On March 5, 2018, the California Supreme Court changed the test for factoring flat sum bonuses into the overtime rate in Alvarado v. Dart Container Corporation of California, ordering a calculation that will increase the costs of overtime for employers who pay such bonuses. Under the federal formula, an employer must divide an employee’s total weekly pay (including non-discretionary bonuses) by the total number of hours the employee worked in a week to get the regular rate; the employer then must pay time-and-a-half that rate for all overtime hours. But under the Alvarado court’s formula, the employer must divide the total weekly pay by only “the number of nonovertime hours the employee [actually] worked during the pay period.” That smaller divisor will lead to higher overtime rates.
On October 3, 2017, California Governor Jerry Brown signed into law Senate Bill 306, dramatically limiting an employer’s right to defend itself against allegations that it retaliated against an employee for making wage claims. In short, the law makes it far easier for employees and the California Labor Commissioner to obtain injunctive relief in retaliation cases, potentially requiring employers to reinstate discharged employees before an employer can fully defend itself against the allegations. The law takes effect January 1, 2018.
The law allows the Labor Commissioner or an employee to obtain injunctive relief against an employer based on a mere showing that “reasonable cause exists to believe a violation has occurred.” That’s a far lower burden of proof than a court’s typical standard for injunctive relief, which requires a showing that (1) the employee will suffer irreparable harm, (2) the employee will likely succeed on the merits, and (3) the employee’s interests outweigh the employer’s. The law also requires a court considering a request for an injunction to evaluate “the chilling effect on other employees.”
Other features of the new law that restrict employers’ rights include:
- Authorizing the Labor Commissioner to seek injunctive relief before concluding its own investigation;
- Permitting the Labor Commissioner to initiate investigations on its own, “without a complaint,” if the suspected retaliation occurred during the adjudication of a wage claim or a field inspection, or in instances of immigration-related threats;
- Allowing the Labor Commissioner to issue its own citations ordering reinstatement or back pay, without going to court;
- Placing a heavy burden on the employer to challenge Labor Commissioner citations, including requiring the employer to post a bond equal to the total amount of back pay allegedly owed.
Key Takeaways: The new law increases the need for California employers to make careful, well-reasoned, and thoroughly-documented disciplinary and discharge decisions. Notably, when employees make wage claims, they often also simultaneously engage in protected concerted activity under Section 7 of the NLRA. Given the potential overlap between the Labor Commissioner’s jurisdiction and the NLRB’s jurisdiction, employers facing legal action under the new law should consider whether an NLRA preemption defense applies.
Today, the Ninth Circuit in Mendoza v. Nordstrom, No. 12-57144, affirmed dismissal of the plaintiffs’ California Private Attorneys General Act (PAGA) claims. The plaintiffs sought to recover from the luxury retailer on behalf of themselves and other employees for violations of California’s day-of-rest rules, Cal. Labor Code §§ 551 and 552. The court rejected the plaintiffs’ arguments that it should remand the case to permit them to name a new PAGA class representative after their underlying claims failed, reasoning that nothing prevented a proper plaintiff from filing a new suit.
On July 7, the California Court of Appeals issued a decision in Espejo v. The Copley Press, No. D065397, with potentially far-reaching implications for companies facing current or future expense-reimbursement class action claims. In a superficial analysis, the court ruled that expenses qualify as “wages” for purposes of California’s unfair competition law, Bus. & Prof. Code, § 17200 et seq. That holding potentially expands companies’ exposure in claims for unpaid expenses under California Labor Code § 2802; the ruling paves the way for plaintiffs to bring additional “piggyback” claims for waiting time penalties under California Labor Code § 203 and wage statement penalties under California Labor Code § 226.
The court also ruled that employers who pay employees “enhanced compensation” to cover their expenses must tell employees how much of their pay covers expenses at or near the time of payment. Otherwise, the employer will get no credit for such payments.
The trial court awarded plaintiffs more than $4.95 million in damages on their expense claim and in prejudgment interest, plus an additional $6.1 million in attorneys’ fees. However, the court of appeals remanded for recalculation of the expenses (as well as the attorneys’ fees) to give The Copley Press credit for the expenses that records showed it did pay.
Key Takeaway: Employers in California need to take a close look at their expense-reimbursement policies and practices because the risk of not properly reimbursing expenses just got more costly. In addition, employers who pay employees “enhanced compensation” must correctly identify it to employees.