1. ACC-A San Diego 2006 Wage-Hour Update George S. Howard, Jr. Laura K. Licht Pillsbury Winthrop Shaw Pittman LLP 619.234.5000 © 2006 Pillsbury Winthrop Shaw Pittman LLP

2. 700508066 2 Overview  Trends in wage-hour litigation  The Meal/Rest Period Litigation Explosion  Section 226.7 Payments: Are they penalties or “wages”?  “Donning and Doffing”: The IBP Case  Bearden: Are the IWC Orders Invalid?  Why many IT employees are misclassified  Permissible commission “chargebacks”  Vacation-docking in in less than full-day increments?

3. 700508066 3 Current Trends in Wage-Hour Litigation  Exemption litigation continues  Litigation on technical violations increasing  Bar for certification lower after SavOn  Relatively few PAGA claims  Wage-hour claims are commonplace in individual termination disputes  Acting Labor Commissioner Bob Jones

4. 700508066 4 Exemption Hotspots  Executive Exemption  Claims by Retail General Managers increasing  Continuing claims by Assistant Managers  Administrative Exemption  Highly paid professionals in production-type jobs (stockbrokers, etc.)  IT Employees  Nationwide class claims filed against IBM  Case against Siebel certified  $14.9 million settlement in Electronic Arts case

5. 700508066 5 Sav-On: 34 Cal. 4 th 319 (2004)  At trial court  Numerous declarations filed by Sav-On showing wide variation in duties of store managers and assistant managers  Trial court granted class certification  On appeal  Certification reversed  Individual fact questions predominated  Plaintiff’s evidence “insubstantial, conclusory or incredible”  Supreme Court  Certification ruling upheld; no abuse of discretion  Different job duties did not preclude certification  Use of “aggregate proof” to establish “common issues” at certification stage

6. 700508066 6 Sav-On Aftermath  Several trial court judges have used discretion to deny certification, including:  Albertsons (J. Edmon, LA Superior)  United Parcel Service (J. Henderson, N.D. Cal.)  Wal-Mart (J. Fischer, C.D. Cal.)  Kragen Auto Parts (J. Enright, SD Superior)  Others use discretion to certify expansive overtime classes  E.g., “all of a Defendant’s employees who were improperly classified as exempt."

7. 700508066 7 Sav-On Aftermath (Cont.)  Appellate Courts are beginning to reign-in overbroad certification rulings, and affirm denials  Unfortunately, most are unpublished  In re Home Depot –Due process right to raise affirmative defense of individual overtime exemptions  Nguyen v. Dollar Financial Group –No uniform policy of meal/rest break violations –Some employees signed revocable waivers –Time cards showed some compliance –Individual issues predominated

8. 700508066 8 Sav-On Aftermath (Cont.)  Dunbar v. Albertsons (certified for publication on August 10, 2006)  Plaintiffs submitted pro-forma declarations  Defendants showed inconsistencies in declarations  Proof of varying times in varying tasks  Trial court judge (R. Sabraw) found that common issues did not predominate  Appellate court found that trial court had properly weighed the evidence to reach its conclusion

9. 700508066 9 Smith v. L’Oreal  California Supreme Court, July 10, 2006  When is an employee “discharged” under Section 201?  Section 201 requires immediate payment at discharge  Section 203 waiting time penalties for untimely payment  Plaintiff invoked 30 day penalty provision, but was only employed for one day  Holding: “Discharge” includes when employee is released after completing the job assignment/duration for which the employee was hired  Lessons:  Pay immediately  Any delay can result in waiting time penalties  Review employment practices to ensure compliance

10. 700508066 10 Meal/Rest  Labor Code § 512 – five hour rule for meal period  Employee must keep records  Second meal period if employee works 10 hours  Rest Periods: “Net” ten minutes every four hours

11. 700508066 11 Meal/Rest  Labor Code § 226.7 requirements  One hour’s pay for missed meal or rest period  IWC order Sections 11, 12  One year or three year statute of limitations?  One hour pay maximum per day?

12. 700508066 12 DLSE Regulations  First Issued: December 2004  Withdrawn: January 13, 2006

13. 700508066 13 Meal/Rest Period Litigation (Labor Code Section 226.7)  One or three year statute of limitations  Courts of Appeal find it a penalty, 3 to 1  San Diego Appellate Court applies three-year statute  Three cases already before California Supreme Court

14. 700508066 14 “Donning/Doffing” (IBP v. Alvarez)  United States Supreme Court  Specialized protective gear:  Donning is “hours worked”  Safety goggles, lab coat, etc.  Not hours worked (de minimis)  Walking Time – Compensable if “integral and indispensable” to job duties  Time wait for gear – not “hours worked”

15. 700508066 15 Bearden v. Borax: Validation of IWC Orders  IWC Order 16 (Construction, Logging)  IWC created collective bargaining exception to meal rules  No authority in Labor Code for IWC to do so  Other provisions in doubt?  On duty meal period  Section 20 penalties

16. 700508066 16 Classification Challenges for IT Personnel  Employees presumed to be non-exempt  Employer has burden of proving an exemption  High salary, alone, not sufficient for any California exemption (cf. DOL Regulations)  Technical knowledge and expertise, alone, not sufficient for any exemption  Employee’s preference for being exempt is not a defense

17. 700508066 17 Dangerous Exempt Classifications for IT Employees  “Managers” of very small IT departments  Often perform substantial amount of computer installation/maintenance  “Working foremen” who work on same type of projects as subordinates  50% rule not met  “Managers” with no subordinates  Help Desk personnel

18. 700508066 18 Administratively Exempt Computer Professionals  Where exemption found, duties generally include:  Problem analysis and resolution;  Research and System Design;  Project Management;  Budgeting  Work with outside vendors and department heads  Training;  Planning, scheduling and coordination duties  In CA, must satisfy “50% Rule”

19. 700508066 19 What To Do?  Regularly evaluate jobs  Maintain/distribute accurate job descriptions  Clearly define job duties and expectations  Consider acknowledgment procedures  Properly classify new-hires  Reclassify? (Was held to be a factor supporting class certification in SavOn)  Identify “triggering” event  Change and reissue job descriptions with restructured duties  Separate exempt and non-exempt functions  Concentrate exempt duties in positions likely to be exempt  Use promotions as opportunity to reclassify

20. 700508066 20 Commission Chargebacks  Steinhebel v. LA Times (CA Court of Appeal, Feb. 2005)  Rare victory for employers  Court upheld LA Times’ commission chargeback plan for telemarketers  Subscriptions cancelled before 28 days were not “commissionable”  LA Times advanced commissions prior to expiration of 28 day period  If order cancelled, deduction made from future commission advances (not hourly wage)  Harris v. Investors Business Daily (March 2006)  No signed commission plan  Issue when commission “earned”

21. 700508066 21 Lessons from Steinhebel and Harris  Write commission plans in simplest terms possible  Define when commission is “earned”  Have employees sign plan prior to sales activity  Acknowledge understanding of terms  Authorize chargeback deduction  Chargeback against advances, not wages  Make qualifying conditions reasonable and fair  Ensure full minimum wage received regardless of net level of sales

22. 700508066 22 Vacation Docking  Conley: OK to dock exempt employee’s PTO or vacation in less than full-day increments  Improper salary or vacation docking can destroy exempt status  Conley applies where employee requests partial day off  Does not apply to shut-downs, furloughs  Labor Commissioner 5/31/05 memo

23. 700508066 23 Travel Time  California rule – “Under the Control”  Commuting time not compensable  Travel within a day – compensable  Out of town travel (overnight)  Pay travel time at lower rate?

24. 700508066 24 Looking Ahead  Class Actions Likely to Continue  Focus on Higher-Paid Employee Groups  Do Not Count on Help From Administrative Agencies  Bonuses  Challenges to profit-based plans (Ralph’s case); California Supreme Court to decide

25. ACC-A San Diego 2006 Wage-Hour Update George S. Howard, Jr. Laura K. Licht Pillsbury Winthrop Shaw Pittman LLP 619.234.5000 © 2005 Pillsbury Winthrop Shaw Pittman LLP