From the Experts: Will the Revival of California’s Industrial Welfare Commission Reduce the Explosion of Wage and Hour Litigation for California Employers?

This month’s expert is
Marjorie Fochtman, a partner in the San
Francisco office of the law firm Nixon Peabody, where
she heads its West Coast wage and hour team.

Tucked away in Gov.
Schwarzenegger’s voluminous $143 billion budget proposal is a $449,000 funding allocation
for the Industrial Welfare Commission (IWC). Although a government official
described this line item as a “precautionary measure,” the funding suggests
that the governor may try to achieve results through the IWC—particularly with
respect to clarifying employers’ meal period obligations—that he has been
unable to accomplish through the Division of Labor Standards Enforcement (DLSE)
or the Legislature.

History of the IWC

To understand the
implications of the funding, it is helpful to review the history of the IWC.
The commission was created in 1913 to establish minimum wages, maximum hours,
and working conditions for women and minors. Even then, California was more progressive than the
rest of the country; Congress did not enact the Fair Labor Standards Act for
another 25 years. The IWC issued its first wage order in 1916 in the fruit and
vegetable canning industry, and over the next half century issued wage orders for
14 industries and occupations.

This five-member
commission, appointed by the governor, has two members from organized labor,
two representing employers, and one representative of the general public.
Members serve four-year terms. From time to time, the IWC has amended its wage orders.
One of the most notable amendments in recent history was the removal of daily
overtime in 1998. Then-Gov. Davis quickly responded by signing into law A.B.
60, the “Eight-Hour-Day Restoration and Workplace Flexibility Act of 1999,”
which took effect Jan. 1, 2000. That law codified in the Labor Code certain wage
and hour rules that had previously appeared only in the IWC’s wage orders. The
Legislature also ordered the IWC to implement wage orders consistent with A.B.
60.

The IWC Defunded

But in July 2004, the
Legislature defunded the IWC because the commission refused to increase the
minimum wage. Over the next two years, in the IWC’s absence, two key
controversies raged: 1) employers’ obligations with respect to meal periods; and
2) increases to California’s
minimum wage.

The meal period
controversy revolved around what it means for an employer to “provide” a meal
period, the timing of the meal periods, and the appropriate statute of
limitations for the penalties associated with missed meal periods. Class action
litigation exploded in California.
Various California
courts issued contradictory opinions. With no IWC to amend the wage orders to clarify
matters, the DLSE, which is responsible for enforcing the wage orders, attempted
to issue clarifying regulations. But the DLSE eventually let the proposal lapse,
in view of likely court challenges to the DLSE’s authority to issue them.

The IWC Revived in
Minimum Wage Battle

Last June, Gov.
Schwarzenegger finally reconvened the IWC as part of his ongoing battle with
the Democrat- controlled Legislature over increasing the minimum wage. Twice
the Legislature had sent Gov. Schwarzenegger bills to raise the minimum wage by
a dollar an hour with a cost-of-living index that would trigger automatic
increases. Twice the governor vetoed this legislation because of the indexing
provision. To avoid potential passage of similar legislation, the governor suddenly
appointed new members to the defunct IWC—and they went to work immediately on
the minimum wage issue. Their efforts were short-lived, though, as the governor
reached agreement with the Legislature on a two-stage increase, the first part
of which took effect on Jan. 1, 2007.

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.

Implications of New
Funding

Now Gov. Schwarzenegger
has included funding for the IWC in his new budget proposal. What does this mean
for California
employers? It appears that the IWC’s ability to influence the landscape of wage
and hour law in California
is limited in the aftermath of A.B. 60. This lesson was underscored last year
when a California appeals court found that the IWC exceeded its authority by
including in a wage order a meal period exception not found in the Labor Code.1 The reasoning of the
appeals court in that case could likewise apply to other provisions of the wage
orders that are not supported by the Labor Code and would prevent the IWC from
implementing new provisions that run contrary to the Labor Code.

Does the IWC now have
any ability to influence wage and hour law in California? There is no question that the
current wage orders and the Labor Code contain many ambiguities, particularly
when it comes to issues surrounding meal periods and the associated penalties.
The IWC remains in a position to interpret the language of the Labor Code.

Before the passage of
A.B. 60, it was clear that the IWC had significant responsibility for
establishing the wages and working conditions of California’s workers. But this comprehensive
legislation diminished the IWC’s role. The IWC can still play a part, however,
in providing much needed clarification on employers’ meal period obligations,
which is one of the thorniest issues facing California employers today.

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1 Beardon v. U.S.
Borax, Inc., Calif.
Court of Appeals (Dist. 2) No. B182625, 2006