US Supreme Court Permits Arbitration of Individual PAGA Claims

In a favorable opinion for California employers, the US Supreme Court, in Viking River Cruises v. Moriana, held employees may be compelled to submit individual Private Attorney General Act (PAGA) claims to binding arbitration (thereby waiving their rights to a jury trial).
By way of background, PAGA permits an “aggrieved” employee who allegedly had their Labor Code rights violated, to step into the shoes of the state Labor Commissioner and enforce certain violations of California labor law. PAGA allows for civil penalties against employers on behalf of the state. Further, only an individual employee brings a claim under PAGA, while other allegedly “aggrieved” employees do not participate in the lawsuit. The default PAGA civil penalty is $100 per employee per pay period for an initial violation and $200 per pay period for subsequent violations.
Prior to Viking River Cruises, PAGA claims could not be compelled into arbitration. In those cases in which an employee was bound by an arbitration agreement, the lawsuit would be split, with non-PAGA claims submitted to arbitration first and PAGA claims decided after the arbitration was completed, essentially subjecting the employer to multiple trials and no benefit of arbitration of PAGA claims.
A second important thrust of Viking River Cruises is that, because an employee bound to arbitrate her PAGA claims lacks standing to prosecute claims on behalf of other similarly “aggrieved” employees, the remaining PAGA claims must be dismissed upon submission of the case to arbitration.
It is important to remember that, based on the current status of California’s Assembly Bill (AB) 51, it remains unclear whether an employer can require a new hire to sign an arbitration agreement as a condition of employment. It remains to be seen how the Supreme Court will address this issue. At this time, it is safest to make an agreement to arbitrate employment claims voluntary.
Additionally, it is critical to understand both the costs and benefits of binding arbitration of employment claims in California, as employers are required to shoulder 100% of the arbitration fees, which can be quite substantial. Employers contemplating adopting an arbitration policy or who wish to fully understand the costs vs. benefits of employment arbitration, should contact us for further information.
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Be Prepared for July 1st Minimum Wage Increases & Inflation

California employers in several cities and counties must be prepared for July 1, 2022 minimum wage increases. While most California localities previously imposed a different minimum wage for employers with more or less than 26 employees, all municipalities listed below, except West Hollywood, will now impose the same minimum wage regardless of size. Here is a quick list of localities where the minimum wage will climb effective July 1st:
  • Alameda: $15.75/hour
  • Berkeley: $16.99/hour
  • Emeryville: $17.68/hour
  • Fremont: $16.00/hour
  • Los Angeles City: $16.04/hour
  • Los Angeles County: $15.96/hour
  • Malibu: $15.96/hour
  • Milpitas: $16.40/hour
  • Pasadena: $16.22/hour
  • San Francisco: $16.99/hour
  • Santa Monica: $15.96/hour
  • West Hollywood (49 or fewer employees): $16.00/hour
  • West Hollywood (50+ employees): $16.50/hour
California employers must also be mindful of the likelihood that the statewide minimum wage may climb faster than expected due to rising inflation. In 2017, California initiated an annual planned increase of the statewide minimum wage, with all employers, regardless of size, scheduled to reach $15.00 per hour effective January 1, 2023.
However, the minimum wage ordinance included an exception triggering an accelerated increase if the U.S. Consumer Price Index (CPI-W) exceeds 7 percent over a specified period of time. Based on current projections, the CPI-W will have risen by 7.6 percent in the period ending in July. On May 12, 2022, when Governor Gavin Newsom announced his proposal for a state inflation relief package, he also announced that California’s minimum wage is now projected to increase to $15.50 per hour, rather than $15.00 per hour, on January 1, 2023, for all businesses regardless of size. Of course, a business operating in any of the listed municipalities must ensure compliance with the higher local minimum wage.
Employers with exempt employees must remember that certain exempt employees must receive a salary of at least twice the state minimum wage (the “Salary Threshold”), in addition to meeting the general duties and other requirements. Whenever the state minimum wage increases, this impacts the Salary Threshold and may cause exempt employees to suddenly become improperly classified. To be clear, the Salary Threshold is tied to the California state minimum wage, not any city or county minimum wage ordinance.
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Understanding Exempt vs. Nonexempt Employees in California

We are frequently surprised that many businesses fail to grasp and correctly apply the criteria for determining when an employee can be classified as Exempt from overtime and/or meal and rest break laws. Employers often assume, based on a worker’s position in the organization, or because s/he is paid a salary, that s/he is automatically Exempt. 
We are surprised, not because the standards for determination of Exempt status are straightforward and easy to apply (Sometimes they are not!), but because the consequences of misclassifying an employee as Exempt can be major, including administrative claims or civil lawsuits for unpaid wages, unpaid overtime, failure to provide rest/meal breaks, liquidated damages, waiting time penalties and related damages (including the employee’s attorney’s fees). Have we got your attention?
The Labor Commissioner applies two (2) standards to determine when an employee can be properly classified as Exempt: (1) the Duties Test; and (2) the Salary Threshold. Exempt employees must fit within one of the following limited list of categories: Executive, Administrative, Professional, Computer/Software, Outside Sales, state or county employees, and a few others.
The Duties Test examines the work performed by the employee during the workweek. For example, the Executive Exemption is limited to an employee whose “duties and responsibilities involve the management of the enterprise or a department or subdivision of the enterprise, who customarily and regularly directs the work of two or more other employees, and who has authority to hire or fire other employees or whose views as to the hiring, firing, advancement, promotion or any other change of status of other employees will be given weight, and who customarily and regularly exercises discretion and independent judgment. There is a different Duties Test for each category of Exempt employee.
The Salary Threshold requires one exempt under the Executive Exemption to earn a monthly salary equivalent to no less than two times the state minimum wage for full-time employment. Full-time employment means 40 hours per week. There is a similar Salary Threshold for most other Exempt categories.
Depending on the circumstances, these tests may be easy or difficult to apply regarding a given employee. Additionally, there are traps for unwary with regard to the Salary Threshold where the worker, for example, meets the Salary Threshold most weeks, but falls below it on a given week.
Employers looking to follow best practices should have their Exempt classification decisions reviewed by employment law counsel or, at minimum, someone with significant Human Resources experience, such as an HR Consultant or a member of the Society for Human Resource Management (SHRM) or its affiliate, Professionals in Human Resources Association (PIHRA).
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California Supreme Court Clarified Rule for Calculating Meal and Rest Period Premiums, and it Applies Retroactively!

On July 15, 2021, the California Supreme Court, in Ferra v. Loews Hollywood Hotel, LLC, clarified the rule for calculating the premium required when employees are unable, because of workload, to take a timely rest or meal period. Given the potential for employees to sue employers in class actions for failing to strictly comply with this rule, and the fact that the holding applies retroactively, this is a significant development.
By way of background, California employers are required to provide nonexempt employees a paid 10-minute rest period for every 4-hours of work, and an unpaid 30-minute uninterrupted meal period by the end of the 5th hour (and 10th hour, if applicable) of work. These rules should already be quite familiar to employers.
The California legislature recognizes this is not always possible due to an employee’s workload or other issues. Therefore, an employee who is not provided required rest and/or meal periods must be paid an additional hour of pay at the employee’s “regular rate of compensation” for every missed meal or rest period. Until the Ferra decision, this “regular rate of compensation” was simply a worker’s hourly wage, without regard to additional, non-discretionary payments, such as bonuses or shift differentials.
In Ferra, the Court held the opposite, that meal or rest period premiums must be paid at a rate of pay that reflects regular pay + incentives, such as non-discretionary bonuses or shift differentials. Calculating this “regular rate of compensation” for rest and meal period premiums now mirrors the formula previously applied to determine the “regular rate of pay” when calculating overtime premium pay.
If an employee is indeed paid non-discretionary bonus or incentive pay, the calculation of his or her “regular rate of compensation” can initially seem somewhat daunting. Consider an employee who earns $17/hr, but also receives an additional $3/hr shift differential when she works a night shift. In a particular week, she works 60 hours (40 regular hours, 13 overtime hours and 5 double time hours). Of those 60 hours, 30 are paid at the employee’s base rate of $17, and the remaining 30 hours are paid at $20/hr to reflect the $3 night shift differential.
Under the old rule, any rest or meal period premium would be paid at the employee’s base pay, $17. However, under the Ferra holding, an additional calculation must be conducted, which establishes the rest or meal period premium must be paid at the weighted average rate of $18.50. (Total compensation is $1,110, divided by 50 hours, equals the weighted average rate of $18.50; this is her “regular rate of compensation” for that week only.)
Given this development, what should employers do? We recommend the following:
  • Ensure your timekeeping system recognizes each instance in which an employee is not afforded an uninterrupted 10-minute rest period during every 4 hours of work, or does not begin a 30-minute uninterrupted, unpaid meal period by the end of his/her 5th hour of work;
  • Ensure your payroll provider is properly calculating the rest or meal period premium under the formula described above;
  • Monitor employee practices to ensure employees are timely taking required rest and meal periods, to reduce the incidence and incidental cost of rest and meal period premiums. Opportunistic employees may abuse the system and routinely collect a rest or meal period premium. Employers should conduct training or, in some circumstances, discipline employees who are unnecessarily triggering rest or meal period premiums.
  • If the term “nonexempt” is unfamiliar, or if you were unaware of the rules regarding rest and meal periods, or the requirement to provide a rest or meal period “premium,” don’t be embarrassed. However, if you have any hourly workers, you absolutely must know these rules or you are potentially at risk for very costly administrative actions or civil lawsuits. Please contact us so we can explain these rules to you an help you stay in compliance with California’s strict wage-hour laws.
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Quick Reminder on Wage Statements in California

Many California wage-hour lawsuits include a claim that employees’ wage statements (pay stubs) fail to comply with the law. By way of reminder, each wage statement must contain:
  • Gross wages earned;
  • Number of hours worked (not required for exempt employees);
  • Number of piece-rate units earned (if applicable);
  • All deductions;
  • Net wages earned;
  • Inclusive wages of the period for which the employee is paid;
  • Employee’s name;
  • Last 4 digits of employee’s Social Security number or employee ID (NOTE: It is unlawful to include an employee’s entire SSN);
  • Name and address of legal entity that is the employer;
  • All applicable hourly pay rates in effect during the pay period and the number of hours worked at each rate; and
  • Amount of Paid Sick Leave available to the employee.
Additionally, the Labor Code also requires the check be drawn on a bank with at least one branch in California, and the check must state the name and address of a business in California where the check can be cashed on demand without a discount
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