General Publications May 3, 2018

“Hourly Employee Pay In Calif. Hangs In The Balance,” Law360, May 3, 2018.

Extracted from Law360

On May 1, the California Supreme Court heard oral arguments in the highly anticipated case Troester v. Starbucks Corporation as clouds gathered around the longstanding de minimis doctrine. The case, which is currently pending before the Ninth Circuit, was referred to the California high court by the Ninth Circuit panel so that it could answer a key question — does the de minimis doctrine, traditionally applied in both California and federal Fair Labor Standards Act cases, apply to wage claims made under the California Labor Code? Having concluded oral arguments, the California Supreme Court will now consider this question. The answer may drastically change how employers do business in California as they rethink how to track employee time spent before and after a shift. Reading the tea leaves from oral argument, employers in California should be prepared for a new storm of wage and hour claims.

Before the Troester case, the California Supreme Court had never before rendered an opinion on whether the de minimis rule, a creation of federal law, actually applied to wage claims brought under the California Labor Code. Traditionally, in wage cases that claimed time was worked “off the clock” without compensation, the de minimis doctrine had been asserted by employers as a defense under the FLSA in both state and federal cases brought in California courts. The de minimis doctrine holds that employers are not responsible for compensating employees for small time increments spent off the clock preparing for or concluding a work shift.

Despite the doctrine being applied by courts for years, all that may change after the California Supreme Court weighs in at the request of the Ninth Circuit. The justices’ initial questions inferred that the California high court may be preparing to answer the Ninth Circuit’s question with an emphatic “no” — an answer that would result in the end of the de minimis doctrine being asserted by employers in response to employee claims made for “off-the-clock” compensation under the California Labor Code. During oral argument, the justices appeared interested not in whether the de minimis rule should apply, but rather how employers could track time spent off the clock and whether certain tasks were compensable or not.

In particular, Justice Goodwin Liu asked the attorneys for appellant Douglas Troester if it were possible for employers in California to use an app to accurately capture the time worked off the clock by employees, and asked how far employers in California must go to ensure that all time is recorded. In response, Troester’s attorney argued that all time must be capturable and, further, that the burden is not on employees to capture that time — it’s on the employers. Liu also commented during that exchange that, given the technology in the marketplace, employers would be able to figure out how to accurately capture all of an employee’s work time.

The justices also had several pointed questions for Starbucks, foreshadowing the justices’ thinking on the subject. Liu pondered that if tracking time spent off the clock was difficult, Starbucks could simply undertake a time study to determine the actual times worked by employees, so that those employees could be accurately compensated for that time. Starbucks’ lawyers argued that the de minimis rule should be applied and, more broadly, that cases like the one brought by Troester are not really about recovering the wages allegedly due to Troester and other similarly situated employees. Rather, Starbucks argued, as many employers and defense lawyers have argued for years, that these types of claims are fueled by the plaintiffs bar in pursuit of the potentially hefty waiting time penalties under California Labor Code Section 203, as well as the recovery of attorneys’ fees and costs, which could exponentially increase an employer’s monetary exposure if a class of employees were certified.

If, as expected, the California Supreme Court declines to accept Starbucks’ arguments and declines to apply the de minimis rule to wage claims made under California law, employers doing business in California are likely to face a new onslaught of wage and hour class actions brought by employees like Troester who claim that, as a result of the California high court’s decision not to apply the de minimis rule to wage claims made under California law, the time they spend off the clock preparing for or wrapping up a work shift must be compensated under the California Labor Code.

Employees will also likely argue that because their particular employer failed to timely pay those wages at the end of each pay period, the employer is subject to waiting time penalties, attorneys’ fees and costs — frequent additional monetary costs that accompany claims made under the California Labor Code. Any employer that has employees open or close retail or office locations to begin or end a work day, which would include unlocking or locking store or office space, turning on and off the phones, lights, computers and electronics, and turning off and on alarm systems and security measures, will undoubtedly face renewed risk of liability if the de minimis doctrine is no longer available as a defense in California.

As employers collectively wait for a decision from the California Supreme Court, they should be preparing for the worst. Questions like those posed by Liu during oral argument will be front and center for employers to consider if they are now required to compensate even those few minutes or seconds of time that were previously disregarded under the law. As suggested by Liu, can employers in California create or implement an app on employee telephones that will allow for the accurate tracking of time spent off the clock? While theoretically the answer to this question is “yes,” such a process would create myriad additional complications for the employer and the employee. If the phones are not company-owned, will the employer need to obtain, and the employee provide, consent for the company to install an app that now includes company proprietary software on an employee’s personal phone? How do employers ensure that the time tracked on the app is accurate? Is the time spent downloading, updating and using the app also time off the clock that needs to be compensated? These are but a few of the many questions that employers will face in trying to find business solutions to a complicated and potentially costly issue.

Notwithstanding the impending decision from the California Supreme Court, employers can take affirmative steps to prepare for what may come. First, employers should consult with their outside employment counsel and human resources professionals to review their wage and hour policies for employee compensation for de minimis off-the-clock work. Second, employers should identify which employees may be engaging in such off-the-clock work to reduce the legwork required to identify and properly compensate these employees if and when a decision is announced. Third, ensuring that, as an employer, you have updated wage and hour policies, and ensuring that employees are aware of those policies, is the another step in preparing for what could be a significant change in how companies are required to compensate employees who engage in activities before and after a shift to prepare for their work. Fourth, conducting a review of what tasks go into opening or closing a retail space, a construction site and related work areas will go a long way in helping employers understand how to potentially streamline those processes and create a uniform set of guidelines for how to evaluate time spent preparing for and concluding a shift.

Until a decision is announced, we are unfortunately in a holding pattern, speculating on what the California Supreme Court may or may not do. While anything is possible, a question from the California high court’s Chief Justice Tani Gorre Cantil-Sakauye provides some foreshadowing. During oral argument, she asked the attorneys how the court is supposed to reconcile the de minimis rule with the California Labor Code, which specifically states that “all work must be compensated.” With such impactful statements being made, employers should stand ready to face a new storm.
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