Ninth Circuit Enforces California Protections for Consumers and Workers in the Intersection of Federal and State Laws on Arbitration and Wages

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I.     Summary of the Court Decisions, and Suggested Action Steps for Companies

In two decisions in June 2019, the U.S. Ninth Circuit Court of Appeals (1) reinforced that California does not recognize the federal de minimis doctrine, which relieves employers of paying wages to employees for work that lasts only a few seconds or minutes before or after regular working hours, and (2) held that the Federal Arbitration Act does not preempt a California Supreme Court decision that holds unenforceable an agreement purporting to waive a party’s right to seek public injunctive relief in any forum.  The first case requires California employers to pay their employees for the limited time that they are subject to inspections after they clock out at work.  The second prohibits companies from insisting that consumers waive their right to seek public injunctive relief in an arbitral forum.

In light of these decisions, companies should consider taking the following steps:

  1. Employers with workers in California should work out the administrative and logistical means to compensate employees for minimal post-clock-out or pre-clock-in work.
  2. If an employer determines that it is not reasonably possible to compensate employees for such work, then it should make sure that it maintains a record of its diligent efforts to work out the means to pay employees for such work.
  3. Companies that have arbitration agreements with consumers or workers in California should review the agreements to assure that they do not contain a waiver of the right to seek public injunctive relief.

II.     Rodriguez v. Nike: An employer must pay an employee for the time the employer’s work rules require the employee to stay after regular working hours.

Rodriguez v. Nike Retail Stores, Inc. 928 F.3d 810 (9th Cir. 2019), involved a work rule at Nike’s 34 retail stores in California requiring employees “to submit to exit inspections each time they leave the store on a break or at the end of the day.”  Non-exempt employees, who tracked their hours via a punch-clock, had to punch out before undergoing such inspections, precluding them from being compensated for that time.  Rodriguez filed a class action wage and hour lawsuit seeking monetary relief and penalties under several provisions of the California Labor Code.

Nike filed a motion for summary judgment on the basis of the federal de minimis doctrine, which “precludes recovery for otherwise compensable amounts of time that are small, irregular, or administratively difficult to record.”  The precise amount of time employees spent in such inspections was disputed, but the federal trial court found that the range of time that the exit inspections each lasted – between zero seconds and several minutes – was undisputed.  That court granted Nike’s motion based upon that doctrine.

After the motion was granted and while the plaintiff’s appeal was pending, the California Supreme Court issued its Troester decision.  In Troester v. Starbucks Corp., 5 Cal.5th 829 (2018), the Court clarified that, where an employer requires an employee to perform several minutes of compensable work after the employee has clocked out for the day, California law requires the employer to pay the employee for the work, even if the additional time may be administratively difficult to capture.  California case law does not support the application of the “de minimis” rule, which is applicable under the federal Fair Labor Standards Act, to avoid payment.  See the discussion of Troester at https://weinbergerlawblog.com/2018/10/23/troester-v-starbucks-the-ca-supreme-court-holds-routine-tasks-that-take-minutes-to-perform-are-not-too-minute-to-evade-compensation/.

In light of Troester, the appellate court held that the trial court erred in granting summary judgment to Nike based on the de minimis doctrine.  The Court of Appeals declined to establish a 60-second threshold under which a California de minimis doctrine would apply, because Troester emphasized that California labor laws require employees to be paid for all hours worked.

Therefore, “where employees are required to work for more than trifling amounts of time ‘on a regular basis or as a regular feature of the job,’ [Troester, 5 Cal.5th] at 1125, Troester precludes an employer from raising a de minimis defense under California law.”  Summary judgment was error because there was a dispute of fact regarding whether the exit inspections lasted for more than a minute, were brief or were trifling.

The Rodriguez Court left unanswered in what circumstances work off-the-clock could be so irregular that it would be unreasonable to expect the time to be recorded.

III.     Blair v. Rent-a Center: The FAA does not preempt California law prohibiting waiver of the right to public injunctive relief, even in an arbitral forum.

In Blair v. Rent-a-Center, Inc., 928 F.3d 819 (9th Cir. 2019) the Ninth Circuit addressed whether the Federal Arbitration Act, which has been held to strongly favor enforcement of arbitration agreements, preempts the California Supreme Court’s holding in McGill v. Citibank, N.A., 2 Cal.5th 945 (2017).  In McGill, the California Supreme Court held that, under California law, an agreement waiving a party’s right to seek public injunctive relief in any forum is unenforceable.  The McGill rule was not preempted, because it is “a generally available contract defense” – that any contract, including those that contained and those that did not contain an arbitration provision, could not provide for a waiver of public injunctive relief.  Under the “savings clause” in section 2 of the FAA, the McGill rule was permissible.  The rule “expresses no preference as to whether public injunction claims are litigated or arbitrated, it merely prohibits the waiver of the right to pursue those claims in any forum.”

The Court acknowledged the U.S. Supreme Court’s admonition in AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 341 (2011), that even a generally applicable contract defense could be preempted by the FAA if it is “an obstacle to the accomplishment of the FAA’s objectives,” one of which is to “facilitate streamlined proceedings.”

Applying the Concepcion doctrine, the Ninth Circuit Court of Appeals had considered in Sakkab v. Luxotica Retail N. Am., Inc., 803 F.3d 425, 427 (9th Cir. 2015), the rule in Iskanian v. CLS Transp. L.A., LLC, 59 Cal.4th 348 (2014), which “bars contractual waiver in any fora of representative claims under California’s Private Attorneys General Act of 2004 (‘PAGA’), Cal. Lab. Code §§ 2698 et seq.”  The Sakkab Court concluded that the Iskanian rule does not conflict with the FAA, because it “is generally applicable,” barring “any waiver of PAGA claims, regardless of whether the waiver appears in an arbitration agreement or a non-arbitration agreement;” and does “not ‘prohibit the arbitration of any type of claim’” or “‘diminish the parties’ freedom to select informal arbitration procedures,’” since PAGA actions, unlike class actions, are not concerned with the claims of other employees and so do not implicate absent employees’ due process rights.  Sakkab, 803 F.3d at 432, 434-36, 439.

Applying these principles to the rule in McGill, the Court noted initially that the rule was generally applicable, holding unenforceable under California law “any contract – even a contract that has no arbitration provision”.  As a “ground[] . . . for the revocation of any contract,” the McGill rule “falls within the FAA’s savings clause at the first step of the preemption analysis.  9 U.S.C. § 2.”

Taking the next step in the analysis, the Court determined that the McGill rule, like the rule in Iskanian, does not “deprive parties of the benefits of arbitration.”  The laws governing public injunctive relief do not require procedural formality that is inconsistent with arbitration.  As with representative PAGA claims, “public injunction claims are brought for the benefit of the general public, not on behalf of specific absent parties.”  Likewise, prohibiting waiver of public injunctive relief in the arbitration context does not require that a bilateral agreement for arbitration be expanded to arbitration of multi-party claims.

The possible complexity that a public injunction case may present in arbitration as compared to a conventional individual claim does not preclude arbitration.  “[A]s with PAGA actions, the complexity involved in resolving a request for a pubic injunction ‘flows from the substance of the claim itself rather than any procedures required to adjudicate it (as with class actions).’”  (Citing Sakkab.)

The high stakes nature of some public injunction requests also does not preclude arbitration.  Provided a public injunction does not interfere with the informal, bilateral nature of arbitration, FAA preemption is not triggered by the high stakes of such a claim.

The U.S. Supreme Court Strengthens the Hand of Employers to Compel Individual Arbitration of Claims, while Public and Business Attitudes Towards Arbitration Are in Ferment

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Opposition to arbitration clauses by consumers and employees is growing, some employers, in response to that opposition, are taking actions to eliminate arbitration clauses in employment agreements or employee policies, and support is growing in Congress to rein in the ambit of arbitration.  In the midst of this political and cultural ferment over arbitration, the United States Supreme Court continues its years-long trend to enforce arbitration clauses in a manner that favors employers and consumer-focused companies.

In Lamps Plus, Inc. v. Varela, __ U.S. __, 139 S.Ct. 1407 (Apr. 24, 2019), the Court sided with employers to prevent class arbitration where the arbitration agreement was ambiguous as to whether class arbitration was contemplated.  Explaining that the Court’s “normal practice” is to defer to the Circuit Court on “interpretation and application of state law,” it adopted the Ninth Circuit’s conclusion, applying California contract law, that the “agreement was ambiguous on the availability of class arbitration.”

The finding of ambiguity teed up the issue of “whether, consistent with the [Federal Arbitration Act], an ambiguous agreement can provide the necessary ‘contractual basis’ for compelling class arbitration.”   (Citing Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 684 (2010).)  Relying on Stolt-Nielsen and Epic Systems Corp. v. Lewis, 584 U.S. ___, 138 S.Ct. 1612 (2018), decided last term, the Court held that “it cannot” provide such supports, because “[c]lass arbitration is not only markedly different from the ‘traditional individualized arbitration’ contemplated by the FAA, it also undermines the most important benefits of that familiar form of arbitration.”

The Court rejected the Ninth Circuit’s application of California’s rule of contractual interpretation, under which an ambiguous contractual provision is construed against the party that drafted the contract.  It found the interpretive principle inconsistent with the FAA, because it undermines the foundational principle that arbitration is a matter of consent.  This rule of contractual construction, “[u]nlike contract rules that help to interpret the meaning of a term, and thereby uncover the intent of the parties” is “triggered only after a court determines that it cannot discern the intent of the parties.”  (Emphasis in original.)

In Epic Systems, the Court had admonished courts not to “rely on state contract principles to ‘reshape traditional individualized arbitration by mandating classwide arbitration procedures without the parties’ consent.’”  Explaining that “the FAA provides the default rule for resolving ambiguity here,” the Court determined that the California rule of construction could not be “applied to impose class arbitration in the absence of the parties’ consent.”  Neither silence nor ambiguity provides a sufficient basis for concluding that parties to an arbitration agreement agreed to undermine the central benefits of arbitration itself.”

Lamps Plus further closes the loop to prevent employees and consumers from evading individual arbitration of their claims.  Companies can rest assured that employees and consumers will not be able to rely on arbitration agreements that do not clearly prohibit class arbitration to compel class arbitration.

What is next for arbitration in the appellate courts?  In California, the California Supreme Court will soon address the issue of whether its decision in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014), holding that arbitration agreements are not enforceable in claims under California’s Labor Code Private Attorneys General Act (“PAGA”), applies to a claim for wages under section 558(a) of the California Labor Code.  Section 558(a) states that the unpaid wage claim penalty is recoverable 100 percent by the employee,[1] unlike other PAGA claims, for which the employee receives only 25 percent, the other 75 percent going to the state.  The U.S. Supreme Court has not yet taken up a case raising the issue of the enforceability of an arbitration agreement in a PAGA claim.  Meanwhile, the California Supreme Court recently reminded parties to an arbitration that court review of erroneous decisions by an arbitrator is extremely limited – in keeping with the notion that arbitration is designed to be a streamlined process.  Heimlich v. Shivji, __ Cal.5th __, 2019 WL 2292828 (May 30, 2019).  Be careful what you wish for.

In sticking to its established unwavering support of arbitration clauses, the Court may further fuel the flame for legislative reform of the arbitration process.  But any such reform will have to come from Congress, because efforts by state legislatures to adopt laws restricting arbitration will run afoul of FAA preemption.  Companies need to consider whether the benefits of enforcing agreements or policies requiring individual arbitration of claims outweigh the growing public backlash against such policies.

[1]               One California appellate court has held that the employee is entitled to only 25 percent of the recovery under section 558(a), because the same split must be applied to this claim as is applied to other PAGA claims.  Zakaryan v. Men’s Wearhouse, Inc., 33 Cal.App.5th 659, 674-75 (2019).

Timbs v. Indiana: The Potential Impact on PAGA Penalties of the Supreme Court’s Decision that the Eighth Amendment Excessive Fines Clause Applies to the States

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I.  Introduction – Timbs, the Excessive Fines Clause, and a Potential Defense to PAGA Penalties

The U.S. Supreme Court’s recent decision in Timbs v. Indiana (Feb. 20, 2019) 2019 WL 691578, holding that the Eighth Amendment’s Excessive Fines Clause applies to the states through the Fourteenth Amendment’s Due Process Clause, could offer support for a defense to the large monetary penalties sought in representative claims against employers under the California Labor Code Private Attorneys General Act (“PAGA”) (Cal. Labor Code §§ 2698 – 2699.6).

II.  The Timbs Decision and the Eighth Amendment Excessive Fines Clause

Under the Eighth Amendment to the U.S. Constitution, “[e]xcessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted.”  The portion of the amendment prohibiting excessive fines “limits the government’s power to extract payments, whether in cash or in kind ‘as punishment for some offense.’”  (Id. at *3 (citing United States v. Bajakajian (1998) 524 U.S. 321, 327-28).)  The restrictions imposed by the Excessive Fines Clause are not limited to criminal statutes; they cut across the division between criminal and civil law.  Civil proceedings may advance criminal and remedial goals.  The question is not whether a civil or criminal law is involved, but whether the purpose of the fine is punishment, in which case the clause applies, or remedial, in which case it does not.  (Austin v. United States (1993) 509 U.S. 602, 609-10.)

In explaining why the Excessive Fines Clause applies to the states, the Court noted:

“For good reason the protection against excessive fines has been a constant shield throughout Anglo-American history:  Exorbitant tolls undermine other constitutional liberties.  Excessive fines can be used, for example, to retaliate against or chill the speech of political enemies . . . .  Even absent a political motive, fines may be employed ‘in a measure out of accord with the penal goals of retribution and deterrence,” for ‘fines are a source of revenue,’ while other forms of punishment ‘cost a State money.’”

(Id. at *4 (citing Harmelin v. Michigan, 501 U.S. 957, 979, n.9 (1991) (opinion of Scalia, J.) (“it makes sense to scrutinize governmental action more closely when the State stands to benefit”).)

In applying the Eighth Amendment’s Excessive Fines Clause, “[t]he touchstone of the constitutional inquiry . . . is the principle of proportionality: The amount of the forfeiture must bear some relationship to the gravity of the offense that it is designed to punish. [Citations.] … [A] punitive forfeiture violates the Excessive Fines Clause if it is grossly disproportional to the gravity of a defendant’s offense.”  (United States v. Bajakajian, 524 U.S. at 334; People v. Urbano (2005) 128 Cal.App.4th 396, 406 (citing Bajakajian).)

III.  The California Constitution’s Excessive Fines Clause and Litigation Challenging PAGA

California has its own Excessive Fines Clause in Article I, section 17 of the California Constitution.  Even before Timbs was decided, the California Business & Industrial Alliance had filed a lawsuit in Orange County Superior Court against California Attorney General Xavier Becerra, seeking declaratory and injunctive relief against PAGA, in part based upon the state’s constitutional prohibition against excessive fines.  (California Business & Industrial Alliance v. Becerra, Orange County Sup. Ct. Case No. 30-2018-01035180-CU-JR-CXC (filed Nov. 28, 2018).)  The Attorney General filed a demurrer to the complaint, which is scheduled for hearing on March 28, 2019.

IV.  Timbs and PAGA

By encouraging PAGA lawsuits by private parties and their counsel, the PAGA statute raises one of the concerns on which the Court’s Timbs decision was based – that excessive fines might be used “in a measure out of accord” with the goal of retribution and deterrence, to promote increased revenues to the state.  Under PAGA, violations of Labor Code provisions governing, among other wage and hour issues, overtime, meal and rest breaks and payroll records, can result in large civil penalties that far exceed the value of the unpaid or underpaid wages.  In representative actions filed by private attorneys, 25 percent of the penalties recovered are paid to the State, without the state having expended any amount in fees to recover them.  The State of California has established a system to raise revenues via penalties imposed on employers without having appropriated any funds for an enforcement infrastructure and with minimal to no oversight of how those enforcement measures are used on its behalf.

Granted that PAGA penalties can have a significant deterrent effect on companies bent on what has been characterized as “wage theft”.  But they also can wreak havoc on companies that have inadvertently violated wage and hour laws and are prepared to correct and pay any erroneously unpaid wages, but are hit with the prospect of also incurring multiples of the amount of the unpaid wages in penalties.  The prospect of representative lawsuits by private counsel alleging hundreds of thousands to millions of dollars of such penalties, for which attorneys’ fees are also recoverable, can create harrowing concerns for companies.

Beginning in 1996, with the case of BMW North America, Inc. v. Gore (1996) 517 U.S. 559, the United States Supreme Court began to establish, based upon due process concerns, limitations on the amount of punitive damages that could be awarded against a defendant.  The Court set bounds on such awards, requiring the amount of the award to bear some relationship to the gravity of the defendant’s conduct.  “Perhaps the most important indicium of the reasonableness of a punitive damages award is the degree of reprehensibility of the defendant’s conduct.”  (Id. at 575.)

The Court also looked at the ratio of punitive to compensatory damages, which was 500 to one in that case, and noted that, while that ratio cannot be the deciding criteria, “[w]hen the ratio is a breathtaking 500 to 1, . . . the award must surely “raise a suspicious judicial eyebrow.”  (Id. at 583 (citation omitted).)  Moreover, the penalty that could have been imposed by statute for the conduct involved in BMW was only $2,000.  “The sanction imposed in this case cannot be justified on the ground that it was necessary to deter future misconduct without considering whether less drastic remedies could be expected to achieve that goal.”  (Id. at 584.)  In subsequent cases, the Court established further bounds on awards of punitive damages.

Are we on the brink of other judicially crafted principles, based upon the Excessive Fines Clause of the Eighth Amendment, to reign in PAGA penalties?  The Court’s prior treatment of punitive damages, together with the excesses of some representative PAGA penalty claims, and the gathering of a solid conservative majority on the Court makes it more likely that the issue will be taken up.  However, the question of whether the Court will be able to draw definite bounds on such penalties will most likely take several cases and years to resolve.

Recent California Appellate Cases Continue Trend of Increased Scrutiny of Employer Pay Practices

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Two decisions from the California appellate courts in late December and early January reemphasize that employers must keep meticulous records to comply with the often complicated wage and hour laws governing compensation of their employees.  In particular:

  1. Employers must keep accurate records of all hours worked by employees. Failure to keep accurate records of hours worked by an employee relaxes the burden on that employee to prove he or she worked unpaid time.  While the employer has the opportunity to present evidence disputing the employee’s proof, the lack of accurate records works strongly in the employee’s favor.
  2. Employers must comply with section 226.2 of the California Labor Code, to pay piece-rate employees on an hourly basis for rest and recovery periods and other nonproductive time separate from any piece-rate compensation. According to the Court of Appeal, which rejected a constitutional challenge to the statute, the statutory definition of “other nonproductive time” as “time spent under the employer’s control, exclusive of rest and recovery periods, that is not directly related to the activity being compensated on a piece-rate basis,” is sufficiently clear for employer compliance.

Furry v. East Bay: Keep Accurate Records of Hours Worked to Avoid More Easily Provable Overtime Claims by Employees

In a case decided in December 2018 and ordered published in January 2019, Furry v. East Bay Publishing, LLC (Dec. 12, 2018) 2018 WL 6930903, the California Court of Appeal reinforced the legal principle that an employer’s failure to keep accurate and precise records of a non-exempt employee’s hours worked relaxes the employee’s burden of proving unpaid time worked.  At the same time, the court affirmed a judgment denying the employee regular or premium pay for meal periods, during which the employee had worked, because the employer had provided appropriate meal periods, and the employee had failed to show that the employer was aware or reasonably should have been aware that the employee was working through the meal periods.

With regard to the legal principle governing proof of unpaid hours worked, Furry’s evidence during a four-day bench trial established that the East Bay Publishing, LLC had not kept track of the hours that Furry worked, and that Furry had performed work during evenings and on weekends at employer-sponsored events and promotions.  Both a subordinate and a supervisor of Furry knew he was performing that work at times outside of normal business hours.

In these circumstances, the appellate court held that the trial court erred in completely denying to Furry relief on his overtime compensation claim, because imprecise evidence by an employee of hours worked can form a sufficient basis for damages when the employer fails to keep accurate records of the employee’s work hours.  Relying on Hernandez v. Mendoza (1988) 199 Cal.App.3d 721, 727, the Court explained that the failure of an employer to keep records of hours worked by an employee results in the application of a relaxed standard of proof for the employee to show the number of hours worked.  Once the employee has made this showing, the burden then shifts to the employer to produce evidence of the precise amount of work performed or to negate the reasonableness of the inference of the number of hours worked that could be drawn from the evidence the employee provided.

Because Furry’s work beyond normal work hours was established by his and others’ testimony, the fact of damage was established and, consequently, his estimates of hours worked were sufficient to prove the amount of damage.  The trial court erred in holding that he had failed to account for hours worked for which he was not compensated by sales commissions he received.  According to the Court of Appeal, the trial court should have used the evidence of amount of commissions paid to calculate the regular rate of pay, and therefore, the overtime rate and pay, not as a basis for denying relief.

Nisei v. California LWDA:  The Law Requiring Hourly Compensation to Piece-Rate Workers Is Sufficiently Clear to Withstand Constitutional Challenge

In Nisei Farmers League v. California Labor and Workforce Development Agency (Jan. 4, 2019) 2019 WL 99087, the California Court of Appeal denied a challenge to the constitutionality of a Labor Code provision effective January 1, 2016, which codified case law requiring employers with piece-rate workers to pay those workers separately on an hourly basis at a rate not less than minimum wage for rest and recovery periods and other nonproductive time.  The employers groups that brought the case had argued that their piece-rate compensation system took account of nonproductive time to pay sufficient compensation, and challenged the constitutionality of the statute on the grounds that it (1) was void for vagueness, and (2) retroactive and therefore a violation of due process as well as a taking of property.

The appellate court held that the plaintiffs failed to allege an adequate basis to find the statute, section 226.2 of the Labor Code, unconstitutional.  The Legislature had enacted section 226.2 to codify the case law in Gonzales v. Downtown LA Motors, LP (2013) 215 Cal.App.4th 36, and Bluford v. Safeway Inc. (2013) 216 Cal.App.4th 8644, which had “upended” the expectations of employers who had assumed that a piece-rate system that allegedly took account of and compensated for nonproductive work periods by the way the piece-rate was set complied with California’s wage and hour laws.

In Gonzales, 215 Cal.App.4th at 40-41, the Court of Appeal had held that automobile service employees were “entitled to separate hourly compensation for time spent waiting for repair work or performing non-repair tasks directed by the employer during their work shifts”.  Such compensation was required to comply with minimum wage, because the minimum wage law applies to each hour an employee works.  For similar reasons, the Court in Bluford, 216 Cal.App.4th at 872, held that employers must separately pay piece-rate employees at the rate of at least minimum wage for rest periods.  Both cases relied on the earlier case of Armenta v. Osmose, Inc. (2005) 135 Cal.App.4th 314, 317-24, in which the Court had held that, because California’s minimum wage law applies to each hour worked, an employer could not withhold payment of wages to an hourly employee for nonproductive time and average the wages paid over productive and non-productive time to assure that the average met minimum wage requirements.

In codifying Gonzales and Bluford in section 226.2 of the Labor Code, the California Legislature also, in section 226.2(b), created a safe harbor affirmative defense for employers that had previously failed to pay on an hourly basis for rest periods and nonproductive work by employees who were otherwise paid on a piece-rate basis.  The affirmative defense was only available to those employers that, (1) by December 15, 2016, made payments of actual sums not paid (or underpaid) for rest and recovery periods and other nonproductive work (or based upon an alternative payment calculation) during the period July 1, 2012 through December 31, 2015, and (2) had provided notice by July 1, 2016 to the Department of Industrial Relations of their election to make those payments.

The trial court had sustained demurrers to the employer groups’ complaint without leave to amend, and the Court of Appeal affirmed.  It agreed with the trial court that the statute was not void for vagueness.  Section 226.2 clarified the statutory requirements for piece-rate compensation by confirming, as of January 1, 2016, that employers were required to compensate piece-rate employees for rest and recovery periods and other nonproductive time separate from any piece-rate compensation.  Neither the term “other nonproductive time” nor the term “actual sums due” in the statute were unconstitutionally vague.

The statutory definition of “other nonproductive time” as “time spent under the employer’s control, exclusive of rest and recovery periods, that is not directly related to the activity being compensated on a piece-rate basis,” was “reasonably clear and specific and provide[d] adequate notice of the nature of the conduct that is being described.”  Moreover, section 226.2 was enacted to codify Gonzales, which, like Bluford, relied on Armenta.  This context of case law lent clarity to the statute.  In particular, Gonzales provided “fact-based concrete illustrations of what was meant by the term ‘other nonproductive time’”.  The phrase in the definition, “not directly related” was not unconstitutionally vague: many statutes have used the phrase “directly related”.  The constitution did not require the statute’s terms to contemplate all possible circumstances in which it would be applied.

The second ground for the employers’ constitutional challenge, that the statute was retroactive, also was without merit.  The safe-harbor affirmative defense, which required payment by employers of pre-January 1, 2016 unpaid compensation, did not constitute an unconstitutionally retroactive statute, because the compensation for prior rest periods and nonproductive work, on which the affirmative defense was conditioned, was based upon the law that was in effect at the time, before the adoption of section 226.2—i.e., the case law of Gonzales, Bluford and Armenta.  When the Gonzales and Bluford decisions were final, employers were required to separately compensate piece-rate employees for nonproductive uncompensated time and for rest periods.

The Nisei Farmers League case makes clear that employers cannot expect a judicial reprieve from the requirement of separate hourly compensation of piece-rate employees for rest periods and other nonproductive time.  The workability of such a compensation system remains in question.  Tracking nonproductive time will continue to be cumbersome.  And the potential liability exposure for failing to track and pay for it properly may continue to shift employers away from any piece-rate compensation in California.  This development could adversely impact employees who, in some circumstances, can earn higher pay on a piece-rate basis than as an hourly employee.