FEBRUARY 2005

I. LEGISLATIVE/REGULATORY UPDATE
Pending Legislation

California’s Meal Break Rules

The California Division of Labor Standards Enforcement (“DLSE”) withdrew its December 10, 2004 proposed emergency regulation clarifying and revising meal-period requirements for California employees.

Under current interpretation of the law, employees who work five consecutive hours in one day must receive an uninterrupted meal period of at least 30 minutes, and the meal period must begin before the sixth hour of work; employees who work no more than six hours in a day may waive their right to a meal period. A second uninterrupted meal period must be provided to employees who work more than ten hours in a day, but the second meal period may be waived if the first meal period was not waived and the employee works no more than 12 hours in the day. Employers are required to pay an employee one hour of additional pay for each day the employee did not receive a required meal period.

Instead of pursuing the emergency regulation, the DLSE submitted a proposed regulation (with some modification) for the normal public review process. Among other things, the proposed
regulation:

• specifies that meal periods could start before completion of the sixth hour of work unless otherwise required by an Industrial Welfare Commission (“IWC”) Wage Order;
  
• provides that an employer will be deemed to have provided a required meal period by making the meal period available to the employee and providing the employee with the opportunity to take it, posting the applicable IWC wage order, and keeping accurate time records as required by the posted IWC Wage Order; and
  
• clarifies that the one hour of additional pay imposed for not providing a required meal period is a penalty (thereby subjecting such claims to a one-year statute of limitation rather than the three-year statute of limitation applicable to wage claims or the four-year statute of limitation to recover wages under an unfair business practices theory of
  liability).

Public hearings on the proposed regulation are being held during February. Public comment on the proposed regulations must be submitted by 5:00 p.m. on Wednesday, March 2, 2005. All comments must be submitted in writing (by mail, fax, or e-mail) to Allen Perlof, Senior Deputy Labor Commissioner, Division of Labor Standards Enforcement, 9th Floor West, Post Office Box 420603, San Francisco, California 94142; e-mail: dlsecomments@dir.ca.gov; fax: (415) 703-4807.

In light of the ongoing uncertainty over meal-period requirements, employers are advised to continue following the DLSE’s prior interpretation of the meal-period requirements and ensure that employees begin any required uninterrupted meal period before the fifth hour of work is completed.

The DLSE has the authority to interpret the law for enforcement purposes, and to investigate employment records and worksites to determine if employers are complying with the meal-period requirements. Therefore, it is critically important that employers be prepared for a DLSE examination of their records and personnel practices. By conducting an internal audit of wage and hour law compliance before an investigator knocks at the door, employers can address and remedy vulnerabilities that an audit might reveal. As part of an internal audit, the employer’s policies and procedures should be reviewed for compliance with current law and regulations and any
irregularities should be corrected.

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II. JUDICIAL UPDATE

Employer May Delay Giving Employees Public Records Obtained in an Investigation

In Moran v. Murtaugh, Miller, Meyer & Nelson LLP, a California Court of Appeal confirmed that an employer who obtains public records regarding an employee must provide those records to the employee. However, the court also held that if the records are obtained as part of an investigation for suspicion of wrongdoing or misconduct, it may wait to provide the records until after the investigation is complete.

Gene Moran (“the Employee”) was hired by a law firm (“the Employer”) as a paralegal. An associate attorney of the Employer conducted a computerized search of court decisions and found three involving the Employee, including convictions for grand theft and second degree burglary. Six days later, two partners of the Employer met with the Employee to discuss whether he had previously been convicted of a felony. When he stated that he had, the Employer requested and received the Employee’s resignation. Ten days later, the Employee sent the Employer a letter, citing the Investigative Consumer Reporting Agencies Act (“ICRAA”) and requesting a copy of the public record upon which the Employer’s action was based. The Employer sent the Employee the information the next day.

The Employee sued the Employer for violating ICRAA. The trial court dismissed the claim and the Employee appealed. In one of the first rulings interpreting ICRAA, the appellate court confirmed that ICRAA requires any employer who obtains public record information regarding an employee to generally disclose this information to the employee within seven days, even if no adverse employment action is taken based on the information. However, the court also ruled that where an employer obtains public record information in connection with an investigation for suspicion of wrongdoing or misconduct, it may wait to provide this information for a reasonable time after the investigation concludes, according to the particular circumstances of the case.

The Moran case reminds all California employers of their general obligation under the ICRAA to provide an employee with a copy of any public record it obtains regarding an employee, even when the employer obtains the information itself, and even where no adverse action is taken based on the information. Under this requirement, the records must typically be provided to the employee within seven days of the employer’s receipt of such information, regardless of whether the information is received in written or oral form.

The court clarified IRCAA’s rules regarding the exception for investigations involving a suspicion of wrongdoing or misconduct. To meet the exception, an “investigation” need not be all-encompassing. The court held that “according to the circumstances, the employer may choose to interview fellow employees, conduct surveillance, contact prior employers, or make other inquiries.” Moreover, the misconduct or wrongdoing being investigated need not be contemporaneous, but may be actions that occurred well before the employee was hired, as long as the conduct could affect the employee’s suitability for his or her position. Finally, the seven day requirement does not apply to information gathered in connection with such an investigation. The employer may choose to temporarily withhold the investigatory results in order to confront the employee with the information and measure character, veracity, and other factors according to his or her response, as long as the employer provides the employee with the information within a reasonable time after the investigation concludes, according to the specific circumstances of the situation.

Chargeback of Advanced Commission Against Advances Does Not Violate Labor Code

In Steinhebel v. LA Times, a California court of appeal affirmed summary judgment for Los Angeles Times Communications (“the Employer”), finding that it was lawful for the Employer to contract with its telesales employees (“the Employees”) to pay a commission upon the sale of a subscription immediately, subject to a chargeback if the customer did not keep the subscription for at least 28 days.

The court found that the advances on commissions were not wages under Labor Code section 200. Specifically, the court found that the advance was not a wage because not all conditions of the commission were met (i.e., the sale had to be verified and the customer had to keep the subscription at least 28 days.)

The court of appeal held that “an employer may legally advance commissions to its employees prior to the completion of all conditions for payment and, by agreement, charge back any excess advance over commissions earned against any future advance should the conditions not be satisfied.” This case reminds California employers that conditions precedent to the entitlement of a commission may be regulated by employers, and if the conditions are not met, an employer may charge back unearned advances. However, to avail itself of these protections, employers should ensure that such agreements are in writing and acknowledged by each impacted employee.

If you would like to discuss these or any other employment law matters, please do not hesitate to contact any member of Klinedinst's Employment Law Department.