During its most recent term, the California Supreme Court issued several decisions that may affect California employers. We summarize those rulings below.

Clarification on Compensable Time

The Court took up an appeal from the Ninth Circuit in March regarding Industrial Welfare Commission Wage Order No. 16, which regulates wages, hours, and working conditions in the construction, drilling, logging, and mining industries. In Huerta v. CSI Electrical Contractors, the employee entered the employer’s premises through a security gate where he underwent security checks and was told this was the “first place” he had to be at the beginning of the workday. From the security gate, it took about ten to fifteen minutes to reach the parking lots. Leaving at the end of the day could take anywhere from five to thirty minutes. Huerta was not paid for the time spent waiting to enter and exit through the security gate. In addition, the collective bargaining agreements (CBAs) that governed Huerta’s employment specified that the state workday include an unpaid 30-minute meal period. The employer did not allow employees to leave the premises during this meal period and required them to spend their meal periods at a designated area near their worksite.

The Court answered three questions relating to the scope of the term “hours worked” within the meaning of the wage order. With respect to the first question, the Court held that when an employee spends time on the employer’s premises waiting and undergoing a mandatory security procedure that can cause delay and is for the employer’s own benefit, then the employee, even if in his own vehicle, is subject to the employer’s control, and the time is compensable as “hours worked” under Wage Order 16.

In answering the second question, the Court held that time spent on the employer’s premises driving between the security gate and the employee parking lots was not compensable as “employer-mandated travel.” In order for travel time to be compensable under Wage Order 16, the employer must not only require the employee’s presence at an initial location before requiring travel to a subsequent location, but the employee’s presence must be required for a work-related reason other than getting to the work site

The Court also found that time spent driving between the security gate and the parking lots was not compensable as “hours worked” under Wage Order 16 because, while Huerta was subject to employer rules such as safety and environmental rules and adhering to speed limits, these rules did “not amount to a level of control sufficient to render the travel time compensable as ‘hours worked.’”

In addressing the third question, the Court held that when a CBA exempts employers from the requirements of Wage Order 16, an employee must still be paid minimum wage for meal periods when an employer prohibits the employee from leaving the premises and the prohibition prevents the employee from engaging in activities the employee could have done if permitted to leave.

Employers’ Good Faith Defense to Wage Statement Penalties

In Naranjo v. Spectrum Security Services, Inc., the employee was a security guard who alleged, among other things, that his employer failed to timely pay meal period premiums and report it in employees’ wage statements. The issue before the Court was whether an employer has knowingly and intentionally failed to comply with Labor Code Section 226’s requirements of providing employees with written wage statements when the employer had a good faith, yet erroneous, belief that it was in compliance. While recognizing that many state appellate courts and federal district courts are divided on the issue, the Court unanimously decided that an employer’s “objectively reasonable, good faith belief” that it has provided employees with wage statements as required by the Labor Code “precludes an award of penalties” because the employer, though mistaken, did not “knowingly and intentionally” fail to meet to the requirements.

Prop 22 Upheld: App-Based Drivers Maintain Status as Independent Contractors

In January 2020, AB 5, known as the gig worker bill, went into effect. This law requires individuals formerly classified as independent contractors to become employees and accordingly receive the benefits and protections provided employees under California law, such as minimum wage, health insurance, and workers’ compensation.

Proposition 22, the “Protect App-Based Drivers and Services Act,” was a counter-response to AB 5 and was approved by 58% of voters in November 2020. Led by rideshare and delivery driver app companies, this ballot initiative exempts app-based drivers from AB 5’s ABC Test and generally classifies them as independent contractors.

Labor unions challenged the legality of the initiative, arguing that Prop 22 violates Article XIV of the California State Constitution, which grants the Legislature power to pass workers’ compensation laws, by preventing the Legislature from being able to include app-based drivers in the workers’ compensation system. On July 25, 2024, the California Supreme Court unanimously decided that Prop 22 does not violate the state constitution. In Castellanos v. State of California, the Court stated that voters can pass initiatives relating to workers’ compensation and that Prop 22 does not prevent the Legislature from passing workers’ compensation laws that affect app-based drivers.

California Public Employers Exempt from PAGA

In August, the California Supreme Court unanimously decided that the Private Attorneys General Act (PAGA) does not apply to public entities. In Stone v. Alameda Health System, the Court found that the Legislature intended to exempt public employers from the Labor Code provisions governing meal and rest breaks and related statutes governing the full and timely payment of wages. The Court also concluded that public entities are not subject to PAGA penalties.

The Court first considered the issue of whether the Legislature intended to exclude public employers from the Labor Code’s meal and rest obligations. The Court noted that, while the Labor Code does not define “employer,” the applicable wage order defines “employer” to mean “person” as defined in Section 18 of the Labor Code. In looking at the definition of “person,” which generally makes reference to private individuals and entities, the Court found the use of this definition “communicates that government employers are not subject to the meal and rest break obligation it prescribes.” The Court also examined relevant statutory text, legislative history, and administrative interpretation to determine that, as a “municipal corporation” (interpreted broadly to include public employers), AHS is exempt from the requirement of certain wage payment statutes.