Recent California Supreme Court Decisions Support Pay Protections for Employees Required to Remain on Work Premises and Expansive Standing for Plaintiffs Bringing Representative PAGA Claims

Standard

I.   Introduction – The Two Recent Supreme Court Cases, an Aligned Ninth Circuit Decision, and Suggestions for Employers

In two cases in February and March 2020, the California Supreme Court continued its expansive approach to employment claims.  In Frlekin v. Apple, Inc. (Feb. 13, 2020) 8 Cal.5th 1038, the Court held that the time spent by an employee on the employer’s premises waiting for and undergoing a search of packages, bags and personal technology devices brought to work constitutes “hours worked” for which the employer must compensate the employee.  In Kim v. Reins International California, Inc. (Mar. 12, 2020) __ Cal.5th __, 2020 WL 1174294, the Court held that an employee’s settlement of individual claims under the California Labor Code does not strip the employee of standing to bring representative claims under California’s Labor Code Private Attorneys General Act (PAGA; Lab. Code § 2698 et seq.).  And in an even more recent decision, Herrera v. Zumiez, Inc., (Mar. 19, 2020), __ F.3d __, 2020 WL 1301057, the U.S. Court of Appeals for the Ninth Circuit, following California appellate precedent, held that an employer must pay its employees for “reporting to work” where the employer requires them to call their manager within an hour before a scheduled shift to determine whether they are needed for the shift.

     Suggested Employer Response 

  1. In light of the decision in Frlekin, employers should consider adapting their policies either (a) to pay employees for time that the employer requires the employees to remain on the premises for searches of bags, packages or personal devices, before the employee commences or after the employee finishes performing work, or (b) to eliminate requirements, like wearing branded apparel, for which employees can reasonably be expected to bring a bag or parcel to work.
  2. Similarly, to address the holding in Herrera and the California case on which it relies, employers need to adapt their policies with better analytics on their anticipated staffing needs for various shifts. This may entail keeping better track of past staffing during similar shifts and also expanding employee responsibilities so that, for example, if an employee who is assigned to a shift is not needed for sales, he or she can be assigned to stocking inventory or other tasks.  Employers will need to determine whether the costs and benefits of requiring employees to call in shortly before a shift for which they must keep themselves available if needed outweigh the costs and benefits of definite advance scheduling.
  3. Based upon the holding in Kim, employer defendants in cases that include claims for Labor Code violations as well as PAGA representative claims should either make sure that a settlement resolves the PAGA claims, which will require court review, or be prepared to resolve those claims separately.

II.  Cases Imposing Compensation Obligations on Employers that Require Employees to Devote Their Time to Employer Needs

     A.  Frlekin v. Apple, Inc.: Where an employer’s policies compel its employees to bring bags to work, the employer must compensate them for the time to await and undergo searches of the bags before exiting the premises. 

Frlekin involved Apple’s policy of subjecting its retail store employees to “personal package and bag searches,” and requiring personal Apple technology to be “verified against [their] Personal Technology Card” during such searches.  The searches were required any time an employee exited the store “for any reason (break, lunch, end of shift).”  Employees had to clock out before awaiting and undergoing the searches.  As the Court pointed out, Apple retail store employees did not bring a bag to work solely for personal convenience; many carried in their bag their “Apple-provided apparel,” which they were required to wear at work and prohibited from wearing or displaying while outside the store.

The case focused on the proper interpretation of “hours worked,” a term in Wage Order 7 issued by California’s Industrial Welfare Commission, which “requires employers to pay their employees for all ‘hours worked’.” The Wage Order defined “hours worked” 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 . . . .”  In reaching its conclusion that Apple was obligated to pay its employees for the time waiting for and undergoing the bag/package searches, the Court focused on the part of the definition that related to employer control of the employee.

The Court based its analysis on the judicially applied rule of interpretation of wage orders (and wage and hour laws) – that they are liberally construed to serve their remedial purpose, which is to protect and benefit employees.  Citing Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575, 587, the Court explained:

“. . . that ‘[t]he level of the employer’s control over its employees, rather than the mere fact that the employer requires the employees’ activity, is determinative’ concerning whether an activity is compensable under the ‘hours worked’ control clause. [Citation omitted.]  We also emphasize that whether an activity is required remains probative in determining whether an employee is subject to the employer’s control. But, at least with regard to cases involving onsite employer-controlled activities, the mandatory nature of an activity is not the only factor to consider. We conclude that courts may and should consider additional relevant factors — including, but not limited to, the location of the activity, the degree of the employer’s control, whether the activity primarily benefits the employee or employer, and whether the activity is enforced through disciplinary measures — when evaluating such employer-controlled conduct.”

Applying those factors, the Court easily found Apple obligated to compensate its retail store employees for the time spent awaiting and undergoing searches before Apple’s premises, because employees were subject to Apple’s control in connection with the searches:  Apple required compliance with the bag-search policy “under threat of discipline,” including termination; it confined employees to the premises until the search was performed; and it compelled employees to perform certain supervised tasks before and during the search, including locating a manager or guard, waiting for that employee’s availability, and opening packages and removing personal Apple technology devices for inspection.

The Court rejected Apple’s asserted interpretation of the Wage Order that “an employee’s activity must be ‘required’ and ‘unavoidable’ in order to be compensable.”  Those words were not in the text of the Wage Order, and Apple’s interpretation was inconsistent with the history of the definition of “hours worked” in the Wage Order.

The Court disagreed with Apple’s contention that the searches are akin to commute time for which an employer need not compensate an employee.  In contrast to commuting, in which an employer’s interest was limited to the employee arriving on time, Apple’s own interest in the search policy – to deter theft – was paramount.  Moreover, Apple’s policy controlled its employee in the workplace, not (as in commuting) while they were off premises coming to or leaving work.

The Court found galling Apple’s argument that its search policy was in part for the benefit of its employees, because, Apple maintained, it could have banned employees from bringing packages and personal technology devices to work.  In light of Apple’s directive that employees wear Apple-branded apparel in the store but not outside, “it is reasonable to assume that some employees will carry their work uniform or a change of clothes in a bag in order to comply with Apple’s compulsory dress code policy.”  The Court commented: “Apple’s personal convenience argument rings especially hollow with regard to personal Apple technology devices, such as an iPhone.”  The Court quoted the U.S. Supreme Court: “modern cell phones . . . are now such a pervasive and insistent part of daily life that the proverbial visitor from Mars might conclude they were an important feature of human anatomy.”  (Carpenter v. United States (2018) 585 U.S. __, 138 S.Ct. 2206, 2218.)  It quoted an even higher authority, Apple itself, which stated in an amicus brief filed in the Carpenter case that cell phones are “practical necessities of modern life,” “fundamental tools for participating in many forms of modern-day activity,” and “not just another technological convenience.”  And it quoted the highest authority, Apple CEO Tim Cook, who said in an online CNBC interview that the iPhone had “become so integrated and integral to our lives you wouldn’t think about leaving home without it.”

     B.  Herrera v. Zumiez, Inc.: An employer that requires its employees to call their manager 30 minutes to an hour before a scheduled shift commences must pay compensation to those employees for “reporting to work.” 

Like Frlekin, Herrera addressed Wage Hour 7, but rather than just the issue of how to interpret the term “hours worked,” the Herrera Court also focused on the term “report to work.”  Relying on and following a California Court of Appeal decision in Ward v. Tilly’s, Inc. (2019) 31 Cal.App.5th 1167, which it found no “persuasive data that the [California Supreme Court] would decide otherwise,” the federal appellate court found that requirement that employees call in at a specified short time before the beginning of a shift to find out if the employer would need them for the shift imposed “tremendous costs on employees” because “they cannot commit to other jobs or schedule classes during those shifts,” and had to “make contingent childcare or elder care arrangements, for which they might have to pay even if they” found that the employer did not need them for the shift.

As the employer controlled how its employees had to present themselves for work, the Court concluded that calling in constituted reporting for work, for which the employer had to compensate the employees.  “‘Report for work,’ in other words . . . is defined by the party who directs the manner in which the employee is to present himself or herself for work – that is, by the employer.”  (Quoting Ward, at 475.)

Because calling in constituted reporting for work, the employer was obligated to pay the employee “reporting time pay.”  Under section (5) of Wage Order 7, reporting time pay is compensation for at least “‘half the usual or scheduled day’s work’ in an amount no less than two hours’ wages and no more than four hours’ wages” even if the employer does not have sufficient work for the employee for those minimum time periods on the day the employee reported to work.

The Court also held that, under section 4(B) of Wage Order 7, which requires employers to pay employees at least the minimum wage for “all hours worked,” the plaintiff had stated a claim, subject to proof, for compensation for the time spent calling in 30 minutes to an hour before the commencement of a shift.  The determination of “hours worked” depends in part on whether the employee is under the control of the employer.  The plaintiff had alleged that the employer exerted control over the calls, “as well as the timing, frequency, and duration of the calls.”  The employee was entitled to present proof of that control at trial.

III.  Kim v. Reins International: Because a plaintiff need not show injury to himself to bring a representative PAGA claim, he may pursue representative PAGA claims after settlement and dismissal of his individual Labor Code claims.

In Kim, the plaintiff, whom Reins had employed as a “training manager,” which it had classified as an exempt position, asserted class claims against Reins for misclassification.  His complaint included claims for Labor Code violations, a claim under California’s Unfair Competition law, and representative PAGA claims.  Upon motion by Reins, the trial court compelled arbitration of Kim’s individual Labor Code and UCL claims (except for the UCL claim for injunctive relief), dismissed class claims, and stayed the PAGA claims.  Reins later served a statutory offer to compromise with regard to Kim’s individual claims, Kim accepted the offer, and those claims were dismissed.  Reins then filed a motion for summary judgment on Kim’s representative PAGA claims, which the trial court granted, finding that Kim lost standing upon settlement and dismissal of his individual claims, because he was no longer an “aggrieved employee”.

The California Supreme Court reversed, holding that standing for PAGA representative claims does not require the plaintiff to allege or show he suffered injury as a result of the employer’s Labor Code violations.  “The plain language of section 2699(c) [of the Labor Code] has only two requirements for PAGA standing.  The plaintiff must be an aggrieved employee, that is someone ‘who was employed by the alleged violator’ and ‘against whom one or more of the alleged violations was committed.’”  Reins’ argument that standing was “premised on a plaintiff’s injury,” and that the resolution of Kim’s individual claims via compensation for his injury removed the basis of his standing, “is at odds with the language of the statute, the statutory purpose supporting PAGA claims, and the overall statutory scheme.”

Because the “Legislature defined PAGA standing in terms of violations, not injury,” Kim achieved standing as an aggrieved employee when Reins committed one or more Labor Code violations against him, and “[s]ettlement did not nullify those violations.”

The Court found its interpretation aligned with PAGA’s statutory purpose, noting that the “sole purpose in enacting PAGA” was to expand the “limited enforcement capability” of the state agency that had been tasked with enforcing the Labor Code.   The PAGA plaintiff acts on behalf of the state government in bringing the PAGA claims; he is not seeking to redress employees’ injuries in such claims, but to “remediate present violations and deter future ones.”  (Citing Williams v. Superior Court (2017) 3 Cal.5th 531, 546.)

The Court held:  “The state can deputize anyone it likes to pursue its claim, including a plaintiff who has suffered no actual injury.”

This holding, that there are no restraints on who the state can deputize to pursue statutory claims on the state’s behalf, could result in expanded representative PAGA claims.  In a different legal context six years ago, the proliferation of lawsuits asserting representative claims under California’s Unfair Competition Law (“UCL”) by plaintiffs who did not suffer an injury themselves led to Proposition 64, an initiative on the November 2004 ballot. California voters passed Prop. 64 by a 60 to 40 margin.  The initiative amended, among other provisions, section 17204 of the Business and Professions Code to impose a standing requirement for plaintiffs – other than state or local law enforcement authorities – who wished to bring a representative UCL claim.  Since adoption of Prop. 64, a private plaintiff has been required to allege and show that he “suffered injury in fact and has lost money or property as a result of the unfair competition.”  (Bus. & Prof. Code § 17204; see id. § 17203 (incorporating standing requirement in section 17204 into provision for representative actions).)

With the significant impact of the COVID-19 pandemic on employers and employees alike, it is difficult to predict whether a proliferation of PAGA claims against employers by employees who have not suffered injury as a result of technical Labor Code violations will lead to an initiative like Prop. 64, particularly if such claims hit smaller employers who are more highly impacted by the current crisis and who lack the sophistication and human resources personnel to assure complete compliance with California’s complex Labor Code provisions.

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