Senate Committee on Labor and Industrial Relations
Ted W. Lieu, Chair
Date of Hearing: May 11, 201120011-2012 Regular Session
Consultant:Gideon L. BaumFiscal:No
Urgency:Yes
Bill No: SB 389
Author: Dutton
Version: As Amended May 4, 2011
SUBJECT
Employment: meal periods.
KEY ISSUE
Should the Legislature narrow protections for employees who are not provided a meal period and exclude impacted parties from pursuing unfair competition claims?
PURPOSE
To exclude Unfair Competition Laws and other wage penalties from meal period enforcement actions.
ANALYSIS
Existing lawrequires, with certain exemptions, that all employees receive a meal break of 30 minutes before the start of the 5th hour of work, unless the work period is no more than six hours and both the employer and the employee choose to waive the meal period by mutual consent. (Labor Code §512)
Existing law requiresthat if the work period is more than ten hours, a second meal period of 30 minutes must also be granted to an employee. This second meal period can be waived by the mutual consent of the employer and employee, but only if the work period is no more than 12 hours, and the first meal period was not waived. (Labor Code §512)
Existing law states that if an employer fails to provide a meal period as required by an Industrial Welfare Commission (IWC) wage order, the employer must give the employee one hour of premium wages at the employee’s regular rate of compensation for each workday that a meal period was not provided. If unpaid, existing law requires that this wage accrues for 30 days and the statute of limitations on its collection runs for 3 years. (Labor Code §226.7, Murphy v. Kenneth Cole (2007), and Code of Civil Procedure §338)
Existing lawprovides that, where Labor Code provides a civil penalty which may be accessed and recovered by the Labor and Workforce Development Agency or any of its constituent parts, a civil action may instead be brought by an aggrieved employee or his or her behalf and other current or former employees to collect those civil penalties. This law is cited as the Private Attorneys General Act (PAGA) and includes meal periods. (Labor Code §2699)
Existing law provides that, when an individual engages in unfair competitive practices, which includes any unlawful, unfair or fraudulent business act or practice, that individual may be may be enjoined in any court of competent jurisdiction. (Business and Professions Code §§17200-17203)
Existing law provides that unfair competition actions can be brought several parties, including the Attorney General, a district attorney, or a board, officer, person, corporation, or association, or by a person who has suffered injury in fact and haslost money or property as a result of the unfair competition. (Business and Professions Code §17204)
This bill would repeal the existing meal period premium wage penaltyprovision (Labor Code §226.7) and replace and recast the provision as follows:
- States than an employer must not require an employee to work during a meal or rest period as required by statute or an applicable order of the Industrial Welfare Commission (IWC);
- Provides that if an employer fails to provide an employee with a meal or rest period, the employer must pay the employee one additional hour of pay at the employee’s regular rate of compensation for each workday that a meal or rest period was not provided; and
- Provides that the payment of one additional hour of pay shall constitute compliance with the requirement to provide a meal or rest period and must be the exclusive remedy for the failure to provide a meal or rest period.
This bill would also exclude meal period violations from being included as a misdemeanor.
This bill would include the provisions listed above as a being eligible for a PAGA action.
This bill would contains an urgency clause, declaring that in order to address California’s current unemployment situation, reduce employment-related lawsuits, and allow businesses to return more people to work, this act must take effect immediately.
COMMENTS
1.Legislative Background – Murphy v. Kenneth Cole and the Premium Wage Penalty:
In 1999, AB 60 (Knox) became law, which included the codification of the Industrial Welfare Commission (IWC) Wage Order requirement that all employers provide a meal period for their employees. Prior to AB 60, meal periods had been required by the regulatory IWC Wage Orders, but, with the exception of a few industries, were not statutorily required. The following year, AB 2509 (Steinberg) created the monetary punishment for employers who do not provide a meal period for their employees.
In 2002, the Department of Labor Standards Enforcement (DLSE) enforcement manual interpreted the requirement of the employer to provide a meal period as a responsibility that falls directly on the employer to ensure that the employee takes a meal period, much as it is the employer’s responsibility to ensure that his or her employee is paid the minimum wage. At the same time, the DLSE viewed the additional hour of pay required for failing to provide a meal period as wages, rather than a penalty, allowing the statute of limitations to run for three years instead of one.
However, in 2004 the Division of Labor Standards Enforcement (DLSE) sought to promulgate regulations that, among other things, changed the monetary punishment for failing to provide a meal period to a penalty, rather than a premium wage, which would have changed the statute of limitations to one year, rather than three for an uncollected wage, but the regulations were not put into action. These regulations were withdrawn in 2005, and the DLSE decided to not move forward with further meal period regulations in 2006.
However, in 2005 the Labor Commissioner issued a Precedent Decision, Hartwig v. Orchard Commercial, Inc., which again set the monetary penalty to a penalty. The issue was litigated before the California Supreme Court in Murphy v. Kenneth Cole Productions, Inc., and in a 2007 decision, the California Supreme Court found that the monetary punishment was a premium wage, and therefore overturned the Labor Commissioner’s Precedent Decision, setting the statute of limitations to three years.
2.Brinker, Providing Meal Periods, and Ongoing Litigation:
On July 22, 2008, the California Court of Appeal in Brinker Restaurant Corporation v. SuperiorCourtofSan DiegoCounty (Hohnbaum) (2008) interpreted existing law and the IWC Wage Order meal period provisions as a requirement for employers to provide meal periods by making them available, but need not ensure that they are taken. Employers, however, cannot impede, discourage or dissuade employees from taking meal periods.
On October 22, 2008, the California Supreme Court granted review of the California Court of Appeal decision in Brinker Restaurant Corp. v. SuperiorCourtofSan DiegoCounty (Hohnbaum). The Supreme Court’s grant of review supersedes the Court of Appeal’s decision. The Supreme Court is expected to confirm, among other things, whether the meal period laws and regulations impose upon employers a responsibility to ensure that employees actually take the meal period or rather, that the employer’s obligations is simply to make that meal period available to the employee and afford the employee the opportunity to take the meal period.
While SB 389 does not directly address the issues raised in the Brinker decision, it is impacted by the case. If the Supreme Court were to uphold the Court of Appeal’s interpretation of meal period law, it is probable that the issues the Proponents raise surrounding compliance would dissipate significantly, as making a meal period “available” is a far lower level of obligation and responsibility than the provision of the minimum wage.
3.The Four Questions of SB 389:
SB 389 is a significant departure from previous meal period legislation that the Committee has historically heard. This departure and the issues raised will be described below as the Four Questions of SB 389:
1)Why is SB 389 Different From Prior Meal Period Legislation?
SB 389 is different from prior meal period legislation is two key ways: one, it does not directly address the issues of “providing” a meal period. Second, by continuing to reference the additional hour as “pay”, one of the core issues decided in Kenneth Cole stands: the notion that the additional hour of pay for failing to provide a meal period is a wage.
2)All other wage penalties involve multiple penalties. Why does SB 389 limit the scope of penalties for meal period violations?
SB 389 treats the premium wage for meal period violations far differently than traditional wages. For example, in the case of an overtime violation, there are several issues at stake: the non-payment of the overtime wages, as well as civil penalties (Labor Code §558), penalties for failing to pay wages on time (Labor Code §210), penalties for providing a false pay record (Labor Code §226.3), as well as penalties for failing to provide overtime wages in a timely manner in the event of a voluntary or involuntary termination (Labor Code §203).
Under SB 389, however, only the additional hour of wages may be accessed for meal period violations. SB 389 treats the premium wags as such despite the fact that the violations discussed above almost certainly occurred as well. However, by referencing the additional hour of premium wages as the exclusive remedy, SB 389 disallows the consideration of those other penalties.
The proponents of this bill believe that the existing statutes instructing compliance are not clear. They state that there have been recent settlements where an additional hour of wages was paid as per Labor Code §226.7, but still were sued. Unfortunately, the proponents were unable to document these settlements, which make a discussion on the alleged shortcoming of statute difficult to explore.
3)All other wage violations are treated as misdemeanors. Why does SB 389 exclude meal period violations from being considered misdemeanors?
Currently, if an employer is found to be in violation of the Labor Code’s provisions on the failure to pay wages in a timely manner, that employer is guilty of a misdemeanor (Labor Code §§ 215 and 553). That includes the provision of a meal period. SB 389, however, excludes the failure to provide a meal period from being considered a misdemeanor.
The impact of this change is two-fold. First, it removes the failure to provide a meal period from the reach of the unfair competition laws (Business and Professions Code §§17200-17209).This will prevent the Attorney General or a district attorney, as well as an impacted corporation or person who has suffered injury, from seeking damages due to the unfair competition of a business failing to provide meal periods. This would have the potential to serve the noted reason for the urgency of the measure, which is in part to limit employment-related lawsuits.
The second impact is to prevent the failure to provide a meal period to be treated as a criminal offense. While unlikely, it would prevent the Attorney General or a district attorney to pursue a criminal prosecution for an employer failing to provide a meal period. The most likely arena where this would come up would be as an additional charge in the event of a prosecution of an employer for willfully failing to pay wages generally.
4)All other wage violations seek to strike a balance between compliance and consequences for lack of compliance. Why does SB 389 depart from that balance?
As was discussed above, SB 389 would create a new and unique enforcement structure for the premium wages due when a meal period violation occurs. Currently, the Labor Code strikes a balance between compliance and consequences when it comes to wage violations. The best example of this is the compliance and consequences in place for overtime wages and the minimum wage.
For employers, compliance with the minimum wage is, generally speaking, a straight-forward matter. The employer has control of when the employees are present and the hours they work. The employer then simply must multiply the hours worked by the relevant minimum wage rate, make the appropriate deductions, and then transmit payment in a timely manner. Compliance, therefore, is relatively simple to achieve and document.
Failure to comply, therefore, involves significant consequences. As was discussed above, such a failure would constitute a misdemeanor and carry a series of penalties. Employers who willfully fail to pay the minimum wage may also be required to pay as much as double what he or she would have received had the employee been appropriately paid his or her wages.
Similarly, failure to pay overtime carries significant consequences. However, there are additional provisions in the Labor Code on how to comply with overtime requirements, as the payment of overtime requires a higher level of attention and detail to the particulars of the work days and hours. As such, the Labor Code makes explicit that payment of overtime wages in the next pay period, with appropriate documentation, constitutes compliance with the law (Labor Code §204(b)).
In Murphy v. Kenneth Cole, the court draws comparisons between the provision of meal periods and the provision of the minimum wage, as did the Division of Labor Standards Enforcement (DLSE). However, even if one were to put forward that in certain industries compliance with meal period law poses challenges, the existing Labor Code precedent is for providing explicit guidance on how to comply, rather than foreclose avenues for enforcement after a failure to comply is discovered. The Committee may wish to consider if deviating from this precedent when addressing meal period violations is appropriate.
4.Proponent Arguments:
Proponents note that since the Supreme Court decision in Murphy v. Kenneth Cole, which found that the one hour pay for a missed meal period or rest period as a wage, the amount of lawsuits regarding this issue has significantly risen. Specifically, proponents believe that suits are going on even if the employee has already been compensated with one hour of pay by the employer for the missed meal or rest period, as well as be hit with an Unfair Competition Claim. Proponents believe that SB 389 will bring a balance on meal periods for both employers and employees by bringing employers relief from lawsuits and ensuring that employees are compensated for time worked.
5.Opponent Arguments:
Opponents believe that SB 389 fundamentally undermines the right to a meal period for California workers. Opponents reiterate that the payment of an additional hour of wages will free an employer from the responsibility to provide a meal period, and opponents note that this bill creates incentives to break the law, rather than pay the additional hour of wages or simply provide a meal period. Proponents also argue that excluding claims from Unfair Competition Laws and other wages penalties does not serve the cause of justice for aggrieved workers, and may only increase the amount of litigation in the system. Opponents also note that SB 389 may impact ongoing litigation on the provision of meal periods.
6.Prior Legislation:
AB 569 (Emmerson), Statutes of 2010, Chapter 662, excludes from meal period law employees in the construction industry, commercial drivers, and utility workers if they were covered by a collective bargaining agreement with specified provisions.
SB X8 70 (Dutton) of 2010 would have extend the time in which an employee can take a meal period, redefine the employer’s responsibility for providing his or her employees a meal period, codify and expand qualifying circumstances for on-duty meal period agreements, remove the ability of employees to revoke on-duty meal period agreements, and decrease the statute of limitations for failing to provide a meal period. SB 8X 70 was held in this Committee.
SB 1192 (Margett) of 2008 sought to allow the employer to satisfy the requirement to provide a meal period if the meal period is available to an employee, as well as change the punishment for an employer failing to provide a meal from a premium wage to a penalty. The initial hearing for SB 1192 was cancelled at the author’s request.
AB 1711 (Levine) of 2007 would have allowed an employee to complete his or her meal period before the conclusion of the 6th hour or work. The initial hearing for AB 1711 was cancelled by the author.
AB 2509 (Steinberg) Statutes of 2000, Chapter 876, created the wage premium penalty for an employer who fails to provide a meal period.
AB 60 (Knox) Statutes of 1999, Chapter 134 codified the meal period for all California employees.
SUPPORT
Associated Builders and Contractors of California
Associated General Contractors of California
California Association for Health Services at Home
California Chamber of Commerce
California Farm Bureau Federation
California Hospital Association
California Independent Grocers Association
California Manufacturers & Technology Association
California Restaurant Association
California Retailers Association
Loma Linda Chamber of Commerce
Montclair Chamber of Commerce
San Bernardino Area Chamber of Commerce
Upland Chamber of Commerce
OPPOSITION
American Federation of State, County and Municipal Employees, AFL-CIO
California Employment Law Association (CELA)
California Labor Federation, AFL-CIO
California Nurses Association
California Rural Legal Assistance Fund
Consumer Attorneys of California (CAOC)
National Lawyers Guild Labor & Employment Committee
Worksafe, Inc.
Hearing Date: May 11, 2011SB 389
Consultant: Gideon L. BaumPage 1
Senate Committee on Labor and Industrial Relations