The California Supreme Court issued several employment law decisions during the past year.  We summarize below the most important of these rulings.

Donohue v. AMN Services

To simplify timekeeping calculations, many employers have adopted “rounding practices” in which they record employees’ time in pre-defined increments, such as quarter hours. California courts have generally approved this practice so long as the “rounding up” and “rounding down” generally evens out or favors employees. If an employer can round working time, can they adopt the same practice for meal periods?  According to the California Supreme Court, the answer is “no.”

AMN is a healthcare services and staffing company. Their employees clocked in and out for their shifts and their meal periods on desktop computers. The timekeeping system rounded punch times to the nearest 10-minute increment. If an employee clocked out for lunch at 11:01 a.m. and back in at 11:25 a.m., the time would be recorded as 11:00 a.m. and 11:30 a.m., respectively. As a result, the employee’s time record showed that the employee took a full 30-minute meal period, even though it was actually only 23 minutes.

The Court ruled that there is a distinction conflict between neutral rounding policies applicable to workday start and end times, and meal period requirements.  The Court explained that Labor Code section 512, which requires non-exempt employees who work more than five hours in a workday to take an unpaid and duty-free meal period “of not less than 30 minutes,” and the applicable Wage Order imposing the same requirement, are inconsistent with “the imprecise calculations that rounding involves.”

Ferra v. Loews Hollywood Hotel, LLC

Under California law, non-exempt employees who are not provided a compliant meal or rest period must receive “premium pay” equal to one hour of pay. The applicable statute, Labor Code section 226.7(c), requires premium pay to be calculated based on the employee’s “regular rate of compensation.”

Labor Code section 510, which governs the payment of overtime to non-exempt employees, provides that overtime must be paid at the employee’s “regular rate of pay,” which may be more than the employee’s “base” hourly rate, if, for example, the employee was paid a bonus in addition to their hourly wages.

Prior to the Supreme Court’s Ferra decision, it was unclear whether the terms “regular rate of compensation” and “regular rate of pay” meant the same thing.  Given the different language in section 226.7 and section 510, many employers assumed they could pay section 226.7 premiums at the employees’ base hourly rate, which can be lower that their “regular rate.” The Court of Appeal in Ferra, also relying on the different language in the two statutes, agreed.

The Supreme Court, however, reversed.  Relying on various principles of statutory interpretation, the Court ruled that “the terms are synonymous: ‘regular rate of compensation’ under section 226.7(c), like ‘regular rate of pay’ under section 510(a), encompasses all nondiscretionary payment, not just hourly wages.” The Court further held that its decision is retroactive, leaving employers potentially exposed to years’ of liability for inaccurately calculated meal and rest premiums.

Vasquez v. Jan-Pro Franchising International, Inc.

In its blockbuster 2018 decision in Dynamex Ops. W. Inc. v. Superior Court, the California Supreme Court adopted the so-called “ABC” test for determining whether workers are independent contractors or employees under California wage orders. The Court did not address whether its decision should apply retroactively. Prior to the Dynamex decision, many California employers relied on the multi-factor test set forth in S.G. Borello & Sons v. Dept of Industrial Relations to determine whether workers should be classified as independent contractors or employees.

In Vasquez, the Court concluded that Dynamex is retroactive, because it did not change settled law.

Future Cases

The Court will decide several consequential employment law cases in the months to come. At issue in Naranjo v. Spectrum Security Services, Inc. is whether an employer’s failure to pay meal period premiums may result in waiting time penalties under Labor Code section 203, as well as inaccurate wage statement penalties under section 226.