BILL ANALYSIS Ó
AB 1470
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Date of Hearing: April 22, 2015
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Roger Hernández, Chair
AB 1470
Alejo - As Amended April 6, 2015
SUBJECT: Working hours: overtime
SUMMARY: Establishes an overtime exemption presumption for
specified "highly compensated" employees that meet specified
conditions. Specifically, this bill:
1)Provides that there is a rebuttable presumption that an
employee is exempt from the payment of overtime if the
employee earns total gross annual compensation of at least one
hundred thousand dollars ($100,000) and also "customarily and
regularly" performs any one or more of the exempt duties or
responsibilities of an executive, administrative, or
professional employee as set forth in the Industrial Welfare
Commission Wage Orders.
2)Specifies that "total gross annual compensation" shall include
at least one thousand dollars ($1,000) per week paid on a
salary or fee basis.
3)Provides that if an employee's total gross annual compensation
does not meet the minimum amount established by the last pay
period of the 52-week period, the employer may, during the
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last pay period or within one month after the end of the
52-week period, make one final payment sufficient to achieve
the required total.
4)Provides that an employee who does not work a full year for
the employer, either because the employee is newly hired after
the beginning of the year or ends the employment before the
end of the year, is exempt from overtime if the employee
receives a pro rata portion of the minimum amount established
above, based upon the number of weeks that the employee will
be or has been employed. An employer may make one final
payment as described above within one month after the end of
employment, or this exemption shall not apply.
5)Provides that if an employee has a total gross annual
compensation of at least one hundred thousand dollars
($100,000), there will be a rebuttable presumption that the
employee is exempt from overtime.
6)Provides that the presumption created by this bill shall be
rebutted only by evidence of one or more of the following:
a) The employee did not earn total gross annual
compensation of at least $100,000.
b) The employee did not earn at least $1,000 per week paid
on a salary or fee basis.
c) The employee did not customarily and regularly perform
at least one exempt duty or responsibility of an executive,
administrative, or professional employee as set forth in
the Industrial Welfare Commission Wage Orders.
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7)Specifies that this bill applies only to employees whose
primary duty includes performing office or nonmanual work.
8)Specifies that this bill does not apply to nonmanagement
production-line workers and nonmanagement employees in
maintenance, construction, and similar occupations, such as
carpenters, electricians, mechanics, plumbers, iron workers,
craftsmen, operating engineers, longshoremen, construction
workers, laborers, and other employees who perform work
involving repetitive operations with their hands, physical
skill, and energy, regardless of the amount of their
compensation.
9)Specifies that this bill does not apply to an employee covered
under a valid collective bargaining agreement that expressly
provides for the wages, hours of work, and working conditions
of employees, including premium wage rates for all overtime
hours worked.
EXISTING LAW:
1)Defines a day's work as eight hours of labor.
2)Requires that any work in excess of eight hours day, in excess
of 40 hours a week, and the first eight hours on the seventh
day of work are to be compensated at no less than one and
one-half times the regular rate of pay, and provides
corresponding exemptions for certain classifications of
employees.
3)Requires that any work in excess of 12 hours a day and in
excess of eight hours on the seventh day of work are to be
compensated at no less than twice the regular rate of pay, and
provides corresponding exemptions for certain classifications
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of employees.
FISCAL EFFECT: Unknown
COMMENTS: The federal Fair Labor Standards Act (FLSA) requires
the payment of overtime for hours worked over 40 in a given
workweek. California law differs from the FLSA in several
important aspects, most notably that California has a daily
overtime standard that also requires the payment of overtime for
hour worked over eight (8) in a given work day.
Existing "White Collar" Exemptions Under State and Federal Law
Both state and federal law contain what are generally
referred-to as "white collar" exemptions for executive,
administrative and professional employees that meet certain
criteria. These exemptions generally have two components - a
"salary" test and a "duties" test. In order to be exempt, an
employee must earn at least a specified salary and perform
duties that meet the requirements of the exemption.
Under California law, in order to meet the "salary" test, an
exempt employee must earn a monthly salary equal to not less
than two times the state minimum wage.
Under California law, in order the meet the "duties" test, an
employee must be "primarily engaged in" exempt duties.
California law defines this to mean that more than one-half (50
percent) of the employees work time is spent performing exempt
work. In other words, it is a quantitative analysis. This is
significantly different from the federal test under the FLSA
which simply requires that the "primary duty" of the employee
fall within the exempt duties (a more qualitative analysis).
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The "Highly Compensated" Exemption Under the FLSA
In addition to the "white collar" exemptions described above,
the federal FLSA also contains an exemption for specified
"highly compensated" employees. No current "highly compensated"
exemption exists under California law.
The language in this bill closely tracks the FLSA exemption,
which is contained in the FLSA regulations. (29 CFR § 541.601).
Like this bill, the federal exemption exempts employees with a
total annual compensation of at least $100,000 who "customarily
and regularly" perform any one or more of the exempt duties of
the "white collar" exemptions. The federal regulations provide
that the term "customarily and regularly" means a frequency that
must be greater than occasional but which may be less than
constant. (29 CFR § 541.701). Tasks or work performed
"customarily and regularly" includes work normally and
recurrently performed every workweek; it does not include
isolated or one time-tasks. Id.
The main differences between this bill and the federal exemption
are:
The federal exemption applied to an employee with a
"total annual compensation" of at least $100,000. (29 CFR
§ 541.601(a). This bill provides that there is a
rebuttable presumption that an employee is exempt from the
payment of overtime if the employee earns "total gross
annual compensation" of at least one hundred thousand
dollars $100,000 and meets other requirements.
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Under federal law, the total annual compensation must
include at least $455 per week paid on a salary or fee
basis. (29 CFR § 541.601(b)(2). Under this bill, the
weekly compensation shall be at least $1,000 per week.
This bill states that if an employee has a total gross
annual compensation of at least $100,000, there is a
rebuttable presumption that the employee is exempt from
overtime. Federal law does not contain such a presumption,
but the federal regulations do state, "A high level of
compensation is a strong indicator of an employee's exempt
status, this eliminating the need for a detailed analysis
of the employee's job duties." (29 CFR § 541.601(c)).
This bill purports to establish a collective bargaining
exemption stating that the bill does not apply to an
employee covered under a valid collective bargaining
agreement that expressly provides for the wages, hours of
work, and working conditions of employees, including
premium wage rates for all overtime hours worked. There is
no such collective bargaining exemption under federal law.
ARGUMENTS IN SUPPORT
According to the author, this bill will make state law similar
to federal law by creating a presumption in California that a
highly compensated employee, performing a non-manual labor job,
and performing a specified exempt duty is properly classified as
a salaried employee and exempt from wage and hour requirements.
Currently, employees who are paid an annual salary of at least
$100,000 and regularly perform at least one of a select number
of exempt duties are exempt under the federal FLSA. California
does not currently have the same exemption. According to the
author, this creates a unique opportunity for costly class
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action litigation in California against employers who are
creating high paying jobs regarding the exempt status of such
employees.
According to supporters, including the California Chamber of
Commerce:
"Federal law has recognized for over ten years that employees
performing non-manual labor and annually receiving at least
$100,000 are likely properly classified as exempt. Although
such employees must also perform at least one exempt duty,
such as supervising other employees or exercising independent
judgment and discretion, courts have a 'relaxed' analysis of
the duties if the employee is highly compensated. See Anani
v. CVS RX Services, Inc., 730 F.3d 146 (2d Cir. 2013). 'A high
level of compensation is a strong indicator of an employee's
exempt status, thus eliminating the need for a detailed
analysis of the employee's job duties.' See 29 CFR 541.601
(c). [This bill] seeks to create a similar exemption at the
state level.
There have been multiple examples in the past few years of
employers in California who are creating highly compensated
jobs, yet being subject to class action litigation based upon
the allegation that such employees are misclassified as
salaried, exempt workers. Although such claims cannot proceed
under federal law, courts have no choice but to allow these
costly actions to proceed under state claims, given
California's lack of conformity on this issue. [This bill]
would address this loophole and help limit frivolous class
action litigation against employers in California who are
creating highly paid jobs. While [this bill] is similar to
federal law, it actually differs in that it would only create
a presumption that the employee is exempt, thereby allowing an
employee who feels he/she has been truly misclassified to
still challenge their status as a salaried employee.
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Notably, [this bill] would not apply to the following
employees: (1) employees performing manual labor, no matter
how much they are paid; (2) employees covered under a
collective bargaining agreement; or (3) the following specific
occupations - nonmanagement production-line workers and
nonmanagement employees in maintenance, construction, and
similar occupations, such as carpenters, electricians,
mechanics, plumbers, iron workers, craftsmen, operating
engineers, longshoremen, construction workers, laborers, and
other employees who perform work involving repetitive
operations with their hands, physical skill, and energy,
regardless of the amount of their compensation. [This bill]
is limited to those employees who are actually performing
exempt, non-manual labor duties and being highly compensated."
ARGUMENTS IN OPPOSITION
Opponents, including the California Labor Federation, AFL-CIO,
argue that at a time of record income inequality, it is
unfathomable why a proposal would move forward that would lower
worker pay and reward employer misconduct. They contend that
while this bill purports to focus on highly compensated workers,
it fundamentally undermines the way overtime exemptions are
determined and sets dangerous precedents for other workers. It
would also open the door to employer game-playing to avoid
overtime even retroactively. They state that, while this bill
would not apply to union members, most of whom make considerably
less than the income threshold in the bill, the labor movement
has never supported policies that harm non-union workers or give
their employers a competitive advantage.
Specifically, they state the following:
"The right to overtime pay is a core worker protection that
serves numerous policy goals. First and foremost, it allows a
worker to go home to his or her family at the end of the day
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or to receive premium pay for working additional hours. It
provides an economic incentive for employers to staff
appropriately, rather than just increase the workload for
existing employees. In fact, when overtime was initially
introduced into federal law more than 50 years ago, it was
done so in part to stimulate job creation. In addition,
overtime is important is protecting worker health and safety
and reducing accidents due to fatigue.
[This bill] would fundamentally undermine the existing
criteria for overtime exemptions. Under existing law,
administrative, executive, and professional employees are only
exempt from overtime if they are "primarily engaged in" the
performance of duties that are deemed professional, technical,
or administrative. That is further defined as meaning that
more than one-half of the employee's time is spent on
qualifying duties. This bill would change that for workers
meeting the salary threshold to exempt anyone who "customarily
and regularly performs any one or more of the exempt duties or
responsibilities." That presumably means that if a worker
regularly performs one duty a day that qualifies as
professional, technical, or administrative, he or she will be
exempt?
?[This bill] would open the door to employer mischief. This
bill would not only provide an exemption if the worker hits
the salary threshold, but it would also allow an employer to
pay a worker a lower salary all year long and then in one lump
sum bring them up to the required salary level. Presumably
this allows an employer to wait an entire year plus an
additional month to determine whether to pay the worker for
overtime or whether to pay them the additional salary. This
would likely mean that overtime hours were not even tracked
and would be nearly impossible to remedy where there were
abuses. Even worse, an employer could pay a lower salary all
year until faced with a wage claim, and make up the difference
to avoid all retroactive liability. This could create a
scenario where the default is that employers do not pay
overtime and if they face claims for unpaid overtime they
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simply make up the difference. In addition, the salary
threshold can be met in any calendar year, fiscal year, or
anniversary of hire year, allowing the employer to cherry pick
the timeframe to maximize this exemption?.
...[This bill] would make it even harder for workers who are
wrongfully classified to get justice. This bill would create a
presumption that if a worker meets the salary test he or she
is exempt. That means that even if a worker does not fit into
the criteria of the bill, he or she would have the burden of
proof to overcome that presumption and demonstrate overtime
eligibility."
Similarly, the California Employment Lawyers Association states,
"Any visceral appeal of a bill like this stems from a misguided
focus on a notion that 'people making that kind of money
shouldn't get overtime'. But important laws and public policies
should not be gutted because of visceral reactions that ignore
those laws' important purpose and effect?.By eliminating the
[overtime premium] imposed under the eight-hour workday,
employers are encouraged to require longer hours for their
existing workers rather than hire additional workers. This
results in depressed wages, fewer jobs, and a higher demand on
individual workers?In what possible way is a bill that gives
employers incentives to reduce jobs good public or economic
policy? Isn't the middle class doing poorly enough?"
The California Teamsters Public Affairs Council states, "[This
bill] is nothing more than a mean spirited attempt to lower
wages for workers. It is a transfer of wealth from workers to
employers."
REGISTERED SUPPORT / OPPOSITION:
Support
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Air Conditioning Trade Association
Brawley Chamber of Commerce
California Apartment Association
California Association of Winegrape Growers
California Bankers Association
California Broadcasters Association
California Chamber of Commerce
California Employment Law Council
California Manufacturers and Technology Association
California Mortgage Bankers Association
California Retailers Association
Civil Justice Association of California
Fullerton Chamber of Commerce
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Goleta Valley Chamber of Commerce
Greater Bakersfield Chamber of Commerce
Morgan Hill Chamber of Commerce
National Federation of Independent Business
Oxnard Chamber of Commerce
Palm Desert Area Chamber of Commerce
Plumbing-Heating-Cooling Contractors Association of California
San Jose Silicon Valley Chamber of Commerce
Santa Clara Chamber of Commerce & Convention-Visitors Bureau
Santa Maria Valley Chamber of Commerce & Visitors Convention
Bureau
Simi Valley Chamber of Commerce
South Bay Associations of Chambers of Commerce
Southwest California Legislative Council
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TechAmerica
TechNet
The Chamber of Commerce Mountain View
Turlock Chamber of Commerce
Western Electrical Contractors Association
Western Growers Association
Wine Institute
Opposition
CA Conference Board of the Amalgamated Transit Union
CA Conference of Machinists
California Employment Lawyers Association
California Labor Federation, AFL-CIO
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California Nurses Association
California Professional Firefighters
California School Employees Association
California Teamsters Public Affairs Council
Consumer Attorneys of California
Engineers & Scientists of CA, IFPTE Local 20
International Longshore & Warehouse Union
Professional & Technical Engineers, IFPTE Local 21
State Building and Construction Trades Council
UNITE-HERE
Utility Workers Union of America
Analysis Prepared by:Ben Ebbink / L. & E. / (916) 319-2091
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