Karen Clemes

In the past year, wage and hour class actions against California employers have continued to proliferate, with many cases resulting in skyrocketing settlements or judgments against employers (such as the recent $105 million verdict against Starbucks). Although recent case law has provided employers with some promising arguments for defeating class certification in certain cases, employers still face an uphill battle - and staggering potential liability - when they are faced with a wage and hour class action lawsuit. Given the many nuances of California wage and hour laws, employers will likely remain the targets of such exploitive lawsuits. Smaller employers are not immune from risk because of the potential of significant penalties and attorneys' fees for individual or multi-plaintiff wage and hour claims. California employers should therefore continue to make wage and hour compliance a top priority. Following are suggestions for employers to consider:<br />

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1. Keep abreast of all wage and hour developments. The wage and hour landscape frequently changes as the Legislature, the courts, and the Division of Labor Standards Enforcement (DLSE) issue new laws or opinions interpreting wage and hour laws. For example, the California Supreme Court recently held in Gattuso v. Harte-Hanks Shoppers, Inc. that employers have the option of reimbursing employees for mileage using an actual expense method, the IRS rate (currently 50.5 cents), or a "lump sum method, with employees having the right to challenge the IRS or lump sum methods if they believe their actual expenses have not been covered. Although this holding gives employers more flexibility to use alternative reimbursement methods (including carefully drafted per diem policies), employers implementing a lump sum method should take care to comply with the requirements set forth in Gattuso, including creating a mechanism for employees to seek additional reimbursement where the lump sum does not cover all reasonably incurred expenses. This development concerning expense reimbursements required by California Labor Code 2802 is only one example of the many nuances within wage and hour law that should be included in a compliance checklist.<br />

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2. Ensure written policies are compliant. Employers should distribute clear policies on their wage and hour practices. They should also regularly review all written policies to ensure they are compliant with wage and hour laws and reflect realistic expectations and actual company practices. A policy that violates wage and hour laws on its face poses a dangerous class action risk. <br />

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3. Audit wage and hour practices generally. Companies should periodically audit their policies and practices to ensure compliance with the full spectrum of wage and hour requirements, from ensuring that correct posters are displayed in the workplace, to confirming lawful timekeeping and payroll practices, to verifying that job descriptions and exemptions are proper. For example, a legally compliant policy that states employees should never work off the clock has little value if employees in practice are not accurately recording the start and end times of actual hours worked. One indication that employees may be not recording their hours accurately is if they are recording the exact same start and end times for their workdays each day.<br />

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4. Audit job descriptions and duties to ensure employees are properly classified. Employers should use care in classifying employees as exempt or in treating workers as independent contractors. With the assistance of counsel, companies should audit job descriptions and actual job duties and practices to ensure employees are not improperly misclassified. If exempt employees do not comply with the company's expectations, employers should express clear displeasure via feedback and corrective action. As an example, for employees classified as exempt under the executive exemption, procedures should be implemented so that the company can monitor whether these managers are spending at least 50 percent of their work time on managerial tasks. Performance reviews of such managers should be based in large part on whether they are primarily performing managerial duties. The importance of such practices was underscored in Whiteway v. FedEx Kinko's, a 2007 manager misclassification case in the Northern District of California where the court granted summary judgment in favor of the employer. Significant to the court's holding was the fact that the job description listed exempt duties and the fact that the employer evaluated the managers on their performance of managerial duties. Consultation with experienced counsel can assist employers in identifying other ways to bolster the exempt status of employees. <br />

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5. Maintain accurate time records for non-exempt employees. Employers should maintain accurate time records, establish clear timekeeping policies, and provide training to ensure compliance. Employers should ensure that meal periods are accurately recorded on time cards. The best defense to a missed meal period claims is a contemporaneous, accurate record of the meal period prepared by the employee.<br />

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6. Train supervisors and employees on policies and expectations. Employers should train supervisors and employees on wage and hour policies by educating them on their rights and the company's expectations that they comply with the policies. Supervisors should receive training on monitoring compliance with such policies. Employers should periodically remind employees of these policies. For example, non-exempt employees should be reminded in writing (via policy acknowledgments and emails) that the company expects them to include all time worked on their time cards. Similar reminders should be issued about meal and rest break expectations. In addition, employers may wish to post reminders about policies near time clocks and as log-in messages in electronic timekeeping systems. Companies should retain copies of all of these trainings and communications. <br />

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In sum, while it may be impossible to implement policies and practices that make employers completely immune from wage and hour collective or class actions, careful consideration of these suggestions will reduce the risks and potential liabilities significantly. <br />

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<span style="font-size: x-small;">(Karen M. Clemes is a Partner in Luce Forward's Labor and Employment group whose counseling and litigation practice includes wage and hour audits and defense of wage and hour class actions.)<br />

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