BILL ANALYSIS Ó AB 1948 Page A Date of Hearing: April 20, 2016 ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT Roger Hernández, Chair AB 1948 (Wagner) - As Amended March 28, 2016 SUBJECT: Compensation: meal and rest or recovery periods SUMMARY: Makes changes to provisions of existing law providing a statutory remedy for an employer's failure to provide a meal or rest or recovery period as required under existing law. Specifically, this bill: 1)Provides that the requirement to pay an additional hour or pay for each day that a meal or rest or recovery period is not provided shall be the entire "penalty amount" awarded to the employee, as specified. 2)Provides that payment of the additional hour of pay shall be considered a "penalty" for all purposes, including, but not limited to, the statute of limitations on an action. EXISTING LAW: 1)Prohibits an employer from requiring an employee to work during a meal or rest or recovery period mandated pursuant to existing law. AB 1948 Page B 2)Provides that if an employer fails to provide an employee a meal or rest or recovery period in accordance with existing law, the employer shall pay the employee one additional hour of pay at the employee's regular rate of compensation for each workday that the meal or rest or recovery period is not provided. FISCAL EFFECT: Unknown COMMENTS: This bill addresses issues related to a specified statutory remedy for an employer's failure to provide a meal or rest or recovery period as required by existing law. Although the current remedy applies to the failure to provide a meal or rest or recovery period, the provisions related to meal periods have garnered most of the attention in recent years and, for several years, garnered much proposed regulatory and legislative action. Brief Background on Meal Periods 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 AB 1948 Page C 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 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 --------------------------- <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 1948 Page D 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 rest period is not provided.<2>" 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 --------------------------- <2> Section 226.7 was subsequently amended to apply to "recovery periods," as will be discussed below further. AB 1948 Page E 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 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" AB 1948 Page F 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 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 AB 1948 Page G 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 Obligation to "Provide" Meal Periods and the Brinker Decision 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." For many years, there was much dispute over the precise meaning of this term. Representatives of workers and organized labor 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 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). The appellate courts grappled with the decision in recent years, culminating with the California Supreme Court's decision in Brinker Restaurant Corporation v. Superior Court, 53 Cal. 4th 1004 (2012). In a unanimous opinion authored by Associate Justice Kathryn M. Werdegar, the court explained that neither state statutes nor the IWC Wage Orders compel an employer to ensure employees cease all work during meal periods. Instead, under state law an employer must provide its employees an uninterrupted 30-minute duty-free period during which the employee is at liberty to come and go as he or she pleases: "To summarize: An employer's duty with respect to meal breaks?is an obligation to provide a meal period to its employees. The employer satisfies this obligation if it relieves its employees of all duty, relinquishes control over AB 1948 Page H their activities and permits them a reasonable opportunity to take an uninterrupted 30-minute break, and does not impede or discourage them from doing so. What will suffice may vary from industry to industry, and we cannot in the context of this class certification proceeding delineate the full range of approaches that in each instance might be sufficient to satisfy the law. On the other hand, the employer is not obligated to police meal breaks and ensure no work thereafter is performed. Bona fide relief from duty and the relinquishing of control satisfies the employer's obligations, and work by a relieved employee during a meal break does not thereby place the employer in violation of its obligations and create liability for premium pay under?" The Murphy v. Kenneth Cole Decision One of the more 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 AB 1948 Page I issue when it held that the "additional hour of pay" due to an employee is a wage, not a penalty. Murphy v. Kenneth Cole 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." Brief Background on Rest Periods An employer's obligation to provide rest periods is contained in the IWC Wage Orders, which generally provide as follows: "(A) Every employer shall authorize and permit all employees to take rest periods, which insofar as practicable shall be in the middle of each work period. The authorized rest period time shall be based on the total hours worked daily at the rate of ten (10) minutes net rest time per four (4) hours or major fraction thereof. However, a rest period need not be authorized for employees whose total daily work time is less than three and one-half (31/2) hours. Authorized rest period time shall be counted as hours worked for which there shall be no deduction from wages. (B) If an employer fails to provide an employee a rest period in accordance with the applicable provisions of this order, the employer shall pay the employee one (1) hour of pay at the employee's regular rate of compensation for each work day that the rest period is not provided." Therefore, an employer must "authorize and permit" an employee to take rest periods (unlike the meal period language which requires an employer to "provide" meal periods). In addition, rest periods (unlike meal periods) are treated as hours worked, AB 1948 Page J meaning an employee is paid for such time. Brief Background on "Recovery Periods" A "recovery period" is defined by the Labor Code as a cooldown period afforded an employee to prevent heat illness. In addition to meal and rest periods, the Heat Illness Prevention regulations established by the Occupational Safety and Health Standards Board have an additional requirement regarding a "recovery" period applicable to all outdoor places of employment. Since August 2005, employers in the State of California have been required by regulation to protect outdoor employees from the hazard of heat illness. This regulation was promulgated in response to unusually hot summer temperatures over a wide area of the state which led to a greatly elevated number of cases of serious heat illness in the workplace, including a number of deaths. This regulation, codified at Title 8 CCR §3395, came about first by adoption of an emergency temporary standard and was followed by adoption of a permanent standard in 2006. Under these regulations, employees are allowed and encouraged to take a cool-down rest in the shade for a period of no less than five minutes at a time when they feel the need to do so to protect themselves from overheating. SB 435 (Padilla) of 2013 amended Labor Code section 226.7 to also include "recovery periods." Specifically, SB 435 provided that, in addition to meal and rest periods, an employer shall not require any employee to work during any "recovery period" mandated by any applicable statute, regulation, standard or order of the Occupational Safety and Health Standards Board (Standards Board) or the Division of Occupational Safety and Health (DOSH). SB 435 also amended Section 226.7 to provide that the existing provision of law that requires an employer to pay an employee one additional hour of pay at the employee's regular rate of compensation for each work day that a meal or rest period is not provided also applies to work days that a "recovery period" is AB 1948 Page K not provided. Changes Proposed by This Bill This bill proposes to make two changes to the provisions of existing law providing a statutory remedy for an employer's failure to provide a meal or rest or recovery period as required under existing law. First, this bill provides that the requirement to pay an additional hour or pay for each day that a meal or rest or recovery period is not provided shall be the entire "penalty amount" awarded to the employee, as specified. The bill goes on to state that is an employee recovers the additional hour of pay under Section 226.7, no civil or criminal penalty shall be imposed under the following, based on the same missed meal or rest period: Labor Code Section 203 - establishes "waiting time" penalties where an employer willfully fails to pay any wages of any employee who is discharged or who quits. Labor Code Section 225 - provides that the unlawful receipt or withholding of wages or the secret payment of wages below a designated wage scale is a misdemeanor. Labor Code 226 - failure to provide an accurate itemized wage statement. Labor Code Section 558 - establishes civil penalties for any employer or other person acting on behalf of an employer who violates, or causes to be violated, specified provisions of existing law. Labor Code Section 2699 - establishes civil penalties and the right of recovery for aggrieved employees, also known as the Labor Code Private Attorneys General Act (PAGA) of 2004. AB 1948 Page L Business and Professions Code Section 17200 - among other things, establishes civil penalties and other remedies for "unfair competition." As discussed below, the author and sponsor argue that violations of wage and hour laws often give rise to "stacking" claims for other violations, which this bill is designed to prevent. Second, this bill provides that payment of the additional hour of pay shall be considered a "penalty" for all purposes, including, but not limited to, the statute of limitations on an action. This provision would effectively overturn the California Supreme Court decision in Murphy v. Kenneth Cole, discussed above, thereby making the one year statute of limitations applicable to the additional hour of pay under Section 226.7 (as opposed to three years). ARGUMENTS IN SUPPORT Supporters of this bill, including the Civil Justice Association of California (CJAC), argue that often a claim for a meal or rest period violation will be "stacked" with other claims. For example, an employee alleging a shortened or missed meal period may also claim failure to pay overtime for the shift containing that meal break, as well as an incorrect wage statement for the pay period containing that meal break. Supporters contend that this bill would provide that the penalty established in current law-one additional hour of pay-is the total penalty for meal and rest period violations and, if an employee recovers that extra hour of pay, the employer will not face additional penalties or litigation. Supporters state that lawsuits against employers have increased dramatically in recent years, causing employers to face costly and protracted litigation, often over marginal claims. This bill would allow employees to recover the penalty provided in current law for meal and rest period violations and guard AB 1948 Page M against abusive lawsuits. ARGUMENTS IN OPPOSITION Opponents argue that this bill runs directly contrary to the legislative intent and public policy underpinning of Section 226.7 and is a direct assault on the clear and unequivocal determination by the California Supreme Court in Murphy v. Kenneth Cole, that the additional hour of pay for failure to provide a meal or rest or recovery break is a "wage" and not a "penalty." They contend that this bill will have a tremendous cost to workers seeking to recover for meal and rest or recover period claims because the re-characterization of the premium wage as a "penalty" would shorten the statute of limitations for meal and rest or recovery period claims to just one year. Not only would that limit recovery, but it also means that many workers would never get their day in court because by the time they realize their rights have been violated and file a claim, the statute would have run. In addition, opponents argue that this bill would also impede the purpose of the remedial provision by prohibiting the imposition of any additional penalties under Sections 203, 225, 226, 558, or 2699 of the Labor Code. They contend that these penalties serve the purpose of deterring flagrant violations. The "cap" on penalties proposed by this bill is unwarranted and inappropriate. Failing to provide meal, rest and recovery periods can have serious health and safety consequences for workers and can even threaten public safety should a fatigued worker be driving a bus or operating heavy machinery. These are serious violations and the penalty structure should serve as a deterrent. Opponents argue that, given the limited resources of the Labor Agency and the slim chance that an employer cheating workers out of breaks will ever get caught an arbitrary cap on penalties only undermines the goals of the existing enforcement structure. AB 1948 Page N Similarly, the Consumer Attorneys of California states: "In reality, if an employer violates two or more laws, there are different elements that must be proven for each cause of action alleged and if the aggrieved employee proves that each violation occurred, they may be entitled to different remedies, depending on their claims. An analogy to the criminal law arena may be helpful: Assuming there is a criminal action filed against a defendant for financial fraud, that defendant may simultaneously face a criminal action for embezzlement. The two may stem from the same crime, but are separate causes of action with different elements and penalties." REGISTERED SUPPORT / OPPOSITION: Support Acclamation Insurance Management Services Allied Managed Care Brea Chamber of Commerce California Building Industry Association California Business Properties Association California Chamber of Commerce California Chapter American Fence Association California Construction & Industrial Materials Association California Delivery Association California Farm Bureau Federation California Fence Contractors Association California Grocers Association California Hotel and Lodging Association California League of Food Processors California Manufacturers and Technology Association AB 1948 Page O California Trucking Association Camarillo Chamber of Commerce Carlsbad Chamber of Commerce Civil Justice Association of California Coalition of Small and Disabled Veteran Businesses Desert Hot Springs Chamber of Commerce El Centro Chamber of Commerce Flasher Barricade Association Gilroy Chamber of Commerce Greater Bakersfield Chamber of Commerce Greater Riverside Chambers of Commerce Lake Tahoe South Shore Chamber of Commerce Montclair Chamber of Commerce National Federation of Independent Business North Orange County Chamber Oxnard Chamber of Commerce Redondo Beach Chamber of Commerce Ripon Chamber of Commerce Santa Ana Chamber of Commerce Santa Maria Valley Chamber of Commerce Visitor & Convention Bureau South Bay Association of Chambers of Commerce Southwest California Legislative Council Torrance Area Chamber of Commerce Valley Industry and Commerce Association Opposition American Federation of State, County and Municipal Employees California Employment Lawyers Association California Labor Federation, AFL-CIO AB 1948 Page P California Rural Legal Assistance Foundation Consumer Attorneys of California Los Angeles County Professional Peace Officers Association Organization of SMUD Employees San Diego County Court Employees Association San Luis Obispo County Employees Association Analysis Prepared by:Ben Ebbink / L. & E. / (916) 319-2091