Overview

Consistent with Vision Law’s prediction after attending oral argument in the Brinker Restaurant case, the Court fashioned practical rules somewhat favorable to employers.  The key question was whether California employers had to force/police employees to take their meal periods, imposing onerous demands on management, or whether it is enough for employers simply to make meal periods available and then it’s up to the employee to take them or not.  The Court chose the latter.  The Court also addressed the timing of rest/meal periods, ruling that a rest period need not precede the meal period, but did nothing to curb class action litigation over the issue.

Essentially the Court ruled that 10 minute rest periods and 30 minute meal periods work the same under California law.  The employer must make them “available;” it need not force or “police” employees to take their rest/meal periods.  But the employer may not do anything to prevent, impede or discourage employees from taking their rest/meal periods.  If any employee works through their meal period (and the employer “knew or should have known the worker was working through the authorized meal period”), the employer must still pay employees for the time worked; but the employer does not have to pay the one hour penalty required by Labor Code section 226.7.  Rest periods are always paid so paying for them has never been an issue.

Details and suggestions on how to comply with the California rest/meal period laws follow.

Rest Periods

Rule: Employers must “authorize and permit” 10 minutes of rest time for each 4 hours worked or “major fraction” thereof, but if the “total daily work time is less than three and one-half (3 ½) hours” then a rest period need not be authorized.  This means: If the total work time for the workday is 3 ½ hours or less, California employers need not authorize any rest period.

Otherwise if employees work more than 3 ½ hours in a workday, then employers must authorize the following rest periods: 3 ½ to to 6 hours, one 10 minute rest period; more than 6 hours to 10 hours, two 10 minute rest periods; add 10 minutes rest period for every 4 hours after 10 hours.

The 10 minute rest period may come before or after the meal period depending on the circumstances; there is no requirement that one come before the other. Rest periods are paid; therefore employees do not “clock out” for rest periods.

Meal Periods

Rule: While the Labor Code and the Wage Orders use different language for meal periods versus rest periods, the California high court ruled the meal period obligation is essentially the same as the rest period obligation.  An employer must essentially make 30 minute meal periods available.  An employer meets its legal obligation if it “relieves its employees of all duty, relinquishes control over their activities and permits them a reasonable opportunity to take an uninterrupted 30-minute break, and does not impede or discourage them from doing so.”  Then it’s up to the employee to use the 30 minutes of off duty time for their own purposes, whether or not work continues.

Further, “Proof an employer had knowledge of employees working through meal periods will not alone subject the employer to liability for premium pay; employees cannot manipulate the flexibility granted them by employers to use their breaks as they see fit to generate such liability.  On the other hand, an employer may not undermine a formal policy of providing meal breaks by pressuring employees to perform their duties in ways that omit breaks.”

Timing of meal periods:  Absent a “waiver” the law requires a first meal period no later than the end of an employee’s fifth hour of work, and a second meal period no later than the end of an employee’s 10th hour of work.   There are no additional timing requirements.  Theoretically, a meal period could come before the first rest period under appropriate circumstances.

Vision Law Best Practices:

Put the rules in writing.  Employers can do this by:

1. Posting the Wage Order applicable to their businesses;
2. Have a written rest/meal period policy either in an employee handbook or as a stand-alone policy;
3. Have employees sign and date under penalty of perjury on each time record for each payroll period that: 1) they agree to follow the rest/meal period policy, 2) the employee has complied with the rest/meal period policy unless otherwise noted on the time record (e.g., missed rest or meal period with a notation of the reason), and 3) the time entries are accurate; and
4. If employers wish to utilize a meal period waiver for shifts of 6 hours or less, use a written waiver form for that purpose.

Manage accuracy of Time Records.  Employers can do this by:

1. Requiring employees to “clock out” for meal periods; and
2. Monitoring employee time records for that purpose. 

For example, if an employee is scheduled to work 9:00 am to 5:30 pm with a 30 minute off duty meal period (an 8 hour day) and the employee “elects” not to take the 30 minute meal period and works instead, 30 minutes of overtime is the result even if the employer need not pay the 1 additional hour for the meal period penalty.  That’s because by working through the 30 minute meal period the 8  hour day became an 8.5 hour day and the employer must still pay for the actual time worked (if it knew or should have known the employee worked through the meal period).  Also when the employer monitors time records and notices this, it is then able to remind the employee of the meal period policy and its policy prohibiting overtime without advance written authorization.

The time record will still be an employer’s first line of defense if an employee claims after the fact that they were forced to work through meal periods.  If the employee’s time records show the employee clocked out for the meal period while acknowledging the accuracy of each time record, then in the absence of egregious employer conduct it should be difficult (or at least not credible) for the employee to say they were forced to “clock out” but still work through the 30 minute meal period.

Vision Law advises small and medium businesses to prevent employee lawsuits.  Vision Law’s monthly flat rate programs are designed to avoid employee claims, and when a lawsuit is absolutely unavoidable, to place its clients in the best possible position to win as soon as possible with the least overall cost.  Please see our monthly flat rate programs for small and medium business.

At Vision Law, we get asked this question all the time and, in our view, that is absolutely not a good idea.  Essentially what the business owner described is a “progressive discipline policy.”  The problem is such a “progressive discipline policy” overrides the general rule of “at-will” employment under California law.

Labor Code section 2922 sets forth the general rule in California that all employment not subject to a specified term is at-will.  At-will generally means the employee or employer may terminate the employment relationship at any time, with or without notice and with or without cause.  “At-will”  is one of the rare employer legal “rights” – one that it should preserve.

“Progressive discipline” is common in the “union environment” where a “collective bargaining agreement” (CBA) requires “good cause” or “just cause” before firing an union employee.  The CBA will often set forth onerous requirements that have to occur before a union employee is terminated, such as employer must: 1) counsel, 2) provide first write up and opportunity to improve, 3) provide second write up and opportunity to improve, 4) suspend and return to work, and 5) then if employee still doesn’t get it, then they can be terminated.  This discharge standard is much higher than the “at-will” employment standard.

Employers in a non-union workplace should not voluntarily establish a “good cause” progressive discipline requirement for termination.  There are enough exceptions to “at-will” employment.  There is no need to voluntarily create another.

Having said that, because of the many legal exceptions under both California and federal law to “at-will” termination, in “red flag” employee situations, Vision Law will often advise its clients to essentially use a “progressive discipline” approach.  Such approach will necessarily include properly documenting the grounds for termination to prove its legitimate business reason for taking disciplinary action and ultimately terminating the (usually bad apple) employee.  Such documentation will put the employer in a better position to avoid a lawsuit, and win if sued anyway.

But like a laser, the use of progressive discipline/just cause in an otherwise “at-will” employment environment should be used with precision.  Often, the employer must terminate the employee for the sake of the business without progressive discipline.

Vision Law advises small and medium businesses to prevent employee lawsuits.  Vision Law’s monthly flat rate programs are designed to avoid employee claims, and when a lawsuit is absolutely unavoidable, to place its clients in the best possible position to win as soon as possible with the least overall cost.  Please see our monthly flat rate programs for small and medium business.

It is astonishing that the highest court of the State of California must rule on whether adults in California workplaces must take 10 minute rest periods and/or 30 minute meal periods.  That was the order of the day.  The Courtroom was fully packed with interested observers.

Believe it or not, at risk is hundreds of millions of dollars in current litigation in California over the issue of whether a California employer must “ensure”(think “force”) its workers to take a 30 minute meal period for each 5 hours worked or whether “making the meal period available” and then leaving it up to the employee to take the meal period is enough.

Since 2000, businesses in the sunny state of California have had to be concerned over their legal obligations in this area, not that there aren’t a multitude of other substantial concerns, such as staying alive in the post-Lehman Brothers economy, not to mention remaining competitive in the global market place.

But back to rest and meal periods.  The Justices seemed to be concerned with the following issues:

1.  Whether the “statutory” provisions of the  Labor Code “trump” the California Wage Orders (essentially California “regulations”).
2. What exactly is a California employer’s “affirmative obligation” when it comes to meal periods – what are employers obligated to do?
3. Whether the law should consider “flexibility” in employer obligations/management of meal periods or whether “forcing” employees to take a 30 meal period for every 5 hours worked would be “coercive” and less protective, rather than more protective, of employees.

As is often times baffling to non-lawyers, lawyers for both employees and employers argued for 75 minutes over what California law requires when it comes to 30 minute meal periods to the seven Justices of the California Supreme Court.

In Vision Law’s view, respectfully, the high Court should rule that adult employees in California workplaces can choose to take a meal period that is made available to them thereby adopting a “flexible” and common sense rule.  So long as employers do not force or require employees to work through the 30 minute meal period under California Labor Code section 512 or the appropriate Wage Order, then that should be enough.  The impracticality (inflexibility) of  every employer having to “police” each and every one of its employees to “ensure” or “force” each employee to take a 30 minute meal period or risk incurring a penalty otherwise is apparent.  Such a rule would also treat adult workers as children incapable of making their own decisions and would coerce them to take a 30 minute meal period (and lengthen their workday) when they might prefer not to take the meal period.

In the meantime, all employers and their employment/labor counsel await the California Supreme Court’s decision on what has been an economically devastating workplace issue.

Stay tuned.  The California Supreme Court’s decision is expected in April 2012.

Vision Law advises small and medium businesses to prevent employee lawsuits.  Vision Law’s monthly flat rate programs are designed to avoid employee claims, and when a lawsuit is absolutely unavoidable, to place its clients in the best possible position to win as soon as possible with the least overall cost.  Please see our monthly flat rate programs for small and medium business.

California has two exceptions to this rule that are often confused: 1) meal period “waivers;” and 2) an “on duty meal period” agreement.

Meal Period Waiver

If an employee works no more than six (6) hours for the workday the employer and employee can agree to waive the 30 minute off duty meal period.  The agreement can be oral, but Vision Law recommends the agreement be written.  If the employee works more than 6 hours the waiver is not available.

“On Duty Meal Period” Agreement

If an employee works more than six (6) hours, then the employee and employer can agree to an “on duty meal period” but only when the nature of the work prevents an employee from being relieved of all duty.  The agreement must be in writing and the employee must be free to revoke at any time.  In that case the meal period is “on the clock” (paid) but the employer need not pay the one hour penalty.

This on duty meal period is reserved only for extraordinary circumstances in Vision Law’s view.  Use with caution (and only after speaking with your employment lawyer).  If employees work with others during normal business hours it would be difficult if not impossible to prove the “nature of the job duties” prevented the employee to be relieved of all duty.

Penalties if meal periods are not provided can add up fast.  For an employee working 5 days per week who claims to have missed their meal period each day the penalty at $12/hour for 50 weeks per year for three years (the statute of limitations) is $9,000.  Add penalties under California Labor Code section 203 (so called “waiting time penalties”) of up to 30 days wages as a penalty ($2,880) and that adds insult to injury.

Vision Law advises small and medium businesses to prevent employee lawsuits.  Vision Law’s monthly flat rate programs are designed to avoid employee claims, and when a lawsuit is absolutely unavoidable, to place its clients in the best possible position to win as soon as possible with the least overall cost.  Please see our monthly flat rate programs for small and medium business.

Severance agreements are most often associated with larger Fortune 500 type companies. We have all heard in the news folks like Goldman Sachs, Hewlett-Packard and the like paying massive “severance” amounts to their departing executives. But sometimes even rank and file employees might be offered a severance “package” upon termination of their employment, most often either as part of a layoff or perhaps under a company defined benefit plan.

For small/medium business (SMB) a separation agreement is more likely used in “red-flag” employment terminations. By red-flag we mean either that the employer suspects the employee is sue-happy or the employer is terminating under difficult or risky circumstances that may give rise to liability if sued by the former employee.

How a Separation/Severance Agreement Works

The typical separation agreement boils down to this: employer pays extra money to the former employee. In return, employee releases all legal claims against the employer and promises not to sue the employer in court. This is all done in writing – a contract.

For employees over 40 years of age or older, special language must be included in the separation/severance agreement in order to make release of age related discrimination claims valid. Further such employees have 21 days to consider the agreement/release and then have 7 days after they sign the agreement to revoke it.

Using Separation/Severance Agreements

Whether to use a separation agreement is more of an art than a science. There are pros and cons. Use of such agreements may not be appropriate given the particular circumstances. At Vision Law we help employers evaluate whether to use a separation/severance agreement taking into consideration your company’s facts unique to the employee in question.

Part of the reason for the requested increase in budget? So they can bust your company for misclassifying, according to them, “employees” as “independent contractors.” To the DOL, the purpose is noble: “To meet the challenge of ensuring “good jobs for everyone” (not that the actual dollars change whether we label it “jobs” or “contract work”). And to do this, they deem it necessary to “Ensur[e] that the most vulnerable workers are employed in compliance with wage and hour laws.”

To us at Vision Law this paternalistic view is a tad aggravating. What if these “vulnerable workers” want to have the flexibility of self employment and the independence of free lancing? No, our tax dollars are spent on our elected officials telling us we need them to protect us and tell us what is in our best interests. Never mind that in “this economy” putting anyone to work might be a good thing.

What Does This Mean For Businesses?

Increased burden, increased taxes and penalties. With a 25% increase in budget, $12 million and 90 new FTE’s (full time equivalents) of which are slated for a “new multi-agency Misclassification Initiative,” if your business uses “independent contractors” to perform its core business functions, then you might want to consider whether the risk of treating them as independent contractors is worth risking hassles from the federal government (and state government bodies as well).

Further, if your “independent contractor” worker files for unemployment insurance when the job is done or files a wage claim or for missed rest or meal periods, then what? The DOL will “strengthen and coordinate” the friendly state of California’s “efforts to enforce labor violations.” Notice “labor violations” is a foregone conclusion.

How To Avoid The Initiative

As entrepreneurs ourselves, we understand risk. We understand reward. If you, a fellow entrepreneur or successful smaller business, use independent contractors to perform your core business function, then you might consider the risk of a “misclassification audit” or class action lawsuit brought by one of your “independent contractors” claiming to be an employee instead. Contact us for more information.

DOL’s 2010/2011 budget: http://www.dol.gov/dol/budget/2011/bib.htm#whd

However, if employers are not careful, they can create “contracts” of employment.  In the employment setting such contracts include:

• An express contract not to terminate the employment except for “good cause” or to keep the employee employed for a certain period of time;
• Implied contract to the same effect;

Breach of an express contract

As CEO you promise your employee they have a job until they are 65 in return for their performing their job in an adequate manner. Contrary to popular belief, this express contract need not be in writing.  If the employee can prove an oral contract for that express promise, that will suffice.

Breach of implied contract

This is a little trickier, but applies the same concept, only now you don’t have to expressly say or write it.  If your or your manager’s conduct or actions (including failure to act) “imply” other than “at-will” employment, then your business can be held to that implied promise.

An example might help.  You have a 15 year employee.  He/she has had annual performance reviews all positive (even though you and your managers have had challenges with this employee’s attitude and attendance).  Periodically the employee has received pay raises.  Employee has been with employer and helped “grow” the business from nothing to a substantial local presence in the market.

One day management decides they are tired of the absences or tardy appearances at work along with the surly attitude.  Worse, employee’s immediate supervisor told employee off and on during his/her employment they were doing “fantastic” and “keep up the great work and you’ll have a long career with us . . . .”  Management abruptly terminates employee’s employment “at will” with no notice and no advance warning whatsoever.

This is a potential breach of implied contract under California law.  Under California law, factors apart from express contract terms may be used to ascertain the existence and content of an employment agreement, including the personnel policies or practices of the employer, the employee’s longevity of service, actions or communications by the employer reflecting assurances of continued employment, and the practices of the industry in which the employee is engaged.

Therefore, employers:

• Watch what you say or write to your employees.  Avoid promises, verbal or written, concerning length of employment, conditions under which employment may or may not be terminated and other employment terms and conditions.
• Confirm in writing (job applications, offer letters, handbooks, handbook acknowledgements, etc.) that employment is at-will.
• Most critically, use integrated at-will language – this certainly does not mean you can make any kind of promise you like and not deliver.  Nor does it guaranty you can defense any kind of breach of contract claim or fraudulent inducement action.  However, it is a preventive measure that your employment litigation counsel, should the need arise, will be very grateful to have in defending your company.

California small-medium businesses (SMB’s) can impose mandatory arbitration agreements on employees to arbitrate employment related disputes, but must pay for all costs associated with the arbitration.

Mandatory binding arbitration removes the case from a jury and requires the plaintiff employee to sue your business before a neutral arbitrator, usually an experienced former judge. This reduces the likelihood of a “runaway jury verdict” based on passion or prejudice and increases the likelihood of a rational decision based on an experienced judge’s judgment. Since a “jury of your peers” for a business is generally not the case – a jury is more likely to be made up of the peers of your employee/former employee – arbitration is a powerful tool in the event an employee sues your company.

Post-Armendariz, there is a significant cost to enforcing binding mandatory arbitration agreements. Under the law, the employer must pay for all costs unique to arbitration. This means the employer must pay for all fees the plaintiff/employee would not otherwise have to incur in court. In court, all of our tax dollars pay for the judge and the court system. In private binding arbitration, although there may be some minor filing fees associated with the arbitration, the primary cost is the hired arbitrator’s time.

A good arbitrator can cost anywhere from $400-$1,000/hour. If an arbitrator is $500/hr and the arbitration is 5 days at 8 hours a day, the fee for the arbitrator’s time will be $20,000 (5 days x 8 hours per day x $500/hr). And that does not include any other time spent on discovery issues or ruling on other pre-arbitration matters. The total cost for the arbitrator could easily be $20k-$50k or more. Yes, believe it or not, that makes our fees look “cheap.”

In addition to the company paying for all arbitration fees, other requirements must be met to have a valid arbitration agreement: 1) the plaintiff is entitled to the same remedies/damages that would be available to them in court, 2) their must be an opportunity for discovery (i.e. where each side can learn about the facts from the other side before the arbitration), and 3) the arbitrator must issue a written decision setting forth the essential findings and conclusions upon which his/her decision is based.

The good news is if sent to binding arbitration, the arbitrator’s decision is generally final and the plaintiff/employee’s ability to appeal the arbitrator’s decision is extremely limited, almost impossible. For all intents and purposes the arbitration decision will be final for both sides.

Contracts can be oral or written. They can be express or implied. What this means for employers is watch what you say and what you do (or don’t do) because your words and your actions/non-actions can create contracts between you and your employees.

In our experience, most employment positions are not set forth in a written “employment agreement.” When they are, for example high level management or sales positions, this is called an express written contract. While express written contracts can be breached, it’s the more insidious oral and implied contracts that can create unexpected obligations and liability for employers.

Example 1:

If you have an orientation meeting and tell your new employees if they no show, no call once they will be terminated, does this imply you won’t fire them for other reasons?

Example 2:

If your company’s employee handbook states employees will get a verbal warning and then two write-ups before the company will terminate their employment, what happens if the company terminates on the first offense? Is there an obligation to give the verbal warning and two write-ups first?

Example 3:

If the Company president writes a memo to an employee telling them they will get 20% bonuses and raises every year if they continue to keep up the “great work,” have you now created an obligation (i.e. “contract”) to do so so long as your employee keeps up their end of the bargain?

Example 4:

If your business has a 15 year employee who has received excellent performance reviews coupled with a raises every year, have you created an implied contract not to terminate this employee except for “good cause?”

The above are all examples of potential oral and/or implied contracts. To avoid creating oral or implied contracts, consistently preserve your “at-will” employment rights by stating that right in key employee documents, such as its employee handbook, offer letters, policy memos, etc. We also recommend using “at-will” language with an “integration clause” in your employee handbook.

Vision Law Corporation® believes employers can save time, money, and unnecessary disruption to their business through effective, proactive efforts. That is why we have created our innovative fee programs for businesses. We invite you to consider how cost-effective representation could save your company millions, or simply save your company. Then contact us for an initial consultation about your employment and labor law needs. Download our complimentary report: The Top Ten Employee Lawsuits and How to Avoid Them.

Contact Us

For a consultation with a California employment lawyer at Vision Law Corporation®, call 916-780-1920, or contact us online.

Since 2000, “exempt” employee status in California has been tied to the minimum wage. In other words, one of the required factors to maintain “exempt” employee status is that the exempt employee must be paid a “salary” that is at least twice the minimum wage.

If the minimum wage goes up, guess, what? Right, the minimum salary to maintain exempt status also goes up. You may have to give your salaried exempt employees a raise!

Why Do We Care?

The line of demarcation between “exempt” and “non-exempt” though often  ambiguous is huge – legally and from a cost standpoint.

Exempt employees are not subject to overtime pay. They can work 100 hours a week, but they still get paid the same.

Not true for non-exempt employees. As the name implies, non-exempt employees are benefactors of the overtime law – they get paid “OT,” as it is fondly called. All non-exempt employees must be paid 1.5 hours for every hour worked beyond 8 hours in a workday and 40 hours in a workweek. Other premiums apply for hours worked in excess of 12 hours in a workday and after the first 8 hours worked on the seventh day worked in any workweek.

Other pros include exemptions from rest and meal period laws and from having to maintain detailed time records for working time (the burden of which is on the employer for non-exempt employees). Moreover, while working “off the clock” is often the basis for non-exempt employee wage and hour lawsuits, no such claim applies to exempt folks since the “clock” is irrelevant to them.

Potential Liability Is Significant

Now, we suspect the majority of your exempt employees would never even think of filing a wage and hour claim based on the mere fact that their salary was not increased with the minimum wage. Most times exempt employees are in positions where naturally they are more loyal to the company.

However, even one disgruntled current or former manager can wreak havoc with your bottom line. Just think of the overtime that might be due for an otherwise exempt employee who works just 50 hours a week. Based on a $30,000/year salary, the weekly overtime number could easily be $216.30 (14.42 x 10 OT hours x 1.5) or approximately $938.74/ month and $11,247.60/year. And this does not include rest/meal period penalties or Labor Code section 203 penalties, which are one hour per workday and up to 30 days wages, respectively. These would not be small numbers.

The Easy Fix!

Make sure all of your exempt employees are being paid on a salary basis at a rate that is at least twice the minimum wage.

For more information on exempt versus non-exempt status, independent contractor status, wage and hour rules, and more, download Vision Law Corporation®’s complimentary report: “Avoid Wiping Out Your Business From A Wage & Hour Class Action Lawsuit”.