On January 1, 2000, California employees and employers will be forced to wrestle with the substantial wage-hour reform measures instituted by AB 60. The legislation was signed into law by Governor Davis on July 20, 1999, and is entitled the "Eight-Hour-Day Restoration and Workplace Flexibility Act of 1999."
As implied by its title, the legislation will reinstate the daily overtime and seventh-day premium provisions of the five Wage Orders of the Industrial Welfare Commission ("IWC") that were amended, following years of study, on January 1, 1998. (These are Wage Orders 1, 4, 5, 7, and 9.) The legislation will also go much, much further. It represents the most massive overhaul of the state statutory rules in the wage-hour field in more than 20 years. It will
reinstate daily overtime
reinstate the 7th day premium rules (in part),
dramatically alter the "white collar exemption" standards for executive, administrative, and professional employees,
change the method for computing overtime for salaried, nonexempt employees,
narrow the circumstances under which flexibility can be achieved in scheduling through "alternative workweek schedules,"
change the exemption standards for union employees,
invite the IWC to adopt revisions to the exemption standards for pharmacists and outside salespersons,
create a commuting time rule,
establish new standards for meal periods, makeup time, part-time employees, and agricultural occupations, and
establish an unprecedented system for the Labor Commissioner to impose fines and sanctions, including personal liability, under a citation system for wage and hour violations.
Some of the key features of AB 60 are summarized below.
Summary of Overtime Standards
Most California employees will be subject to the following overtime standards. The standards will require nonexempt employees to receive time and one-half for:
Over 8 hours of work in a workday
Over 40 hours of work in a workweek
The first 8 hours of work on a seventh day.
Nonexempt employees will also be entitled to double time for:
Over 12 hours of work in a workday
Over 8 hours of work on a seventh day.
Exemptions
Exemptions from the basic overtime rules will apply to
"white collar" employees who qualify for the state executive, administrative, or professional exemption,
Employees who are eligible for and covered by an "alternative workweek schedule" that satisfies detailed statutory and regulatory standards, and
Union employees who are paid at least 30% more than the state minimum wage and receive premium wage rates for overtime work.
The White Collar Exemptions
California law currently establishes "white collar" exemptions for executive, administrative, and professional employees. Employees must satisfy a "duties and responsibilities" test to qualify as exempt under any of the three categories. In addition, executive and administrative employees must also satisfy a "remuneration" test that sets a minimum level of remuneration for individuals to qualify as exempt. The sum is currently $900 per month in most Wage Orders, and $1,150 a month under Wage Orders 1, 4, 5, 9, and 10.
The legislation will change the "remuneration" standard to a "salary" standard, and will extend that standard to the professional exemption. It will also increase the minimum salary required from $900 per month to a sum that is equivalent to no less than two times the state minimum wage for full-time employment. At the current minimum wage of $5.75 an hour, a full-time employee would earn $230 per week. When doubled this is $460 per week or the equivalent of $1,993.33 per month. This translates into $23,920 per year. Moreover, because it is tied directly to the minimum wage, it will increase automatically whenever the minimum wage increases.
The new statute will also require that employees be "primarily" engaged in exempt duties in order to qualify. It defines the term "primarily" to mean "more than one-half of the employee.s work time." It also directs the IWC to review the duties that qualify as exempt and, if it chooses, issue regulations that clarify the standards in this area.
The statute provides that registered nurses cannot qualify as exempt professional employees under state law, even though they may qualify as professionals under federal law. The statute directs the IWC to determine whether pharmacists should be eligible for the professional exemption and, if so, under what standards. It also instructs the IWC to evaluate the exemption for outside salespersons that currently exists and was construed in the recent Supreme Court decision in Ramirez v. Yosemite Water Co., Inc., 1999 Daily Journal D.A.R. 6065 (1999).
Alternative Workweek Schedules
The legislation will dramatically erode the flexibility that employees and employers currently enjoy under state law. Although the legislation contains provisions for "alternative workweek schedules," they are very narrow when contrasted with the current rules contained in many of the Wage Orders. They will inhibit employers from allowing employees to work even the limited schedules authorized, such as a 4/10 schedule. They will outlaw straight-time schedules in excess of 10 hours in a workday. For example, 12-hour shifts at straight-time pay will be impermissible for most nonexempt employees.
Some of the key features of the new rules are as follows:
Alternative workweek schedules may not exceed 10 hours per day.
Employers may propose schedules that either involve a single work schedule for all workers in a work unit or a menu of work schedule options, from which employees in the unit may choose.
No statutory definition of the term "work unit" exists.
Special overtime standards will apply where an alternative workweek schedule is proposed and properly adopted.
Employers may not reduce an employee.s regular rate of pay as a result of the adoption, repeal or nullification of an alternative workweek schedule.
Employees must approve such schedules in a secret ballot election by at least a two-thirds majority of all affected employees in the work unit.
The IWC is expected to issue regulations regarding the manner in which alternative workweek schedules can be repealed by employees or employers after they are implemented.
The IWC is expected to issue rules regarding alternative workweek schedule elections, including disclosure rules.
Employers must make reasonable accommodations for employees who are eligible to vote in an election and who are unable to work the alternative workweek schedule.
Employers are allowed to accommodate other employees.
Employers must explore means of accommodating the religious beliefs or observances of affected employees.
Employers must report the results of alternative workweek schedule elections within 30 days.
Most flexible work arrangements adopted under Wage Orders 1, 4, 5, 7, or 9 (whose daily overtime provisions were repealed as of January 1, 1998) will be automatically rendered null and void as of January 1, 2000.
Health care employers have a limited grace period, until July 1, 2000, to eliminate certain schedules exceeding 10 hours per day, such as 12-hour shift schedules.
A special grandfather provision affords limited protection to employees who were voluntarily working an alternative work schedule as of July 1, 1999, that included a schedule of up to 10 hours in a day.
Meal Period Rules
The legislation will codify the meal period rules within new Labor Code ' 512. It requires meal periods of at least 30 minutes whenever an employee works more than five hours. Existing exemptions from the meal period rules are not included within the statute. Additional meal period rules will apply to employees who work over 10 hours in a day.
Make-Up Time
If a nonexempt employee misses work as a result of personal obligations, the employee may make up the missed time at a straight-time rate under certain circumstances. Make-up time is allowed only if employers approve a written request of an employee to make up lost work time at a straight-time rate.
A number of conditions create serious barriers to the use of the make-up time rules. In addition, employers may not encourage or solicit employees to request the opportunity to take personal time off and make up the missed time.
Agricultural Occupations
AB 60 contains a number of special provisions for agricultural occupations. The objective of these provisions is, in part, to preserve the special overtime standards embodied in the existing agricultural Wage Orders.
New Fines and Sanctions
AB 60 establishes a new citation system for the imposition of fines and sanctions. The fines and sanctions can be imposed upon employers and individuals acting on behalf of employers who either violate the law or cause violations. Penalties for initial violations can equal $50 for each underpaid employee. Penalties for subsequent violations are increased to $100 for each underpaid employee. The Labor Commissioner can issue citations where it finds violations have occurred. Extremely short time frames are provided under Labor Code ' 1197.1 to appeal and contest citations.
This article was originally published as a Labor & Employment Update (July 1999), a Sheppard, Mullin, Richter & Hampton LLP publication. ) 1999 Sheppard, Mullin, Richter & Hampton LLP.