Los Angeles Labor & Employment Alert: The New Millennium Means The Return of Daily Overtime

In 1998, the California Industrial Welfare Commission ("IWC") removed the decades long requirement that non-exempt employees working under Wage Orders 1 (Manufacturing), 4 (Professional, Technical, Clerical, Mechanical and Similar Occupations), 5 (Public Housekeeping) and 9 (Transportation) be paid overtime for working more than eight hours in a workday. The elimination of the daily overtime premiums increased scheduling flexibility, thereby benefiting both employers and their employees. Recently, the State Legislature passed a bill, which Governor Gray Davis has indicated he will sign, restoring the daily overtime premium requirements. AB 60, which is known as the "Eight-Hour-Day Restoration and Workplace Flexibility Act of 1999," will take effect on the first day of the new millennium, January 1, 2000. The highlights of AB 60 are described below.

The new law, which will become part of the California Labor Code, applies to all employees, and not just those working under the five Wage Orders changed by the IWC in 1998. Interestingly, although AB 60 was sponsored by various unions, employees working under a union collective bargaining agreement which provides for premium wage rates for all overtime hours worked and a regular hourly rate of pay of not less than 30% above the state minimum wage, are exempt from the new law.

AB 60 provides that hours worked in excess of eight hours in one workday must be paid for at time and one-half the employee's regular rate of pay. Time and one-half also must be paid for hours worked in excess of forty in a workweek and the first eight hours worked on the seventh day of work in a workweek. In addition, double time must be paid for hours worked in excess of 12 in a workday, as well as for hours worked in excess of 8 on the seventh day of a workweek. For computing overtime, the regular rate of pay for nonexempt full-time salaried employees is 1/40th of the employee's weekly salary. Special overtime rules apply to employees in certain industries, such as the agriculture, ski and fishing industries.

The overtime pay requirements of the new law do not apply to employees working pursuant to an approved alternative workweek schedule. Specifically, AB 60 permits employees to adopt a regularly scheduled alternative workweek that authorizes no more than 10 hours of work per day within a 40-hour workweek without the payment of overtime. In order to be valid, the alternative workweek must be approved by two-thirds of the affected employees in the work unit in a secret ballot election, the results of which must be reported to the California Division of Labor Statistics and Research. The alternative work schedule may be either a standard schedule or a menu of work schedule options from which the employees are entitled to choose.

An employee on an approved alternative workweek schedule who works longer than eight hours, but not more than 12 in a workday, is required to be paid time and one-half for work in excess of the regularly scheduled hours established by the alternative workweek agreement, and for work in excess of 40 in a workweek. Double time must be paid for work in excess of 12 hours in a workday, and for any work in excess of eight hours on those days worked beyond the regularly scheduled workdays established by the agreement.

The new law prohibits an employer from reducing an employee's regular rate of pay as a result of the adoption, repeal or nullification of an alternative workweek schedule. In addition, employers are required to make a reasonable effort to find a work schedule not to exceed eight hours in a workday as an accommodation to any affected employee who was eligible to vote in the secret ballot election and who is unable to work the alternative schedule. Employers also are required to explore any available reasonable alternative means of accommodating the religious belief or observance of an affected employee that conflicts with an alternative workweek schedule in the manner provided for in the Fair Employment and Housing Act.

AB 60 invalidates the 1998 versions of Wage Orders 1, 4, 5 and 9 reinstates the earlier versions. Consistent with this, alternative workweek schedules primarily adopted pursuant to the versions of Wage Orders 1, 4, 5 and 9 are void unless they provide for a regular schedule of no more than 10 hours of work in a workday and were adopted by a two-thirds vote in a secret ballot election pursuant to the Wage Orders in effect prior to the elimination of the daily overtime premiums. However, alternative workweek schedules in the health care industry that were adopted by a two-thirds vote in a secret ballot election pursuant to the versions of Wage Orders 4 and 5 in effect prior to 1998, and that provided for workdays between 10 and 12 hours without the payment of overtime compensation, are valid until July 1, 2000. Moreover, an employee who is voluntarily working an alternative work schedule of not more than 10 hours of work in a workday as of July 1, 1999, may continue to work that schedule if the employer approves a written request of the employee to work that schedule.

It is anticipated that few employers will utilize the alternative workweek schedules permitted by AB 60 as they are limited to scheduled days of no more than 10 hours, provide very little scheduling flexibility, and impose significant procedural burdens on employers.

A limited exception to the overtime premium requirements is established for employees who request in writing to make up work time that is or would be lost as a result of a personal obligation. If approved by the employer, the hours of make up time, if performed in the same workweek in which the time was lost, need not be counted towards computing the total hours worked in a day for purposes of the overtime requirements, except for hours in excess of 11 in a workday or 40 in a workweek.

AB 60 also provides that the IWC may establish exemptions from the overtime pay requirements for executive, administrative and professional employees, provided the employee spends more than one-half of his time engaged in exempt duties and earns a monthly salary equivalent to no less than two times the state minimum wage for an employee who is employed 40 hours per week. However, the IWC may not exempt registered nurses unless they individually meet the criteria established for executive or administrative employees. Finally, AB 60 also clarifies that time spent commuting to and from the first place at which an employee's presence is required by the employer shall not be considered to be part of a day's work, even if the employee commutes in a vehicle that is owned, leased, or subsidized by the employer and is used for the purpose of rides haring.

Employers or persons acting on their behalf who violate AB 60 or an order of the IWC are subject to civil penalties for each underpaid employee for each pay period. These penalties, which are $50 for an initial violation and $100 for subsequent violations, are in addition to amounts sufficient to recover underpaid wages.