In this edition we will address two recent and very important cases for employers to review relating to the legally required paid rest breaks provided to non-exempt employees. Also addressed below is a reminder about the March 1st deadline as to the All Gender Bathroom legislation effecting California employers.
In two recent important decisions by the California Courts, employers must re-examine their rest break policy to ensure that 1) commissioned employees receive separate compensation for their rest breaks and 2) non-exempt employees are relieved of all duties during a rest period.
COMMISSIONED EMPLOYEES:
SEPARATE COMPENSATION FOR REST BREAKS
In a recent Court of Appeal decision, the court was asked to address the following inquiry:
- “Are employees paid on commission entitled to separate compensation for rest periods mandated by state law?”
- “If so, do employers who keep track of hours worked, including rest periods, violate this requirement by paying employees a guaranteed minimum hourly rate as an “advance” on commissions earned in later pay periods?”
The Court answered yes to both. The court’s decision found that employees paid by commissions must be compensated for their legally mandated “paid” rest breaks separate from their commission earnings. (Vaquero v. Stoneledge Furniture, LLC).
Rest Breaks Generally
As has long been the law in California, employees must be provided with a paid rest break of a “net” 10 minutes for each four hours, or “major fraction thereof”, worked. For employees paid a straight hourly rate this was not an issue; however, this is now an issue for employees paid on a piece-rate or paid by commission.
The Division of Labor Standards Enforcement interprets “net” 10 minutes as the rest period begins when the employee reaches an area away from the workstation that is appropriate for rest. So if the designated rest area is not in immediate proximity to the employee’s workstation, the time required for the rest break may be more than 10 minutes to allow for walking time.
Commissions & Draws
Many employees are paid on a commission basis and many commission agreements (pay plans) provide that an employee will be paid a “draw” against future commission earnings. A “draw” is an advance of a pre-determined amount of money paid in one paycheck which is offset against the commissions “earned” at the end of the pre-determined sales period (e.g. end of the month). The “draw” allows employees to receive a consistent income since commission earnings can and do vary. This type of pay plan was the focus of the Vaquero case.
Court Finds Commission Earnings Alone Are Not Sufficient Compensation
In Vaquero two sales associates brought a lawsuit asserting they were not properly paid for their “non-selling” break time. The pay plan provided the sales associates would be paid a $12.00 hourly rate plus commissions. The pay plan further provided that if the commission earnings did not exceed the minimum pay of at least $12.01 per hour during any pay period for all hours worked, then the employee would be paid a “draw” against future advanced commissions. The “draw” would then be deducted from future commissions — but the employee would always receive at least $12.01 per hour for every hour work.
Based on this structure, the guaranteed minimum weekly pay for a full time employee would be always be $480.40 per week ($12.01 x 40 hours). So for example:
Week 1: Sales Associate earned a commission of $450.00. Because commission earnings were less than the guaranteed weekly pay of $480.40, the Sales Associate is paid the $480.40. The difference between the commission earnings and the guaranteed minimum hourly is $30.40 which is then considered to be a “draw” paid to the sales associate but would be offset against future commissions;
Week 2: Sales Associate earned a commission of $800.00; Sales Associate is paid $769.60 ($800 in commissions less the $30.40 “advanced” in the prior week.
The court found this structure unacceptable finding that this commission plan did not provide separate compensation for rest breaks, even though the plan ensured that employees always received more than the minimum wage for every hour worked. The court reasoned that because the pay plan’s minimum guarantee operated as a draw against commissions, the minimum guarantee was an advance subject to deduction from future commission wages. The court stated that the advances or draws against future commissions “were not compensation for rest periods because they were not compensation at all. At best they were interest-free loans.” Based on this reasoning, the court held that the pay system violated California law and did not properly compensate employees for rest break time.
In reaching its conclusion the Vaquero court looked to the 2013 Bluford v. Safeway Stores, Inc., case where truck drivers were paid on a “piece-rate” formula based on mileage rates determined by miles traveled, the time when the trips were made, and the locations where the trips began and ended. In the Bluford lawsuit, the drivers claimed that the mileage based system (which in essence was a “piece rate” compensation plan) did not compensate for the rest periods they were allotted during each shift. The drivers argued that they were entitled to a separate hourly rate for the rest periods, in addition to the piece rate. The employer argued that compensation for rest periods was, in fact, included in the drivers’ mileage-based piece rate.
The Court of Appeal agreed with the drivers and held that paid rest periods must be separately compensated when a production or activity based pay system is used even if the compensation rate in place was intended to include payment for expected rest breaks.
Following the Bluford decision, employers were obligated to pay piece-rate based employees a separate hourly pay for rest periods.
Then in 2016, California Labor Code section 226.2 established a special rate of pay to be provided to piece-rate employees on rest and recovery periods: the greater of the applicable minimum wage or the average productive rate which excludes time and pay for rest and recovery periods. These amounts were to be paid in addition to compensation for “other non-productive time” at no less than the applicable minimum wage.
Labor Code section 226.2 however did not specifically mention commission-based employees and the Department of Industrial Relations (Labor Commissioner) stated that the new Labor Code section did not apply to commission-based employees. Now however, in light of Vaquero, all employees compensated on commissions and/or piece rate systems must be paid a separate rate for rest breaks.
What Should I Do Now?
Review commission pay plans for non-exempt sales personnel or others paid on a “piece rate” program to ensure that they are paid a separate compensation (of at least the minimum wage) for rest break time;
Revise commission pay plans so that any payment is not subject to deduction/offset or forfeiture based on a draw against future commission earnings. One method which ensures compliance is to pay a base hourly rate for all hours worked, which would include the “paid rest breaks and other non-productive time such as meetings, training”, etc., plus a commission/incentive pay based on a percentage of sales;
Ensure that all commission compensation structures are documented in writing in a “pay plan” which specifically details when commissions are “earned”, “vested” and paid, including when these occur if an employee separates from employment;
Review time keeping policies to ensure that all hourly non-exempt commissioned inside sales personnel (and all other non-exempt employees) are maintaining daily time records for hours worked and meal periods; rest breaks still do not need to be recorded on time cards;
“ON DUTY” AND “ON CALL” REST BREAKS NOT PERMITTED
The next important decision regarding rest breaks was a decision by the California Supreme Court in December, 2016 finding that “on-call” rest periods are not permissible. (Augustus, et al. v. ABM Security Services, Inc.).
Rest Breaks Generally
As stated above, the law in California requires that employers must authorize and permit paid rest periods for all nonexempt employees whose total daily work time is at least 3.5 hours. The rest break must be “net” 10 minutes for every four hours of work or major fraction thereof (more than 2 hours). Following the 2012 Supreme Court decision in Brinker v. Superior Court rest breaks should be provided as follows:
Hours worked Rest Breaks
Fewer than 3.5 hours No break
3.5 and 6.0 hours One rest break
6 or more hours Two rest breaks – (one on either side of the meal break.)
The law also provides that if a rest (or meal) break is not provided, the employer owes the employee a penalty of one hour of pay for each work day that the rest (or meal) break is not provided. The penalty pay must be paid to the employee in the pay period in which the violation occurred to avoid liability that the employee did not receive all compensation due and a claim that their wage statement was inaccurate.
It is clear from prior court decisions that non-exempt employees must be provided a meal period which is “duty free” – meaning that the employee is relieved of all work duties and the employer relinquishes all control over them during this time. Up until now, there has been no such clear determination of what constitutes a “rest break” especially in light of the fact that rest breaks are “paid time”. However, the Supreme Court has now provided such guidance in finding that state law prohibits an employer from maintaining control over an employee during a rest break.
The ABM Security Services case addressed the issue raised by security guards claiming that ABM failed to provide the guards with uninterrupted 10-minute rest periods because the security guards were required to keep their radios and pagers on during rest breaks and respond to emergencies – they were “on call” during the rest breaks.
The guards sued for the one-hour penalty pay for every day for every one of nearly 15,000 security guards, plus penalties and interest. The trial court awarded the guards approximately $90 million in damages, interest and penalties. The Court of Appeal reversed finding that “on-call” rest periods are lawful because there is no express requirement that employees be “relieved of all duty” (whereas the law is clear that meal breaks must be “duty free”).
The appellate court also found that simply being “on call” (available to work during a rest break) is not the same thing as having to perform any work. The case went to the Supreme Court, which ultimately agreed with the trial court.
The Supreme Court determined that during required rest periods, employers must:
- Provide an uninterrupted break;
- Relieve employees of all duties; and
- “Relinquish any control over how employees spend their break time.”
The court determined that a “broad and intrusive degree of control” exists if an employee is “on-call” during their rest break because the employee is forced to remain “on call, vigilant, and at the ready.”
If a rest period is interrupted, the court noted that an employer can restart the rest period that was interrupted or pay the premium pay for the missed rest break. The court provided examples: Employees should be able to:
- Take a brief walk of five minutes out and five minutes back; or
- Complete a phone call to arrange for child care.
One issue that remains vague in light of the court’s stated example of an employee taking a walk around the block during the rest break, is whether employees are now permitted to leave the employer’s premises. Previously, employers could restrict an employee from leaving the company’s premises during the paid rest break because the time was paid and arguably, if an employee was involved in an accident while walking around the block while “on the clock” it could become a worker’s compensation issue.
While the court did not directly address this issue, the fact that one of the examples provided by the court is that an employee should be allowed to take a walk indicates that a requirement to stay on-site would be indicative of employer control, which is not allowed.
What Should I Do Now?
Review your rest break policies to ensure that you have stated the obligation to provide uninterrupted rest breaks where the employee is relieved of all duties and that the employee should notify management if their rest break has been denied, interrupted or they were otherwise not provided the full net 10 minutes of time;
- Review your rest break practices to ensure that all non-exempt employees are being provided their “net” 10 minutes of paid rest breaks and that they are relieved of all duties;
- Relinquish all direction and control over the employee during their rest break and permit the employee to engage in their own personal pursuits — whether it be using their cell phone, talking a walk, going to the corner for coffee, or sitting in the break room, etc.
- If employees remain on the premises, be sure that no “work related” discussions are held between the employee and the Company; otherwise the time will not be considered a true rest break — so no quick questions or interruptions during a rest break by managers;
- Do not require employees to respond to emails, text messages, phone calls, or other forms of communication with the employer during their rest breaks;
- If practical, schedule rest breaks to ensure that employees are taking their breaks and if you need production to continue, you can then arrange for coverage;
- An employer may discipline an employee who does not timely return from a rest break; but ensure that such disciplinary action is enforced uniformly with all employees; and
- Review the Industrial Welfare Commission Wage Order that covers your business/industry to determine if the Wage Order specifically permits an employer to restrict an employee from leaving the premises during a rest break. (e.g. Wage Order 5 for the Public Housekeeping Industry).
REMINDER- MARCH 1 DEADLINE
FOR SINGLE USER ALL GENDER BATHROOMS
As was discussed in a prior newsletter, California employers must comply with the new “all-gender” requirements for single user restrooms effective March 1, 2018.
The new law requires all “single-user toilet facilities” in any business establishment, place of public accommodation, or local government agency in California to be identified as an all-gender restroom. A “single-user” restroom is one that has no more than one water closet and one urinal with a lock controlled by the user.
Employer should post signs on the restroom that properly designate it is an all-gender facility.
The U.S. Department of Labor’s (DOL) Occupational Safety and Health Administration (OSHA) has published guidance on transgender employees’ restroom access that states, “All employees, including transgender employees, should have access to restrooms that correspond to their gender identity.”
You can review the full guidelines by visiting this web page –
https://www.osha.gov/Publications/OSHA3795.pdf
This Special Bulletin is intended as a brief summary of recent developments in California employment law. While every effort has been made to ensure the accuracy of the information contained herein, it is not intended to serve as “legal advice,” or to establish an attorney-client relationship. If additional information is needed on any of the topics contained herein, please contact our office. All rights reserved. ©2017.