BILL ANALYSIS AB 569 Page A Date of Hearing: April 22, 2009 ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT William W. Monning, Chair AB 569 (Emmerson) - As Proposed to be Amended: April 22, 2009 SUBJECT : Meal periods. SUMMARY : Establishes specified collective bargaining agreement exemptions related to requirements of existing law concerning meal periods. Specifically, this bill : 1)Provides that specified provisions of current law related to meal periods do not apply to an employee employed in the construction industry who is covered by a valid collective bargaining agreement that meets certain conditions. 2)Provides that specified provisions of current law related to meal periods do not apply to an employee employed as a commercial driver in the transportation industry who is covered by a valid collective bargaining agreement that meets certain conditions. 3)Adds uncodified language to specify that these provisions of the bill shall not be construed to affect the interpretation of the nature or scope of the law related to meal periods other than for employees or employers specifically covered by these provisions. EXISTING LAW : 1)Prohibits an employer from employing any person for a work period of more than five hours without providing the employee with a meal period of not less than 30 minutes [Labor Code section 512 (a)]. 2)Provides that if the total work period per day of the employee is no more than six hours, the meal period may be waived by mutual consent of both the employer and employee [Labor Code section 512 (a)]. 3)Authorizes paid on-duty meal periods when the nature of the work prevents an employee from being relieved of all duty, the parties have agreed to the paid on-duty meal period in writing, and the written agreement authorizes the employee to AB 569 Page B revoke the agreement at any time [See, for example, Industrial Welfare Commission Wage Order 9 Section 11(C)]. 4)Provides that if an employer fails to provide an employee a meal period or rest period, the employer shall pay the employee one additional hour of pay at the employee's regular rate of compensation for each work day that the meal or rest period is not provided (Labor Code Section 226.7). FISCAL EFFECT : Unknown COMMENTS : California law currently regulates meal periods of employees via statute and regulation. The Industrial Welfare Commission (IWC) is the state agency generally empowered to formulate regulations (known as Wage Orders) governing employment. The meal period provisions of the IWC's Wage Orders have remained largely unchanged since 1947. Under those provisions, non-exempt employees are entitled to 30-minute unpaid meal periods depending on the number of hours worked. In 1999, the Legislature enacted Labor Code Section 512 to codify the language regarding meal periods that had previously been contained in most of the IWC wage orders<1>. Labor Code Section 512 provides in relevant part as follows: "(a) An employer may not employ an employee for a work period of more than five hours per day without providing the employee with a meal period of not less than 30 minutes, except that if the total work period per day of the employee is no more than six hours, the meal period may be waived by mutual consent of both the employer and employee. An employer may not employ an employee for a work period of more than 10 hours per day without providing the employee with a second meal ------------------------- <1> Labor Code Section 512 was enacted by Assembly Bill 60, Chapter # 134, Statutes of 1999, the "Eight-Hour-Day Restoration and Workplace Flexibility Act of 1999." AB 569 Page C period of not less than 30 minutes, except that if the total hours worked is no more than 12 hours, the second meal period may be waived by mutual consent of the employer and the employee only if the first meal period was not waived. (b) Notwithstanding subdivision (a), the Industrial Welfare Commission may adopt a working condition order permitting a meal period to commence after six hour of work if the commission determines that the order is consistent with the health and welfare of the affected employees." In 2000, the IWC conducted a legislatively mandated review of the remedy available to employees against an employer that failed to provide a meal or rest period mandated by applicable law. At the time, the only remedy available to an employee was to obtain an injunction against the employer ordering the employer to provide the meal and rest periods. In an effort to provide employers with an incentive to comply with the meal and rest period provisions, the IWC adopted a proposal which required employers to pay employees one hour's pay for each day on which an employee did not receive a meal or rest period. In 2000, the Legislature adopted Labor Code Section 226.7 codifying the new remedy: "(a) No employer shall require any employee to work during any meal or rest period mandated by an applicable order of the Industrial Welfare Commission. (b) If an employer fails to provide an employee a meal period or rest period in accordance with an applicable order of the Industrial Welfare Commission, the employer shall pay the employee one additional hour of pay at the employee's regular rate of compensation for each work day that the meal or AB 569 Page D rest period is not provided." THE MAJOR POINTS OF CONTENTION IN RECENT YEARS The debate in recent years over California's meal period law has largely focused on the following main issues: Obligation to "Provide" Meal Periods As discussed above, Labor Code Section 512 provides that "an employer may not employ an employee for a work period of more than five hours per day without providing the employee with a meal period of not less than 30 minutes." There has been much dispute over the precise meaning of this term. Representatives of workers and organized labor have generally argued that the use of the term "provide" means that an employer must actually provide the meal period and ensure that employees are able to actually take it. On the other hand, the business community has generally argued such an interpretation is unreasonable and too restrictive and that therefore the term "provide" means simply that an employer must make the meal period available to the employee (but not necessarily ensure that the employee does in fact take the meal period). As discussed below, the courts have been grappling with this issue as well in recent years, and the issue is currently before the California Supreme Court. Time Parameters in Which Meal Periods Must Be Provided Another controversial issue has involved when an employer must provide meal periods. As discussed above, Labor Code Section 512 and the IWC wage orders specify that employers cannot allow employees to work more than five hours without taking a 30-minute meal period. Some of the litigation in recent years has focused on whether the meal period must be completed before the end of the fifth hour of work. Some employers claim that they have been sued over issues such as whether the meal period extended into the sixth hour of work, even if only by a few minutes. On-Duty Meal Periods AB 569 Page E The IWC Wage Orders provide: "Unless the employee is relieved of all duty during a 30 minute meal period, the meal period shall be considered an 'on-duty' meal period an counted as time worked. An 'on-duty' meal period shall be permitted only when the nature of the work prevents an employee from being relieved of all duty and when by written agreement between the parties an on-the-job paid meal period is agreed to. The written agreement shall state that the employee may, in writing, revoke the agreement at any time." There has been some dispute about when the "nature of the work" supports the provision of an on-duty (as opposed to an unpaid off-duty) meal period. In 2002, the DLSE issued an opinion letter that stated the following: "In determining whether the 'nature of the work' prevents an employee from being relieved of all duty, the Division of Labor Standards Enforcement starts with the premise that the general requirement for an off-duty meal period is remedial in nature, and any exceptions to that general requirement must be narrowly construed, so as to avoid frustrating the remedial purpose of the regulation. The Division has always followed an enforcement policy that this determination must be made on the basis of a multi-factor objective test. The factors that should be considered include the type of work, the availability of other employees to provide relief to an employee during a meal period, the potential consequences to the employer if the employee is relieved of all duty, the ability of the employer to anticipate and mitigate these consequences such as by scheduling the work in a manner that would allow the employee to take an off-duty meal break, and whether the work product or process will be destroyed or damaged by relieving the employee of all duty. The Division will conclude that an off-duty meal period must be provided unless these factors, taken as a whole, decisively point to the conclusion that the nature of the work makes it virtually impossible for the employer to provide the employee with an off-duty meal period. Finally, the burden rests on the employer for establishing the facts that would justify an on-duty meal period. AB 569 Page F Some in the employer community have argued that this is an overly-restrictive interpretation that makes it impossible for an employer to ever be able to lawfully provide an on-duty meal period. There have been some efforts in recent years (legislative and otherwise) to expand this interpretation and the circumstances under which an on-duty meal period may be provided. Collective Bargaining Agreement Carve-Outs Unlike California's overtime laws, the laws governing meal periods do not provide a blanket collective bargaining agreement carve-out that allows the parties to an agreement to negotiate the provision of meal periods by contract. However, there are a few industry-specific situations in which such authority has been extended to collective bargaining situations. For example, Labor Code Section 512(c) provides that the meal period requirements of current law do not apply to employees in the wholesale baking industry who are covered by a valid collective bargaining agreement that meets certain specified criteria. Labor Code Section 512(d) provides a similar exception to employees in the motion picture industry or broadcasting industry covered by a valid collective bargaining agreement. In addition, in 2003, the IWC amended Wage Order 9 to apply the meal and rest period provisions of that order to commercial drivers employed by governmental entities. In addition, legislation was enacted to specifically authorize the IWC to provide for a collective bargaining exemption when it extended the meal and rest period requirements to public sector commercial drivers. In recent years, other industries have sought legislative authority to allow them to negotiate the terms of their provision of meal periods to their employees via the collective bargaining process. Most notable among these has been the transportation industry, which has sponsored several such bills in recent years. However, each of these bills has been vetoed by Governor Schwarzenegger. The following portion of the veto message for AB 2593 (Keene) from 2006 is representative of the Governor's sentiment: AB 569 Page G "This bill seeks to provide relief for unionized employers and employees in the transportation industry from California's confusing meal period laws and regulations. This confusion has resulted in costly litigation against employers and even termination of employees that do not comply with the law's burdensome requirements. While well-intentioned, I cannot support this bill because it singles out a specific group of employers and employees for relief from a problem that plagues almost every industry in this state." Additional Hour of Pay Under Labor Code Section 226.7 One of the most controversial points of contention over California's meal period law has involved whether the remedy provided in Labor Code Section 226.7 constituted a "penalty" or "wages." However, as discussed below, this issue largely was resolved in 2007 by the California Supreme Court. THE 2004 PROPOSED DLSE REGULATION On December 10, 2004, the Division of Labor Standards Enforcement (DLSE) of the Department of Industrial Relations (DIR) submitted a proposed emergency regulation to the Office of Administrative Law (OAL) regarding the provision of meal and rest periods in the workplace. As a proposed emergency regulation, there was a five (5) calendar day public comment period, which ended on December 15, 2004. OAL had until December 20, 2004 to act on the proposed regulation. On December 20, 2004, DLSE withdrew the proposed emergency regulation and resubmitted a revised proposed regulation under the regular rulemaking process on January 4, 2005. DLSE proposed to adopt section 13700, Meal and Rest Periods, in Title 8 of the California Code of Regulations. According to DLSE's notice of proposed rulemaking: "DLSE proposes to adopt section 13700 to clarify that the one hour of pay an employer must pay an employee for each workday in which a meal or rest period is not provided in accordance with the AB 569 Page H applicable Industrial Welfare Commission Order is considered a penalty as well as to clarify the time parameters and criteria under which meal periods can be provided to employees." The proposed meal period regulation contained three distinct provisions: Obligation to "Provide" Meal Periods The first provision of the regulation attempted to define when an employer has met the statutory requirement of "providing" a meal period. Under the proposed regulation, an employer would have been deemed to have provided a meal period if the employer: (1) makes the meal period available and affords the employee an opportunity to take it; (2) posts the applicable IWC wage order; and (3) maintains accurate time records. The first provision also provided that "as a further precaution" an employer may inform an employee in writing of the circumstances under which he or she is entitled to a meal period and the employee acknowledges in writing that he or she understands those rights. Time Parameters in Which Meal Periods Must Be Provided The second provision of the proposed regulation related to the time parameters in which meal periods must be provided. Labor Code Section 512 and the IWC wage orders specify that employers cannot allow employees to work more than five hours without taking a 30-minute meal period. The proposed regulation provided that a meal period may begin before the end of the sixth hour of the work period. Furthermore, an employee may request and commence their meal period after the end of the sixth hour of work, so long as they were provided the opportunity to take a meal period before the end of the sixth hour of work. The proposed regulation contained four examples to illustrate this provision. Additional Hour of Pay Under Labor Code Section 226.7 AB 569 Page I The final provision of the proposed regulation provided that any amount paid or owed by an employer under Labor Code Section 226.7 is a "penalty" and not a "wage." FINAL OUTCOME OF THE 2004 PROPOSED REGULATIONS After questions emerged about the legal authority of DLSE to promulgate the proposed regulation, this committee conducted an oversight hearing on the subject on January 26, 2005. Subsequently, the Legislature passed ACR 43 (J. Horton) which, among other things, made a legislative declaration that the DLSE did not have the authority to promulgate the proposed regulation concerning meal and rest periods, and that the proposal was inconsistent with existing law. On January 13, 2006, DLSE announced that it would not file the proposed regulation with the OAL by the applicable deadline. THE MURPHY V. KENNETH COLE DECISION One of the most controversial points of contention over California's meal period law has involved whether the remedy provided in Labor Code Section 226.7 constituted a "penalty" or "wages." Following the enactment of Labor Code Section 226.7, employers defending class action lawsuits for such compensation generally raised this issue in two contexts, arguing that such payments constitute "penalties." First, they argued that, as penalties, employees had no private right of action to recover such compensation. Second, employers argued that as "penalties," the payments under Labor Code Section 226.7(b) were limited by the one-year statute of limitations set forth in Code of Civil Procedure Section 340(a) rather than the longer statute of limitations provided for wage claims under the Labor Code. As discussed above, the proposed 2004 DLSE regulation attempted to specify that such amounts paid or owed by employers were "penalties" and not "wages." However, in 2007, the California Supreme Court resolved the issue when it held that the "additional hour of pay" due to an employee is a wage, not a penalty. Murphy v. Kenneth Cole AB 569 Page J Productions, Inc., (2007) 40 Cal. 4th 1094. Specifically, the Court stated: "We hold that section 226.7's plain language, the administrative and legislative history, and the compensatory purpose of the remedy compel the conclusion that the 'additional hour of pay' is a premium wage, not a penalty." RECENT CALIFORNIA APPELLATE CASES REGARDING THE MEANING OF AN EMPLOYER'S OBLIGATION TO "PROVIDE" MEAL PERIODS Most recently, much of the case law in this area has focused on the meaning of an employer's obligation to "provide" meal periods under Labor Code Section 512 and the IWC Wage Orders. In Cicairos v. Summit Logistics, Inc. (2005) 133 Cal. App. 4th 949, the California Court of Appeal for the First District stated that employers have "an affirmative obligation to ensure that workers are actually relieved of all duty." Many legal observers have concluded that this means that employers have an affirmative obligation to make employees take their meal periods and that employees cannot refrain or refuse to take their meal periods. However, others have argued that the language in Cicairos does not go that far. For example, in Brinker Restaurant Corporation v. Superior Court of San Diego (Hohnbaum) (2008) 165 Cal. App. 4th 25, the California Court of Appeal for the Fourth District interpreted the applicable law to mean that employers must provide meal periods by making them available, but need not ensure that they are taken. Employers, however, cannot impede, discourage or dissuade employees from taking meal periods. In October 2008, the California Court of Appeal for the Second District reached a similar holding in Brinkley v. Public Storage (2008) 167 Cal. App. 4th 1278. In that case, the court similarly held that employers only have to make meal periods available, essentially equating the "provide" language in the law with language covering rest periods, which only require employers to "authorize and permit" employee to take them. Both the Brinker and the Brinkley courts attempted to distinguish and provide a more narrow reading to the First District Court of Appeal's decision in Cicairos. AB 569 Page K However, on October 22, 2008, the California Supreme Court granted review of the California Court of Appeal decision in Brinker Restaurant Corp. v. Superior Court of San Diego County (Hohnbaum). Similarly, on January 13, 2009, the California Supreme Court granted review in Brinkley v. Public Storage. The Brinker and Brinkley decisions are now companion cases under review by the California Supreme Court. The California Supreme Court's grant of review supersedes the Brinker and Brinkley decisions, and they may not be cited or relied on by a court or a party in any other action. (California Rules of Court 8.1105(e) and 8.1115(a)). In its review of these cases, the California Supreme Court is expected to confirm whether the law imposes upon employers an affirmative duty to ensure that employees actually take meal periods or rather, that the employer must merely make that meal period available to the employee and afford the employee the opportunity to take the meal period. IWC WAGE ORDER 16 AND THE BEARDEN v. U.S. BORAX, INC. CASE Industrial Welfare Commission Wage Order 16 governs on-site occupations in the construction, drilling, logging and mining industries. Wage Order 16 contains an express exemption to the meal period rules where a collective bargaining agreement exists. Specifically, Section 10(E) of Wage Order 16 provides that the meal period requirements: "shall not apply to any employee covered by a valid collective bargaining agreement if the agreement expressly provides for the wages, hours of work, and working conditions of the employees, and if the agreement provides premium wage rates for all overtime hours worked and a regular hourly rate of pay for those employees of not less than 30 percent more than the state minimum wage." However, in 2006 a California Court of Appeal held that this collective bargaining exemption contained in Wage Order 16 conflicted with the Labor Code and was therefore invalid. Bearden v. U.S. Borax, Inc. The court specifically held that because the statute contained express exceptions to the general rule requiring employers to provide meal periods, the IWC's addition of an additional exemption (for collective bargaining AB 569 Page L agreements in the construction industry) was beyond the authority of the IWC and in conflict with the statute. Therefore, the court held that this provision was invalid and unenforceable. MOST RECENT EFFORT AT COMPROMISE: AB 1711 (LEVINE) OF 2007-08 Last year, the California Labor Federation, AFL-CIO sponsored legislation that sought to address several of the more controversial issues involving meal periods in an effort to provide more employer flexibility. Specifically, Assembly Bill 1711 (Levine) sought to make a number of changes to the current law surrounding meal periods. First, the bill would have specified that meal periods may not commence before the third hour of work and must be completed before the sixth hour of work. In essence, this would have provided employers a three-hour window during which to provide the meal period. Second, the bill would have permitted on-duty meal periods when mutually agreed to in writing between employer and the employee, and when the nature of the work prevents the employee from being relieved of work due to one of the following conditions: 1) The employee is the only employee at the worksite and the essential functions of the job cannot be performed unless the employee remains on-duty. 2) State and federal law impose a requirement that the employee not be relieved of all duties. Third, the bill would have provided an exemption for all employees in all industries covered by a valid collective bargaining agreement that met specified criteria. However, the bill was opposed by some members of the employer community, largely because they expressed concern that it did not go far enough to address the issues of all employers and did not deal with the issues surrounding the nature of the meaning of an employer's obligation to "provide" meal periods. The sponsor and the author decided not to move the bill. RECENT BUDGET DISCUSSIONS AB 569 Page M Over the last few years, Governor Schwarzenegger and Members of the Senate and Assembly Republican Caucuses have proposed amendments to California's meal period laws as part of the larger budget discussion. Most recently, those proposals have been included in the "economic stimulus" proposals set forth by both the Governor and the Republican Caucuses. For example, one of the most recent proposals set forth by the Governor states that an employer must "make available to the employee an opportunity to take" a meal period. In addition, the Governor's proposal would authorize the Department of Industrial Relations (DIR) to adopt regulations defining the circumstances in which the nature of the work prevents an employee from being relieved of all duty (and therefore subject to an on-duty meal period). ARGUMENTS IN SUPPORT : This bill is sponsored by the United Parcel Service (UPS), who argues that it would allow unionized transportation companies with a valid collective bargaining agreement to negotiate flexible terms for the timing of meal periods because current law significantly restricts the freedom of drivers to decide for themselves when they can take their meal periods. They contend that existing law penalizes drivers who require some flexibility for personal safety or other reasons as it relates to taking a meal period, including being stuck in traffic or seeking to take a break in a safe neighborhood. This measure will allow flexibility through collective bargaining in the transportation industry and relieve UPS from disciplining employees who require some flexibility for their meal period. In addition, UPS points out that in 2007 the Assembly passed a similar measure, AB 1034 (Keene) on a 71-0 vote. They state that, although opponents of this measure have complained that they are not included, they have clearly not shown an ability to seek similar flexibility on their own. UPS states that it continues to support broader solutions, but cannot continue to unfairly discipline their drivers where a collectively bargained solution is readily available with a flexible solution agreed to by management and labor. In addition, the Associated General Contractors argue that many construction companies operate under a collective bargaining agreement. However, as a result of recent case law [discussed AB 569 Page N above in the analysis], without this legislation a collective bargaining agreement does not supersede the statute. Therefore, this bill will provide some needed clarity in the current meal period rules for the construction industry. ARGUMENTS IN OPPOSITION : Opponents object to this measure unless amended to provide clarity to all industries. They state that currently all industries, business, and occupations are subject to a restrictive statute which has resulted in costly litigation. They believe that a comprehensive solution must be reached in order to provide all businesses regardless of size, type or union status with appropriate clarity and guidance for the compliance and enforcement of meal period laws. They contend that this bill would carve out a collective bargaining exemption for the transportation and construction industry from abiding to the current statute and instead allow them to negotiate meal and rest period provisions within their collective bargaining agreement. Opponents argue that all union companies should be allowed to collectively bargain these provisions and that non-union company should receive the same flexibility by clarifying the current statute. In addition, opponents state that employees need meal and rest breaks. Companies want their employees to have a safe, productive and respectful working environment. But California law (since 2000) is too rigid and confusing. It is now spawning hundreds of class action lawsuits and dozens of employee terminations. Bills to "carve-out" specific industries pass the legislature each year, which reflect a widespread agreement between labor and employers that a fix is needed. PRIOR LEGISLATION : This provisions of this bill related to the transportation industry are similar to the introduced version of AB 1034 (Keene) from last session. AB 1034 was subsequently amended to be broader in scope and not limited to the transportation industry. The bill was held in the Senate Rules Committee. These provisions are also similar to AB 2593 (Keene) from 2006, which was vetoed by Governor Schwarzenegger. In his veto message, the Governor stated the following: AB 569 Page O "This bill seeks to provide relief for unionized employers and employees in the transportation industry from California's confusing meal period laws and regulations. This confusion has resulted in costly litigation against employers and even termination of employees that do not comply with the law's burdensome requirements. While well-intentioned, I cannot support this bill because it singles out a specific group of employers and employees for relief from a problem that plagues almost every industry in this state. In addition, this legislation could inadvertently impact pending litigation as well as potential rulemaking. A number of recent court cases have significantly impacted meal period law. One recent appellate decision could effectively invalidate large portions of the Industrial Welfare Commission's Wage Orders. Such an action would have a significant effect on employers and employees throughout California. While I appreciate that the sponsors and supporters of the bill need the relief sought, I cannot support legislation that addresses this issue in such a narrow manner. The Labor and Workforce Development Agency is closely monitoring these cases to determine what actions it can take to provide better guidance to employers and employees on how to comply with the law. It is premature to take any legislative action until these pending court cases and regulatory matters have been resolved." In addition, provisions of this bill are similar to language contained in AB 3018 (Koretz) from 2003, which was also vetoed by Governor Schwarzenegger. AMENDMENTS REQUESTED BY LABOR REPRESENTATIVES : Representatives of organized labor have not expressed concerns with the general concept of collective bargaining agreement carve-out for the construction industry or for commercial drivers in the transportation industry. However, they have requested that the language in this bill be amended to be consistent with the approach taken in AB 1711 (Levine) and SB AB 569 Page P 529 (Cedillo) from last session. This language is also more consistent with the general collective bargaining agreement exemption provided under existing law related to the payment of overtime. Therefore, the representatives of labor suggested that the substantive language in the bill be replaced with the following: "Sections 512 (a) and (b) do not apply to an employee employed in the construction industry who is covered by a valid collective bargaining agreement if the agreement expressly provides for the wages, hours of work, and working conditions of employees, and expressly provides for meal periods for those employees, final and binding arbitration of disputes concerning application of its meal period provisions, premium wage rates for all overtime hours worked, and regular hourly rate of pay of not less than 30 percent more than the state minimum wage rate. "Sections 512 (a) and (b) do not apply to an employee employed as a commercial driver in the transportation industry who is covered by a valid collective bargaining agreement if the agreement expressly provides for the wages, hours of work, and working conditions of employees, and expressly provides for meal periods for those employees, final and binding arbitration of disputes concerning application of its meal period provisions, premium wage rates for all overtime hours worked, and regular hourly rate of pay of not less than 30 percent more than the state minimum wage rate." The author and the sponsor have indicated that they are willing to take these amendment to the bill and the amendments will be taken in Committee. REGISTERED SUPPORT / OPPOSITION : Support Associated General Contractors United Parcel Service (sponsor) Opposition AB 569 Page Q Associated Builders and Contractors of California California Construction & Industrial Materials Association California Hospital Association California Manufacturers & Technology Association California Retailers Association Lumber Association of California and Nevada National Federation of Independent Business Western Growers Analysis Prepared by : Ben Ebbink / L. & E. / (916) 319-2091