New California Law Restores Daily Overtime

Governor Gray Davis recently signed into law the "Eight-Hour-Day Restoration and Workplace Flexibility Act of 1999" ("the Act"), that will take effect on January 1, 2000. (See Footnote 1.) The Act restores the requirement that employees be paid an overtime premium for all time worked past eight hours in one workday. (See Footnote 2.) The law makes other significant changes as well, including nullifying alternative work schedules that were not adopted pursuant to specified rules, increasing the salary threshold for overtime exemptions, providing for time off and imposing additional penalties. (See Footnote 3.)

It is imperative for all California employers, as well as out-of-state employers with employees working in California, to understand and prepare to follow the provisions of the Act. The state agency charged with enforcing California's wage and hour laws, the Division of Labor Standards Enforcement ("DLSE"), already has begun issuing its interpretation of the Act and likely will be vigilant in requiring compliance with its terms.

Overtime Pay Requirement

• Under the Act, employees must be paid no less than one and one-half times their regular hourly rate of pay for: (1) any work past eight hours in a workday; (2) any work past 40 hours in a workweek; and (3) the first eight hours worked on the seventh day worked in a workweek. (See Footnote 4.)

• Employees who work past 12 hours in a workday, or past eight hours on the seventh day worked in a workweek, must be paid overtime at the rate of no less than twice their regular hourly rate of pay. (See Footnote 5.)

• The overtime rate of a nonexempt, full-time, salaried employee is computed based on the employee's regular hourly rate, which is 1/40th of the employee's weekly salary. (See Footnote 6.)

Exemptions From Overtime Pay

The Act provides exemptions from both the daily and weekly overtime pay requirements for people working pursuant to an alternative workweek schedule that meet certain criteria. They must be: (1) employees working in executive, administrative and professional capacities; (2) people governed by collective bargaining agreements that provide a wage that is at least 30 percent above the minimum wage, (currently $5.75 per hour;) or (3) employees who are given make-up time off during the same workweek the overtime work is performed, up to a certain maximum. The Act also sets forth exemptions related to particular industries. (See Footnote 7.)

Alternative Workweek Schedules

• The Act's overtime pay provision does not apply to employees who work no longer than 10 hours per day within a 40-hour workweek pursuant to a regularly scheduled alternative workweek. (See Footnote 8.)

• However, the Act nullifies any existing alternative workweek schedule that was adopted pursuant to Wage Orders one, four, five, seven or nine, (See Footnote 9) except in two situations: (1) the alternative regular schedule does not exceed 10 hours in a workday, and was adopted by a two-thirds vote in a secret ballot election, pursuant to a wage order in effect prior to 1998; and (2) the alternative schedule is in the health care industry, was adopted by a two-thirds vote in a secret ballot election pursuant to Wage Orders four and five in effect prior to 1998, and it provides for workdays of more than 10 hours but less than 12 hours without overtime pay. This latter exception expires on July 1, 2000. (See Footnote 10.)

• In the absence of a valid, existing alternative workweek schedule, a "4/10" schedule will only pass muster under the Act if it is adopted by two-thirds of the affected employees in a secret ballot election, and notice of the new schedule is provided to the Division of Labor Statistics and Research within 30 days after the results are final. (See Footnote 11.) Employers are required to make a reasonable effort to find an eight-hour workday schedule to accommodate any affected employee who was eligible to vote in the election and unable to work an adopted alternative workweek schedule. Employers are permitted, but not required, to make such accommodations for employees hired after an alternative workweek schedule is adopted.

• Employees working pursuant to a valid alternative workweek schedule remain eligible for overtime pay, at the rate of one and one-half times their regular rate of pay, for any work past 10 hours but less than 12 hours in a workday, and for any work over 40 hours in a workweek, and must be paid no less than twice their regular pay rate for any work past 12 hours in a workday and past eight hours on days worked beyond the regularly scheduled work days under the alternative workweek schedule. (See Footnote 12.)

Administrative, Executive and Professional Employees

• Under wage orders in effect prior to the Act, employees working in an administrative, executive or professional capacity were exempt from receiving overtime pay. These "white collar" exemptions applied only to employees who satisfied both job duties and minimum pay requirements. (See Footnote 13.)

• The Act also empowers the Industrial Welfare Commission ("IWC") to review, retain, or eliminate any exemption that was contained in any valid wage order in effect in 1997. (See Footnote 14.) Thus, it leaves open the possibility that the IWC may alter the tests for satisfying the exemptions.

• In addition to the duties requirements, employees must earn a monthly salary equivalent to no less than two times the minimum wage for full-time employment. (See Footnote 15.) Based on the current minimum wage rate, the monthly salary requirement will now be $1,993.33, or $23,920 annually.

Collective Bargaining Agreements

• The Act does not apply to employees covered by a valid collective bargaining agreement if the agreement expressly sets forth: (1) wages; (2) hours of work; (3) working conditions; (4) overtime wage rates; and (5) a regular hourly pay rate of not less than 30 percent more than the state minimum wage. (See Footnote 16.)

Time Off in Lieu of Overtime Pay

• If an employer approves an employee's signed, written request to make up work time lost due to an employee's personal obligations, the make-up time does not count toward computing the total daily work hours for purposes of computing overtime if it is completed during the same workweek in which the time was lost, except if the total hours worked exceed 11 in one workday or 40 in one workweek. The Act forbids employers from encouraging or soliciting employees to utilize make-up time in lieu of receiving overtime pay. (See Footnote 17.)

Meal Periods

• The Act codifies the prohibition contained in existing wage orders providing that employees who work more than five hours per day must receive a meal period of not less than 30 minutes. Additionally, employees who work more than 10 hours per day must receive a second meal period of not less than 30 minutes. These requirements may be waived by the employer's and employee's mutual consent if the total daily work period does not exceed six or 12 hours, respectively. (See Footnote 18.)

Civil Penalties

• Claimants may file a complaint with the DLSE or directly in court, and may be eligible to recover unpaid overtime wages, attorneys' fees, interest and waiting time penalties in an amount up to 30 calendar days of additional pay for willful violations.

• Additionally, the Act imposes civil fines that can be levied against both employers and individual managers, even where there has been no willful violation. The fine for an initial violation is $50 for each underpaid employee for each pay period of underpayment and $100 for each subsequent violation. (See Footnote 19.)

Recommendations

Wage and hour issues have become a "hot" item in employment litigation, and now are often brought as class action lawsuits with significant potential exposure for employers. PHJ&W regularly advises clients on a variety of wage and hour matters, and can formulate specific advice for clients on how existing laws, in addition to the changes introduced by the Act, may impact your operations. Generally, however, employers should seek to minimize their exposure in the following ways:

• Employers with employees working in California should immediately review and revise their policies and practices to ensure compliance with the Act, starting on January 1, 2000.

• Employers with existing alternative workweek schedules for some or all employees that were not adopted pursuant to a valid secret ballot election must hold such an election for each affected work unit prior to January 1, 2000. Employers who fail to hold such elections, or who fail to have an alternative work schedule adopted by two-thirds of the affected employees, must pay the applicable overtime rate to all employees who continue to work an alternative schedule after January 1, 2000

• Employers who classify certain employees as exempt from overtime pay based on their administrative, executive or professional status should review the compensation of each person so classified to ensure compliance with the Act's new, increased minimum pay requirement. In addition, should the IWC change the criteria to qualify for exempt status, thorough review of each position classified as exempt should be conducted to ensure continued compliance.

• Employers should explain to managers and others acting on their behalf that they may be subject to personal liability for violations under the Act, even if the violations are not willful.

• Employers must make sure that employees request make-up time in writing. (See the Sample Request Form for Make-up Time below.)

• SAMPLE REQUEST FORM FOR MAKE-UP TIME
• • On ___________, I lost, or will lose, work time from ____ a.m./p.m. to ____ a.m./p.m. due to personal obligations. I hereby request approval to work _____ hour(s) during this same workweek by working an additional _____hour(s) on the following dates:______________________________.

    I understand and agree that I will not be eligible for overtime pay for hours worked past eight, and up to 11 hours on any of the days when I am making up time missed or to be missed during the same workweek, but I will receive overtime pay if I work more than 11 hours on a make-up day or 40 hours in the same workweek.

    Name:_____________________________ Date:_____________

    Signature:__________________________

    Approved: Yes _________ No__________ Date:_____________

    Name:_____________________________

    Title:_______________________________

1/ The full text of Assembly Bill No. 60 is available at: http://www.leginfo.ca.gov. The Act amends Sections 510, 554, 556, and 1182.1 of the California Labor Code; adds Sections 500, 511 through 517, and 558; repeals Section 1183.5; and amends and repeals Sections 1182.2, 1182.3, 1182.9, and 1182.10. return

2/ In 1998, under Governor Pete Wilson's direction, the Industrial Welfare Commission ("IWC") issued amendments to five wage orders affecting approximately eight million workers that eliminated the daily overtime requirement. After this change in California's wage and hour law withstood legal challenge in the courts, the state legislature passed Assembly Bill No. 60. return

3/ Additional rules regarding the ski, commercial fishing, health care and horse racing industries, as well as licensed pharmacists and outside salespersons, may be issued by the IWC not later than July 1, 2000 after it conducts a review of wages, hours and working conditions in those industries. Cal. Lab. Code Sections 517(b)-(d). return

4/ Id. at Section 510(a). return

5/ Id. return

6/ Id. at Section 515(d). return

7/ For example, the Act, except for its civil penalties provision, does not apply to any person employed in an agricultural occupation, as defined in the IWC's Wage Order No. 14-80 (operative January 1, 1998). Id. at Section 554. Furthermore, until July 1, 2000, a person engaged in specified fishing enterprises is not subject to a minimum wage or maximum hour order of the IWC. Id. at Section 1182.3. Until July 1, 2000, an employer who operates a ski establishment does not violate any wage and hour law by scheduling a regular workweek of not more than 56 hours, except that an employee who works in excess of 56 hours per workweek must be paid not less than one and one-half times the employee's regular rate of pay. Id. at Section 1182.2(a). Finally, until July 1, 2000, a stable employee engaged in the raising, feeding and management of race horses is subject to the same standards governing an employee in an agricultural occupation engaged in the raising, feeding and management of other livestock, subject to certain exceptions. Id. at Section 1182.10(a). As of July 1, 2000, the provisions related to the fishing industry, the ski industry and stable employees shall be repealed, unless a statute enacted prior to July 1, 2000, deletes or extends that date. return

8/ Id. at Section 511(a). return

9/ Wage orders are issued by the IWC and contain wage, hour and working condition rules specific to certain industries. return

10/ Cal. Lab. Code Section 511(g). return

11/ Id. at Sections 511(a) and (e). return

12/ Id. return

13/ The proof required to establish exempt status under California law and the federal Fair Labor Standards Act is different, and employers are obligated to comply with the more restrictive rule. return

14/ Cal. Lab. Code Section 515(b)(2). return

15/ Id. return

16/ Id. at Section 514. return

17/ Id. at Section 513. return

18/ Id. at Section 512. return

19/ Id. at Section 558. return

If you would like more information, please contact Stephen Berry, Leslie Abbott or Caroline Zuk in our Los Angeles, California office at (213) 683-6000.

Client Alert is published solely for the interest of friends and clients of Paul, Hastings, Janofsky & Walker LLP and should in no way be relied upon or construed as legal advice. For specific information on recent developments or particular factual situations, the opinion of legal counsel should be sought. PHJ&W is a partnership, including professional corporations.