What Every Lawyer Should Know about Litigating Wage and Hour Class Actions in California
by Hernaldo Baltodano
(County Bar Update, January 2008, Vol. 28, No. 1)

 

What Every Lawyer Should Know about Litigating Wage and Hour Class Actions in California

 

By Hernaldo Baltodano. Baltodano defends employment litigation and class actions in the Los Angeles office of Robins, Kaplan, Miller & Ciresi L.L.P.

 

California is a hotbed for wage and hour class action litigation, as confirmed by recent multimillion dollar settlements involving large insurance companies and retail giants. Sometimes these cases involve simple, straightforward legal and factual issues—and sometimes they do not. However, these cases all share one common thread: potential liability for violating rules that can lead to significant financial exposure. Unlike traditional employment disputes (e.g., discrimination) that involve issues of intent, wage and hour cases usually stem from an inadvertent failure to comply with technicalities, such as not including an employer’s name and address on an employee’s paycheck stub.

 

The California Department of Labor Standards Enforcement, our state’s counterpart to the U.S. Department of Labor, has essentially deputized the plaintiff’s bar with the charge of enforcing California’s wage and hour laws. Generous attorney’s fees provisions, large corporate defendants such as Wal-Mart, and the pro-employee flavor of these laws make class actions irresistible to civil litigators. Before litigating wage and hour class actions, keep the following five issues in mind.

 

1. Where to find the law.
The substantive law in wage and hour disputes comes from both the California Labor Code and the Fair Labor Standards Act. (See 29 U.S.C. Sec. 207.) In California, each industry is governed by a wage order promulgated by the Industrial Welfare Commission. These wage orders summarize employers’ obligations and are codified in California’s Code of Regulations. IWC Wage Order No. 7-2001, for example, governs wages, hours, and working conditions in the retail industry. The FLSA, which is limited by the Portal-to-Portal Act, 29 U.S.C. Sec. 251 et seq., also governs wages, hours, and working conditions of employees. It is supplemented by the Code of Federal Regulations.

 

California law follows federal law to the extent there is no inconsistency. (See Huntington Memorial Hosp. v. Superior Court (2005) 131 Cal. App. 4th 893, 902-903.) The California Labor Code and the FLSA are expanded upon by opinion letters authored by the DLSE and the DOL, respectively. And although the DLSE Enforcement Manual is not persuasive authority, it is an excellent (and a free) starting point for initial legal research and analysis.

 

2. Basic wage and hour laws.
In California, hourly paid employees must be paid at least a minimum hourly wage of $7.50 for each hour of work. Starting January 1, 2008, the California minimum wage will be $8 per hour. Hourly paid employees are entitled to an overtime rate (the regular hourly rate multiplied by 1.5) when they work more than 8 hours in one day, 40 hours in one week, or for the first 8 hours on the seventh consecutive day of work. Double-time pay is required to be paid when employees work more than 12 hours in one day or more than 8 hours on the seventh consecutive day of work. An employee’s hourly rate of pay must include all compensation except for gifts, discretionary bonuses, and payments not made as compensation for employment when calculating overtime. In addition, hourly paid employees must receive an unpaid 30-minute meal period if they work more than 5 hours, and must receive a paid 10-minute rest break for every 4 hours of work (or major fraction thereof). Terminated employees must receive all their wages on their last day of work (if at least 72 hours of notice was given) or no later than 72 hours after their last day of work if no notice was given.

 

3. Common wage and hour violations.
The sheer volume and complexity of California’s wage and hour laws create landmines for potential violations. Perhaps the most common violation is the “misclassification” of hourly workers as salaried-exempt. Typically, this violation occurs when salaried workers are not paid overtime or given required rest and meal breaks but do not manage two or more persons, spend less than 50 percent of their time on managerial tasks, and do not routinely exercise independent judgment and discretion. Other common violations abound—not providing, and documenting, uninterrupted meal breaks; not allowing hourly employees to take their rest breaks; not paying minimum and overtime wages for “off-the-clock” work, i.e., work done before and after employees clock in and clock out (when the employer has knowledge that such work is being done); not providing accurate earnings statements; and excluding certain types of guaranteed bonuses when calculating an employee’s hourly rate of pay for the purpose of calculating overtime.

 

4. Themes in wage and hour class actions.
Oftentimes, employers run afoul of the law by not keeping accurate records of hours worked by employees. Employers must keep records for at least two years. (See Cal. Lab. Code Sec. 1174(d).) Proper recordkeeping is especially critical to defending against claims of unpaid and/or uninterrupted meal breaks since employers bear the responsibility of ensuring compliance. Along these lines, employers should audit their wage and hour practices periodically to ensure compliance with California law. For example, if employees are classified as managerial exempt, employers should carefully examine employees’ job descriptions, standard operating procedures, and the kind of work employees actually spend their time doing to determine whether they are properly classified as exempt. This should be done before litigation begins.

 

5. Damages available in wage and hour actions.
Various kinds of damages are available to employees in wage and hour disputes. In addition to recovering three years’ worth of unpaid minimum and overtime wages, employees can recover waiting-time penalties (up to 30 days worth of wages) if not timely paid their final wages at termination. (See Cal. Lab. Code Sec. 203.) Employees also can recover penalty wages for meal and rest break violations under California Labor Code Sec. 226.7 (one hour of pay for each missed meal or rest break). And if successful on an unfair business practice claim under Business and Professions Code Sec. 17200 et seq., employees can recover four years worth of wages, not just three. Moreover, if liability for failing to pay minimum wages is established, liquidated damages are available under California law. (See Cal. Lab. Code Sec. 1194.2.) The FLSA authorizes recovery of liquidated damages for failing to pay minimum and overtime wages. Employers can avoid liability for liquidated damages, however, by showing that their acts or omissions were in good faith and they had reasonable grounds to believe they were not violating the FLSA. (See 29 U.S.C. Sec. 260; Block v. City of Los Angeles, 253 F. 3d 410 (9th Cir. 2001) (employer must show both subjective and objective good faith).)

 

Employers face a formidable challenge in attempting to comply with the Labor Code, the FLSA, and other laws, regulations, and opinions. While failed attempts can be saved by a showing of good faith in some circumstances, they often cannot. Therefore, employers should regularly re-evaluate their compliance with the law. Because of the exposure to waiting-time penalties, employers have an added incentive to do so every time an employee is terminated.

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