ON THE ONE SIDED ENFORCEMENT AND CONSTRUCTION OF CALIFORNIA WAGE AND HOUR LAWS.

At the present time in California there is a controversy about AB5, a law that was intended to expand the definition of “employee” to various gig workers.   The controversy around the bill has mostly been about whether certain categories are, or aren’t employees per California labor rules. 

The problem, not so much with AB5, but with California’s labor laws and rules themselves, are designed for a model in which workers trudged into their factories at the sound of the factory whistle; performed numbingly boring jobs, stopped en masse at lunch, and then clocked out at shift’s end to go home grumbling about their uncaring greedy, rich, inaccessible capitalist who owns all the means of production.   

This is no doubt still the case with some part of the working class, but it is incompatible with many jobs in the modern business environment.  People work from home, or their vehicles, or at Starbucks. They may communicate in real time with three or several different time zones. They may be serving a single subcontractor with a complex technical support problem, or delivering groceries to a homebound customer.  They may be trying to avoid ICE and still earn enough to feed their family.  Like their boss and co-workers they may be trying to ensure that their start-up or small independent business survives slow spells, competition from global , and pandemics.  In these cases all parties to the employer-employee relationship might prefer to avoid inflexible rules of exact hours, precise break times, and perfect tracking of every minute.   

Periodically the newspapers assert that some group of employees has won a victory against employers who have cheated them of their overtime pay.  I am sure it happens, but in my limited experience representing small business owners I suspect the real facts are much more nuanced.

Under California law, and in many cases Federal law,  nonexempt (e.g. covered) employees must be paid daily overtime as follows: One and one-half times the employee's regular rate of pay for all hours worked in excess of 8 hours, up to and including 12 hours in any workday, and for the first 8 hours worked on the seventh consecutive day of work in a workweek.  

If there is a dispute that is not perfectly defended by contemporary time records and pay stubs, the worker’s deemed hourly pay is found by dividing the total pay.  Hours beyond 40 are paid one and a half times that, and more for certain premium pay arrangements.  If the employer intentionally paid extra to cover longer work or special efforts of the employee, or a bonus, that will probably be considered part of the regular 40 hour pay in calculating the hourly pay and the consequent time-and-a-half.  

Under California wage and hour law, non-exempt employees must receive a thirty minute lunch or meal break if they work more than five hours in a day. ... Employees are entitled to ten minutes of rest period for each four hours, or a substantial fraction thereof, that they work in a day.  

Generally speaking, employers may not require employees to continue working or remain "on-call" during meal or rest breaks. Exceptions  are where employees must work through their meal breaks, are permitted only if the nature of the work prevents the employee from being relieved of all duty (for example, the only security guard) or if the employee agrees in writing to stay on duty during meal periods. The employee is allowed to revoke this agreement in writing at any time.  Nonetheless, the employee must be paid the regular rate during the shorter rest breaks. (Cal. Code. Regs. Tit.8 section 11070, sub.12(A)).   

To make this system work, punching in or out on a timeclock is the only safe arrangement.  An employee can fill out a time sheet, but then the information entered could be disputed by either party.  Granted there are now apps for timesheets.   

If a worker has a complaint that he is underpaid, the California Department of Labor Standards Enforcement has this arrangement called Berman hearings.  These are  run by employees of the Labor Commission who have at the very least a bureaucratic interest in proving how important they are in preventing labor violations.   Failure to follow all the rules is designated “wage theft,” whether intended, accidental, or even unnoticed for months or years.  The statute of limitations for California wage and hour lawsuits is three years from the date when the most recent violation has occurred.

If  the employee is found to have not paid on time at the proper rate for all hours worked, the employer will be assessed a penalty of $100 for the first pay period and $200 for subsequent pay periods. 

There can also be a penalty for not paying a dismissed employee swiftly enough.

The employee can, therefore, going back three years, state he worked overtime every week, and unless there is a complete set of pay stubs, with the hours on them, refuting this, he or she will probably be believed. 

The DLSE hearings are preceded by a brief session where there is an attempt to have the employee simply concede to all the demands.  The employee can readily find an attorney who can be confident of collecting part of the eventual award in favor of the worker.  That presumably explains why Googling labor lawyers will find a surprising number who take on such workers’ cases, and a surprising dearth of attorneys who say they will defend the small business person.  The Claimant’s attorney will make a demand that will probably seem wildly high to the employer if the employer is unaware that he will be judged by a system that is not seeking even-handed justice based on truth.

The Berman hearing officer is not an administrative law judge, but rather an employee of the Division of Labor Standards Enforcement (DLSE).  DLSE, with the courts in back of it, is as it’s name indicates, there for purposes of enforcement.   

“Two overarching interpretive principles guide our analysis. First, the obligation to pay premium pay for overtime work reflects a state policy favoring an eight-hour workday and a six-day 40-hour workweek, and discouraging employers from imposing work in excess of those limits. Alvarado v. Dart Container Corp. of California (2018) 4 Cal.5th 542, 561 as modified (Apr. 25, 2018)”

"'State wage and hour laws "reflect the strong public policy favoring protection of workers' general welfare and 'society's interest in a stable job market.'"…"They are therefore liberally construed in favor of protecting workers. As our Supreme Court has stated, '"[i]n light of the remedial nature of the legislative enactments authorizing the regulation of wages, hours and working conditions for the protection and benefit of employees, the statutory provisions are to be liberally construed with an eye to promoting such protection."

 (Citing to Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004.)

And inserting the rationale of preventing unfair competitive advantage:

“Although in some circumstances classification as an independent contractor may be advantageous to workers as well as to businesses, the risk that workers who should be treated as employees may be improperly misclassified as independent contractors is significant in light of the potentially substantial economic incentives that a business may have in mischaracterizing some workers as independent contractors. Such incentives include the unfair competitive advantage the business may obtain over competitors that properly classify similar workers as employees

Dynamex Operations W. v. Superior Court (2018) 4 Cal.5th 903, 913 [232 Cal.Rptr.3d 1, 5–6, 416 P.3d 1, 5], reh'g denied (June 20, 2018)

As one can see from the above, the explicit and implicit burden of proof is heavily in favor of getting the worker paid per the rules, and thus against the employer who alleges the rules were followed.   For example, in the first case with which I was involved, the DLSE helped the employee invent overtime figures.  In the second the worker or his lawyer simply made up the figures of how much overtime he had missed and how many rest or lunch periods were missed.  Accordingly, since the Claimant  was paid a certain amount each week, each hour of alleged overtime was to be paid based on that total wage, divided by 40, times 150% times the claimed overtime hours. 

In one case, the hearing officer was shown documentation that an individual with the same name and social security number was working elsewhere part of the time at a coffee house across the bay that had since gone out of business.  The Claimant’s blithely claimed that this was his brother.  The agreed fact that the Social Security Number was a fake was accepted with equanimity by the hearing officer.

In the other case the long list of items allegedly stolen by the Claimant made no difference.

 I recall seeing a statistic that at least 80% of DLSE cases are found in favor of the claimant, though I cannot locate the source.    

When DLSE issues its order the employer then has a brief 10 days to file an appeal in superior court.  However before doing so, the owner must pay a bond of the entire amount held to be due.  Often it is many thousand dollars.  Although it is the employer who is bringing the matter to the court which is supposed to consider it de novo, he is called the Defendant in the case.  Under Labor Code Section 218.5, in a suit to recover owed wages, the employee will also recover attorney’s fees if she or he is the “prevailing party” which in this type of case “should be determined by the trial court based on an evaluation of whether a party prevailed ‘ “on a practical level,” Sharif v. Mehusa, Inc. (2015) 241 Cal.App.4th 185, 192.  The employer, however can only recover if it is found that the employee’s claim was frivolous, in bad faith.   For certain other labor code violation claims (defined in Labor Code Section 1194) attorney’s fees are available only to the prevailing worker.  Not all  Labor Code Section 1194 allow for attorney’s fees.  The threat is, however, that the employee may be awarded even a small part of the DLSE  claim, but the employer will be out even more thousands in his own and the other side’s attorney’s fees.

According to a study by the National Employment Law Project in 2011, entitled “Hollow Victories, The Crisis for Collecting Unpaid Wages for California Workers” , workers who win DLSE cases find, when they try to collect, that 60 percent of their defendant employers are no longer in business.   Only a fraction ends up getting recovered, and usually this is from ongoing businesses that settle the complaints.   

The right to overtime pay should not have to be fought over.   Employers should know enough not to consent to under-the-table and undocumented pay (and conversely workers shouldn’t demand it).   Workers should never be exploited or go unpaid

But the failure to collect awards because the employers are no longer in business ought to give the advocates of broadened and inflexible enforcement of the labor laws and DLSE rules pause for thought.  It certainly would be possible to develop regulations that allow more flexibility based on agreements that provide for equivalent compensation.  But independent businesses, with small staffs, seeking a niche to survive and prosper, against the competition of conglomerates and cookie cutter franchises, should not be assumed to be engaged in wage theft, going back years, if they seek some flexibility in their hours and systems of compensation.  The customer’s call may actually be important to them.   

Speaking of which: the foregoing is social commentary.  It is not intended to be legal advice with regard to any labor – related claim.

P. Liederman