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Employment & Labor Case Alert

Courts Issue Three Pro-Employee Decisions Tightening Rules for Various California Wage and Hour Laws

August 2014

It has been a very tough month for California employers as state and federal courts have issued three back-to-back, employee-friendly decisions tightening various wage and hour rules, adding even more complexity to California wage and hour laws. All employers are advised to review the applicability of these decisions to their workforce and evaluate their compliance with these rules.

Cochron v. Schwan’s Home Services, Inc., California Court of Appeal (Aug. 12, 2014)

In Cochron, the California Court of Appeal held that an employer must always reimburse an employee for the reasonable expense of the mandatory use of a personal cell phone under Labor Code section 2802. The court rejected the employer’s argument that it need not reimburse the employee who had a cell phone plan with unlimited minutes and therefore did not incur any additional expense. It instead found that the employer’s obligation to reimburse is not limited to the situation in which the employee incurred an extra expense that he or she would not have otherwise incurred absent the job. To be in compliance with section 2802, the employer must pay a reasonable percentage of the employee’s cell phone bill.

Following this decision, all California employers should reevaluate their cell phone reimbursement policies to ensure compliance with section 2802.

Peabody v. Time Warner Cable, Inc., California Supreme Court (July 14, 2014)

California’s Wage Orders provide a limited exemption from overtime for salespeople commonly referred to as the Inside Sales Exemption. This exemption applies if the salespeople earn more than one and one-half times the minimum wage for each hour worked and more than half of their compensation represents earnings from commissions. Because the exemption’s minimum compensation earning requirement is measured on a workweek basis, salespeople can be exempt one week, but not another. The second component of the exemption, namely that at least fifty percent of their earnings come from commissions, must also be satisfied in each workweek. 

In Peabody, the California Supreme Court tightened the Inside Sales Exemption when it held that the “one and one-half times the minimum wage” requirement depends on the wages actually paid in a payroll period and employers may not attribute wages paid one pay period to a prior pay period to cure a shortfall. In reaching this holding, the Court rejected the employer’s practice of reassigning commissions paid during payroll period to earlier pay periods when the commissions were earned.

Due to the tightening of the Inside Sales Exemption, California employers should not only reevaluate compliance, but determine also whether it makes sense operationally to continue to classify their salespeople under this exemption if there is risk that the salespeople might earn less than the minimum earnings and/or commissions percentage requirements during the workweek and lose their exemption status.

Dilts v. Penske Logistics, LLC, Ninth Circuit Court of Appeals (July 9, 2014)

For years many motor carriers in California who have been sued by their drivers for alleged violations of California meal and rest period laws have argued that such laws were preempted by the Federal Aviation Administration Authorization Act (“FAAAA”). However, on July 9, 2014, the Ninth Circuit Court of Appeal dealt a serious blow to employers in this industry when it held that the FAAAA does not preempt California meal and rest period laws. In reaching this holding, the court revived a 350-driver wage and hour class action lawsuit.

Going forward, motor carriers should review its meal and rest period policies and practices to ensure compliance with California law. Best practices include staggering breaks for individual drivers and allowing drivers to briefly pull on and off the road to take breaks.

Steven Gatley, Partner
221 N. Figueroa Street, Suite 1200
Los Angeles, CA 90012
Tel.: 213.580.3977

William C. Sung, Associate
221 N. Figeuroa Street, Suite 1200
Los Angeles, CA 90012

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