California employers will know by the end of July whether federal standards allowing small nuggets of work time to go unpaid apply to wage lawsuits brought under state labor law. The outcome could end up costing employers millions of dollars in wages and potential fines.
Employers and employee rights’ groups anxiously await a California Supreme Court ruling in a wage-and-hour lawsuit filed by a former Starbucks Corp. assistant store manager against the coffee shop chain. He was paid on an hourly basis, and the case involves the minutes he says he spent each shift performing off-the-clock work.
Employers for years have followed the federal standard—arising from the Fair Labor Standards Act—that a few minutes spent on work tasks didn’t have to be paid if it was “de minimis,” or trivial amounts of time.
Employees and employee rights groups argue those minutes add up to a week of a pay each year that a worker loses under the federal standard. They also argue the federal standard is counter to California law and regulations that require workers to get paid for all work.
Employers say it would be nearly impossible to differentiate for the moments workers spend on work-related and non-work-related tasks in a given shift. They also contend that not following the federal standard potentially could open them up to millions of dollars in fines from regulators and legal damages to aggrieved employees.
The U.S. Court of Appeals for the Ninth Circuit in June 2016 asked the California Supreme Court to provide clarity on the issue.
Week Without Pay
Ex-Starbucks employee Douglas Troester in a brief to the state Supreme Court argued that Starbucks required workers to complete tasks after clocking out, so the company knew—or should have known—employees did some work without compensation. Troester said these tasks would take four to 10 minutes every shift. He seeks to have the overall case treated as a class action.
The incremental effect of tolerating uncompensated time periods of up to 10 minutes “is that employees will work up to one workweek every year without pay,” attorneys representing Troester with the Setareh Law Group, the Spivak Law Firm, and Law Offices of Louis Benowitz in Beverly Hills, Calif., said. “This is a significant amount of money for an individual low wage worker, and a vast sum of money in the aggregate.”
California has 4.7 million low-income workers in California, said Hina Shah, a Golden Gate University School of Law professor and director of the Women’s Employment Rights Clinic who filed a brief supporting Troester. “They can’t afford to lose a single dollar of earnings. It skims not just minutes but hours in the aggregate in workers’ pay. And there’s no justification for it,” Shah told Bloomberg Law.
Employers could take a substantial hit if the court shoots down the federal standard’s use in the state, the California Retailers Association said in a brief to the court supporting Starbucks.
Rejecting the de minimis policy now “would expose employers to a new wave of lawsuits and substantial backward-looking penalties that, in many cases, would far exceed the allegedly lost compensation,” the retailers’ brief said. “By way of example, one minute of off-the-clock time occurring once a pay period could amount to approximately $0.18 in wages but as much as $2,520 in penalties. That is a penalty-to-wage ratio of 14,000 to 1” based on a California minimum hourly wage of $10.50.
California had nearly 9.8 million workers in February whose pay was on an hourly basis, Aubrey Henry, state Employment Development Department spokesman, told Bloomberg Law. Some 18.3 million workers were employed overall in California that same month.
The de minimis rule “has been a backbone of California law for nearly 150 years and applied in a wide variety of contexts” and should continue to guide the state high court, counsel with Akin Gump Strauss Hauer & Feld LLP representing Starbucks said in a court brief.
The California Supreme Court scheduled oral arguments for May 1. California appeals courts are required to return rulings within 90 days of oral arguments, meaning an answer will be due by the last week in July.
Control Is Key
California employers under state wage rules must pay employees a minimum wage for “all hours worked in the payroll period.” Hours worked is defined as “the time during which an employee is subject to the control of an employer, and includes all the time the employee is suffered or permitted to work, whether or not required to do so.”
Included within the term “hours worked” under California Labor Code and the Industrial Welfare Commission’s Wage Order 4 is all time spent at the employer’s workplace and under the employer’s control, the California Supreme Court ruled in a case involving security guards.
And that control is the key, Shah said.
The state Supreme Court made very clear in its 2015 decision Mendiola v. CPS Security Solutions Inc. that failing to pay workers for the time spent under the employer’s control “means the employer is pocketing money in violation of California’s very explicit mandate that workers get paid for every minute they work,” Shah said.
The federal standard to treat those minutes as insignificant “cannot be imported into California wage-and-hour law without a statutory intent, and you can’t infer” that the Legislature intended to incorporate the de minimis rule, said Shah, who argued for the plaintiffs before the court. In that case, the state Supreme Court affirmed a lower-court ruling that CPS Security Solutions’ policy of generally compensating guards’ on-call time only when it is spent investigating work-site disturbances violated state wage rules.
If the idea is to track workers when they arrive on the employer’s property, “that would mean workers would be prohibited from stepping on the premises until the minute their shift starts,” David Carpenter, a Sidley Austin LLP partner in Los Angeles, said. Carpenter represents the California Retailers Association.
“Mendiola is what establishes the broad definition of work under California law,” Carpenter told Bloomberg Law. And it’s fine to define work in a broad way, he said. “But the concept of hours worked still needs to incorporate or include some level of practicality and common sense.”
Common Sense Tracking
Technology can track workers everywhere in a store, yet it can’t determine work time in certain situations, such as how much personal time is involved when, say, a worker chats with others on non-work-related topics or when a customer asks a question of a worker heading out for a break or at the end of the day, Carpenter told Bloomberg Law.
Shah isn’t buying it.
“In this day and age of technological revolutions and tech apps, it is absurd that employers cannot keep track of all hours worked by their employees,” she said.
The Employers Group and California Employment Law Council argue it’s not feasible to track every moment on the job.
“Short of monitoring an employee’s every movement with a stopwatch from when they step foot onto the employer’s premises to when they leave the parking lot, it would be nearly impossible for any timekeeping system or method to capture each and every second of work,” the employers brief to the court said.
“There are potentially some unhelpful consequences that may result if an employer is now being tasked with literally keeping every second or every minute of time because now if that’s the case, the 10 minutes you spent talking to your office neighbor about ‘The Walking Dead’ is now somehow going to be recorded as not working,” said Emma Luevano, a partner with Mitchell Silberberg & Knupp LLP in Los Angeles who wrote the employers’ brief.
Potentially counterproductive effects such as harming workplace morale or making workers feel as they’re not part of a team could result if the court says “employers have to record to the second,” Luevano told Bloomberg Law. “I just don’t know how that is possible in some of these circumstances.”
The court could look to rulings about “rounding” for guidance, Luevano told Bloomberg Law.
Employers round up or down an employee’s punch-in or punch-out times to the nearest tenth of an hour. A California appellate court upheld the practice five years ago in a case involving See’s Candy Shops Inc.
“Rounding happens, and employers have and use rounding practices, and I think that will address a lot of those concerns,” she said.
The case is Troester v. Starbucks Corp., Cal., No. S234969, case ordered on calendar 4/11/18.