BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    AB 1470


                                                                    Page  1





          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  








                                                                    AB 1470


                                                                    Page  2





            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.









                                                                    AB 1470


                                                                    Page  3






          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  








                                                                    AB 1470


                                                                    Page  4





            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).









                                                                    AB 1470


                                                                    Page  5






          


          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.









                                                                    AB 1470


                                                                    Page  6






                 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  








                                                                    AB 1470


                                                                    Page  7





          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.









                                                                    AB 1470


                                                                    Page  8





            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  








                                                                    AB 1470


                                                                    Page  9





            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  








                                                                    AB 1470


                                                                    Page  10





            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









                                                                    AB 1470


                                                                    Page  11






          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 









                                                                    AB 1470


                                                                    Page  12






          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








                                                                    AB 1470


                                                                    Page  13







          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









                                                                    AB 1470


                                                                    Page  14






          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










                                                                    AB 1470


                                                                    Page  15