The California Supreme Court issued several decisions during the past year that may affect California employers.  We summarize them below.

Alvarado v. Dart Container Corp. of California (Dart) (March 5, 2018)

Alvarado initiated a class action against Dart, claiming unpaid overtime. Alvarado claimed that Dart incorrectly calculated employees’ regular rate of pay when accounting for a flat rate bonus the company paid employees for working on Saturdays and Sundays.  Relying on the federal Fair Labor Standards Act rules, Dart calculated the regular rate of pay for overtime purposes by dividing the total weekly compensation (hourly wages plus the flat rate bonuses) by all of the hours worked in that same workweek, including overtime hours.

Because the bonus was not a commission or production bonus, the Court concluded that Dart should have calculated the regular rate of pay by dividing the total compensation by just the regular time hours worked in the workweek and not the overtime hours, resulting in a slightly higher regular rate of pay.  This meant Dart was underpaying employees for overtime hours.

Most impactful, the Court ruled that this method of calculation applies retroactively, meaning that employers must audit the past four years of overtime calculations to determine if they have been underpaying employees for overtime.

Dynamex Operations West, Inc. v. Superior Court of L.A. County (May 1, 2018)

A class of drivers sued Dynamex alleging that Dynamex misclassified them as independent contractors. The drivers owned their own vehicle, exercised autonomy in their workday, and entered into independent contractor agreements with Dynamex.

After analyzing the definition of “employee” in California’s Wage Orders, the Supreme Court created a new independent contractor test known as the “ABC” test.  The ABC test requires the employer to show that the contractor decides the “methods and means” of accomplishing the work; the contractor is not performing the same services that the business sells to its customers; and the contractors must actually be in business for themselves.

The test applies only to claims that are based on violations of the applicable Wage Order, such as for minimum wage, overtime, rest and meal break violations. It is unclear whether the Supreme Court would expand the test to other wage-hour claims that are not based on a Wage Order, such as wage statement violations, paid sick leave, vacation, or expense reimbursement claims.

Troester v. Starbucks Corp. (July 26, 2018)

A Starbucks employee brought a class action lawsuit against Starbucks alleging that the company failed to pay for work that employees had to perform after clocking out. The work was minimal, usually amounting to less than 10 minutes a day.

A federal district court applied the de minimis doctrine to the case, and held that the underpayment of wages was so minor Starbucks did not owe Troester anything.  Troester appealed to the Ninth Circuit Court of Appeals.  The appellate court asked the California Supreme Court for guidance on whether the de minimis doctrine applies to California’s wage and hour laws.

Focusing on the regularity in which employees performed work after punching out, and the Starbucks policies that required the work, the Supreme Court held that the de minimis doctrine did not apply.  Instead, California generally requires employers to pay for “all hours worked.”  The Supreme Court left open possible exceptions where de minimis may apply for irregular or very brief activities.

Connor v. First Student, Inc. (August 20, 2018)

Bus drivers for First Student brought a class action alleging violations of the California Investigative Consumer Reporting Agencies Act (ICRAA) and the Consumer Credit Reporting Agencies Act (CCRAA); two laws governing background checks.

The ICRAA applies to background checks seeking information on a consumer’s “character, general reputation, personal characteristics, or mode of living.”  The ICRAA requires, among other things, that the subject of the background check give written consent to the check.

The CCRAA applies to background checks seeking information “bearing on a consumer’s credit worthiness, credit standing, or credit capacity,” and does require written authorization from the subject. 

In this case, the employer conducted employment background checks seeking information that fell under both laws.  The Court held that when an employment background or credit check may inquire into a person’s “character, general reputation, personal characteristics, or mode of living,” the employer must comply with both laws, including obtaining a written authorization.

Cases Pending Review

The Court granted review of several cases that may significantly affect employers.  In Oto, LLC v. Kho, the Court will address whether a mandatory arbitration agreement can require an employee to waive the right to submit wage claims to the Labor Commissioner.

 In Frlekin v. Apple, Inc., the Court will address another de minimis case, deciding whether an employee should be compensated for time spent during required exit searches of packages or bags voluntarily brought to work.

The issue in Goonewardene v. ADP, LLC is whether an employee who sued his employer for overtime may also sue an outside payroll service for breach of contract claims.

In Kim v. Reins International California, Inc., the Court will examine whether an individual may proceed with a representative Private Attorneys General Act (PAGA) claim after settling his individual claims.

In Oman v. Delta Air Lines, Inc./Ward v. United Airlines, Inc., the Court will answer questions regarding the application of California’s wage statement and minimum wage laws to employees who work episodically and for less than a day at a time in California; or to employees who reside, receive wages, and pay taxes in California, but do not work in California.

In Gerard v. Orange Coast Memorial Medical Center, the Court will decide whether certain healthcare workers may waive a second meal period when they work 12-hour shifts.  The Court will consider the interplay between section 11(D) of Wage Order 5, and a recently enacted law, SB 327, which modified the Labor Code.

Finally, the Court will decide in Lawson v. Z.B., N.A., whether certain individual claims for PAGA penalties are subject to arbitration. 

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