In This Issue

  • COVID-19 Resources for Employers
  • Important Update: I-9 Compliance Flexibility Expires August 31, 2021
  • EEOC Issues New Guidance on Sexual Orientation and Gender Identity Discrimination
  • Emerging Trend in State Pay Transparency Laws
  • The Immigration Civil War: Differences Between the States on E-Verify and Worker Protection
  • As Colorado and Virginia Follow California’s Lead in Enacting Data Privacy Laws, Employers Must Start Planning to Address an Inevitable Trend
  • Did Your Business Pay Break Premiums AND Bonuses? California Has A Penalty For That, Too

COVID-19 Resources for Employers

Many businesses have resumed operations and continue facing big challenges as the legislation surrounding COVID-19 continues to evolve. AlphaStaff remains dedicated to providing you with timely information and expert advice to navigate this tumultuous time. Please see the resources below provided by some of our trusted legal partners to help you navigate the novel employment-related issues you encounter in your operations.

Resource Links:

Important Update: I-9 Compliance Flexibility Expires August 31, 2021 

On May 26, 2021, U.S. Immigration and Customs Enforcement (ICE) announced an extension of the flexibilities in rules related to Form I-9 compliance initially granted last year. The temporary rule, set to expire August 31, 2021, allows employers that have employees working exclusively in a remote setting due to COVID-19-related precautions to be temporarily exempt from Form I-9’s physical inspection requirements.  Additionally, this same exemption applies to employers and workplaces that are operating fully remotely.  Under the temporary rules, employers were allowed to virtually inspect Form I-9 documents.  However, after August 31st, absent another extension, employers will be required to resume physical inspection of all Form I-9 identity and work authorization documents provided by new hires. Additionally, for all existing employees who were onboarded using remote verification, they must report to their employer or their employer’s designated authorized representative within three business days for in-person verification of documents. Once the documents have been physically inspected, the employer should add “documents physically examined” with the date of inspection to the Section 2 additional information field on Form I-9, or to section 3 as appropriate.  ICE has clarified that subsequent Form I-9 audits will use the “in-person completed date” as a starting point for employees initially verified remotely. For more information, please visit this link.

EEOC Issues New Guidance on Sexual Orientation and Gender Identity Discrimination

By: Joseph Nelson, with Jackson Lewis

The Equal Employment Opportunity Commission (EEOC) observed LGBTQ+ Pride Month and the one-year anniversary of the landmark Bostock v. Clayton County Supreme Court decision by announcing new resources to aid employers in understanding the EEOC’s position regarding sexual orientation and gender identity discrimination. These resources include a new landing page and a new technical assistance document. These new resources, according to the EEOC, will “help educate employees, applicants and employers about rights of all employees, including lesbian, gay, bisexual and transgender workers, to be free from sexual orientation and gender identity discrimination in employment.” What are the five biggest takeaways from this new guidance for employers?

Brief Overview of the Bostock v. Clayton County Decision

In order to appreciate the EEOC’s new guidance documents, it is helpful to understand the significance of last year’s Bostock v. Clayton County decision, which held that firing individuals because of their sexual orientation or transgender status violates Title VII’s prohibition of discrimination on the basis of sex. This decision resulted from three cases: Altitude Express Inc. v. Zarda and Bostock v. Clayton County, in which gay men were fired because of their sexual orientation; and R.G. & G.R. Harris Funeral Homes Inc. v. Equal Employment and Opportunity Commission, where a transgender woman was fired because of her gender identity.

The Supreme Court consolidated these cases and issued a single opinion, addressing “whether an employer can fire somebody simply for being homosexual or transgender.” The Court’s conclusion was clear: “An employer who fires an individual for being homosexual or transgender fires that person for traits or actions it would not have questioned in members of a different sex. Sex plays a necessary and undistinguishable role in the decision, exactly what Title VII forbids.” However, the Court noted that its decision did not address various religious liberty issues, such as the First Amendment, the Religious Freedom Restoration Act, and exemptions provided to religious employers by Title VII.

Since the Bostock decision, the EEOC and other courts have interpreted Bostock’s holding to prohibit all forms of harassment and discrimination when done on the basis of sexual orientation and gender identity.

EEOC’s Guidance, Summarized

The new EEOC landing page consolidates information concerning sexual orientation and gender identity discrimination and provides links to updated fact sheets regarding recent EEOC litigation. The technical assistance document explains the significance of the Bostock decision and reiterates the EEOC’s position on Title VII rights and responsibilities regarding discrimination based on sexual orientation and gender identity. For example, according to the document, employers cannot:

  • Discriminate against individuals based on sexual orientation or gender identity with respect to terms, conditions, or privileges of employment, including hiring, firing, furloughs, reductions in force, promotions, demotions, discipline, training, work assignments, pay, overtime, other compensation, or fringe benefits.
  • Create or tolerate harassment based on sexual orientation or gender identity, including harassment by customers or clients. This may include intentionally and repeatedly using the wrong name and pronouns to refer to a transgender employee.
  • Use customer preference to fire, refuse to hire, or assign work.
  • Discriminate because an individual does not conform to a sex-based stereotype about feminine or masculine behavior (whether or not an employer knows the individual’s sexual orientation or gender identity).
  • Require a transgender employee to dress or use a bathroom in accordance with the employee’s sex assigned at birth. However, employers may have separate bathrooms, locker rooms, and showers for men and women, or may have unisex or single-use bathrooms, locker rooms, and showers.
  • Retaliate against any employee for opposing employment discrimination that the employee reasonably believes is unlawful; filing an EEOC charge or complaint; or participating in any investigation, hearing, or other proceeding connected to Title VII enforcement.

The document likewise notes that employers cannot discriminate, create, or tolerate harassment against straight or cisgender (someone whose gender identity corresponds with the sex assigned at birth) individuals.

The EEOC also addressed the tension between protections for private employers and employees with sincerely held religious beliefs and LGBTQ+ employees and applicants by noting, “Courts and the EEOC consider and apply, on a case by case basis, any religious defenses to discrimination claims, under Title VII and other applicable laws.”

What Does This Mean for Employers? 5 Biggest Takeaways

As a federal law, Title VII prohibitions on discrimination based on sexual orientation or gender identity extend nationwide regardless of state or local laws. The EEOC guidance clarified a few specific recurring questions regarding protections for LGBTQ+ employees, offering five key takeaways for employers:

  1. An employer covered by Title VII is not permitted to fire, refuse to hire, segregate, or take assignments away from someone (or discriminate in any other way) because customers or clients would prefer to work with people who have a different sexual orientation or gender identity.
  2. Whether or not an employer knows an employee’s sexual orientation or gender identity, employers are not permitted to discriminate against an employee because that employee does not conform to sex-based stereotypes about traditional feminine or masculine behavior.
  3. Prohibiting a transgender person from dressing or presenting consistent with that person’s gender identity would constitute sex discrimination.
  4. If an employer has separate bathrooms, locker rooms, or showers for men and women, all men (including transgender men) should be allowed to use the men’s facilities and all women (including transgender women) should be allowed to use the women’s facilities. However, it should be noted that this stance is a controversial hot button issue that is still developing, especially given the fact that the Supreme Court expressly left this issue unaddressed in Bostock, stating: “Under Title VII, too, we do not purport to address bathrooms, locker rooms, or anything else of the kind.”
  5. Intentionally and repeatedly using the wrong name and pronouns to refer to a transgender employee could contribute to an unlawful hostile work environment.

Conclusion

This new guidance makes clear that any discrimination based on sexual orientation or gender identity is prohibited under Title VII. Thus, employers should update their policies and practices to comply with the EEOC’s position.

Should you have questions about compliance matters in this area, you should contact your Fisher Phillips lawyer or the author of this Insight. To ensure you stay up to speed with the latest developments, make sure you are subscribed to Fisher Phillips’ Insight System to get the most up-to-date information.

*Original article

 

Emerging Trend in State Pay Transparency Laws

By: F. Christopher Chrisbens & Christopher T. Patrick, with Jackson Lewis

The push for pay equity has moved beyond prohibiting pay discrimination and into requiring employers encourage pay transparency for applicants and employees.

At the federal level, the National Labor Relations Act can protect discussions involving compensation as concerted activity. For federal contractors, OFCCP prohibits policies that discourage pay transparency. Many states have followed suit — and done even more.

Some states even require affirmative disclosure of pay ranges. For example, if an applicant asks (after an interview), employers in California must disclose the pay range for the position. MarylandRhode Island, and Washington also require employers to disclose the pay range to applicants upon request. Washington also requires that employers provide the salary range to employees who are changing roles, if they request it. And Rhode Island entitles employees to pay range disclosures upon hire, when changing jobs, and if they ask for it.

Nevada requires employers to provide the wage or salary range to applicants who have completed an interview—even without a request. But employees still must request the range to require transparency.

Connecticut now requires employers to provide the salary range to applicants (1) upon request and (2) by the time it extends an offer of compensation (if the applicant did not request it). It also requires disclosure to employees on hire, when changing roles, and when the employee requests it.

Perhaps Colorado has the most burdensome requirements. There, an employer with even one employee in Colorado that is recruiting for a job in Colorado (or that is remote) must include (1) the wage rate or range for the role, (2) a general description of other compensation available for the role, and (3) a general description of benefits for the role in the job posting.

Setting a new mark, Colorado also requires “opportunity transparency.” Employers with at least one Colorado employee must also provide written notice to its Colorado employees of any “promotional opportunity” — including any hire, change in job title, or material change in job duties, opportunities, or responsibilities — before it decides who will get that new job. It includes in-line promotions. Even employees who are not qualified for the job must receive notice of the opportunity. And if the role is in Colorado or is remote the notice must include the same pay and benefits disclosures that job postings require.

Since Colorado began enforcing its novel transparency requirements, employers have been struggling with how to comply. Should Colorado’s “outlier” law drive changes to company-wide practices? Is Colorado even an outlier, or will others follow suit?

So far, the answer appears to be “yes” and “no.”  Maryland, Nevada, Connecticut, and Rhode Island enacted their pay transparency requirements after Colorado. They require pay disclosures, but do not mirror the Colorado approach.

But bills under consideration in Massachusetts (H 1950 / S 1208) would require employers to provide the pay scale for a particular employment position to an applicant (after interview) or an employee (currently employed in that position), upon request. The bills include nothing on “opportunity transparency.”

And in New York, bills (S 5598A/A 6529A) would require employers to disclose the compensation range, job description (if it exists), and a general description of other compensation and benefits for the role “upon issuing an employment opportunity for internal or public viewing.” This seems to require pay and benefits disclosures in job postings — like Colorado. But unlike Colorado, the New York bills do not propose an “opportunity transparency” requirement.

Synthesizing the varied approaches among the states, the trend seems to require pay disclosures. At a minimum, new laws require disclosure upon request. But there may be an emerging trend toward proactive disclosure to applicants and employees—see Colorado and New York. “Opportunity transparency,” however, seems to be farther than most states are currently prepared to go.

If you have any questions, please reach out to a Jackson Lewis attorney.

 

*Original article

 

The Immigration Civil War: Differences Between the States on E-Verify and Worker Protection

By: Krista L. Hurst, with Fisher Phillips

When most employers think about immigration compliance, they usually assume that employment-based immigration is solely a federal concern. While many are familiar with federal programs that in effect “deputize” local law enforcement to enforce federal immigration laws, employers are often surprised to learn many states have found ways to insert themselves into the employment-based immigration discussion. Some states have developed more restrictive protocols, while others have created more employee-protective systems. What does your organization need to know about this tug-of-war and how might it affect your business?

Mandating the Use of E-Verify

The implementation of E-Verify within the hiring process is one popular way in which states became involved in workplace immigration enforcement. E-Verify is an online system that allows employers that have enrolled into the program to confirm the employment eligibility of its employees in the United States. The system uses information from the I-9 and records available from the Social Security Administration and the Department of Homeland Security.

E-Verify requirements vary by state to state, which is important to keep in mind if you have locations in multiple states or employ workers across the country – particularly as remote work gains in popularity following the COVID-19 pandemic. The application of E-Verify requirements may even vary within those states that have some sort of verification requirement in place. For example, some states only require E-Verify for certain types of employers or employment in the state, while others require it for all employers regardless of the nature of the employment.

Even if the law does not require it in every state, it may make sense for businesses operating in multiple regions to implement E-Verify across the board. This can ensure consistency across the board and to help avoid the appearance of discriminatory practices or lax standards based on the location.

States that require all or most employers to use E-Verify

  • Alabama
  • Arizona
  • Georgia
  • Mississippi
  • North Carolina
  • South Carolina
  • Tennessee
  • Utah

States that require E-Verify for public employers and/or contractors with the state

States that require E-Verify for public employers only

  • Idaho
  • Virginia

States with local municipality E-Verify requirements

  • Michigan
  • New York
  • Oregon
  • Washington

States that require E-Verify for contractors only

  • Colorado
  • Louisiana
  • Minnesota

Florida Joins the Ranks

Florida joined the list of states with an E-Verify requirement in January 2021. The state now requires every public employer, as well as contractors and subcontractors working on public projects, to enroll and begin to use E-Verify to confirm the eligibility of all new employees. Private employers are not required to use E-Verify unless they have a contract with a public employer and/or if they apply to receive taxpayer-funded incentives through the Florida Department of Economic Opportunity. In addition to adding E-Verify requirements, Florida modified the Federal Form I-9 retention rule for private employers if they do not use E-Verify. The federal retention rule requires that Form I-9s, along with copies of documents used to complete them, must be maintained for three years from the date of hire or one year from the date of termination, whichever is later. Private employers who do not use E-Verify must maintain copies of the documents used to complete Form I-9 for three years.

Federal Contractors Face E-Verify Requirements

Regardless of state requirements, there are some situations where federal contractors are required to use E-Verify. Employers with federal contracts or subcontracts that contain the Federal Acquisition Regulation (FAR) E-Verify clause are required to use E-Verify to determine the employment eligibility of:

  • Employees performing direct, substantial work under those federal contracts; and
  • New hires on an organization-wide bais, regardless of whether they are working on a federal contract.

A federal contractor or subcontractor who has a contract with the FAR E-Verify clause also has the option to verify the company’s entire workforce.

Additional Protection for Employees

Employers that use E-verify are required to follow the program’s rules, including privacy and nondiscrimination protections for employees. But in addition to the existing I-9 nondiscriminatory requirements, some states have tacked on additional protections for workers.

California, for example, has enacted several protections. Unless required by federal law, an employer or someone acting on their behalf is not allowed to provide consent to immigration enforcement officers to enter areas of a workplace that are not open to the public unless the agent has a warrant. Similarly, an agent cannot access, review, or obtain employees’ records without a subpoena or court order (subject to an exception). Employers in California must also provide current employees with a notice of an inspection of I-9 forms within 72 hours of receiving the notice of inspection as well as provide affected employees with a copy of the notice of inspection. After the inspection, employers must provide a copy of the notice that provides the inspection results to the affected employees within 72 hours of receipt.

When performing I-9 eligibility verification, California employers are prohibited from requesting additional and/or alternative documents than those listed by the federal government. Employers also cannot refuse to honor documents that reasonably appear to be genuine or based on the status or terms of status that accompany the authorization to work. Employers are also prohibited from using E-Verify to check employment authorization status, unless required by federal law, or to reverify employment eligibility of a current employee, unless permitted by law. Lastly, an employer cannot threaten to contact the government or police regarding an employee’s immigration status.

In Oregon, employers are required to notify workers of a federal inspection of records or documentation that is used to identify workers and their employment eligibility. Employers there are also required to notify employees within three business days of receiving notice, by posting a notice to employees in a conspicuous area in English and the language typically used to communicate with employees. Employers must also attempt to individual distribute notice to employees in the workers’ preferred language.

Use of State Law to Enforce Immigration Compliance

Some states have resorted to the use of state laws addressing identity theft to insert themselves into the employment immigration discussion. A few years ago, Arizona made it a crime for an unauthorized alien to work in the state. In United States v. Arizona, the United States Supreme Court upheld that the decision to regulate who gets to work or not regardless of their immigration status rests solely with the federal government, not the state and struck down that law. In other words, the federal government is the only entity that can restrict employees based on their immigration status.

More recently, in the case of Kansas v. Garcia, the Supreme Court was asked to decide whether a state could criminally prosecute individuals for the state crime of identity theft where individuals used social security numbers that were not assigned to them to gain employment. The defendants in the case used the same social security number for their I-9s, W-4s and K-4s (the state equivalent of the W-4). Key to the case: the federal statute that governs the Form I-9 clearly states that information contained in I-9s may not be used for purposes other than those set out in the statute. Criminal prosecution for identity theft under state law is not one of them.  The defense argued that because the defendants had used the same Social Security numbers in their I-9s as they had on other employment-related forms, they could not be prosecuted under state law.

The State of Kansas argued that just because a piece of information was included in a Form I-9, that did not prohibit state and local law enforcement from using that information in a criminal prosecution where that same information was contained in other documents – in this case, the individuals’ W-4s and K-4s. The Supreme Court sided with Kansas, holding that because the information contained in I-9s – names, addresses, email addresses, dates of birth – could be found in other personnel documents, the mere fact that an employee’s Social Security number is contained in an I-9 does not mean that state law enforcement cannot use that information to prosecute the defendants for state crimes relating to identity theft.

Conclusion

There is no question that immigration enforcement remains a hot-button topic, and federalism complicates things even more. State legislatures will remain under pressure to pass legislation requiring the use of E-Verify. States like California and Oregon will undoubtedly seek additional protections for undocumented workers whereas states like Arizona and Kansas will continue to look for ways to target undocumented noncitizens using state laws.

We will continue to monitor the push-and-pull between the states and the federal government on immigration compliance and provide updates as warranted. Make sure you are signed up for Fisher Phillips’ Insight system  to receive the latest information directly in your inbox. For further questions, contact your Fisher Phillips attorney, the authors of this Insight, or any member of our Immigration Practice Group.

 

*Original article

 

As Colorado and Virginia Follow California’s Lead in Enacting Data Privacy Laws, Employers Must Start Planning to Address an
Inevitable Trend 

By: Zoe Argento and Philip Gordon, with Littler

With the enactment of the Colorado Privacy Act on July 7, 2021, Colorado now joins Virginia1 in transforming the first major state privacy law, the California Consumer Privacy Act (CCPA), from an outlier into what now appears to be the beginning of an inevitable trend.  Employers must start addressing this trend not just because the CCPA and its upcoming successor, the California Privacy Rights Act (CPRA), apply to the personal information of individuals in the employment context (HR data), but also because more states are poised to follow suit.  Although the Colorado Privacy Act and Virginia’s Consumer Data Protection Act (VACDPA) do not apply to HR data, they are likely to become a model for future state laws that do cover HR data.  Moreover, both laws impose demanding compliance obligations that many companies are likely to meet only with the help of the company’s human resources department, and they add to the crunch that companies will face in late 2022 as they race to meet multiple privacy laws’ compliance deadlines.

Employers Must Start Planning to Address New State Privacy Laws that Regulate the Handling of HR Data

While the CCPA applies only in part to HR data,2 the CPRA, when it goes into effect on January 1, 2023, will apply in full to HR data.  The CPRA will require employers to implement comprehensive privacy programs for HR data.  These programs will need to address, for example, (a) updated “notices at collection” and a new employee privacy policy, (b) extensive review of data collection practices, (c) information security for HR data and security incident response, (d) contracting with service providers and other third parties that receive HR data, (e) data retention and destruction schedules, and (f) procedures for administering requests from applicants, employees, and contractors to exercise their rights.3

The new Colorado and Virginia laws are part of a flurry of privacy bills in statehouses across the country sparked by the CCPA and the CPRA.  These bills show the growing, nationwide appetite for increased privacy protection.  About two dozen bills with substantial elements of the CCPA and CPRA are now pending in state legislatures. Approximately one-half of these laws would apply to HR data in addition to consumer data. In addition, at the federal level, both Democrats and Republicans have introduced competing bills for comprehensive privacy laws.

The Colorado Privacy Act and VACDPA Could be the Models for Future Privacy Laws Applicable to HR Data

While the CCPA and CPRA are the first and only broad data protection laws to apply to HR data, new laws are more likely to follow Colorado’s and Virginia’s models for three reasons. First, both laws are substantially better drafted and more coherent than either the CCPA or the CPRA.  Second, the Colorado Privacy Act and VACPDA impose less burden on business while, in many ways, offering stronger privacy protections.  Third, the two laws are quite similar, suggesting that they represent an emerging consensus on the key features of a comprehensive privacy law in the United States.  They may, therefore, show us the shape of future federal and state privacy laws that regulate HR data.

What are the key features of these laws?  Both laws are limited in bite and in scope. Neither law grants a private right of action, leaving enforcement to the state attorney general and, in Colorado’s case, district attorneys.  The Colorado and Virginia laws apply only to companies that handle the personal data of more than 100,000 state residents or, if a company sells personal data, the personal data of more than 25,000 state residents.

For companies that must comply, however, the burdens could be onerous, albeit less so than under the California laws. The Colorado Privacy Act and VACDPA have, in essence, three parts: controller obligations, processor obligations, and individual data rights.

Controller Obligations

The vast majority of these laws’ obligations fall on “controllers.” A controller, defined as the entity that determines the purposes and means of processing (an employer would be considered a controller), must take steps including the following:

  • post a detailed privacy policy;
  • process personal data only as described in that privacy policy;
  • take reasonable measures to safeguard personal data from unauthorized acquisition;
  • obtain consent before processing sensitive personal data;
  • pass down, by contract, most obligations to processors; and
  • properly respond to requests by individuals to exercise their data rights.

In addition, controllers must conduct and document a data protection assessment before certain types of higher-risk processing — for example, processing sensitive personal data, such as race, religion or sexual orientation.

Processor Obligations

Processors, defined as entities that process personal data on behalf of a controller, are subject to both statutory and contractual obligations.  Controllers must bind processors, by written agreement, to obligations, including: (a) to process personal data only pursuant to the controller’s instructions; (b) to provide the same types of protections for personal data that apply to controllers; and (c) to ensure that each person handling personal data is subject to a duty of confidentiality.  In addition, Colorado’s and Virginia’s laws impose independent obligations on processors, such as to enter “downstream” agreements with subcontractors to ensure that protections flow with the personal information and to assist the controller with responding to requests to exercise data rights.

Individual Data Rights

The Colorado Privacy Act and VACDPA provide state residents with a panoply of rights.  These rights include the rights to access, correct, delete, and obtain copies of their personal data held by controllers and by processors on a controller’s behalf.  Both laws also establish detailed procedures that controllers must follow when responding to requests.

Compliance with Privacy Laws that do not Apply to HR Data May Still Require HR’s Involvement

Human resources professionals cannot ignore state privacy laws, like the Colorado Privacy Act and the VACDPA, just because they do not apply to HR data.  A large part of an organization’s privacy compliance program will rest on the shoulders of staff.  Organizations will need a governance structure, administrative processes, and training.

The human resources department may find itself intimately involved in developing this “people” aspect of the privacy compliance program. For example, every employee who deals with the public at an organization subject to the Colorado Privacy Act or VACDPA will need basic instruction on how to route an individual’s request to exercise data rights.

Planning is Critical as a Data Privacy “Compliance Crunch” is Approaching

For those outside the privacy world, January 1, 2023 may not have much significance. For privacy professionals, New Year’s Day 2023 has become a form of D-Day, where the “D” stands for “data protection.”  On that date, the California Privacy Rights Act goes into effect with its expansive obligations for HR data. Of concern to U.S. multinationals with employees in the European Union (EU), new cross-border data transfer requirements will come into force just days before January 1, 2023.4  Piling on, the VACDPA also goes into effect on January 1, 2023, and the Colorado Privacy Act has set its compliance deadline only six months later, on July 1, 2023.  The result at many organizations will be overwhelmed IT and compliance departments from mid-2022 into late 2023.

To avoid the worst of the crunch, human resources departments should consider taking advantage of the summer lull to start sizing up and planning their compliance projects if their organization has employees who reside in California or the EU.  Organizations with substantial operations in California or the EU should consider initiating the compliance work by late 2022 to ensure ample time to complete what likely will be a substantial undertaking.  To the extent that the organization also is subject to the Colorado Privacy Act or the VACDPA, that lead time will be critical as other internal departments — such as, legal, procurement, IT, and privacy/compliance — are likely to be stretched thin with increasingly reduced availability to support HR as data protection D-Day approaches.

Finally, organizations should keep an eye out for additional privacy legislation that does apply in full to HR data. Given the number of pending bills, we may soon see more laws enacted like the Colorado Privacy Act and the VACDPA, and some of these laws likely will apply to HR data.

 

*Original article

 

Did Your Business Pay Break Premiums AND Bonuses? California Has A Penalty For That, Too 

By: Elisa Nadeau, with Littler

In Ferra v. Loews Hollywood Hotel, LLC, the California Supreme Court rejected the longstanding view that meal and rest break premiums are paid at the employee’s base rate, rather than at the more complicated regular rate of pay used to calculate overtime premiums.  The court found that the phrase from the rest break requirements (“regular rate of compensation”) is synonymous and interchangeable with the phrases used in the overtime context (“regular rate of pay” and the more general, “regular rate”).  The court refused to hold the decision was prospective only, leaving the door open for the decision to be applied retroactively.  Thus, California employers will need to examine their meal and rest break procedures and nondiscretionary incentive pay practices to avoid noncompliance.

Background

In 2001, as a disincentive to perceived meal and rest break avoidance, the California Legislature and the Industrial Welfare Commission introduced a penalty for the failure to provide recovery periods, i.e., meal and rest breaks.  The penalty is “an additional hour of pay at the employee’s regular rate of compensation.”  Since then, employers have generally paid premiums at the employees’ base hourly rate.  Over the last ten years or so, a handful of federal courts considered employees’ arguments that the break premiums should be calculated at the overtime regular rate, but almost always disagreed, usually relying on the break penalty law’s use of the phrase “regular rate of compensation” in contrast to “regular rate of pay” consistently used in wage orders and Labor Code section 510(a) when prescribing overtime pay.

Enter the plaintiff, a bartender at the defendant hotel from 2012 to 2014, who argued she should have been paid meal and rest break premiums at a rate that included her quarterly bonuses.  The Los Angeles Superior Court and the Second District Court of Appeal rejected her theory, but the California Supreme Court granted review.

The Decision 

While California’s wage orders repeatedly use the phrase “regular rate of pay” when describing overtime obligations, the same document only uses the phrase “regular rate of compensation” when describing meal and rest break premiums.  This is the distinction relied upon by employers and federal courts in finding that break premiums are paid at the base hourly rate and not the overtime regular rate.  However, the court pointed out that the defendant failed to identify any difference in the meaning between the two phrases.  Nor could the court find any purpose for the distinction in the legislative history and the history behind the language in the wage orders. The court observed that federal law had long defined “regular rate” in the context of overtime to include nondiscretionary incentive pay and that California had adopted that interpretation decades ago.  California cases construing the overtime law often shorten the phrase to “regular rate” further suggesting that “of pay” does not add significant meaning.  The court pointed out that the words “pay” and “compensation” are also used interchangeably in the Labor Code.  Ultimately, the court held that regular rate of compensation for meal and rest break premiums has the same meaning, and must be calculated the same way, as the regular rate of pay for the overtime premium.

The defendant argued the court should not apply the holding retroactively because the law had never previously been interpreted to require break premiums be paid at the overtime regular rate and doing so could expose employers to “millions” in liability without warning.  The court rejected the argument because the holding articulated a previously unsettled issue of statutory interpretation, which is traditionally not entitled to only prospective application.  The court stated, “it is not clear why we should favor the interest of employers in avoiding ‘millions’ in liability over the interest of employees in obtaining the ‘millions’ owed to them under the law.”

Example of Regular Rate Calculation

Employers that have been paying nondiscretionary forms of pay to their non-exempt employees in California are likely familiar with calculating the regular rate for the purposes of overtime.1 In most situations, the regular rate is calculated as the weighted average rate based on the compensation paid to the employee.  The rate is calculated on a weekly basis.  For example, assume an employee works 55 hours in a workweek (40 regular, 13 overtime and 2 double time).  Of those 55 hours, 25 are paid at the employee’s base rate of $20 an hour and the remaining 30 hours are paid at $21 an hour to reflect a $1 shift differential.  While the employee’s base rate is $20, the employee’s regular rate for this week is $20.55.  (Total compensation for the week is $1,130, divided by 55 total hours worked, results in a weighted average rate of $20.55 per hour.)  If the employee is entitled to a meal or rest period premium for this week, that additional hour premium should be paid at the regular rate of $20.55, not the employee’s $20 base rate.

Significantly, the regular rate will also increase if an employee is later paid compensation that was earned over a period of time.  For example, if an employee is paid a quarterly bonus, that bonus must be apportioned back over the hours worked during the quarter, resulting in an increased regular rate.2  To the extent the employee was paid any meal/rest premiums during that quarter, the employee should also be paid a “true-up” amount reflecting the increased regular rate resulting from the quarterly bonus payment.

Moving Forward

If non-exempt employee populations are also incurring meal and rest break premiums for the same work weeks in which they earn additional forms of pay (e.g., shift differentials, bonuses, commissions, etc.), employers will need to calculate the regular rate with the same method they use for overtime.  Employers can also consider eliminating these additional forms of pay to avoid the administrative burden.  Employers concerned about exposure for past practices should seek legal counsel.

*Original article