Employment Law: Select Cases

• Publication year: 2021
• Author: Written by Kathleen A. Brewer

EMPLOYMENT LAW: SELECT CASES

Written by Kathleen A. Brewer

California courts and the Ninth Circuit addressed issues across the spectrum of employment law in 2021, changing the landscape on many fronts. This article discusses select cases on some of the trending topics.¹

WAGE AND HOUR

THE ROUNDUP ON ROUNDING

"When time is scarce, minutes count."²

In Donohue v. AMN Services, LLC,³ the California Supreme Court dealt a death blow to timekeeping practices that round time punches for employee meal breaks Under California law, employers must provide nonexempt workers with "full and timely" meal periods. The required period is short—30 minutes per 8-hour shift—and timed—it must occur by the end of the fifth hour of work.⁴ Deviation from these rules requires employers to pay employees one hour of wages per day when a compliant meal break is not provided ("premium pay").⁵ As a matter of health and safety, the right of employees to rest and replenish during the workday is closely protected.⁶ Any timekeeping practice that consumes precious minutes of the short meal break, or avoids the premium pay obligation, is inconsistent with the purpose of the governing statutes. As Justice Liu noted in Donohue, "'When time is scarce, minutes count.'"⁷

AMN, the employer in Donohue, used an electronic timekeeping system to track employee attendance and calculate compensable time. AMN required employees to clock out for their 30-minute unpaid meal breaks, and the time tracking system rounded each time punch to the nearest 10-minute increment. Where an employee, for example, clocked out for lunch at 11:02 and clocked back in at 11:25, her break time would have been 23 minutes but would have been recorded as clocking out at 11:00 and back in at 11:30—30 minutes. Based on employee time punches, the tracking system determined whether each employee received a compliant meal period. If the time punches reflected a short, delayed or missed meal break, employees would choose from a dropdown menu one of three reasons for the noncompliance. Choosing "I was not provided an opportunity to take a 30 min break before the end of my 5th hour of work" prompted AMN to pay the premium wage. Compliant periods did not trigger the dropdown menu. The

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rounding practice caused thousands of short and delayed meal periods to be recorded as compliant, depriving employees of premium pay (in addition to regular pay for the short meal breaks). Noting that even "[s]mall rounding errors can amount to a significant infringement on an employee's right to a 30-minute meal period," the court found AMN's rounding practice unlawful.⁸

The court in Donohue distinguished the practice of rounding for meal periods from the practice of rounding wage calculation generally. Meal period regulation is concerned more "with ensuring the health and welfare of employees" than with protecting wages.⁹ "For purposes of calculating wages, counting slightly fewer minutes one day can be made up by counting a few more minutes another day. But the same is not true for meal periods."¹⁰ The health and safety of employees, particularly those who work manually, repetitively or standing, depend on receiving short breaks from employer control, brief periods of rest, and eating an unhurried meal. The operation of a humane workplace demands no less. Providing an extra 30 minutes on Friday cannot alter the health issues suffered as a result of having no meal period on Thursday.

Donohue rejected the See's Candy Shops v. Superior Court¹¹ neutrality rule for evaluating a meal period rounding practice. Under See's Candy I, an employer may use a rounding policy to calculate compensable time if the policy "'is fair and neutral on its face and 'it is used in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.'"¹² An acceptable rounding policy must, on average, "favor neither overpayment nor underpayment" and must not "consistently result in a failure to pay employees for time worked."¹³ This guidance is inapplicable to meal periods for two reasons. First, "[b]y deeming delayed or shortened meal breaks as 'timely' and 'complete' when they are not, a rounding policy erodes the health and safety protections that the meal period requirements are intended to achieve."¹⁴ Second, the policy cannot be neutrally or fairly applied in the meal period context because missed meal periods require payment of premium pay. Rounding policies like the one at issue in Donohue never provide premium pay when premium pay is not owed, and do not "always trigger premium pay when such pay is owed."¹⁵ Employees regularly lose premium pay they are owed but never receive premium pay they are not owed.

Although distinguishing between the two types of rounding, the court did not endorse rounding in any context. Without expressly disapproving the use of rounding generally, Donohue suggested that, if faced with the issue, the California Supreme Court may censure the practice. As Justice Liu noted, the court "has never decided the validity of the rounding standard articulated in See's Candy I."¹⁶ Rounding may have—or may have had—a useful place in industries where time clocks were used, but "technological advances" now help employers "track time more precisely."¹⁷ Although courts post-Donohue continue to utilize the See's Candy I analysis,¹⁸ employers would be wise to heed this signal: The use of rounding "as a means of 'efficiently calculating hours worked'" may be obsolete and no longer legally justified.¹⁹

RECORDKEEPING AND PRESUMPTIONS

Donohue addressed another key issue: "whether time records showing noncompliant meal periods raise a rebuttable presumption of meal period violations at summary judgment."²⁰ Disapproving Silva v. See's Candy Shops (See's Candy II)²¹ and Serrano v. Aerotek,²² the court held that time records reflecting noncompliant meal breaks raise a rebuttable presumption of liability, which "applies at the summary judgment stage."²³ An "employer may rebut the presumption with evidence of bona fide relief from duty or proper compensation."²⁴

CALCULATING SPECIAL PAY RATES

Nondiscretionary Pay + Hourly Rate = Premium Pay As discussed above, failure to provide a compliant meal (or rest) break subjects employers to premium pay liability: "one additional hour of pay at the employee's regular rate of compensation for each

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workday that the meal or rest or recovery period is not provided."²⁵ In Ferra v. Loews Hollywood Hotel, LLC,²⁶ the California Supreme Court held that to calculate an employee's "regular rate of compensation," employers must include both regular hourly pay and other nondiscretionary payments.

WORKER CLASSIFICATION

IN A NUTSHELL: DYNAMEX, AB 5, AND PROP 22

Since 2018, when the California Supreme Court adopted the "ABC" test for worker classification in cases filed under IWC wage orders, the Legislature, the courts, and the public have been busy codifying, applying, and chasing exemptions from the test Under the ABC test, as articulated in Dynamex Operations West, Inc. v. Superior Court,²⁷ anyone who performs work for a business is presumptively an employee entitled to labor law protections. To overcome the presumption and classify the worker as an independent contractor, a defendant business must show that the worker: (A) "is free from the control and direction of the hirer"; (B) "performs work that is outside the usual course of the hiring entity's business"; and (C) is customarily engaged in an independently established business doing the same type of work "performed for the hiring entity"²⁸ Dynamex involved solely a wage order violation, not a violation of Labor Code provisions unrelated to wage orders.²⁹ Misclassification cases tend to allege both wage order and non-wage order violations, such as minimum wage violations (wage order/Labor Code) and failure to provide proper earnings statements (Labor Code only).³⁰ Yet courts have hesitated to apply Dynamex beyond the wage order context, and some have applied two separate classification tests in the same case to determine employee status for purposes of wage order violations and Labor Code violations.³¹

With passage of AB 5 in 2019, the Legislature codified the ABC test and expanded its application to claims arising under all sections of the Labor Code (and to claims under the Unemployment Insurance Code).³² AB 5 also excepted numerous jobs and industries from application of the ABC test, and subjected those jobs instead to the multifactor test announced in S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations.³³ In 2020 and 2021,³⁴ the Legislature refined the exceptions, which, along with the ABC test, are now codified at Labor Code sections 2775-2787.

In 2020, businesses selling app-based delivery services whose drivers were subject to the ABC test under AB 5 (e.g., Uber, Lyft, Postmates) led a campaign to create a statutory hybrid classification for app-based drivers. In response, voters passed Proposition 22, which added the Protect App-Based Drivers and Services Act to the Business and Professions Code.³⁵ Under Prop 22, app-based drivers are independent contractors not safeguarded by employment laws but entitled to a limited set of protections, such as a healthcare subsidy, "occupation accident insurance," and a minimal earnings guarantee.³⁶ In 2021, courts addressed key classification and constitutional issues arising under Dynamex, AB 5, and Prop 22.

RETROACTIVITY: WAIT, WHAT?

Because many misclassification cases were pending as the Dynamex, AB 5, and Prop 22 trio emerged, the question of retroactivity was hotly litigated in 2021. Answering a certified question from the Ninth Circuit, the California Supreme Court in Vazquez v. Jan-Pro Franchising International, Inc.,³⁷ declared that Dynamex applies retroactively Pending appeals decided under the Borello test (involving wage order violations) were remanded for application of Dynamex.³⁸ The...