When Are "On-Duty" Meal Periods Permitted?

My recent post about Bufil v. Dollar Financial Group, Inc. (filed April 14, 2008, ordered published May 13, 2008) made a lot of readers ask, “When can an employer have an employee enter into an ‘on-duty’ meal period agreement?” 

As any reader of our blog knows, pursuant to Labor Code section 226.7 and the Wage Orders (for example Wage Order 4-2001, section 11(b)), each failure to provide the specified meal period entitles the employee to receive an additional compensation premium equal to one hour of pay.

The Wage Order provides for an “on duty” meal period that is an exception to the required meal break if the following requirements are met:

An "on duty" meal period shall be permitted only when the nature of the work prevents an employee from being relieved of all duty and when by written agreement between the parties an on-the-job paid meal period is agreed to. The written agreement shall state that the employee may, in writing, revoke the agreement at any time.

Wage Order No. 4-2001(a)(emphasis added). Unfortunately, the definition of the “nature of the work” is not clear, and the only real guidance California employers have on this issue is a Department of Labor Standards Enforcement (“DLSE”) opinion letter. Click here to download the opinion letter.

In the opinion letter, the DLSE addressed the issue of whether a shift manager in a fast food restaurant working the night shift would be allowed to take a “on duty” meal period. The DLSE began its analysis in stating that the off duty meal period is the default requirement, and any exceptions to this requirement should be narrowly construed. 

The DLSE set forth factors it considered in determining whether the nature of the work prevents the employee from taking an off-duty meal period. The factors included:

  • the type of work
  • the availability of other employees to relieve the employee during a meal period
  • the potential consequences to the employer if the employee is relieved of all duty
  • the ability of the employer to anticipate and minimize these staffing issues such as by scheduling employees in a manner that would allow the employee to take an off-duty meal break and
  • whether the “work product or process” would be destroyed or damaged if the employee were given an off-duty meal period. 

The DLSE concluded that based on the facts presented in the situation of the fast food restaurant, it did not understand why the nature of the work in the restaurant prevented the shift manager from being relieved of all duties for 30 minutes. 

As this issue has yet to be addressed by the courts (maybe the court in Bufil will provide some guidance), employers should follow the limited analysis set forth in the DLSE opinion letter, even though the DLSE opinion letter is not  binding on the courts. 

"Retooling" Of The Blog

As some of our readers may have already noticed, we are changing a few elements of our blog.  With summer upon us, we thought it would be a good opportunity to retool.  We are changing the blog to better suit our readers as we learn the new technologies available to us.  Our goal is to make our blog more of a resource center for our readers.  If any readers have any suggestions, please email them to me

One element that we already added to the blog, is the "Top Posts" list on the left hand side.  This list is of the most popular posts that visitors view - kind of a "best of" list. 

We are also looking forward to publishing more podcasts, and placing a few more of our presentations on-line as resource to California employers.  We also have a few other beta ideas we cannot yet disclose, but should be of interest to our current readers in the next few months.  The ever changing and great new advances that the Internet is continually offering makes us think we are more like computer programmers than lawyers (I don't remember any of my law school classes covering html, blogs, or RSS feeds.)

Hope our readers continue to find our blog educational, and thanks for reading. 

Appellate Court Allows "On-Duty" Meal Period Class Action To Proceed

This case is a class action lawsuit filed by Caren Bufil for violations of California’s meal and rest break laws, and violation of California’s Unfair Competition Law against Dollar Financial Group, Inc. (Dollar). Bufil v. Dollar Financial Group, Inc. (filed April 14, 2008, ordered published May 13, 2008).  Dollar is a company with 130 retail stores in California that provides check cashing, Western Union services and loans.

The plaintiff’s suit defined the putative class as consisting of two subclasses of hourly employees working in California from September 2003 until the present. The two subclasses were employees for whom Dollar’s meal break records showed that they did not receive a meal break because (1) they were the only employee working in the store at the time of their meal break or (2) they were training another employee who could not be left alone to operate the store when their meal break should have been taken.

Dollar’s “On-Duty” Meal Period Agreement
In 2001 Dollar implemented an "on-duty" meal agreement with hourly employees. The agreement was given to all new employees and states that (1) Dollar and the employees acknowledge that the nature of the business may prevent employees from being relieved of all duties during meal periods; (2) Dollar and the employees agree that an employee may take an on-duty meal break, and be paid accordingly; and (3) the employees may revoke their right to have the meal break deemed “on duty” by giving 24-hour written notice to a supervisor.

Dollar introduced an updated meal break policy effective September 2003. The revised policy sets forth that on-duty meal breaks are only permitted when the hourly employee (1) is the only employee in the store working during the entire work shift; and (2) is working with only one other employee who has been employed less than 90 days and is not certified to transact business alone. An e-mail to store managers in June 2006 reiterated this policy.

Dollar’s rest break policy did not require consecutive 10-minute breaks, but permitted a “net” 10 minutes of time that the employee could use throughout the day. The appellate court, relying upon a DLSE opinion letter, stated that the rest breaks had to be consecutive, and held that Dollar did not permit employees working alone or who were supervising other employees had the ability to take a 10-minute rest break.

Dollar Defeats Class Certification In Its First Wage & Hour Class Action: Chin v. Dollar Financial Group
Bufil’s lawsuit was filed just four months after an appellate court upheld a denial of class certification in favor of Dollar in a case that alleged similar violations of California’s wage and hour laws. In Chin, the plaintiff in that case filed a lawsuit against Dollar for missed meal and rest breaks, and proposed to certify a class of employees who were (1) employed for a period of more than five hours without a meal period of not less than 30 minutes, and/or (2) not authorized or permitted to take a rest break for every four hours of work.

In the Chin case, the court held the trial court properly ruled that the action was not suitable for class treatment because common questions of fact and law did not predominate over individualized issues. Because each employee would have to testify as to the particular facts pertaining to his or her case, it therefore was not a case suitable for class wide treatment.

Bufil’s Procedural History
The Plaintiff Bufil moved for class certification, and Dollar moved for judgment on the pleadings. Dollar argued that Bufil’s case was collaterally stopped because the earlier Chin litigation resolved these issues, and it is unfair that it has to defend itself again for the same issues already litigated in the previous lawsuit. The trial court agreed with Dollar, dismissed Bufil’s class allegations and denied plaintiff’s motion for class certification.

The appellate court overruled the trial court with the following holdings.

1. Bufil Is Not Precluded From Brining Her Suit On the Basis of the Collateral Estoppel Doctrine.
The principle behind the collateral estoppel doctrine is to prevent re-litigation of issues previous argued and resolved in an earlier proceeding. As the court set out, in order for the doctrine to apply, the issues must be identical to an issue that was actually litigated and decided to be final on the merits.

The court examined Alvarez v. May Dept. Stores Co. (2006) 143 Cal.App.4th 1223, which held that two cases filed against May Department Stores prior to the Alvarez case precluded the Alvarez case from proceeding under collateral estoppel. In Alvarez, the court held collateral estoppel applied because the two prior cases sought to certify the same class of employees, concerned the same policies, concerned the same time period, and one of the prior cases had the same attorneys. In this case, however, the court held that Bufil’s legal issues were not the same as the issues litigated in the prior Chin lawsuit against Dollar. The court held:
Unlike Alvarez, the class that Bufil asserts is not identical to the class asserted by Chin. Rather, it is a distinct subclass restricted to hourly employees who tracked Dollar’s recordkeeping system from September 2003 to the present with the designation of not having taken a meal period because the employee was the only employee in the store or was supervising a trainee who could not be left alone.
The court held Bufil’s theory that the meal period waivers for employees who were the only employees working at the store or who were providing training to employees are invalid because the waivers do not meet the “nature of the work” exception in Wage Order No. 4-2001 is different than the issues litigated in the Chin case. Wage Order No. 4-2001 provides:
An "on duty" meal period shall be permitted only when the nature of the work prevents an employee from being relieved of all duty and when by written agreement between the parties an on-the-job paid meal period is agreed to. The written agreement shall state that the employee may, in writing, revoke the agreement at any time. (emphasis added)
The court ruled that this is a legal question that was not present in the Chin litigation, and therefore was not barred under the collateral estoppel doctrine.

2.  Bufil’s Case Is Appropriate For Class Certification.
The court also held that the lower court’s finding that “commonality”, an element that plaintiffs must prove in order to proceed as a class action, did not exist in this case was flawed.  Despite Dollar’s argument, the court held that the individual employee’s understanding of the meal period waiver was irrelevant in this case. The court also held that a class was ascertainable in this case through Dollar’s records, which allowed the employee to electronically record if they did not take the meal break due to (1) the fact they were the only person in the store or (2) they were the only person with a trainee. Finally, the court held that Bufil could show that the class action was a superior method to resolve the litigation as class actions permit individuals to resolve all of their claims at the same time, it is more efficient and avoids repetitive actions, and allows for recover of small amounts of damages that may be too insignificant for individual litigation.

Appellate Court Holds Network Director For Start-up Company Was Properly Classified As Exempt Employee

In a recently published opinion, Combs v. Skyriver Communications, Inc., the plaintiff Mark Combs appealed a judgment against him in an action to recover overtime pay and meal and rest breaks. He alleged that he was misclassified as an exempt employee while working for Skyriver Communications, Inc. (Skyriver). He sued Skyriver and its chief executive officer for the unpaid wages under three causes of action: . (1) violation of Labor Code sections 510 and 1194 and applicable Industrial Welfare Commission (IWC) wage orders; (2) violation of the Unfair Competition Law (the UCL) (Bus. & Prof. Code, § 17200 et seq.); and (3) penalties under the Private Attorneys General Act of 2004 (the PAGA) (§ 2698 et seq.). Combs sought to hold Skyriver’s CEO liable on an alter ego theory.

The employer, Skyriver is a high-speed, wireless, broadband internet service provider. When Combs worked for Skyriver, it was a “young start-up company” and Combs was the first manager for capacity planning, and then became the director of network operations. He voluntarily resigned in November 2004.

Combs alleged the trial court committed an error by failing to apply the administrative/production worker dichotomy pertaining to the administrative exemption from IWC overtime compensation requirements, which was set forth in Bell v. Farmers Insurance Exchange (2001) 87 Cal.App.4th 805, cert. denied 534 U.S. 1041 (Bell II). Combs also contends that application of the Bell II dichotomy would have resulted in a determination that Combs was a production worker, not an administrator, and thus that he was not administratively exempt.

Administrative/Production Dichotomy Defined
As the appellate court explained, the administrative/production dichotomy was defined in the Bell II case when the court drew "a distinction between administrative employees, who are usually described as employees performing work 'directly related to management policies or general business operations of his employer or his employer's customers,' and production employees, who have been described as 'those whose primary duty is producing the commodity or commodities, whether goods or services, that the enterprise exists to produce.' [Citation.]" (citing Bell II, supra, 87 Cal.App.4th at p. 820, fns. omitted.) Therefore, under this framework, employees who produce the company’s goods or services cannot qualify as exempt administrative employees.

However, this test has become more and more difficult to apply given today’s new technology, more “flat” organizational structures within companies, and the fact that with the advent of computers and the internet, it is often times hard to exactly describe what a company’s product actually is. The appellate court recognized this difficulty, and explained that the Bell II court further explained that dichotomy's "somewhat gross distinction" between administrative employees and production employees "may not be dispositive in many cases," and warned that it should be applied with "great caution." (citing Bell II at pp. 826-827.)

Combs claimed that the administrative/production dichotomy was "binding [legal] precedent" and that the courts were required to apply this framework to his case. However, the appellate court disagreed and held that:
Combs's reliance on Bell II and Bell III is unavailing because those cases are factually and legally distinguishable. They are factually distinguishable in that the class plaintiffs in that litigation were former and current insurance claims adjusters who worked in California branch claims offices and, according to their employer's own characterization in its regional claims manual, their job responsibilities were restricted to the "handling of the routine and unimportant." (Bell II, supra, 87 Cal.App.4th at pp. 827-828, italics added.) In upholding the trial court's determination that the claims adjusters were production, not administrative, employees within the meaning of the administrative exemption set forth in former IWC Wage Order No. 4, the appellate court in Bell II concluded that the record as a whole confirmed that the claims adjusters were "ordinarily occupied in the routine of processing a large number of small claims," and "[o]n matters of relatively greater importance, they [were] engaged only in conveying information to their supervisors—again primarily a 'routine and unimportant' role." (Bell II, supra, 87 Cal.App.4th at p. 828, italics added.) Here, however, as we shall explain, post, there is no evidence to show that Combs's responsibilities at Skyriver were limited to "the routine and unimportant."
The appellate court explained that Combs's job responsibilities were high-level and important. The trial record showed that Combs performed "specialized functions" that, unlike the "routine and unimportant" functions performed by the claims adjusters in the Bell cases, could not be readily categorized in terms of the administrative/production worker dichotomy. Evidence showed that the wide variations in Combs's job responsibilities called for "finer distinctions than the [Bell II] administrative/production worker dichotomy provides." The evidence also showed that Skyriver's corporate administrators commonly worked side-by-side with employees who were not administrative employees, and there is no evidence in the record to show that Combs's job responsibilities were limited to "the routine and unimportant" as was the case in Bell II. Therefore, the appellate court upheld the trial court's decision to not apply the administrative/production worker dichotomy

Administrative Exemption Test
The court then turned to analyze Combs’s claim under the requirements of the administrative exemption test. Combs conceded that he earned a monthly salary equivalent to no less than twice the state minimum wage (he earned between $70,000 and $90,000 per year) for full-time employment, that his worked was “office or non-manual work,” and that he performed his work “under only general supervision [and] along specialized or technical lines requiring special training experience or knowledge.”

Combs, however, challenged that Skyriver failed to prove the remaining "critical" elements of the “duties test” that are required to meet the administrative exemption.

    a. Work "directly related to management policies or general business operations"
Combs contended that his work did not rise to the level of being related to management policies or general business operations. The court disagreed. Combs was responsible for maintaining, developing and improving Skyriver's network, and his duties involved high-level problem solving, preparing reports for Skyriver's board of directors, capacity and expansion planning, planning for the integration of acquired networks into Skyriver's network, lease negotiations, and equipment sourcing and purchasing.

The appellate court also emphasized that Combs's own resume and his trial testimony showed that his job functions as manager of capacity planning included "network planning"; design of network operations center (NOC) policies and procedures; "project management, budgeting, vendor management, purchasing, forecasting[, and] employee management"; management of "overseas deployment of wireless data network"; among other duties.

    b. Customary and regular exercise of discretion and independent judgment
Combs testified that he spent 60 to 70 percent of his time on his core responsibility of maintaining Skyriver's network. Witnesses from Skyriver testified that Combs, in carrying out his role of "troubleshooting an issue with [Skyriver's] network," had "the authority to determine the course of action to correct the problem." The court again turned to Combs’ resume and found that the job responsibilities he listed “also supported a finding that he customarily and regularly exercised discretion and independent judgment with respect to matters of significance.”

    c. Primary engagement in duties that meet the administrative exemption test
The term "primarily" is defined to mean "more than one-half the employee's work time." (Cal. Code Regs., tit. 8, § 11040, subd. 2(N).) Combs himself testified that he spent 60 to 70 percent of his time on his core responsibility of maintaining the well-being of Skyriver's network. As the court set forth above, this type of activity is both "work directly related to assisting with the running or servicing of the business," and work that includes "computer network, internet and database administration" within the meaning of 29 Code of Federal Regulations 541.201 (which is the federal regulation incorporated in IWC Wage Order No. 4-2001). Therefore, the court held that Combs did in fact spend more than 50 percent of his time performing duties that meet the administrative exemption.

Lessons From This Case
  1. The administrative exemption is alive and well.
  2. Start-up companies and technology companies should be able to use this holding in order to urge courts to not apply the administrative/production dichotomy – which should increase the likelihood that an employee meets the requirements for the administrative exemption.
  3. An employee’s resume explaining their duties while working at a former company in a misclassification case is valuable evidence. It lists their true duties while they worked at a former job – which is probably a much more accurate description than they will testify to during litigation.