The California Division of Labor Standards Enforcement, or DLSE, is the state agency responsible for enforcing state wage-and-hour laws. In conjunction with its enforcement duties, the DLSE issues “opinion letters” at the request of the public, opining as to the legality of a wage-and-hour practice that an employer has implemented, or plans to implement. The DLSE has also developed an “Enforcement Policies and Interpretations Manual,” consisting of guidelines to assist its staff in investigating and adjudicating wage claims.

The opinion letters (http://tinyurl.com/mwmfwfw) and manual (http://tinyurl.com/koptj8d) may be found on the DLSE’s website. Therefore, the public, including employers and their lawyers, consult these resources for guidance. They are generally easy to read expound upon wage-hour issues that might not be addressed in formal regulations or case law. More importantly, the opinion letters and manual signal the DLSE’s enforcement position at an administrative hearing.

But the unwary employer and counsel cannot rely on these resources uncritically, because following them will not insulate employers from liability. The courts have made clear that the manual and opinion letters are not binding. The California Supreme Court held in Tidewater Marine Western, Inc. v. Bradshaw that a provision in the DLSE manual was a void “underground regulation.” That is, the DLSE issued the manual without going through formal regulatory approval processes. Similarly, in Corrales v. Bradstreet, a 2007 opinion, the Court of Appeal held that the DLSE could not designate its decision in a particular case as “precedential” and require that all DLSE offices follow it in subsequent cases.

So, the courts will consider the DLSE’s stated opinions, but will give them only the persuasive weight the judges believe they deserve. Sometimes courts will follow the DLSE’s lead, sometimes not. That means sometimes the court will reject an employee-friendly position lacking a statutory or regulatory basis. But courts also have rejected DLSE opinions that are favorable to employers.

The following includes some notable examples, but not an exhaustive list of these cases.

Decisions Benefitting Employers

The California Supreme Court Brinker Restaurant Corp. v. Superior Court, rejected a series of DLSE opinion letters stating that an employer had an affirmative obligation to prevent its employees from working during their meal breaks. The court ruled that the DLSE’s interpretation lacked any textual basis in the Labor Code or wage orders and refused to follow it.

In another victory for employers, the Court of Appeal rejected the DLSE’s position that employers could not require exempt employees to use their accrued vacation time to account for partial-day absences. In Conley v. Pacific Gas & Elec. Co., a 2005 decision, plaintiffs relied on DLSE opinion letters stating that this practice constituted an illegal “forfeiture” of the employee’s accrued vacation time. The court held the DLSE’s position was unsupportable. In a more recent opinion, Rhea v. General Atomics, the court of appeal expanded Conley’s holding.

In Marin v. Costco Foods, decided in 2008, the court considered a section of the DLSE’s manual relating to the calculation of overtime payments due on “flat sum” bonus plans. The trial court felt bound to follow the formula set forth in the manual even though it produced “irrational results,” and held that the bonus plan violated state law. On appeal, the employer argued that the manual section was a void regulation, and the Court of Appeal agreed. In doing so, the court noted that manual section cited no supporting statute, regulation, court decision, opinion letter or Labor Commissioner decision – the only source the DLSE cited for its bonus rule was “public policy.”

On occasion, an employer disagreeing with the DLSE’s position may take the offensive. In the 2003 decision of California School of Culinary Arts v. Lujan, the employer sued the DLSE, seeking a declaration from the court that its instructors were teachers in an “accredited college” and thus exempt from state law overtime requirements. The DLSE’s manual limited the definition of “accredited college” to schools that awarded a bachelor’s degree or higher. The Court of Appeal held that this section of the manual was an underground regulation and inconsistent with law.

Decisions Benefitting Employees

Employers take note: courts also have disagreed with the DLSE’s opinion letters and manual to the benefit of employees. Perhaps the most significant example is Murphy v. Kenneth Cole Productions, Inc. There, the California Supreme Court considered whether payments to employees for missed meal and rest periods under Labor Code section 226.7 were “wages” or “penalties.” The DLSE had issued an opinion stating that section 226.7 payments were penalties and therefore a one-year statute of limitations applied. The Supreme Court disagreed, holding that such payments were wages and subject to a three-year statute of limitations. In addition to noting that the DLSE’s construction of section 226.7 was not binding, the court observed that the DLSE had previously issued four opinion letters stating that missed meal payments were wages – but changed its position when “the issue became highly politicized.” The court observed that, “when an agency’s construction flatly contradicts is original interpretation, it is not entitled to significant deference.”

Practical Tips

First and foremost, the DLSE manual and opinion letters contain helpful analysis and should not be ignored. The agency’s interpretations often are based on prior case law or existing statutes and regulations. So, not all of the positions the DLSE takes are vulnerable in court.

Employers and lawyers should not ignore DLSE provisions that have no clear basis in law, either. As stated, right or wrong, the agency will rely on its own interpretations of the law at administrative hearings. Employers seeking to overturn these rulings must do so in court, which can be an expensive proposition when an employee’s administrative claim involves just a few hundred dollars.

Lawyers relying on DLSE interpretations should consider whether to qualify their advice to make clear to clients that the DLSE’s opinions are not binding and could be reversed by a court. Uncritical reliance on the DLSE’s legal position could expose an employer to serious liability. The Legislature should insulate employers who rely on DLSE interpretations. Until then, caveat lawyer.

As always, before adopting any wage-and-hour practice that could lead to potential class-wide liability, employers should consult with competent wage-and-hour counsel.

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