• Employers Hungry For New Meal Period Regulations

• California Court Of Appeal Rules That Employers Can Deduct Partial Day Absences From Exempt Employees' Vacation Time

• New Law Permits Direct Deposit Of Final Wage Payments

• Proposed Regulations Shed Light On California's Mandatory Sexual Harassment Training Law

• Run, Don't Walk To Work:  Compensable Time Under The FLSA

• New USERRA Regulations Are Now In Effect

• Changes To California's Computer Software Professional Exemption

EMPLOYERS HUNGRY FOR NEW MEAL PERIOD REGULATIONS

After months of anticipation for employers hoping to get relief from California's stringent meal period requirements, the Division of Labor Standards Enforcement ("DLSE") announced that it would not issue the meal period regulations it proposed in late 2005. Thus, the rule-making process must start over again.

As we reported in past newsletters, the DLSE had proposed regulations to clarify the law regarding meal periods, including how an employer provides a meal period, when the meal period starts, and that payments made by an employer for failure to provide a meal period are a penalty, subject to a one-year statute of limitations, and not a wage. This started a period of public notice and comment, with the DLSE revising the regulations several times. The DLSE was to file the final version of the regulations with the Office of Administrative Law ("OAL") on January 13, 2006. Approval by the OAL is the last step in the regulation-making process.

On January 13, 2006, however, the DLSE abruptly announced that it would not be filing the regulations with the OAL. Instead, the DLSE announced that it would fine tune the proposed meal and rest period regulations and issue a new package of regulations at a later date, thereby beginning a new rule-making process.

Perhaps the most critical component of the proposed regulations was the DLSE's position that the one hour of pay provision for a missed meal or rest break is a penalty, subject to a one-year statute of limitations, versus a wage, subject to a three or four-year statute of limitations. The distinction is critical in terms of potential monetary liability to employees.

With the DLSE's retraction of the proposed regulations, employers must wait for the courts to decide whether the one hour of pay provision is a wage or a penalty. The First and Second District Courts of Appeal in Murphy v. Kenneth Cole Productions and Mills v. Superior Court have held that the payment is a penalty, subject to a one-year statute of limitations. The Fourth District Court of Appeal in National Steel and Shipbuilding Company v. Superior Court took the opposite view, holding that the payment is a wage. The plaintiffs in Kenneth Cole filed a petition for review with the California Supreme Court, but the court has not yet decided whether to accept review.

Thus, given the DLSE's retraction of the proposed regulations and the split amongst the Courts of Appeal, employers have to continue to wait for clear guidance on this issue. In the meantime, employers are advised to review their meal period policy and practice to ensure compliance with California law which, among other things, requires that employees who work more than 5 hours in a day take an unpaid 30-minute uninterrupted meal break within the first 5 hours of work.


CALIFORNIA COURT OF APPEAL RULES THAT EMPLOYERS CAN DEDUCT PARTIAL DAY ABSENCES FROM EXEMPT EMPLOYEES' VACATION TIME

Both California and federal law contain overtime pay exemptions for executive, administrative, and professional employees who meet the applicable "salary basis" and duties tests. To meet the salary basis test, the employee must receive a salary that is equivalent to at least two times the state's minimum wage for full-time work ($28,080 per year in 2006) and the employee's salary cannot be subject to change based on the quantity or quality of the employee's work.

Under federal law, while employers may not make deductions from an exempt employee's wages resulting from the employee's partial-day absence for personal reasons, employers may deduct time for such absences from the employee's accrued but unused vacation. In the past, the California Division of Labor Standards Enforcement ("DLSE") has taken the position that, unlike the federal rule, California law prohibits employers from taking partial-day deductions from an employee's vacation or paid-time-off bank.

The California Court of Appeal, however, in Conley v. Pacific Gas & Electric (2005) 131 Cal. App. 4th 260, rejected the DLSE's approach and, instead, adopted the federal rule. The plaintiffs in Conley sought unpaid overtime, claiming they were improperly classified as exempt from the overtime laws. In support of their argument, they pointed to the employer's vacation policy which required exempt employees to use vacation time for any absence of four hours or more during a workday. The plaintiffs argued that this violated the salary requirement because it amounted to a deduction from wages based on the quantity of work performed. The California Court of Appeal rejected that argument and held that the employer's policy simply regulated the timing of exempt employees' use of vacation time.

The key in Conley is that because the plaintiffs were able to use vacation time for partial day absences, they did not see a dip in their regular wages and, therefore, there was no reduction in salary. To be clear, Conley does not stand for the proposition that an employer can deduct from an exempt employee's wages for partial day absences. For example, if an exempt employee does not have any vacation time available and he/she misses a partial day, the employer may not deduct from the employee's wages. The Conley rule only applies where the exempt employee has unused vacation time available to cover the partial day absence.

The Conley decision was not appealed to the California Supreme Court. As of yet, no other Court of Appeal has ruled on the issue and, therefore, Conley is binding precedent. Employers, however, should exercise caution in this area as this is a hotly debated issue in California.


NEW LAW PERMITS DIRECT DEPOSIT OF FINAL WAGE PAYMENTS

Recently, the California Legislature passed Assembly Bill 1093, which changed California's law on the direct deposit of final wage payments, Section 213 of the Labor Code.

Effective January 1, 2006, if an employee is discharged or quits, the employer can tender the employee's final wage payment through direct deposit so long as the employee has previously and voluntarily authorized the direct deposit of his or her wages. Cal. Labor Code § 213(d) (2006).

Although prior law permitted an employer to directly deposit wages with the employee's prior authorization, that authorization was deemed terminated upon the employee's termination of employment. Accordingly, employers had to provide all accrued wages at the time of termination through payroll check.

Although the law now permits the direct deposit of final wage payments, the law does not change the timing of such payments. For example, under existing law, when an employee is discharged, the employer must pay final wages immediately at the time of discharge. If such an employee's final wage payment is directly deposited, the deposit must comport with this timing requirement.

Assembly Bill 1093 also modifies Section 213(d) of the Labor Code to permit the direct deposit of wages in any bank, savings and loan association, or credit union of the employee's choice "with a place of business located in this state." The quoted amendment was intended to respond to an ambiguity in the law that could have been interpreted to require the financial institution to be headquartered in California.


PROPOSED REGULATIONS SHED LIGHT ON CALIFORNIA'S
MANDATORY SEXUAL HARASSMENT TRAINING LAW

California law requires employers doing business in California, and who have 50 or more employees, to provide sexual harassment prevention training for supervisors. This law, A.B. 1825, requires a minimum of two hours of training, every two years, for all employees with any supervisory or managerial authority over California workers. Newly hired or promoted supervisors have to be trained within six months of assuming their supervisory position. The first round of training had to be completed by December 31, 2005.

On December 16, 2005, the Fair Employment and Housing Commission (FEHC) issued proposed regulations shedding light on the specific requirements of A.B. 1825. The proposed regulations were open for public comment until February 10, 2006, and are subject to further revision before becoming final. Nevertheless, the proposed regulations provide employers with important guidance. Key aspects of the proposed regulations are highlighted as follows:

• A.B. 1825 applies to employers "engaged in any business or enterprise" in California with 50 or more employees. As currently drafted, the regulations do not require that the 50 employees all work at the same location or that they all reside in California.

• The proposed regulations adopt the broad definition of "supervisor" found in the Fair Employment and Housing Act, which includes the ability "to hire, transfer, suspend, lay off, promote, discharge, assign, reward, or discipline other employees, or the responsibility to direct them, or to adjust their grievances, or effectively to recommend that action…if the exercise of that authority is not of a merely routine or clerical nature, but requires the use of independent judgment." Importantly, supervisory employees do not need to be physically located in California as long as they supervise California employees.

• The proposed regulations also provide employers with "desirable" and "undesirable" qualities for an effective trainer or educator, detail the areas in which the trainer or educator must be knowledgeable, and specify the content, duration and acceptable methods of the mandatory training.

• A.B. 1825 requires employers to train supervisors once every two years. The proposed regulations provide employers with guidance on how to manage compliance. Under the "Individual" tracking method, employers may track the training requirement for each supervisor, measured two years from the date of completion of the individual supervisor's last training. Under the "Training Year" tracking method, employers may designate a "training year" in which they train their supervisors and must again retrain the supervisors by the end of the next "training year," two years later.

Although subject to modification until they become final, the proposed regulations answer many questions that previously were unanswered, providing employers with significant guidance on California's mandatory sexual harassment prevention training law.

RUN, DON'T WALK TO WORK: COMPENSABLE TIME UNDER THE FLSA

Allegations of "off the clock" work have become fertile ground for wage and hour class action litigation. The issue is the scope of the compensable workday -- when does it begin, when does it end, and perhaps most importantly, what constitutes "work" that must be paid?

The U.S. Supreme Court recently addressed these questions in the IBP, Inc. v. Alvarez case, and, in doing so, articulated an expansive scope of the compensable workday for many production employees. In Alvarez, the Court held that, under the Fair Labor Standards Act ("FLSA"), employers must pay workers for the time it takes them to put on (don) and take off (doff) unique protective clothing required for their job, and the time it takes them to walk between their work stations and changing areas.

In Alvarez, employees of IBP, a meat processing plant in Washington, were required to wear company-provided protective gear to do their jobs. IBP employees stored their gear in company locker rooms, where they put on and took off the gear at the beginning and end of each shift. IBP paid its employees beginning with the first piece of meat processed each shift and ending with the last piece of meat processed, plus four minutes each day for time spent changing clothes.

The employees brought a class action lawsuit to recover back wages for all time spent changing into and out of the protective gear and for the time spent walking between the locker rooms and work stations. Also at issue in a companion case before the Court was whether the workers were entitled to compensation for the time spent waiting to obtain safety equipment from the company facility. The Court ruled that donning and doffing protective gear is compensable, as is the time spent walking between the changing and production areas. The Court ruled that time spent waiting to receive gear before the shift begins was not compensable.

In reaching its decisions, the Court relied on the U.S. Department of Labor's regulations defining the workday as the "period between the commencement and completion on the same workday of an employee's principal activity or activities." The Court reasoned that, at least in this particular case, time spent changing into and out of protective gear was "integral and indispensable" to the production workers' "principal activity." In addition, the Court held that the time spent walking between the locker room and production floor was compensable as part of the employees' "continuous workday." Time spent waiting to don and doff protective gear, however, was not a principal activity and, therefore, not compensable work time.

The Alvarez case is likely to receive significant attention by union and plaintiffs' attorneys and is a reminder to employers to re-examine their pay policies to minimize exposure to "off the clock" claims.

NEW USERRA REGULATIONS ARE NOW IN EFFECT

On January 18, 2006, the new regulations of the Uniformed Services Employment and Reemployment Rights Act of 1994 ("USERRA") went into effect. USERRA provides employment and reemployment rights for members of the uniformed services who leave their civilian jobs for military service. These rights include the ability to return to their civilian jobs after uniformed service with the same pay, benefits, and status they would have attained had they not been away on duty. USERRA also prohibits employers from discriminating against these individuals in employment because of their military service.

Prominent among these rights under USERRA is the right to reinstatement under the "escalator principle." This means that employees must be reinstated to the position they would have attained if their employment had not been interrupted (i.e., with the same seniority, rate of pay, level of vacation benefits, pension benefits, etc., that the employee would otherwise have been entitled to had he/she not been on military leave). Returning uniformed service members are also entitled to the same leave benefits as are provided for other employees, and must receive the same medical benefits for the first 30 days of their military leave and, thereafter, can elect COBRA-like coverage for up to 24 months. Finally, returning employees from military service can only be discharged for cause for a period of either 180 days or one year after their return, depending on their length of military service.

The U.S. Department of Labor ("DOL") has published a final version of the notice that employers are now required to post to inform employees of their rights under USERRA. That poster is available at www.dol.gov.

CHANGES TO CALIFORNIA'S COMPUTER SOFTWARE
PROFESSIONAL EXEMPTION

Employers are reminded that the pay minimum for the California computer software employee exemption ("Computer Professional Exemption") from overtime went up to $47.81 per hour effective January 1, 2006. (The minimum pay requirement for this exemption is adjusted every year.)

The California Legislature also modified the Computer Professional Exemption so that employers may pay such employees a salary (as opposed to an hourly wage) in limited situations. It is now permissible to pay an exempt Computer Professional the annualized full-time salary equivalent of $47.81 per hour, if in each workweek the employee receives not less than $47.81 per actual hour worked and the employee meets the other requirements of the exemption. (The requirements for the Computer Professional Exemption in California are substantially more stringent than federal law.)

For employers that have not recently audited the overtime status of their exempt employees, now may be a prudent time. We expect more litigation in this area in 2006, and also anticipate changes in the interpretation of California's Computer Professional Exemption.