California Wage and Hour Laws for Large Corporations

“Meal and rest periods have long been viewed as part of the remedial worker protection framework.”  Murphy, infra.  California law requires employers to authorize and permit rest breaks for every four hours of work or major fraction thereof.  The California Supreme Court in Brinker, infra, explained that the “major fraction thereof” requirement means one break for a shift greater than 3.5 but less than 6 (“3.5>6”) hours long, two breaks for a shift greater than 6 but less than 8 (“6>8”) hours long, and three breaks for a shift greater than 10 but less than 12 (“10>12”) hours long.

California Labor Code section 226.7 prohibits employers from requiring its employees to work during any rest period mandated by the Industrial Welfare Commission (“IWC”) Wage Orders.  “[I]n light of the remedial nature of the legislative enactments authorizing the regulation of wages, hours and working conditions for the protection and benefit of employees, the statutory provisions are to be liberally construed with an eye to promoting such protection.”  Industrial Welfare Com. v. Superior Court, 27 Cal.3d 690, 702 (1980).  “[T]he IWC’s wage orders are entitled to ‘extraordinary deference, both in upholding their validity and in enforcing their specific terms.’”  Brinker Restaurant Corp. v. Superior Court, 53 Cal.4th 1004, 1027 (2012) (quoting Martinez v. Combs, 49 Cal.4th 35, 61 (2010)).  Rest break requirements “have long been viewed as part of the remedial worker protection framework.”  Murphy v. Kenneth Cole Productions, Inc., 40 Cal.4th 1094, 1105 (2007).

IWC Wage Order No. 7 (California Code of Regulations title 8 section 11070) applies to the “mercantile Industry”, defined therein as “any industry, business, or establishment operated for the purpose of . . . selling . . . goods or commodities at . . . retail.”  Section 12 of the Wage Order states the rest break requirements:

(A) Every employer shall authorize and permit all employees to take rest periods, which insofar as practicable shall be in the middle of each work period. The authorized rest period time shall be based on the total hours worked daily at the rate of ten (10) minutes net rest time per four (4) hours or major fraction thereof.  . . .

(B) If an employer fails to provide an employee a rest period in accordance with the applicable provisions of this order, the employer shall pay the employee one (1) hour of pay at the employee’s regular rate of compensation for each workday that the rest period is not provided.

The California Supreme Court in Brinker interpreted “major fraction thereof” to mean “more than half” and held that the Wage Order requires employers to provide two rest breaks for a 6>8-hour long shift.  Brinker, supra, 53 Cal.4th at 1031–1032.  The additional hour of pay due for missed rest breaks are premium wages rather than a penalty, and thus governed by the three-year statute of limitations for unpaid wages.  Murphy v. Kenneth Cole Productions, Inc., 40 Cal.4th 1094, 1114 (2007).

It is the managers’ responsibility to notify an employee that a rest break is authorized and permitted.  Bufil v. Dollar Financial Group, Inc., 162 Cal.App.4th 1193, 1199 (2008) (citing Cicairos v. Summit Logistics, Inc., 133 Cal.App.4th 949, 963 (2005).  It is not the daily responsibility of employees to demand that their rest breaks be taken.

Even if managers did notify employees that they could request a second break, that is still insufficient.  Telling employees that they have a right to request a 10-minute break every major fraction of 4 hours is one thing.  Telling employees that they can take a break when they need one is another.  The latter does not satisfy the Wage Order requirement that breaks for each applicable time increment be “authorized and permitted.”  If told merely that they can take a break when they need,employees will likely be discouraged from taking their break given the pressure to continue working in a busy environment or to please their managers.  That is especially so when the manager puts the first break on the schedule but not the second or when the manager takes affirmative actions to remove the second break from the schedule.  The obvious implication in those circumstances is that the first break is authorized and permitted because it is on the schedule while the second break is not because it is not scheduled.  The employer’s duty to authorize and permit rest breaks precludes it from impeding or discouraging employees from taking their breaks.  Brinker, supra, 53 Cal.4th at 1040.  Discouraging or impeding breaks has the same legal effect has denying them outright.  Id.

Even assuming, arguendo, that Brinker allowed employers to shift the burden to employees to request breaks, the common practice of “approving” bathroom break requests does not constitute authorizing and permitting rest breaks.  While employees may voluntarily use their rest break to use the bathroom, a bathroom break simpliciter does not constitute a rest break.  The Wage Order requires rest breaks to be provided during the middle of the employee’s shift, as far as practicable.  Employers attempting to comply with that requirement must have an idea about each employee’s shift range and formulate a plan to at least attempt to authorize and permit the employees to take their rest break during the middle of their shift.  The time at which employees take their break must be based on the actual time they work, not the size of their bladders or the amount of soda they drank at lunch.  Employers that seriously aim to accomplish the Wage Order requirements cannot reasonably rely on their employees to request a bathroom break around the middle of their shift unless the employees were instructed to do so. 

Furthermore, a bathroom break does not constitute a break because employees are not relieved of all duty when they are permitted to use the bathroom.  When a manager approves a bathroom break request, the obvious implication is that the employee has a duty to return immediately after using the bathroom.  A license to use the bathroom does not include the right to read a book or smoke a cigarette.  Yet, the inherent nature of a rest break is to be relieved of all duty.  As a corollary, a bathroom break does not constitute a rest break because bathroom breaks are not necessarily 10-minutes long.  And, a license to use the bathroom does not give employees the right to dilly-dally since they have a duty to return immediately after using the bathroom.  It is clear, therefore, that approving bathroom breaks is neither intended nor sufficient to stand in the place of authorizing and permitting rest breaks.

Lab. Code § 201(a) requires an employer to pay all wages owed to employees immediately upon termination.  If the employer willfully fails to do so, the employer must pay the aggrieved employees 30-days’ pay as a statutory penalty under Lab. Code § 203(a).  Rest break premium wages constitute wages for the purposes of waiting time penalties.  Avilez v. Pinkerton Government Services, — F.R.D. —-, 2012 WL 5077136, 11 (October 9, 2012).  See Murphy v. Kenneth Cole, supra (rest break premium wages are part of an employees wages earned).  Pursuant to Lab. Code § 203(b), the statute of limitations for these “waiting time” penalties is the same as that for the underlying wages owed.

“Willfulness” in the context of waiting time penalties just means “intentional.”  “’[T]o be at fault within the meaning of [section 203], the employer’s refusal to pay need not be based on a deliberate evil purpose to defraud workment of wages which the employer knows to be due.  As used in section 203, ‘willful’ merely means that the employer intentionally failed or refused to perform an act which was required to be done.’”  Armenta v. Osmose, Inc., 135 Cal.App.4th 314, 325 (2005) (quoting Barnhill v. Robert Saunders & Co., 125 Cal.App.3d 1, 7 (1981)).  Thus, if an employer intended to pay its discharged employees the specific amount that was actually paid, and the amount did not include premium wages owed, then the underpayment was willful.

“An employer’s good faith mistaken belief that wages are not owed may negate a finding of willfulness.”  Road Sprinkler Fitters Local Union No. 669 v. G & G Fire Sprinklers, Inc., 102 Cal.App.4th 765, 782–783.  In Road Sprinkler the employer misclassified its employees as exempt and failed to pay them overtime.  The employer argued that its failure to pay the employees their overtime wages upon termination was not willful, for the purposes of waiting time penalties, since it believed in good faith that it its employees were exempt.  The court rejected that argument, holding that, in order to negate willfulness, a good faith mistaken belief has to be reasonable.  In that case it was clear from existing law that the employees were non-exempt, so the employer’s subjective belief that the employees were exempt was unreasonable.  Thus the court upheld waiting time penalties.

Lab. Code § 226(a) requires employers to issue accurate, itemized wage statements to its employees each pay period, including, inter alia, the employees’ wages earned.  Section 226(e) gives each injured employee the right to collect statutory penalties for an employer’s knowing and intentional failure to provide accurate wage statements—$50 for the initial violation and $100 for each subsequent pay period in which there is a violation, up to a maximum of $4000 per employee.  Rest break premium wages constitute wages for the purposes of inaccurate wage statement penalties.  Avilez, supra.

Under the federal notice pleading requirement, a complaint need only provide fair notice of what the plaintiff’s claim is and the grounds upon which it rests.  Mayle v. Felix, 125 S.Ct. 2562 (2005).  A plaintiff need not cite to specific statutes or cases in order to state a cause of action.  See Huene v. U.S. Dept. of the Treasury 2012 WL 1681969, 6 (E.D. Cal. 2012) (citing Alvarez v. Hill, 518 F.3d 1152, 1157 (9th Cir. 2008)) (“[A]s a general matter, a plaintiff need not include citations to specific statutes in his or her complaint in order to state a claim on which relief can be granted.”).

Courts interpreting section 226 have found injury to exist where there is a possibility an employee is not being fully compensated or is required to do discovery or mathematics in order to determine the wages due.  Price v. Starbucks Corp. (2011) Cal.App.4th 1136, rehearing denied, review denied; Jaimez v. DAIOHS USA, Inc. (2010) 181 Cal.App.4th 1286; Alonzo v. Maximus, Inc. (C.D. Cal. 2011) 832 F.Supp.2d 1122; Reinhardt v. Gemini Motor Transport (E.D. Cal., 2012) 2012 WL 2932678.

Even if, arguendo, Plaintiff’s factual allegations do not support a claim for injury under existing case law, recent statutory amendments have clarified that an injury occurs when the employer fails to include the employee’s total wages earned and the employee cannot “promptly and easily” determine from the wage statement the total wages earned.  Lab. Code § 226(e)(2).

The Labor Code Private Attorneys General Act of 2004 (Lab. Code § 2698 et seq.) (“PAGA”) deputizes private parties to collect civil penalties for Labor Code violations.  Arias v. Superior Court, 46 Cal.4th 969, 986 (2009) (“An employee plaintiff suing, as here, under [PAGA] does so as the proxy or agent of the state’s labor law enforcement agencies.”).  “When proven, Labor Code violations give rise to civil penalties.”  Amaral v. Cintas Corp. No. 2, 163 Cal.App.4th 1157, 1195 (2008).  “Imposition of civil penalties has, increasingly in modern times, become a means by which legislatures implement statutory policy.”  Hale v. Morgan, 22 Cal.3d 388, 398 (1978); Starving Students, Inc. v. Department Of Industrial Relations, 125 Cal.App.4th 1357, 1367 (2005).

Where the Labor Code does not provide a penalty for a particular violation, PAGA establishes a default penalty of $100 per employee per pay period for an initial violation and $200 per employee per pay period for subsequent violations.  Lab. Code § 2699(f).  Since the Labor Code does not provide any civil penalty specifically for rest break violations, the PAGA default penalty applies.  Thurman v. Bayshore Transit Management, Inc., 203 Cal.App.4th 1112, 1134 (2012); Home Depot U.S.A., Inc. v. Superior Court, 191 Cal.App.4th 210, 218 (2010).  Thus, section 2699(f) penalties apply.

Lab. Code § 204 requires employers to, every pay period, pay its employees their wages earned for that pay period.  Lab. Code § 210 subjects employers to a penalty for failing to do so.  The penalty is $100 per employee per pay period for an initial violation and $200 per employee per pay period for subsequent violations, plus 25% of the unpaid amount.  Section 210 states that the penalty is “In addition to, and entirely independent and apart from, any other penalty.”  Since employees are immediately entitled to a premium wage whenever they miss a rest break, those wages must be paid to the employee at the end of the pay period during which the break was missed.  Murphy, supra, 40 Cal.4th at 1108.

Lab. Code § 558 subjects employers to penalties for violating any provision of any IWC Wage Order regulating hours of work.  The penalty is $50 per employee per pay period for an initial violation and $100 per employee per pay period for subsequent violations.  Section 558 penalties are “in addition to any other civil or criminal penalty provided by law.”

Each of the foregoing penalties provide for double penalties when the violation is a “subsequent” one.  “Subsequent violations” occur once the employer is put on notice that its conduct violates the law.  Amaral, supra, 163 Cal.App.4th at 1209.  The increased penalty is obviously designed to motivate and penalize particularly obstinate or apathetic employers who fail to comply with the Labor Code requirements even after an initial warning.

Lab. Code § 226.3 subjects employers to a civil penalty for wage statement violations.  The penalty is $100 per employee per violation for an initial citation and $200 per employee per violation for subsequent citations.  Penalties under this section are discretionary if the violation was due to a “clerical error or inadvertent mistake.”  Lab. Code §§ 226.3, 2699(e)(1).  “Inadvertent” in this context means “unintentional, accidental or not deliberate.”  Heritage Residential Care, Inc. v. DLSE, 192 Cal.App.4th 75, 83–86 (2011).  As previously discussed, SLT intentionally failed to provide accurate wage statements.  Therefore section 226.3 penalties apply.

The initial-versus-subsequent distinction is a bit different here than with respect to section 2699(f) and 210 penalties.  Here, the level of penalty is based on citations, as opposed to violations.  “Citations” in 226.3 refers to citations by the Labor Commissioner.  In a PAGA action, like the Mills case and the instant case, the civil plaintiff stands in the shoes of the Labor Commissioner.  Penalties imposed in a PAGA action constitute a citation.  See Heritage, supra 192 Cal.App.4th at 87 (Court of Appeals approves of trial court’s use of “citation” to refer to court-imposed penalties).

If the court concludes that an employer violated the Labor Code, then the court has no discretion to impose penalties.  “When proven, Labor Code violations give rise to civil penalties.”  Amaral, supra, 163 Cal.App.4th at 1195.  “[PAGA penalties] are mandatory, not discretionary.”  Id.  The court must impose penalties consistent with the “remedial objectives” of PAGA and other Labor Code penalty provisions.  Id. at 1184, 1213–1214; Industrial Welfare Com., supra, 27 Cal.3d at 702 (affirming trial court’s grant of full PAGA penalties).

PAGA defines a set of narrow circumstances in which the court has power to reduce the amount of penalties assessed: if the amount of penalties would be unjust, arbitrary and oppressive, or confiscatory based on the facts and circumstances of the particular case.  Lab. Code § 2699(e)(2).  Notwithstanding that power, “judicial discretion must be exercised within the confines of the statute that grants the discretion.”  Amaral, 163 Cal.App.4th at 1213 (citing Horsford v. Board of Trustees of California State University, 132 Cal.App.4th 359, 393–394, 33 (2005)).  “The text of section 2699 and the legislative history of PAGA indicate the purpose of the act was to encourage a broad collection of civil penalties to deter Labor Code violations.”  Id. (citing Caliber Bodyworks, Inc. v. Superior Court, 134 Cal.App.4th 365, 370, 374 (2005), emphasis supplied).

Factors contributing to the propriety of assessing a penalty are, inter alia, whether the employer’s violation was willful and egregious, and whether the amount assessed is sufficient to deter the employer from committing future violations.  Id.  Though, a finding of willfulness is not necessary to the imposition of penalties.  Courts will award the full extent of penalties even absent a finding of willfulness.  For example, in Amaral, the Court of Appeals upheld the trial court’s decision to impose full penalties even though the trial court stopped short of finding the employer’s violations to be willful.  The fact that the employer took a “cavalier approach to fulfilling its contractual and statutory obligations” provided a basis for finding that it acted with “gross negligence or reckless disregard.”  Amaral, supra, 163 Cal.App.4th at 1214.

One appellate case, Thurman, supra, approved of a trial court reducing penalties.  But that was only where the employer “took their obligations under [the Wage Order] seriously and attempted to comply with the law.”  In Thurman, the employer imposed meal and rest break requirements over the employees’ objections.  The employer counseled employees about their breaks and took affirmative steps to communicate with the employees’ union to ensure that the break policy was legally compliant.

Large corporations whose policies affect thousands of employees should be taking affirmative steps to comply with wage and hour laws for their employees’ sakes, not just attempting to minimize liability when it arises.  Exhibit 5, Declaration of Mary L. Topliff ¶ 9–12.  The California rest break requirements have been abundantly clear that employees are entitled to a rest break for working a major fraction of four hours.  The requirement is stated explicitly in the Wage Order, and it has been that way since before the Mills action.

As the California Supreme Court stated in Brinker: “An employer is required to authorize and permit the amount of rest break time called for under the wage order for its industry.  If it does not—if, for example, it adopts a uniform policy authorizing and permitting only one rest break for employees working a seven hour shift where two are required—it has violated the wage order and is liable.  No issue of waiver ever arises for a rest break that was required by law but never authorized; if a break is not authorized, an employee has no opportunity to decline to take it.” Brinker, supra, 53 Cal.4th at 1033.  The Supreme Court specifically contemplated that class certification is appropriate in cases like the instant one: “As [the plaintiff] pleaded and presented substantial evidence of a uniform rest break policy authorizing breaks only for each full four hours worked, the trial court’s certification of a rest break subclass should not have been disturbed.”  Id.

In Ortega v. J.B. Hunt Transport, Inc., 258 F.R.D. 361 (C.D.Cal. 2009), the court certified a rest break class where the plaintiff alleged that the employer’s compensation system lacked codes to record missed breaks and compensate employees with premium wages.  The employer opposed certification, arguing that whether each employee took their rest breaks was an individualized question due to variations in employees’ daily activities, their decision-process regarding rest breaks, and whether their failure to take rest breaks had any effect on their premium wage compensation.  The court rejected the employer’s argument:

“The Court disagrees.  For purposes of class certification of Plaintiffs’ rest and meal break claims, the Court’s focus is properly on Defendant’s compensation system, as it applies to all potential class members.  The question before the Court is whether Defendant’s compensation system, including the absence of codes to record breaks in the OBC system and the absence of pay specifically allocated for break periods, is consistent with Defendant’s obligation under California law to provide rest and meal breaks to its drivers.  This inquiry encompasses the issues of whether Defendant’s compensation scheme does, in fact, provide for code-compliant breaks, pay drivers for rest breaks, and otherwise compensate drivers for all time worked.” Id. at 367. 

See also Gardner v. Shell Oil Co., 2011 WL 1522377 (N.D.Cal. 2011) (granting class certification in meal break case where the plaintiff alleged a company-wide illegal policy).  See also Dilts v. Penske Logistics, LLC, 267 F.R.D. 625 (S.D. Cal. 2010) (granting class certification in meal and rest break case where the plaintiff alleged a company-wide illegal policy, notwithstanding variations in employee circumstances).

Furthermore, the fact that the court may have to engage in individualized inquiries in order to calculate each employee’s individual damages will not defeat class certification.  Yokoyama v. Midland Nat’l Life Ins. Co., 594 F.3d 1087, 1094 (9th Cir.2010) (“In this circuit, however, damage calculations alone cannot defeat certification.”).  Morton v. Valley Farm Transp., Inc., 2007 WL 1113999 (N.D. Cal. 2007) (meal and rest break claims certified for class treatment despite inevitable individualized issue of damages based on the number of hours each employee worked per day).  Dilts, supra, 267 F.R.D. 625 at 635.

PAGA representative actions do not have to comply with class action requirements because PAGA actions are law enforcement actions.  Arias, supra, 46 Cal.4th at 981 (“An employee need not satisfy class action requirements to bring a representative action against an employer under [PAGA].”).  Guifu Li v. A Perfect Day Franchise, Inc., 2012 WL 2236752 (N.D. Cal. 2012).  Willner v. Manpower Inc., 2012 WL 1570789 (N.D. Cal. 2012).  The requirements of pursuing a PAGA representative action are far less stringent than for a Rule 23 class action since the nature of a PAGA action is a law enforcement proceeding.  For example, in a PAGA representative action, there is no commonality requirement.  Plaisted v. Dress Barn, Inc., 2012 WL 4356158, 2 (C.D. Cal. 2012):

“To hold that a PAGA action could not be maintained because the individual assessments regarding whether a violation had occurred would make the claim unmanageable at trial would obliterate this purpose, as every PAGA action in some way requires some individualized assessment regarding whether a Labor Code violation has occurred.”

Furthermore, liability in a PAGA representative action can be proven through representative evidence.  When the Department of Labor Standards Enforcement (“DLSE”) brings a state enforcement action, it does not use individualized proof.  Miles Locker, former DLSE Chief Counsel, states:

“The DLSE uses various methods to prove wide spread wage and hour violations.  Obviously, in cases involving thousands of employees, the DLSE does not interview each employee in conducting an investigation, and does not have each employee testify in an enforcement proceeding.  The DLSE will typically offer representative testimony from a small group of employees, and may offer testimony from an investigator regarding his or her interviews with employees, the employer, examination of records, and investigative conclusions.” Declaration of Miles Locker ¶ 17.

In determining both liability and the appropriate award of damages in wage and hour cases, nearly every court has concluded that plaintiff-by-plaintiff testimony is not required unless the use of representative evidence would result in an unfair trial under the particular circumstance presented.  For example, trials in federal overtime actions regularly proceed on the basis of representative discovery and evidence.  The liability trial in In re Farmers Insurance Exchange, 226 F.Supp.2d 1077, 1083 (D. Or. 2004), which adjudicated liability on behalf of roughly 1900 plaintiffs was based upon representative evidence and took only 14 days.  See also Donovan v. New Floridian Hotel, Inc., (S.D. Fla.), aff’d, 676 F.2d 468 (11th Cir. 1982) (five-day trial using representative evidence resulting in damages for 207 employees); Thiebes v. Wal-Mart Stores, Inc., 2004 WL 1688544 (D.Or. 2004) (three-week trial using representative testimony to establish liability to over 400 employees); Herman v. Hector I. Nieves Transport, Inc., 91 F.Supp.2d 435 (D.Puerto Rico 2000) (14 out of 1000 testifying truck drivers provided adequate basis for determining average number of hours worked).