Employment Law

Calling California Employers: On-Call Shifts May Trigger Reporting Time Pay

Why it matters

An employer’s on-call scheduling practice triggered the reporting time pay requirements of California’s Wage Order 7, an appellate court in the state recently held, reversing dismissal of the suit. During her time as a sales clerk at Tilly’s, Skylar Ward was scheduled for a combination of regular and “on-call” shifts, which required her to call the store two hours before her on-call shift to find out whether or not she needed to come in to work. Ward filed a putative class action against the employer, contending that the pre-shift call constituted “report[ing] for work” and that she should be paid “reporting time pay” pursuant to Wage Order 7. Tilly’s countered that employees only “report for work” when they physically appear at a worksite. But the court sided with the plaintiff, emphasizing the purpose and history of the wage order to find Tilly’s on-call scheduling “is precisely the kind of abuse that reporting time pay was designed to discourage.” The 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. California employers using on-call scheduling should consider their practices in the wake of the opinion, which expressly declined to decide whether its interpretation would apply retroactively or only prospectively.

Detailed discussion

Skylar Ward, a sales clerk at a Tilly’s store in Torrance, California, was scheduled for a combination of regular and “on-call” shifts. Along with her fellow employees, Ward was required to contact the store two hours before the start of her on-call shift to determine whether she was needed to work the shift.

Tilly’s informed its employees that they should consider on-call shifts “a definite thing” until they were told not to come in. Employees were disciplined if they failed to contact the store before an on-call shift, if they contacted the store late or if they refused to work on-call shifts. Tilly’s did not pay employees for the time they spent calling in or for on-call shifts that they were not required to work.

In 2015, Ward filed a putative class action against Tilly’s, alleging that the employer violated Wage Order 7 because the employees were due reporting time pay for on-call shifts. Wage Order 7 governs “all persons employed in the mercantile industry,” other than persons employed “in administrative, executive or professional capacities.”

The wage order mandates that nonexempt retail employees be paid “reporting time pay” “in no event for less than two (2) hours nor more than four (4) hours, at the employee’s regular rate of pay, which shall not be less than the minimum wage” where “an employee is required to report for work and does report, but is not put to work or is furnished less than half said employee’s usual or scheduled day’s work.”

The employer demurred to the complaint, asserting that Ward failed to state a cause of action. Requiring employees to call in to ask whether to report for work did not constitute “report[ing] for work” within the meaning of Wage Order 7, Tilly’s told the court. The trial court agreed and sustained the demurrer.

Ward appealed and a California appellate panel reversed.

“We conclude that the on-call scheduling alleged in this case triggers Wage Order 7’s reporting time pay requirements,” the court wrote. “[O]n 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. This is precisely the kind of abuse that reporting time pay was designed to discourage.”

As “a purely linguistic matter,” the court found the phrase “report[ing] for work” to be ambiguous as to whether it requires an employee’s physical presence at a place of work, or whether it may be satisfied by the employee presenting himself or herself in whatever manner the employer has directed (such as a telephone call).

Reviewing the regulatory history of the Industrial Wage Commission (IWC) and the purpose of the wage orders, the court rejected Tilly’s argument that the interpretation of the phrase “report[ing] for work” should be governed by the IWC’s understanding of the phrase at the time of its adoption in the 1940s. Instead, the panel applied the legal text in a modern context, in light of current technology.

The twofold purpose of the reporting time pay requirements—to compensate employees and encourage proper notice and scheduling—are consistent with requiring reporting time pay for on-call shifts, the panel found.

“We conclude that had the IWC confronted the issue, it would have determined, as we do, that the telephonic call-in requirements alleged in the operative complaint trigger reporting time pay,” the court wrote. “We note as an initial matter that the on-call practices plaintiff alleges have much in common with the specific abuse the IWC sought to combat by enacting a reporting time pay requirement in 1942.”

Unpaid on-call shifts are “enormously beneficial” to employers, the court said. “They create a large pool of contingent workers whom the employer can call on if a store’s foot traffic warrants it, or can tell not to come in if it does not, without any financial consequences to the employers. This permits employers to keep their labor costs low when business is slow, while having workers at the ready when business picks up. It thus creates no incentive for employers to competently anticipate their labor needs and to schedule accordingly.”

At the same time, “unpaid on-call shifts impose tremendous costs on employees,” the court wrote. They cannot commit to other jobs or schedule classes during their on-call shifts with Tilly’s; if they have children or care for elders, they have to make contingent plans and may have to pay for them even if they are not called to work. “In short, on-call shifts significantly limit employees’ ability to earn income, pursue an education, care for dependent family members and enjoy recreation time,” the court said.

Requiring reporting time pay for on-call shifts evens out the balance, the court explained.

“Reporting time pay requires employers to internalize some of the costs of overscheduling, thus encouraging employees [sic] to accurately project their labor needs and to schedule accordingly,” the panel wrote. “Reporting time pay also partially compensates employees for the inconvenience and expense associated with making themselves available to work on-call shifts, including forgoing other employment, hiring caregivers for children or elders, and traveling to a worksite.”

The phrase “report for work” does not have a single meaning, the court concluded, but “is defined by the party who directs the manner in which the employee is to present himself or herself for work—that is, by the employer.”

“If an employer directs employees to present themselves for work by physically appearing at the workplace at the shift’s start, then the reporting time requirement is triggered by the employee’s appearance at the job site,” the court said. “But if the employer directs employees to present themselves for work by logging on to a computer remotely, or by appearing at a client’s job site, or by setting out on a trucking route, then the employee ‘reports for work’ by doing those things. And if, as plaintiff alleges in this case, the employer directs employees to present themselves for work by telephoning the store two hours prior to the start of a shift, then the reporting time requirement is triggered by the telephonic contact.”

This interpretation of the Wage Order is consistent with the California Supreme Court’s recent decision in Augustus v. ABM Security Services, the court added. While that case involved security guards who were required to keep their pagers and phones on during their rest breaks and respond when needed, the court’s holding was “instructive,” because it grounded the ruling in the determination that if an employer limits the kinds of activities employees can engage in during off-duty time, they are not truly off duty. Like in Augustus, “the call-in requirement is inconsistent with being off-duty,” the court said.

Tilly’s argument that requiring reporting time pay for on-call shifts “is unworkable and will have absurd unintended consequences” did not sway the court. While the court recognized that some difficult line-drawing challenges may result from application of the wage order, it limited its analysis to the case before it.

One member of the panel filed a partial dissent, arguing that the legislative history of the phrase “report for work” should be interpreted to reflect the drafters’ intent that a retail salesperson must physically appear at the workplace.

To read the opinion in Ward v. Tilly’s, Inc., click here.

There is the potential for regulations regarding “call-in pay” in New York as well. Read our previous Employment and Labor Law Tip of the Month for more on this topic.

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California Considers Additional Paid Family Leave, Codifying Dynamex

Why it matters

California employers may be facing changes, with a proposal from Governor Gavin Newsom to provide six months of paid leave for employees to care for a new baby and dueling measures introduced in the legislature related to last year’s decision in Dynamex Operations West, Inc. v. Superior Court. As one of his first acts as governor, Newsom advocated for a six-month period of paid leave for each new child, with the time divided between two adults. Only a handful of states—including New York and New Jersey—provide paid family leave, and if the proposal were enacted, it would put California in the lead in terms of the amount of paid time workers in the state are entitled to take. In legislative news, the California Supreme Court’s decision in Dynamex, adopting a new legal standard for determining whether workers should be classified as employees or as independent contractors for purposes of the state’s wage orders, is the subject of two measures: Assembly Bill 5, which would codify the “ABC test” embraced by the court, and Assembly Bill 71, which would codify the prior test used in the state.

Detailed discussion

Shortly after being sworn in as the new governor of California, Newsom proposed extending the state’s existing six-week paid family leave (PFL) to six months. PFL, which became law 17 years ago, currently provides up to six weeks of partial wage replacement to employees who take time off to, among other things, care for a new child entering the family through birth, adoption or foster care placement.

Other states—including New Jersey, New York and Rhode Island—have followed suit with similar paid parental and caregiving leave, with laws in Massachusetts, Washington and Washington, D.C., set to take effect in coming years. The jurisdictions offer between four and 12 weeks to new parents.

While the California proposal will boost the amount of time employees can take off work to bond with a new child, questions remain about how the increase in leave would be funded. Currently, all of PFL is paid for by employees through a 1 percent payroll tax on wages of up to $115,000 and the program is operating at a surplus. The surplus could be tapped to pay for the additional time or the payroll tax could be increased.

Other funding options include property and sales taxes or even requiring employers to chip in for the increased PFL. Governor Newsom also suggested that his expanded PFL proposal may become a piece of a larger tax reform initiative in the state.

In other possible legislative changes, lawmakers are considering two bills introduced in the wake of last year’s landmark decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles. In that case, the California Supreme Court adopted a new legal standard for determining whether workers should be classified as employees or as independent contractors for purposes of California wage orders.

The court adopted the “ABC test” utilized by other jurisdictions, which ultimately makes it much more difficult for businesses to classify workers as independent contractors, as all three of the following factors must be met: “(A) that the worker is free from control and direction” of the employer as it relates to performance of the work; (B) that the work is performed “outside the usual course of the hiring entity’s business” and (C) that the worker engages “in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.”

In response, Assembly Member Lorena Gonzalez introduced Assembly Bill 5, which would codify the ABC test. The measure also notes that “misclassification of workers as independent contractors has been a significant factor in the erosion of the middle class and the rise in income inequality,” emphasizing the harm to misclassified workers cited by the court in Dynamex.

Alternatively, lawmakers could take the opposite approach and support Assembly Bill 71, introduced by Assembly Member Melissa Melendez. That bill would override the Dynamex decision by adding section 2750.7 to the California Labor Code, providing for a multifactor test to determine whether an individual is an employee or an independent contractor.

Section 2750.7 would bring back the standard used in California prior to Dynamex and set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, where the principal factor to be considered is “whether the person to whom services is rendered has the right to control the manner and means of accomplishing the result desired.”

The other nine factors include whether the one performing services is engaged in a distinct occupation or business; the kind of occupation, with reference to whether in the locality, the work is usually done under the direction of the principal or by a specialist without supervision; the skill required in the particular occupation; whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work; the length of time for which the services are to be performed; the method of payment, whether by the time or by the job; the right to discharge at will, without cause; whether or not the work is part of the regular business of the principal; and whether the parties believe they are creating the relationship of employer-employee.

To read Assembly Bill 5, click here.

To read Assembly Bill 71, click here.

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Ninth Circuit Has No Room for Anything but FCRA

Why it matters

Taking a hard line on the standalone document requirement of the Fair Credit Reporting Act (FCRA), the U.S. Court of Appeals, Ninth Circuit, held that the inclusion of any extraneous information relating to various state disclosure requirements violates the federal statute. Desiree Gilberg filed a putative class action against California Check Cashing Stores, alleging that the “Disclosure Regarding Background Investigation” form the company had her sign violated the federal law because it contained not only the mandated FCRA disclosure but additional disclosures from seven other states as well. A district court granted the employer’s motion for summary judgment, finding that it complied with both state and federal statutes. But the Ninth Circuit reversed. The FCRA means what is says, the panel wrote, holding that a prospective employer violates the federal statute’s standalone document requirement by including extraneous information relating to various state disclosure requirements in that disclosure. Not only did California Check Cashing violate the FCRA requirement, but the form of its disclosure also ran afoul of California’s Investigative Consumer Reporting Agencies Act (ICRAA) standalone document requirement, the court added. In light of the Ninth Circuit’s opinion, employers should reread their disclosure forms to ensure compliance with both the FCRA and state law to avoid a similar action.

Detailed discussion

Pursuant to 15 U.S.C. § 1681b(b)(2)(A), the Fair Credit Reporting Act (FCRA) requires employers who obtain a consumer report on a job applicant to provide the applicant with a “clear and conspicuous disclosure” that they may obtain such a report “in a document that consists solely of the disclosure” before procuring the report.

In the process of applying for employment with CheckSmart Financial, Desiree Gilberg completed a three-page form containing an employment application, a math screening and an employment history verification. She later signed a separate form, titled “Disclosure Regarding Background Investigation,” which included the FCRA disclosure as well as mandated state disclosures for California, Maine, Minnesota, New York, Oklahoma, Oregon and Washington.

CheckSmart hired Gilberg, who worked for the company five months before voluntarily leaving her employment. She then filed a putative class action against the company alleging that it failed to make proper disclosures as required by both the FCRA and California’s Investigative Consumer Reporting Agencies Act (ICRAA).

The district court granted the employer’s motion for summary judgment on both claims, ruling that CheckSmart’s disclosure form complied with the FCRA and ICRAA. Gilberg appealed to the U.S. Court of Appeals, Ninth Circuit.

Relying on its 2017 decision in Syed v. M-I, LLC, the federal appellate panel reversed. In Syed, the Ninth Circuit analyzed the FCRA’s standalone document requirement and held that a prospective employer violated the statute when it included a liability waiver in the same document as the mandated disclosure. The statute means what it says, the court held: that the required disclosure must be in a document that “consist[s] ‘solely’ of the disclosure.”

CheckSmart attempted to distinguish its disclosure because the additional information consisted of other, state-mandated disclosure information, which it argued furthered, rather than undermined, the FCRA’s purpose.

“We disagree,” the panel wrote. “Syed’s holding and statutory analysis were not limited to liability waivers; Syed considered the standalone requirement with regard to any surplusage. Syed grounded its analysis of the liability waiver in its statutory analysis of the word ‘solely,’ noting that FCRA should not be read to have implied exceptions, especially when the exception—in that case, a liability waiver—was contrary to FCRA’s purpose. Syed also cautioned ‘against finding additional, implied exceptions’ simply because Congress had created one exception. Consistent with Syed, we decline CheckSmart’s invitation to create an implied exception here.”

Purpose does not override plain meaning, the court said, rejecting CheckSmart’s argument that its disclosure form was consistent with the intent of the FCRA. Further, the employer failed to explain how the surplus language comported with FCRA’s purpose, as the disclosure referred not only to rights under the FCRA and ICRAA applicable to Gilberg, but also to rights under various other state laws inapplicable to her.

“Because the presence of this extraneous information is as likely to confuse as it is to inform, it does not further FCRA’s purpose,” the court said.

Syed holds that the standalone requirement forecloses implicit exceptions,” the Ninth Circuit wrote. “The statute’s one express exception does not apply here, and CheckSmart’s disclosure contains extraneous and irrelevant information beyond what FCRA itself requires. The disclosure therefore violates FCRA’s standalone document requirement. Even if congressional purpose were relevant, much of the surplusage in CheckSmart’s disclosure form does not effectuate the purposes of FCRA. The district court therefore erred in concluding that CheckSmart’s disclosure form satisfies FCRA’s standalone document requirement.”

The panel also held that CheckSmart’s disclosure form was not “clear and conspicuous” under either the FCRA or the ICRAA. Although the court determined the form was “conspicuous” (despite frowning on the size of the font used), it was not “clear” because it contained language a reasonable person would not understand and would confuse a reasonable reader because it combined federal and state disclosures.

For example, the disclosure stated: “The scope of this notice and authorization is all-encompassing; however, allowing CheckSmart Financial, LLC to obtain from any outside organization all manner of consumer reports and investigative consumer reports now and, if you are hired, throughout the course of your employment to the extent permitted by law.”

The beginning of the sentence did not explain how the authorization was all-encompassing or how that would affect an applicant’s rights, the court said, while the second half of the sentence lacked a subject and was incomplete.

As “CheckSmart’s disclosure form was not both clear and conspicuous, the district erred in granting CheckSmart’s motion for summary judgment with regard to the FCRA and ICRAA ‘clear and conspicuous’ requirements,” the panel wrote.

To read the opinion in Gilberg v. California Check Cashing Stores, LLC, click here.

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Medical Exam Comes Back Negative for Employer in Fourth Circuit

Why it matters

Reversing summary judgment in favor of an employer, the U.S. Court of Appeals, Fourth Circuit, held that the requirement to complete a medical exam may have violated the Americans with Disabilities Act (ADA) as the employer lacked a reasonable belief based on objective evidence that the employee’s medical condition left her unable to perform her job. The Equal Employment Opportunity Commission (EEOC) filed suit on behalf of Cecilia Whitten, a 28-year employee of McLeod Health who was responsible for the company’s internal newsletter. Whitten was born with a physical disability that caused her to struggle with mobility. In 2012, the employer required her to undergo a medical fitness-for-duty exam, which resulted in a discussion of possible accommodations. After placing her on unpaid medical leave, the employer terminated Whitten. She filed a charge of discrimination with the EEOC. A district court judge granted summary judgment in favor of McLeod, but the federal appellate panel reversed. A reasonable jury could find that the employer lacked a reasonable belief based on objective evidence that Whitten’s medical condition left her unable to navigate the employer’s various campuses, particularly as she had been doing so for almost three decades, the Fourth Circuit said.

Detailed discussion

For 28 years, Cecilia Whitten worked for McLeod Health, a company that operates various hospitals and healthcare facilities in South Carolina. As the editor of McLeod’s internal employee newsletter, she was responsible for developing content by interviewing other employees and writing about company events. Whitten typically traveled among McLeod’s various campuses, spread throughout an area of roughly 100 miles.

Whitten was born with a physical disability known as “postaxial hypoplasia of the lower extremity.” Lacking certain bones in her legs, feet and right hand, she has always struggled with mobility, and falling was “a constant” part of her life.

Although Whitten fell multiple times during her almost three decades of employment, she satisfactorily performed her duties for McLeod. However, in 2012, she fell three times in a four-month span (although only one of the falls occurred at work, and it resulted in no harm). Whitten’s supervisor also expressed concern that she looked “sluggish” and appeared flushed and winded after moving short distances.

The supervisor attempted to reduce Whitten’s workload but did not raise any concerns about her health. After her third fall, the supervisor reported the incidents to human resources (HR), and the occupational health department determined Whitten needed to undergo a fitness-for-duty medical exam.

Although “confused about the necessity” of the exam, Whitten underwent the exam. The nurse practitioner concluded Whitten needed a functional-capacity exam, and Whitten was placed on paid administrative leave pending the results. Based on that exam, the occupational therapist recommended that Whitten be restricted to traveling no more than 10 miles from her main office, use an assistive device and be provided with a parking space in an area without a curb.

Whitten, who did not believe she needed any accommodations but thought she was required to submit an accommodation form, responded with a request for a parking space in an area without a curb, help with selecting an appropriate assistive device, a new desk chair with adjustable-height arms, and limitations on walking and standing.

McLeod then informed Whitten that she could not return to her job because her proposed accommodations would prevent her from traveling to the company’s various campuses to collect stories and take photographs, nullifying the purpose of her position. The employer placed Whitten on unpaid medical leave and terminated her six months later.

Whitten filed a charge of discrimination with the EEOC, and the agency filed suit against McLeod for violating the ADA. Specifically, the EEOC alleged that the employer violated the statute by requiring Whitten to undergo a medical exam despite a lack of objective evidence that such an exam was necessary and by discharging Whitten on the basis of her disability.

The district court granted summary judgment to the employer on both claims, and the EEOC appealed. The U.S. Court of Appeals, Fourth Circuit, began with the medical exam.

Pursuant to the ADA, employers may require an employee to undergo a medical exam only where it “is shown to be job-related and consistent with business necessity.” The threshold question for the court: whether navigating to and within McLeod’s campuses was an essential function of Whitten’s job.

The court found evidence supporting McLeod’s position in testimony from Whitten’s supervisor that her job required her to navigate to and from company events and conduct in-person interviews; Whitten agreed in her deposition that her job required her to navigate various locations such as parking lots and grassy areas.

On the other hand, the record contained evidence supporting the EEOC’s position, the court said. McLeod’s own written description of Whitten’s position contained no mention of navigating to and from company events or conducting in-person interviews; Whitten herself did not think that either was a requirement of her job, and the EEOC produced evidence that she was able to conduct interviews and collect other forms of content over the phone.

Given this mixed evidence, “the question is one for the jury, and McLeod is not entitled to summary judgment on the EEOC’s illegal exam claim,” the panel wrote.

“We note that even if it were beyond dispute that navigating to and within McLeod’s campuses was an essential function of Whitten’s job, we would still hold that McLeod is not entitled to summary judgment,” the court added. “A reasonable jury could conclude that when McLeod required Whitten to take a medical exam, the company lacked a reasonable belief—based on objective evidence—that Whitten’s medical condition had left her unable to navigate to and within the company’s campuses without posing a direct threat to her own safety. This, too, makes summary judgment inappropriate.”

Before the employer required Whitten to undergo a medical exam, McLeod knew that Whitten had been able to perform the essential functions of her job—including navigating the campuses—for 28 years, that she had had falls recently and had struggled to handle her workload, and that her manager thought she looked winded, sluggish and groggy.

“[A] reasonable jury, viewing the evidence in the light most favorable to Whitten, could conclude that in the context of Whitten’s employment history, it was not reasonable for McLeod to believe that she had become a direct threat to herself on the job simply because (a) she had fallen multiple times recently and (b) her manager thought she looked groggy and out of breath,” the panel wrote. “This is especially so given that the only one of Whitten’s recent falls to occur at work resulted in virtually no injury.”

The Fourth Circuit reached a similar conclusion on the EEOC’s second claim, that McLeod violated the ADA by discharging Whitten on the basis of her disability. The district court’s reasoning was premised on its analysis of the EEOC’s illegal exam claim, holding that the EEOC could not prove that Whitten was qualified for her job at the time she was fired and that the medical exam indicated that no reasonable accommodation would permit her to navigate the campuses without posing a direct threat to her own safety.

“[I]t is not certain that navigating to and within McLeod’s campuses was essential to Whitten’s job,” the panel said. “By the same token, it is not certain that Whitten’s medical exam was lawful. Since the district court’s grant of summary judgment assumed that those points were not in dispute, we cannot affirm on the basis of the district court’s reasoning.”

The court reversed summary judgment in favor of the employer on both claims and remanded the case to the district court for further proceedings.

To read the opinion in Equal Employment Opportunity Commission v. McLeod Health, Inc., click here.

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