California Policies Prevent Flexibility for Individuals
Californians are choosing to work full-time as independent contractors, and others are using the opportunity to supplement their income. In fact, California is estimated to have nearly 2 million residents who work as independent contractors. These numbers are conservative, as the 2018 U.S. Bureau of Labor Statistics Economic Release did not include the number of individuals who supplement their income with online platforms.
According to the Bureau of Labor Statistics Economic Release, 79% of independent contractors prefer this status over traditional employment. The top reasons that motivate individuals to pursue independent work include: 1) to be their own boss; 2) to choose when they work; 3) to choose their own projects; 4) to choose where they work; and 5) to earn extra money.
However, in April 2018, the California Supreme Court issued a significant decision in Dynamex Operations West v. Superior Court (2018) 4 Cal.5th 903 that completely changed how independent contractor status is determined under the Wage Orders. Dynamex upended nearly three decades of law by adopting a very restrictive three-factor “ABC” test to determine independent contractor status. Dynamex was then codified in September 2019 when Governor Gavin Newsom signed AB 5 (Gonzalez; D-San Diego). AB 5 expands the Dynamex decision beyond just Wage Order application while providing only a limited number of industry exemptions. (See Business Issues article on “Assembly Bill 5.”)
One of the main issues of debate over AB 5 during the legislative session was whether an individual working as an employee had the same flexibility as an individual working as an independent contractor. A limited review of some of California’s strict wage-and-hour laws that continue to grow each year illustrates the challenges employers have in providing employees with flexibility. From the inability to waive daily overtime and meal periods so that a working parent can leave early to make it on time for school pickup, to essentially eliminating the ability to engage in freelance work, California workers and employers are being forced into stringent, traditional work schedules that do not reflect today’s society and the modern workforce.
The following is an outline of just a few of California’s strict labor laws that significantly limit workplace flexibility.
Complexity of Alternative Workweek
Unlike an independent contractor, an employee cannot simply dictate his or her own hours each day without the employer being penalized financially. California is one of only three states that requires employers to pay daily overtime after 8 hours of work and weekly overtime after 40 hours of work. Even the other two states that impose daily overtime requirements allow the employer and employee to waive this requirement through a written agreement. California, however, provides no such common-sense alternative.
Rather, California requires employers to navigate through a multi-step process to have employees elect an “alternative workweek schedule” that, once adopted, must be “regularly” scheduled. This process is filled with potential traps for employers that could easily lead to costly litigation, as one misstep may render the entire alternative workweek schedule invalid, leaving the employer legally responsible for claims of unpaid overtime wages.
To simply attempt to provide more employee flexibility by adopting an alternative workweek, the employer first must provide advance notice of the vote for a proposed alternative workweek schedule, then hold a meeting 14 days before the vote to discuss the proposed alternative schedule. Once that is complete, two-thirds of an entire work unit must agree by secret ballot to adopt and work the selected alternative workweek schedule. A work unit might be the entire company, or a single division or department within the company. Thus, alternative workweek schedules do not provide flexibility on an individualized basis and are not even meant for a handful of employees within a department who want flexibility; instead, these schedules are based on the wants and needs of the entire work unit.
The process becomes more onerous for employers because even if two-thirds of a work unit votes to adopt an alternative workweek schedule, the employer must then report the results to the Division of Labor Standards Enforcement (DLSE) within 30 days. Once the DLSE reports that the employer has adopted the alternative workweek schedule, however, there is no presumption that the employer did so properly, and the employer is not immune from liability.
Currently, there are approximately 38,141 reported alternative workweek schedules with the DLSE. According to the Employment Development Department’s calculations for the fourth quarter of 2018, there are approximately 1,584,626 employers in California. At best, about 2.4% of California employers are utilizing the alternative workweek schedule option. More realistically, however, given that the information in the database is according to work unit instead of employer, it is likely that less than 1% of employers in California are utilizing this process. And, again, it does not apply on an individual employee basis.
Limitations of Makeup Time
Labor Code Section 513 and corresponding Industrial Welfare Commission Wage Orders provide a makeup time exception to general overtime laws. Makeup time allows employees to request time off for personal obligations and make up the missed time without triggering the payment of overtime. This exception, however, has its own set of rigid requirements that employers and employees must adhere to in order to remain legally compliant.
If the employer chooses to allow makeup time, the following conditions must be met:
• The employee cannot work more than 11 hours on another workday, and not more than 40 hours in the workweek to make up for the time off;
• The employee must provide the employer with a signed, written request for each occasion that he/she desires makeup time;
• The employer cannot solicit or encourage the employee to utilize makeup time; and
• The missed time must be made up within the same workweek.
This last hurdle is the most difficult for employees because it means that the employee must come in early or stay late during the same workweek to meet this strict makeup time requirement. But what if a last-minute personal obligation arises on a Friday and the employee’s normal workweek is Monday through Friday? The employee has no ability to make up the time during that workweek or provide prior written notice for approval.
Or what if the employee has prior obligations and simply cannot come in early or stay late that week? Also, as discussed in more detail below, it is important to note that an employee cannot simply waive his/her meal breaks during that week in order to make up that time either.
In theory, the idea of makeup time sounds like a good option. But in practice, the makeup time exception does not allow employees the flexibility necessary to meet their ever-changing personal obligations and exposes employers to costly litigation if the rules are not followed meticulously.
Lack of Meal Period Waivers
The inflexibility of California labor laws is highlighted even more through its meal period requirement. Employers must provide nonexempt employees with an unpaid meal period of no less than 30 minutes for every 5 hours worked. (See Labor Code Section 512.) The meal period must be uninterrupted, the employee must be relieved of all duties, and the employer must not impede or discourage the employee from taking the break.
There is a small exception, however, for employees who work between 5 and 6 hours. These employees can choose to waive their meal periods by mutual consent of the employer and employee. Yet a similar alternative does not exist for employees who work a traditional 8-hour day. Even if the employee and the employer mutually agree that the employee can take an on-duty meal period, the law does not allow an employer to make this exception legally.
Many employees do not want to be forced to take an unpaid, 30-minute meal period if they can eat on duty and leave work 30 minutes earlier. However, an on-duty meal period is allowed only under very limited circumstances whereby three express conditions must be met. The most difficult element to satisfy is the “nature of the work” element because the employer is expected to find other capable employees who can perform the job duties during an individual’s 30-minute meal period, which might not be feasible depending on the job. Thus, the on-duty meal period exception very rarely applies.
Reporting Time Pay and Split Shift Premiums
Labor unions and plaintiffs’ attorneys historically oppose modifications to workplace flexibility laws, claiming that flexibility can be provided easily because employers can allow employees to simply show up to work whenever the employee wants. There are two main concerns with this concept: 1) it is realistically impossible to run a business this way (what if no baristas showed up at a coffee shop at 5 a.m., but 20 of them showed up at 11 a.m. when the rush was over?); and 2) if more employees showed up than needed at a certain time, the employer would have to send them home, triggering reporting time pay.
Reporting time pay generally is required when an employee reports for work but is not put to work or is given less than half of the employee’s usual or scheduled hours. When this occurs, the employer must pay reporting time pay (at least half of the hours the employee was scheduled for or usually worked, but never less than 2 hours’ pay and never more than 4 hours’ pay).
Then, if the coffee shop sent home 15 baristas at 11 a.m. and asked them to return later when they were needed, this may trigger a split shift premium, assuming these baristas are paid minimum wage. A split shift is any two distinct work periods separated by more than a one-hour meal period. If there is more than one hour between shifts, the employee must receive a split shift premium (one hour’s pay at no less than the minimum wage rate for the time between shifts). If reporting time pay or split shift premiums are not meticulously tracked and paid properly, the employer may face potentially devastating litigation costs, including Private Attorneys General Act (PAGA) liability. (See Business Issues article on the “Private Attorneys General Act.”)
While it would be great in theory to provide employees complete flexibility with their schedules, it is simply not viable. However, a little more leniency within the law should be provided, especially considering that California voters clearly value flexibility and do not think that employees and employers alike should have to be governed by stringent standards that have no exceptions. This was made evident by the voter approval of Proposition 11 on the November 2018 statewide ballot. Proposition 11 created an exception to a 2016 California Supreme Court ruling (Augustus v. ABM Security Services) that likely would have required emergency medical technicians (EMTs) and paramedics to be completely unreachable while on break, even in a 911 emergency call.
California labor laws simply do not allow employers to accommodate individual employee requests for flexible work arrangements. Employers should be able to provide their employees more flexibility and negotiate through a written agreement, revocable by either party, the daily and/or weekly schedules that satisfy the needs of both employee and employer. Moreover, if a nonexempt employee wants to skip a 30-minute meal period and eat lunch on-duty in order to leave early, why should an employer be put in the awful position of telling the employee “no”?
California lawmakers should focus on policies that allow individuals the option to work as independent contractors and improve workplace flexibility for employees, while alleviating the threat of costly litigation for employers for accommodating workers’ desired schedules.
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