Wage Orders a Real “Tilly” for Employers

Last week a California Court of Appeal’s decision concerning the “reporting time pay” wage order rule joined a growing line of other wage order litigation – such as those complaints regarding suitable seating, or  rest breaks, or the new “ABC” test for independent contractors, and other claims.

What is a Wage Order?

Wage orders were promulgated by the Industrial Welfare Commission (IWC) established in 1913 to regulate wages, hours and working conditions in California. The IWC was defunded in 2004, but the Division of Labor Standards Enforcement (DLSE) continues to enforce the provisions of wage orders.

In short, a wage order is a quasi-legislative regulation that establishes certain terms shift scheduling, and conditions of employment – minimum wage, overtime pay, meal and rest periods, record keeping requirements, etc., are all prime examples.

In California, there are 17 different wage orders and every employer must comply with the wage order applicable to its industry or occupation. In addition to identifying and complying with the specific wage order, employers must also post the applicable wage order in a conspicuous location frequented by employees – where they may be easily read during the workday.

Wage orders contain many similar requirements to the Labor Code, but also many unique provisions and industry-specific modifications. For this reason, it is critical that employers are familiar with the applicable wage order and its contents.

Reporting Time Pay

Reporting time pay” is a wage order-specific requirement guaranteeing at least partial compensation for employees who report for work as scheduled, but are provided less than half of the hours scheduled or usually worked.

Pursuant to the wage order:

“Each workday an employee is required to report for work … but is not put to work or is furnished less than half said employee’s usual or scheduled day’s work, the employee shall be paid for half the usual or scheduled day’s work, but in no event for less than two (2) hours nor more than four (4) hours, at the employee’s regular rate of pay, which shall not be less than the minimum wage.”

Ward v. Tilly’s – Background

Earlier this week, a Court of Appeal published its decision in Ward v. Tilly’s, Inc. concerning applicability of the “reporting time pay” requirement for “on-call” shifts.

In Tilly’s, employees were scheduled for a combination of regular and on-call shifts. During on-call shifts, employees were required to contact their stores two hours before the start of each shift to determine whether they were needed to work the shift. Tilly’s advised employees to “consider an on-call shift a definite thing until they are actually told they do not need to come in.”

Employees were scheduled for on-call shifts under three, possible scenarios:

  • After their regular shift: Employees may be scheduled for a regular shift from 11:00 a.m. to 3:00 p.m. and an on-call shift from 3:00 p.m. to 5:00 p.m.;
  • Before their regular shift: Employees may be scheduled for an on-call shift from 10:00 a.m. to 12:00 p.m., and a regular shift from 12:00 p.m. to 4:00 p.m.; or
  • On days off, when employees were not scheduled at all.

Tilly’s, however, did not pay employees for on-call shifts and did not consider on-call shifts as “scheduled day’s work,” unless the employee was required to work the on-call shift.

Plaintiff filed a class action lawsuit alleging employees were entitled to reporting time pay for their on-call shifts and that Tilly’s failure to properly compensate employees for these shifts resulted in violation of Wage Order 7, applicable to the Mercantile Industry.

Tilly’s demurred to the complaint and asserted it failed as a matter of law because requiring employees to “call in to ask whether to report for work” did not constitute “reporting for work” within the meaning of Wage Order 7. The trial court sustained the demurrer without leave to amend and Plaintiff appealed.

Reporting for Work Is Not Limited to Physical Presence

On appeal, the parties debated the meaning of the phrase “report[ing] for work.”

Tilly’s argued that “report for work” required physical presence at the start of the scheduled shift. Plaintiff argued, that the “reporting time pay” requirement is triggered by any manner of reporting, whether “in person, telephonic, or otherwise.”

Although wage orders were adopted before personal phones and computers were common, the Court held that any current interpretation of the phrase should comply with “how [the Legislature in the 1940’s] would have handled that problem if it had anticipated it,” and held that “had the Legislature confronted the issue, it would have determined that the telephonic call-in requirement triggered reporting time pay.”

The Court reasoned that unpaid on-call shifts are enormously beneficial to employers and created no incentive for employers to competently anticipate their labor needs:

“They create a large pool of contingent workers whom the employer can call on if a store’s foot traffic warrants it, or can tell not to come in if it does not, without any financial consequence to the employers.”

On the flip side, the Court held the practice imposed costs on employees:

“Because Tilly’s requires employees to be available to work on-call shifts, they cannot commit to other jobs or schedule classes during those shifts. If they have children or care for elders, they must make contingent childcare or elder care arrangements, which they may have to pay for even if they are not called to work. And they cannot commit to social plans with friends or family because they will not know until two hours before a shift’s start whether they will be available to keep those plans. In short, on-call shifts significantly limit employees’ ability to earn income, pursue an education, care for dependent family members, and enjoy recreation time.”

Further, the Court found that requiring employees to call in two hours prior to the start of the shift prevents employees from doing things that are incompatible with making a phone call, such as sleeping, watching a movie, taking a class or being in an area without cell phone service.

Accordingly, the Court held that “requiring reporting time pay for on-call shifts is consistent with the IWC’s goals in adopting Wage Order 7.”

Conclusion

Employers should review their on-call practices, remembering that California law currently distinguishes between “controlled” (compensable) and “uncontrolled” (non-compensable) standby time.

It is unclear whether the holding in Tilly’s requires employers to compensate for “uncontrolled” standby time when employees are not required to “present themselves for work” by logging in, appearing, or calling in.

As California’s wage and hour laws continue to evolve, employers are advised to contact legal counsel to audit and confirm their practices are compliant with current law.

Nicole Kamm and Tal Burnovski Yeyni are employment defense attorneys.

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