As most employers know,
wage and hour laws require employees to be paid the applicable minimum wage.
But an important new case highlights that California and federal law aren’t
completely on the same page with respect to this requirement—which can lead to
unfortunate results for unwary employers. Although federal law permits
employers to use “averaging” to meet this obligation,
in this new case. We’ll explain the ruling and what it means for your pay
practices.
No Pay for
“Nonproductive” Time
Osmose Inc. maintains
wood utility poles for major utility companies. According to the terms of a collective
bargaining agreement, its field workers were paid hourly wages ranging between
$9.08 per hour and $20 per hour, depending on whether an employee was a crew
member or a foreman.
Work in the field
included maintaining utility poles in rural or remote areas. Osmose provided
crews with a utility truck equipped with the tools and equipment needed to
perform the work. Osmose required its foremen to designate places for the crew
to gather in the morning, and the crew was required to travel from that point
out to the jobsite in the utility truck. Sometimes, though, crews would meet up
at Osmose’s maintenance facility to pick up supplies and turn in paperwork, and
then travel to the jobsite.
Employee work hours were
classified as productive or nonproductive. Productive hours were directly
related to utility pole maintenance. Nonproductive hours included travel time
in company trucks, time spent loading equipment into trucks, and time spent by foremen
doing daily paperwork and maintaining the trucks. Osmose typically paid workers
only for productive hours.
Minimum Wage Violations?
A group of employees
sued, charging that Osmose’s failure to pay for nonproductive tasks violated
rules, which require payment of the minimum wage.
Osmose argued that it
was in compliance because when the total number of hours (productive and
nonproductive) an employee worked per week was divided into his or her
compensation for that time period, it “averaged” out to more than the
California minimum wage. Osmose pointed out that the federal Fair Labor Standards
Act (FLSA) permits such averaging to meet the minimum wage requirement.
A trial court sided with
the employees, reasoning that the
obligation to pay minimum wage attaches to each separate hour worked during the
payroll period. The court awarded the employees $90,398 in back wages and
penalties, plus $308,736 in attorney’s fees and costs. Osmose appealed.
Pay Required for Every
Single Hour
Now an appeals court has
upheld the decision.1 The court acknowledged that the federal FLSA permits averaging as
a method of minimum wage compliance. Thus, under the FLSA, an employer can pay
a higher hourly rate for some hours—and less than the minimum wage for other
hours—as long as at the end of the workweek, the pay divided by the total hours
meets or exceeds the minimum wage.
But such averaging isn’t
acceptable under
law, said the court. The difference between the laws lies in the FLSA’s
requiring payment of the minimum wage based on a work week, while the
California Wage Orders require the minimum wage “for all hours worked” in a
payroll period. The court explained that this language requires
be paid the minimum wage for each hour worked. The appeals court pointed out
that
law overall provides greater minimum wage protections for employees than federal
law does.
The HR Management & Compliance Report: How To Comply with California Wage & Hour Law, explains everything you need to know to stay in compliance with the state’s complex and ever-changing rules, laws, and regulations in this area. Coverage on bonuses, meal and rest breaks, overtime, alternative workweeks, final paychecks, and more.
Waiting Time Penalty
Challenged
The court went on to
consider whether the trial court properly ordered Osmose to pay waiting time penalties
of $23,760 for “willfully” failing to pay the proper wages. Osmose claimed its
violation wasn’t willful because it: 1) didn’t have actual knowledge of the
wages owed because the employees hadn’t reported all their nonproductive time;
and 2) held a good faith belief it was following the law because, before this
case, no California court had considered whether minimum wage averaging was
permissible. Osmose also argued that even if penalties were proper, they were
calculated improperly, using the collective bargaining rate rather than the
minimum wage.
The court ruled that the
violations here were willful and intentional because there was evidence that Osmose
was fully aware that employees weren’t being paid for nonproductive hours
worked. The court, however, directed the trial court to recalculate the
penalties based on the minimum wage rate.
Compliance Strategies
Here are the steps to
take to ensure compliance with
minimum wage requirements:
2
1. Pay the correct
rates. Be
sure you pay at least the minimum wage, or applicable premium overtime rate,
for each hour of work, keeping in mind that—as the court here pointed out—there
is no such thing as nonproductive time under California wage and hour law. The
current
minimum wage is $6.75.
2. Maintain time
records. It
is critical to ensure that nonexempt/hourly employees properly record their
work time. Also, provide training for supervisors on the importance of making
sure all hours worked are recorded.
3. Determine whether
time is compensable. Keep in mind that you are required to pay only for time that
counts as “hours worked.” This includes, for example, travel time during the
workday when related to the employee’s job, rest periods, and certain
activities required to prepare for the work if these activities are an integral
and indispensable part of the employee’s principal work. Examples of time that
doesn’t count as hours worked include commute time and meal periods of at least
30 minutes, provided the employee is relieved of all work duty.
_
1 Armenta v. Osmose Inc.,
of Appeal (Dist. 2) Nos. B174806, B177501, 2005