If your employer requires you to be on call for work, you must be paid, even if you don’t end up actually working, according to a California appellate court.

This can be a confusing gray area for employees, but the court made it crystal clear: Requiring employees to be on call but not paying them anything if they don’t work is “abuse,” according to a 2019 ruling. These flexible scheduling practices could apply to many industries — particularly consumer-facing roles such as sales staff, retail workers or restaurant servers.

Here’s how the issue ended up in court:

Skylar Ward worked as a sales clerk for Tilly’s, a clothing and footwear retailer based in Irvine. The company runs 229 stores; Ward worked in the Torrance, Calif., location.

As a regular practice, employees’ schedules included both regular and on-call/call-in shifts. For the latter, employees had to contact their stores two hours before their on-call shifts were to begin to find out whether the store needed them to work.

Tilly’s told its workers to consider the shifts as definite until they were told otherwise. Employees faced disciplinary action if they failed to report, reported late or refused to work an on-call shift. They could even be fired if they had three violations.

However, employees didn’t receive any pay unless they actually worked. Tilly’s argued that calling in to ask whether to report for work did not equate to physically reporting for work under the law.

The appellate court disagreed.

“On-call shifts burden employees, who cannot take other jobs, go to school, or make social plans during on-call shifts — but who nonetheless receive no compensation from Tilly’s unless they ultimately are called in to work,” the court said. “This is precisely the kind of abuse that reporting time pay was designed to discourage.”

So-called reporting time pay applies when an employee reports for work as required but either doesn’t work or works less than half of the usual or scheduled day’s work. In those cases, employers are supposed to pay for half the usual or scheduled day’s work, and not less than two hours or more than four hours, at the worker’s regular pay rate. That rate, of course, must comply with applicable minimum wage requirements.

If an employee must report a second time during a workday and works less than two hours, that person must be paid for two hours at his regular pay rate.

And rightly so; if employees must schedule their days around particular work schedules and make all the necessary arrangements, they should be compensated.

If you suspect that an employer has violated your protections under the law, contact Keller Grover for a free consultation. We can help you understand your options and steps you should take. In more than 25 years litigating fraud and employment cases, Keller Grover has recovered billions for its clients.

 

It doesn’t matter how much money you take home in commissions – you can still be entitled to overtime pay, according to a recent decision in federal court.

Background

Wyndham Vacation Ownership operates resorts and time-share units across the Caribbean and North America. Sales representatives at Wyndham’s four Tennessee properties filed a lawsuit, Pierce v. Wyndham Vacation Resorts, Inc., in which they claimed the company violated the Fair Labor Standards Act (FLSA). They said the company required them to work off the clock, denied them overtime pay and altered timecards. The collective action now includes more than 150 plaintiffs.

Wyndham filed a motion to dismiss the claims of four of these plaintiffs, all of whom earned more than $100,000 as commissioned sales representatives. (One earned $906,457 in 2010.) Wyndham said they should not qualify for FLSA-mandated overtime because of the law’s exemption for highly compensated workers.

The Law at Issue

The FLSA requires that employees be paid time-and-a-half for all hours worked over 40 in a given workweek. There’s a special rule for “highly compensated” workers who are paid $100,000 or more.

A highly compensated employee is exempt from overtime pay if:

1. The employee earns total annual compensation of $100,000 or more, which includes at least $455 per week in salary.
2. The employee’s primary duty includes office or non-manual work.
3. The employee “customarily and regularly” performs at least one duty or responsibility of an executive, administrative or professional employee.

The Law Applied

First, the magistrate judge said the FLSA exemption applied to executive employees paid on a salary basis – and because commissions are not salaries, they are not guaranteed.

Second, because the plaintiffs’ primary responsibilities were “sales, not management,” they did not qualify as exempt executives.

Wyndham’s motion to dismiss was denied. The collective action will proceed towards trial.

What It Means

Writing for Lexology, Jason Knott said “This decision is a warning to employers to carefully consider whether their highly paid commissioned employees may still be subject to the overtime law.” Further, he noted, the Pierce decision may inspire the Department of Labor to review the FLSA’s highly compensated employee test as it applies to sales staff.

For employees who work on commission, this is an important decision – it shows that regardless of your total compensation, you can be eligible for overtime if your guaranteed salary does not meet FLSA thresholds.

The U.S. Court of Appeals for the Ninth Circuit dealt a setback to gender pay equity with its recent decision in Rizo v. Yovino, No. 16-15372 (9^th Cir. April 27, 2017). In Rizo, the court held that previous salary alone can be “a factor other than sex” for purposes of the Equal Pay Act. As a result, workplace gender gaps are permissible even if the gap is solely caused by employees’ pay at previous jobs.

Under the Equal Pay Act, 29 U.S.C. § 206(d), employers must pay men and women the same wages for equal or comparable work. However, a gender-based pay gap is permissible if, among other exceptions, it is based on a factor other than sex.

Equal-pay advocates argue that pay schemes based on prior salary as a factor other than sex perpetuate past gender inequities and leave women continuing to earn less than men for comparable work. But courts have often taken a different view.

In the 1982 case Kouba v. Allstate Insurance Co., the Ninth Circuit Court of Appeals held that prior salary can be “a factor other than sex” for purposes of the Equal Pay Act if the employer affirmatively proves that its use of the prior salary “‘effectuates some business policy’ and the is reasonable ‘in light of its stated purpose as well as its other practices.’”

The defendant in Rizo, a school district in Fresno, California, set new hires’ pay using a formula based solely on their previous salaries (with an additional stipend for advanced education like a master’s degree). The plaintiff, a teacher in the district, sued after discovering during a lunchtime conversation that she was being paid less than a male teacher with identical experience and education. Because the male teacher had earned a higher salary at his previous job than the plaintiff had at hers, he was able to start at the district at a higher pay level.

The district acknowledged that it had paid Rizo less than her male counterpart but argued the disparity was based on the employees’ prior salaries and therefore permissible under the Ninth Circuit’s decision in Kouba. The plaintiff argued that using prior salary alone perpetuated past sex discrimination in violation of the Equal Pay Act. Moreover, she argued that Kouba did not apply because while the court had held that prior salary could be “a factor other than sex,” it had never explicitly stated that a pay scheme based exclusively on prior salary would pass muster.

The trial court agreed with the plaintiff, holding that “a pay structure based exclusively on prior wages is so inherently fraught with the risk . . . that it will perpetuate a discriminatory wage disparity between men and women that it cannot stand, even if motivated by a legitimate non-discriminatory business purpose.”

But on appeal, the Ninth Circuit held that the outcome was the same whether the employer used prior salary exclusively or it was merely one factor among many: Even if the prior salary was the only cause of a pay disparity along gender lines, using it still permissible under Kouba. The Ninth Circuit sent the case back to the trial court to determine whether the school district’s use of prior salary effectuated one or more business policies and that it used prior salary reasonably in light of those policies.

The result in Rizo was unsurprising given existing case law—but that doesn’t make it right. Here are three important reasons among many that it’s wrong to allow prior salary to justify women earning less than men for doing the same job:

1. Women are more likely to interrupt their careers to care for children than men. They miss out on raises and higher-paying leadership opportunities. Accordingly, when woman do re-enter the workforce, they do so at a lower salary level than their male counterparts. But if they’re doing equal or comparable work, it’s only right that they receive the same pay, and the Equal Pay Act should protect that interest.
2. A woman who suffers discrimination in her first job can have her income limited for her entire career. Young women may undervalue their contributions and be afraid to speak up for themselves. If a woman underpaid at her first job, she’ll be at a disadvantage in all subsequent jobs that base their pay on prior salary. In effect she’ll be set up for a lifetime of lower salaries sanctioned by the law.
3. It allows employers to profit from the historic discrimination women have suffered and dooms an entire generation of women to lower pay for the same work.

We will continue to monitor Equal Pay Act case law and fight for women who suffer sex discrimination in their workplaces.

A recent California labor law decision confirms that even commissioned employees must be paid specifically for rest breaks.

In Vaquero v. Stoneledge Furniture, the California Court of Appeal held that employers must separately compensate commissioned employees for paid rest breaks required by state laws and regulations. Compensation schemes that fail to do so violate California law and can leave employers exposed to class-action lawsuits from employees.

In Vaquero, commissioned former employees of Ashley Furniture HomeStores (Stoneledge’s trade name) alleged that from 2009 through March 2014, Stoneledge failed to pay them for rest breaks in violation of California labor laws. Under Stoneledge’s commission-only compensation scheme, employees stayed on the clock for rest periods but did not receive separate pay specifically for those rest periods and other non-selling time.

Commissioned employees were guaranteed to be paid at least $12.01 per hour, and those who did not make at least $12.01 per hour in commissions in any pay week were paid enough to make up the shortfall—with a catch. The extra pay was actually an “advance” against future commissions that the employee would then be required to repay once his or her commission exceeded a minimum threshold. 

Meanwhile, employees who earned more than the weekly minimum did not get paid any extra for their rest periods.

Paid rest breaks required under California law

California’s public policy is to encourage employees to take rest breaks. But employees on activity-based compensation plans (like commissions or piece rates) have a natural disincentive to take rest breaks because whenever they’re not actively working, they can’t be earning.

In the piecework context, California courts and federal courts interpreting California law have combatted this disincentive by interpreting the law to require piece rate employees to be paid separately for their rest breaks. In this way, they can be assured that they will at least earn something while they take a breather. In the Vaquero decision, the Court of Appeal extended this interpretation to commissioned workers, reasoning that there was no justification for treating them any differently from piece rate workers.

The devil’s in the details

Under California Labor Code section 226.7, nonexempt employees must be given at least 10 minutes of paid rest time for every four hours worked “or major fraction thereof.” The California Industrial Welfare Commission Wage Orders—including Wage Order No. 7, which applies to employees in the mercantile industry—makes this rule specifically applicable to most nonexempt employees in the mercantile industry “whether paid on a time, piece rate, commission, or other basis.”

More specifically, Wage Order No. 7 requires employers to count rest breaks as “hours worked for which there shall be no deduction from wages.” This deceptively simple sentence has given employers wiggle room to find ways to not pay employees for rest breaks while still appearing to strictly comply with the letter of the law.

Stoneledge argued that its policy was legally compliant because all rest period time “was recorded and paid as time worked identically with all other time.” But the Court of Appeal noted that this was only the case for employees who made below the weekly minimum in commissions. Employees who earned more than the weekly minimum received no extra pay for their rest periods. Because they were not being paid for rest periods, the commission scheme was illegal as to them.

The court also found the policy violated Wage Order No. 7 as to employees who earned less than the weekly minimum because they had only been loaned the money and would have to return it. These advances against future commissions were in fact not actually “pay” at all. “[T]aking back the money paid to the employee effectively reduces either the rest period compensation or the contractual commission rate, both of which violate California law,” the court held.

Rest breaks are meant for rest

The Vaquero decision is the latest in a long line of cases protecting California employees’ right to paid rest breaks. The Vaquero court reaffirmed several important principles. First, employers must actually pay employees what the law requires, in this case rest-break pay. Employers that fail to do so, and instead try to game the system by creating a veneer of compliance through averages, advances, or other schemes will be held liable to employees. And finally, all California employees should be able to stop and take a rest—without taking food out of their families’ mouths.

“The Court of Appeal recognized that all employees, including commissioned and piece rate employees, are entitled to paid rest breaks,” noted Eric Grover of Keller Grover LLP. If you believe you have been denied rest break pay, a consultation with the employment attorneys at Keller Grover can help you understand your rights and legal options.

Getting a foothold in a new career takes dedication and sacrifice. In many fields it’s expected that new entrants will pay their dues—often, ironically enough, by working for free. While unpaid interns and trainees often do get valuable experience and may even advance their careers, the real winners in these arrangements have always been employers. For decades, entire industries have built their economics on the backs of newcomers who have no choice but to work for free in exchange for necessary “experiential learning.”

Fed up with being exploited and seeking reform through the justice system, unpaid workers have in recent years launched a number of class-action lawsuits to be classified as employees under federal and state labor laws, which would entitle them to a minimum wage, overtime, and the basic protections available to all employees. These efforts have already begun to bear fruit, but there is still a long road ahead.

A Win for Fairness in the Film Industry

Take, for example, the now-famous Black Swan case. The 2010 film starring Natalie Portman as a troubled ballerina grossed $329.4 million worldwide. Yet producers employed dozens of unpaid “interns” to do everything from making coffee and cleaning the office to assisting with accounting tasks and bringing director Darren Aronofsky just the right hypoallergenic pillow. Some interns worked 40-hour weeks for months at a time without compensation.

Nor did they receive academic credit for their efforts. They were not students, and the “internship” program was unconnected to any educational institution.

Ultimately, three Black Swan interns sued production company Fox Searchlight Pictures, arguing they were employees entitled to a minimum wage and overtime pay under the federal Fair Labor Standards Act (FLSA) and New York law. After five years of litigation, the interns and Fox Searchlight finally reached a settlement this past July under which the plaintiffs and other similarly situated interns will receive back pay.

Although their case didn’t end in a court victory, in the wake of the settlement Fox Searchlight and a number of other large studios announced that they would start paying their interns. The Black Swan suit is helping to topple a decades-old system that exploited aspiring filmmakers while effectively closing the door to all but those who could afford to forego a full-time job.

There is still a ways to go: The reform at these big production companies has been self-imposed. Smaller players continue to lean heavily in unpaid interns and will likely continue to do so until forced to by the courts.

The Ugly Side of Beauty School

Cosmetology is another field in which established players extract free labor from newcomers. In just about every state, cosmetologists (including beauticians, estheticians, hairdressers, and sometimes even hair braiders and eyebrow threaders) are regulated as licensed professionals like lawyers, doctors, architects and pharmacists.

The licensing requirements are onerous and usually include an examination plus thousands of hours of classroom training, practical apprenticeship, and often both. In California, for instance, beauty students must complete 1,600 hours of “technical instruction and practical training” in order to earn their license—the equivalent of 40 weeks of full-time work.

Cosmetology student-trainees learn their craft by providing beauty services to the public under varying degrees of supervision in their schools’ salon “clinics.” The schools often charge the customers but pay the trainees nothing. Moreover, trainees are typically made to perform sales, marketing, and even janitorial tasks that are of dubious educational value—again, without pay.

In short, student-trainees do work that directly earns their school money and pads the school’s bottom line by cutting staffing costs—and the school lines its pockets.

Cosmetology students have challenged the status quo in a number of class actions filed in courts around the country. But it has been and will remain an uphill battle to achieve widespread victory because slight variations in the facts of a particular case can drastically alter the outcome, and because the law on the issue varies substantially in different parts of the country. 

A Legal Patchwork

Under section 3(e) of the FLSA, an “employee” is any individual employed by an employer or by a person acting in the employer’s interest. To “employ” is defined as “to suffer or permit to work.” For its part, the U.S. Department of Labor (DOL) analyzes the following six factors when evaluating whether a trainee is an employee:

(1) whether the training, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;

(2) whether the training experience is for the benefit of the intern;

(3) whether the trainee does not displace regular employees, but works under close supervision of existing staff;

(4) whether the employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;

(5) whether the trainee is not necessarily entitled to a job at the conclusion of the internship; and

(6) whether the employer and the trainee understand that the intern is not entitled to wages for the time spent in the internship.

Unless all six factors are satisfied, an individual will be considered an employee entitled to wages. But federal courts do not like to be held to such strict tests and do not defer to the DOL’s interpretation, complicating the legal landscape in an already complex area of law. Accordingly, whether a trainee is found to be an “employee” will depend in large part on which federal circuit a case arises in. (Since most states’ labor laws are based on federal statutes, courts will usually apply the same interpretations to both.) 

Federal courts usually focus on the “economic realities” of the work relationship. While many federal courts have adopted the factors of the DOL’s analysis, they have chosen to apply the factors loosely and nonexhaustively. This results in a holistic evaluation of the totality of the circumstances to determine whether the “economic realities” of the working relationship are those of an employer and employee.

Still, other courts, like those in the Ninth Circuit evaluate the “economic reality” of the relationship by focusing directly on the employer. The inquiry in the Ninth Circuit, which includes California, Nevada, Oregon, and Washington state, is whether a person exercises such “control over the nature and structure of the employment relationship, or economic control over the relationship, that individual is an employer within the meaning of the Act, and is subject to liability.” Boucher v. Shaw, 572 F.3d 1087, 1091 (9th Cir. 2009).

The Ninth Circuit even has its own four-factor economic realities test. But district courts facing recent claims from cosmetology students have further distilled the inquiry into a simple question: “whether a school subordinates its educational purposes to its business function of generating revenue.” Guy v. Casal Institute of Nevada dba Aveda Institute of Las Vegas, No. 2:13-cv-02263-RFB-GWF (D. Nev. Aug. 8, 2016). As Guy illustrates, this test is effective for cutting straight to the heart of the matter.

Students Were Employees Under ‘Subordination’ Test

In Guy, Aveda charged customers for services provided by its beauty students, but it did not pay the students for their labor. Nor did it pay them for the “janitorial and menial tasks” it also made them perform. Moreover, Aveda assigned students to customers without regard to the skills the students needed to learn, and provided only minimal supervision while students served those customers. And students were prohibited from bringing in volunteers to practice on with free services.

The court found that “these facts demonstrate the business interests of Aveda operating the salon were dominant in the relationship between the ‘students’ and the ‘school.’” It found that Aveda “could not proffer significant or compelling evidence to establish that its business model was not predicated on unpaid student labor,” nor could it explain why students were not permitted to bring in volunteers. And the fact that students were made to perform janitorial tasks suggested that “the school subordinated students’ interests to that of its own revenue-generating business by having unpaid janitorial labor offset its cleaning expenses.”

Although the students may have benefitted from the training by learning about cosmetology, “[t]he question is not whether these students learned anything while working for the ‘business;’ rather, the determinative legal inquiry is whether the students’ education and educational interests [were] the dominant organizing principle of the activity in which they participated.” Here they were not, the court found.

Going Forward

The decision last month in Guy is a good sign that courts, at least in the Ninth Circuit, are growing tired of beauty schools exploiting their students for free labor. “This unfair system of providing free labor under the guise of an internship has gone one for far too long,” said employment lawyer Eric Grover of Keller Grover LLP. “However, the courage of a few interns willing to challenge the system is starting to effect real change.”