employee who is required to remain on call on the employer's premises or so close thereto that he cannot use the time effectively for his own purposes is working while 'on call.' An employee who is not required to remain on the employer's premises but is merely required to leave word at his home or with company officials where he may be reached is not working while on call."

A 2008 opinion letter from the Wage and Hour Division provides additional guidance on the subject. In that letter, the Division opined that an employee would not be working while on call if the employer's policy provided only that the on-call employee must be reachable at all times, abstain from alcohol or other substances, and report to work within one hour of notification, and if call-backs are rare.

The wage orders that regulate wage and hour condition in California define "hours worked" as "the time during which an employee is subject to the control of an employer, and includes all the time the employee is suffered or permitted to work, whether or not required to do so, and in the case of an employee who is required to reside on the employment premises, that time spent carrying out assigned duties shall be counted as hours worked." In its Enforcement Manual, the California Division of Labor Standards Enforcement has explained that the application of that definition to on call situations depends upon consideration of the following factors:

"(1) whether there was an on-premises living requirement; (2) whether there were excessive geographical restrictions on employee’s movements; (3) whether the frequency of calls was unduly restrictive; (4) whether a fixed time limit for response was unduly restrictive; (5) whether the on-call employee could easily trade on-call responsibilities; (6) whether use of a pager could ease restrictions; and (7) whether the employee had actually engaged in personal activities during call-in time."

The wage orders contain another provision that requires payment of wages when an employee is called to work, but not actually put to work, as follows: "Each workday an employee is required to report for work and does report, but is not put to work or is furnished less than half said employee's usual or scheduled day's work, the employee shall be paid for half the usual or scheduled day's work, but in no event for less than two (2) hours nor more than four (4) hours, at the employee's regular rate of pay, which shall not be less than the minimum wage."

In the decision mentioned at the beginning of this post, Judge Elihu Berle denied an employer's motion to dismiss a claim by a potential class of employees of a Japanese-inspired fast food chain claimed that they were do reporting time pay under the California wage orders. That employer's policy required an employee who was scheduled to be on call to call a manager two hours before the his or her anticipated start time. If the manager directed the employee to go into work, he or she had to do so immediately. Failure to call in or to go into work if summoned subjected an employee to discipline. On the basis of those facts, Judge Berle concluded that it was possible for an employee to "report" to work by calling in.

Meal Or Rest Period Violation Premium

As a general rule, California employers must allow their employees two 10-minute rest periods and a 30-minute meal period during a regular work day. If the employer does not do so, under Labor Code section 226.7, it "shall pay the employee one additional hour of pay at the employee's regular rate of compensation for each work day that the meal or rest period is not provided." A recent case against United Parcel Service decided that an employee may recover up to two premium payments per work day -- one for any meal period violation and one for any rest period violation.

In United Parcel Service, Inc. v Superior Court, No. B227190 (Feb. 16, 2011), UPS argued that the phrase "for each work day" meant that only one premium payment was due for any work day, no matter how many violations there were. The Second District Court of Appeal disagreed, holding that the phrase "meal or rest period" authorized an award of one premium payment per work day for any meal period violations, and an award of an additional premium payment per work day for any rest period violations. In a case brought by a single employee, the consequences of the ruling would be insignificant, an award of two hours of pay as opposed to one hour of pay. But, in a wage and hour class action, the numbers will add up.

The Court subsequently granted rehearing, and then issued a new opinion on June 2, 2011, adhering to its view that the Labor Code authorized one premium payment per work day for meal period violations, and another for rest period violations. The new opinion is available here.

To reduce liability, employers should monitor compliance with the meal and rest period rules. If a violation is discovered, the employer should consider self-assessing the premium payment. If it does not, any employees who do not receive their breaks will have four years within which to assert their claims, during which time interest will accrue. For any employee who quits or is fired, the employer will also be subject to additional waiting time penalties under Labor Code section 203 for not paying wages on time. That is because the California Supreme Court ruled in 2007 that premium pay under section 226.7 constitutes wages. See Murphy v. Kenneth Cole Productions, Inc., 40 Cal.4th 1094, 155 P.3d 284 (2007).

On The Clock Or On Your Own

A recent decision in a class action by limousine drivers against their employer reminds us that sometimes employers may have to pay their employees for doing nothing. The Second District Court of Appeal in Los Angeles directed the trial court to consider whether the class of drivers should have been paid for gap time, which is what the drivers called their on-call time between assignments. Ghazaryan v. Diva Limousine, Ltd., Case No. B201509 (Dec. 22, 2008).

Although the appellate court did not rule on the merits of the drivers' claims, the facts referred to in the complaint afford an opportunity for exploring the wage and hour aspects of on-call time. In Ghazaryan, the company prohibited the drivers from using their vehicles for personal use, required them to stay near the vehicle and to remain in uniform between assignments. Some drivers were, nonetheless, were able to use gap time for their own purposes. Some drivers were paid on an hourly basis for all their time, including any gap time. Others were paid by the trip. The company's exposure will in large part depend on its obligation to pay for gap time.

An employer must pay for all "hours worked," which Section 3(H) of the California wage orders defines as "the time during which an employee is subject to the control of an employer, and includes all the time the employee is suffered or permitted to work, whether or not required to do so." (Wage Order No. 9 applied to the limousine drivers.) Whether or not an employer must pay for time that an employee spends waiting to be called to work depends upon the degree of control that the employer exercises over the employee's activities during the on call time.

Two advisory letters from the Division of Labor Standards Enforcement may help employers understand the principles. In a March 31, 1993 letter, a writer described the following practice: "Assume a regularly-scheduled non-exempt employee who works at a hospital located in a rural area and is not required to remain at or about the hospital or any premises designated by the employer; during his off-duty hours, but is required to be 'on-call' for designated periods of time and arrive at the hospital within 20 minutes from the time he is called by pager or telephone." The Division declined to say whether such circumstances would never require compensation, because the answer to the question is heavily dependent upon all the facts of each case. It pointed out that geographical restrictions and strict time frames for response will often lead to a determination that the time is compensable.

In a December 28, 1998 letter, the Division was asked about the hours worked of apartment managers who lived in the complexes where they worked. Again, the Division was unable to give a definitive answer as to which hours should be paid for, because the requester of the opinion did not provide enough specifics. However, the opinion letter identifies a number of factors that are important to the determination: geographic restrictions, how quickly an employee must respond to a page on a beeper, how frequently the employee is called to work, whether the employee is free to engage in personal activities, and the consequences of failing to respond within the required time.

Is Boot Up Time Work Time?

Over the past several months there has been much ado about the status of time employees spend waiting for their computers to boot up. Class actions have been filed against Cigna Corp., AT&T and BellSouth, and United HealthGroup, in which employee lawyers allege that the employers have not been paying for time employees spend waiting for their computers to start up and shut down.

Although the press has labeled these a new type of lawsuit, they involve straightforward application of settled principles about the concept of hours worked. Under both the federal Department of Labor regulations and the California Division of Labor Standards Enforcement guidelines, time that employees spend waiting for something to happen after they get to work constitute hours worked, because the employee remains subject to the control of the employer. The time does not count toward hours worked only if there is a sufficient break in work for employees to devote time to their own pursuits. For the federal and state administrative interpretations see 29 CFR sec. 785.14 and section 46 of the DLSE Enforcement Policies and Interpretations Manual.

Section 785.15 of the federal regulations gives the following examples: "A stenographer who reads a book while waiting for dictation, a messenger who works a crossword puzzle while awaiting assignments, fireman who plays checkers while waiting for alarms and a factory worker who talks to his fellow employees while waiting for machinery to be repaired are all working during their periods of inactivity."

While it is impossible to state a definitive view based on the bare bones information reported in the stories about the booting up cases, waiting for a computer to boot up would appear to be constitute work under the applicable principles. If employers are truly concerned about work time lost to boot up time, they should develop technological solutions that assure their computer systems are ready when employees arrive for work.