California Labor and Employment Defense Blog : California Employment Lawyer & Attorney : Van Vleck Turner & Zaller Law Firm : Wage and Hour Class Actions : Serving Los Angeles, San Diego, San Francisco

California's so-called anti-SLAPP statute, CCP section 425.16 et seq., is a powerful weapon for quickly disposing of lawsuit based on allegations that arise out of free speech or "public participation."   To proceed with such a lawsuit the plaintiff must present admissible evidence establishing that he is "likely to prevail."   Moreover, he must normally make this heightened showing at the start of the case without the benefit of any discovery.  Most lawsuits which are covered by the anti-SLAPP statute fail to survive this rigorous test and are dismissed, which also triggers an obligation to pay the other side's attorney fees.  

In Aber v. Comstock the Califonia Court of Appeal has significantly expanded the reach of the anti-SLAPP statute by extending its protection to purely internal complaints of sexual harassment.  As the court explained:

 Aber argued that her statements to Bush, the Kluwer HR manager, are protected under section 425.16, subdivision (e)(1) and (e)(2), as statements prior to litigation or other official proceedings. Her theory was that the statements were necessary to address a commonly used affirmative defense by an employer in a sexual harassment case—a defense, not incidentally, that Kluwer has in fact asserted against Aber here.  We agree.

As a result, the accused harasser's lawsuit for defamation based on these internal allegations was dismissed under the anti-SLAPP procedure.  Aber thus serves as a cautionary tale to any employer or co-employee who might otherwise be tempted to file a cross-complaint against a sexual harassment accuser -- unless your counterclaim is exceptionally strong on its face it will likely backfire and result in liability for attorney fees under the anti-SLAPP statute.    

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The Fourth District Court of Appeal decision in Bradley v. Networkers International, LLC is significant because it directly addresses how the landmark Brinker decision should effect class certification of meal and rest break claims.  (Bradley is also significant concerning misclassification of independent contractors but that warrants a whole separate post). 

The employer in Bradley had never promulgated any policy specifically authorizing meal and rest breaks.  Originally the trial court had denied certification and the appellate court had upheld the denial on the ground that it would be necessary to individually determine which workers had the opportunity to take breaks and whether they had voluntary chosen to waive the breaks.  The Supreme Court issued a "grant and hold" and then remanded for reconsideration in light of its Brinker decision.   

The Bradley Court explained upon remand that Brinker had changed everything.  Under the Supreme Court's new rules the same record now required class certification of the meal and rest period claims.  First, because Brinker clarified that employers have a legal obligation to affirmatively provide breaks, not having a policy is itself a common class-wide policy that warrants certification.       

Networkers argues Brinker is not controlling because in Brinker the plaintiffs challenged an express meal and break policy whereas here plaintiffs are challenging the fact that the employer's lack of a policy violated the law. This is not a material distinction on the record before us. Under Brinker and under the facts here, the employer engaged in uniform companywide conduct that allegedly violated state law.

Secondly, the lack of an affirmative meal and rest break policy effectively takes the issue of "waiver" off the table, removing it as an obstacle to certification as well.

[A]s Brinker made clear, an employer is obligated to provide the rest and meal breaks, and if an employer does not do so, the fact that an employee did not take the break cannot reasonably be considered a waiver. “No issue of waiver ever arises for a rest break that was required by law but never authorized; if a break is not authorized, an employee has no opportunity to decline to take it.”

Prior to Brinker many employers got by with arguing that they did not prohibit breaks and that it was therefore up to their workers to take meal and rest breaks and that they could not prove that they had not voluntarily chosen to take breaks.  Bradley is crystal clear in holding that this is no longer an option.  

Under Brinker, the failure to implement and enforce an affirmative break policy (including records of whether the breaks were actually taken), is a substantive violation of the employer's legal duty under the Labor Code.  Under Bradley this substantive violation will also be certified as a class action.   In short, an employer without an affirmative break policy is now officially a sitting duck.     

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The challenge in discrimination cases is always proving the subjective intent of the decisionmaker.  In other words, was the decision motivated by some legitimate business reason, or did the company base its decision on the plaintiff's _______? [fill in the legally protected category] 

As there is no way to peer into the mind of a decisionmaker the fact-finder must resort to making inferences from the surrounding circumstances.  And this raises a host of thorny issues regarding what constitutes legitimate evidence to prove up this inference of discrimination, and how such evidence may be considered.   

For example, in Veronese v. Lucasfilm a jury found that Lucasfilm had not hired the plaintiff due to her pregnancy.  The reviewing court, however, reversed the verdict and remanded the case for retrial because the judge had failed to give the jury the following special instruction:

You may not find that Lucasfilm discriminated or retaliated against Julie Gilman Veronese based upon a belief that Lucasfilm made a wrong or unfair decision. Likewise, you cannot find liability for discrimination or retaliation if you find that Lucasfilm made an error in business judgment. Instead, Lucasfilm can only be liable to Julie Gilman Veronese if the decisions made were motivated by discrimination or retaliation related to her being pregnant.

The purpose of the instruction is merely to advise the jury that it is not illegal, by itself, to treat someone unfairly or to do something that seems illogical.  Going forward some version of this instruction, which the parties and the Court referred to as a "business judgment instruction," will effectively be mandatory in all disparate treatment discrimination cases. 

Companies should not rely too heavily on this "business judgment" rule, however.  Like many legal instructions it may not have much impact on the deliberations of real juries.  Jurors are looking for logical reasons to explain what happened.  It is not particularly persuasive for an employer to argue that "our reason for firing the plaintiff may seem illogical and unfair but he still can't prove the real reason was discrimination."   Jurors are usually more than willing to chose an illegal reason over an illogical reason as the most likely version of what really happened.         

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For various legal and financial reasons large corporations frequently do business through an array of interrelated parent, subsidiary and sibling entities.  Executives and other employees are frequently shifted back and forth or end up working for two different entities at the same tme.  (I have been involved in several cases in which highly placed executives literally did not know which corporate entity employed them.) 

The holding in Faigin v. Signature Group Holdings, Inc. illustrates that one consequence of this scenario is that an employee who works for two different entities may have two different contracts.  The employee may have an integrated, written employment contract with a parent company that is terminable at-will.  But unless the contract is specifically worded to govern all employment with related entities there is no reason that a "dual employee" cannot also have a separate implied agreement with a subsidiary company that requires a higher standard for termination.   As the Faigin Court explains:

A subsidiary employing an individual who has a written employment contract with the parent conceivably could agree to continue to employ the individual unless there is good cause to terminate the employment even if the parent, for whatever reason, terminates the individual's employment with the parent.

Thus, the Court upheld a $1.37 million wrongful termination award against a subsidiary company despite the fact that the executive's written contract with the parent company stated that his employment was terminable at-will.

Employers who wish to avoid this problem might draft their an at-will termination provision to specifically govern any potential employment relationships with related companies.  But  having one corporation control the labor policies of another in this manner naturally tends to erode any claim that they are entirely separate entities and thus open the possibility of alter ego claims and the like.         

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It has been well-publicized that, beginning in January 2013, employers with more than 50 full-time employees will be required to comply with "Obamacare" by either providing insurance benefits for their employees or paying a penalty.   There has been much speculation for example that the American economy will begin to resemble France, in which an inordinate number of employers stop hiring at exactly 49 employees to avoid the regulations that kick in at 50 employees. 

But if any employer wishes to follow this "49'er" strategy it needs to understand that Obamacare's definition of a "large employer" subject to coverage is actually based on a special definition of "full-time equivalent" employees.  In essence, the new law aggregates all part-time hours worked and treats 120 monthly part-time hours worked by any number of individuals as equivalent to one full-time employee.  For example, as explained by a report of the Congressional Research Service 

"Full-time employees” are those working 30 or more hours per week.  The number of full-time employees excludes those full-time seasonal employees who work for less than 120 days during the year.  [However] The hours worked by part-time employees (i.e., those working less than 30 hours per week) are included in the calculation of a large employer, on a monthly basis, by taking their total number of monthly hours worked divided by 120.

Employers may also be tempted to avoid application of the statute by obtaining services from independent contractors rather than employees.  In California, however, employer must be very careful to avoid the penalties and liabilities that can result from misclassifying employees as independent contractors.

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In Monarrez v. Automobile Club of Southern California a motorist was struck by a car while his disabled vehicle was being hooked up by a tow truck operator who had been dispatched by the defendant.  This raised the question of whether the tow truck operator was an employee for whom the dispatching company was legally responsible, or an independent contractor.  

In conducting this analysis the Court hit all the usual points.  Noting for example that "The label placed by the parties on their relationship is not dispositive" and that the essence of the test is "whether the principal has the right to control the manner and means by which the worker accomplishes the work."  

But most interesting was the degree to which the court stressed the company's right to terminate the relationship at-will as a nearly outcome-determinative indication of "control." 

The right to terminate employment at any time strongly tends to show the subserviency of the employee, since it is incompatible with the full control of the work usually enjoyed by an independent contractor. Perhaps no single circumstance is more conclusive to show the relationship of an employee than the right of the employer to end the service whenever he sees fit to do so.

Other courts have tended to treat the right to terminate at-will as a mere "secondary" factor apart from the central control issue.  But if the trend is to treat an at-will termination provision as dispositive (or nearly so) it will go a long way toward creating a bright-line rule which can be evaluated on the face of the parties' contract.   

Monarrez involved tort liability to an injured third party.  But the greatest exposure for many employers will arise from Labor Code section 226.8 which imposes a penalty of up to $25,000 for each misclassified contractor (not to mention the separate obligations to reimburse the expenses and pay overtime wages to misclassified employees).   

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In See's Candy Shops v. Superior Court, the Court addressed two separate issues concerning the recording and calculation of hours worked by non-exempt employees: (a) to what extent may employers "round" worker time entries; and (b) to what extent may employers base hours of pay on "scheduled" work times that differ from the actual time punch records. 

Rounding of Time Entries.

It is a fairly common practice for employers -- especially those using commercial time tracking software such as Kronos -- to calculate work time based on "rounded" time entries. For example, if an employee clocks in for work at 8:53 a.m. the policy may "round" this entry to the nearest 15-minute interval and therefore pay the worker only for time worked after 9:00 a.m.

See's Candy reached the common sense conclusion that rounding is fine as long as the incidents of "rounding up" and "rounding down" roughly  cancel each other out, thereby resulting in a generally accurate  measure of hours worked.

Assuming a rounding-over-time policy is neutral, both facially and as applied, the practice is proper under California law because its net effect is to permit employers to efficiently calculate hours worked without imposing any burden on employees.

Employers cannot assume, however, that a policy is always permissible merely because it rounds up as well as down.  The key phrase here is that the policy must also be fair to the employee "as applied." 

For example, consider an employer that requires its workers to be on the job by no later than 9:00 a.m. but also prohibits unauthorized overtime or clocking in early.  This combination of policies would basically require (or at least strongly encourage) employees to always clock in between 8:53 a.m. and 9:00 a.m. but never later.   Over time, and over the course of an entire labor force, this systemic rounding bias could result in a substantial amount of unpaid work time. 

Unpaid "Grace Period" Time.

A related practice evaluated in See's Candy is a a so-called "grace period"  policy.  Under this policy "employees whose schedules have been programmed into the Kronos system may voluntarily punch in up to 10 minutes before their scheduled start time and 10 minutes after their scheduled end time."   However, "Because See's Candy assumes the employees are not working during the 10–minute grace period, if an employee punches into the system during the grace period, the employee is paid based on his or her scheduled start/stop time, rather than the punch time."

As the Court explained the "grace period" policy presented a different issue from rounding.  Under the rounding policy the employees were admitedly working and the issue was whether the policy resulted in an accurate record of their work hours.  Under the "grace period" policy the employer "assumed" that no work was being performed and the issue was whether that assumption was accurate.

If the evidence later shows that the employees were working or “under the control” of See's Candy during the grace period and they were not paid for this time, they may be entitled to recover those amounts in the litigation and any applicable penalties.

Conclusion

Internal policies like "rounding" or "grace periods" do not create special defenses to wage claims.   Rather, like any other employer policy, they are valid or invalid only to the extent they comply with the standard legal obligation to accurately record and pay for all hours actually worked.   The test is therefore how the polices operate in practice in combination with the Company's actual work requirements and other policies.  

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At this point employers should not need any further "wake up" call to get their meal and rest policies in compliance with California law.  But if anyone is still unconvinced of the potential exposure the granting of a summary judgment in the amount of $89,741,426 in Augustus v.  American Commercial  Security should be persuasive.  

As the ruling in Brinker made clear, the essence of a compliant meal or rest break is that the employer has affirmatively relieved the employee of all work duties within the prescribed time windows and for prescribed durations.  Once the employer has discharged this obligation it has "provided" a break and it doesn't have the further obligation to force the employee to actually go off duty or stay off duty for the entire break period.   

But woe unto the employer whose policies fall short of actually "providing" a compliant break in the first place.  In that case the employer forfeits any argument that any missed break was the result of the employee voluntary decision to waive it. (Since an employee can't waive something he never received.)  

That is exactly what happened in the Augustus case.  The defendant was a security guard company which required its guard to remain "on-call" during breaks.  Judge Wiley's order granting summary judgment explains how this one policy error ended up costing the company nearly $90 million:

In general, ACSS balks at the notion that the employer must relieve workers of all duties for the rest break to be legally valid.  Put simply, if you are on call, you are not on break. . . . [¶] . . .Substantively, California's labor law gave advance notice of the penalties for depriving workers of rest breaks.  Those penalties are straightforward and chastening.  When the view is clear and the exposure chastening , the rational hiker steers clear of the cliff.  ACSS broke the law and must pay according to that law.

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In DeLeon v. Verizon Wireless, LLC the California  Court of Appeal upheld the right of an employer to reclaim or "charge back" commissions which are provisionally advanced for sales that are later canceled.

California case law has been clear for some time in holding that the claw back of an "advance" that was never actually earned is not an illegal deduction from wages.  The usual scenario is an advance on a seemingly valid sale that is never finally consummated because the customer either cancels the order or fails to pay. 

DeLeon represents a slight variation on these facts only because it allowed commission advances to be reversed up to a year after the initial sale had been made where a customer canceled his cell phone service.  But in the context of an ongoing service plan (which may well have included loss leader incentives for the initial sign up), this is just a natural extension of the general rule that earning a commission may be legitimately conditioned on completing a final sale.          

Nevertheless, the discussion in DeLeon, especially when considered in conjunction with last month's decision in Sciborski v. Pacific Bell, begins to shed light on how courts will distinguish a legitimate contractual condition on earning a commission from an unlawful "deduction" or "withholding" of wages. 

Under the principles discussed in these two opinions it appears that courts will generally allow employers to deny a commission payment if an employee fails to fulfill a term that:

• Is clearly expressed , preferably in writing, before the employee performs the work; and 
• Is related to the sale itself.  

 By contrast, courts will tend to find a violation of California law where an employer denies a commission payment for a reason that:

• Is unrelated to the successful completion of the particular sale itself;
• Is outside the employee's ability to control or influence;
• Is unpredictable or arbitrary; or
• Is shifting a cost of doing business which the employer should pay to the employee.   

 It may be a long time before the case law is crystal clear in this area but the main outline of the rules is starting to come into focus.

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