BILL ANALYSIS �
Senate Committee on Labor and Industrial Relations
Ted W. Lieu, Chair
Date of Hearing: May 11, 2011 20011-2012 Regular
Session
Consultant: Gideon L. Baum Fiscal: No
Urgency: Yes
Bill No: SB 389
Author: Dutton
Version: As Amended May 4, 2011
SUBJECT
Employment: meal periods.
KEY ISSUE
Should the Legislature narrow protections for employees who are
not provided a meal period and exclude impacted parties from
pursuing unfair competition claims?
PURPOSE
To exclude Unfair Competition Laws and other wage penalties from
meal period enforcement actions.
ANALYSIS
Existing law requires, with certain exemptions, that all
employees receive a meal break of 30 minutes before the start of
the 5th hour of work, unless the work period is no more than six
hours and both the employer and the employee choose to waive the
meal period by mutual consent. (Labor Code �512)
Existing law requires that if the work period is more than ten
hours, a second meal period of 30 minutes must also be granted
to an employee. This second meal period can be waived by the
mutual consent of the employer and employee, but only if the
work period is no more than 12 hours, and the first meal period
was not waived. (Labor Code �512)
Existing law states that if an employer fails to provide a meal
period as required by an Industrial Welfare Commission (IWC)
wage order, the employer must give the employee one hour of
premium wages at the employee's regular rate of compensation for
each workday that a meal period was not provided. If unpaid,
existing law requires that this wage accrues for 30 days and the
statute of limitations on its collection runs for 3 years.
(Labor Code �226.7, Murphy v. Kenneth Cole (2007), and Code of
Civil Procedure �338)
Existing law provides that, where Labor Code provides a civil
penalty which may be accessed and recovered by the Labor and
Workforce Development Agency or any of its constituent parts, a
civil action may instead be brought by an aggrieved employee or
his or her behalf and other current or former employees to
collect those civil penalties. This law is cited as the Private
Attorneys General Act (PAGA) and includes meal periods. (Labor
Code �2699)
Existing law provides that, when an individual engages in unfair
competitive practices, which includes any unlawful, unfair or
fraudulent business act or practice, that individual may be may
be enjoined in any court of competent jurisdiction. (Business
and Professions Code ��17200-17203)
Existing law provides that unfair competition actions can be
brought several parties, including the Attorney General, a
district attorney, or a board, officer, person, corporation, or
association, or by a person who has suffered injury in fact and
has lost money or property as a result of the unfair
competition. (Business and Professions Code �17204)
This bill would repeal the existing meal period premium wage
penalty provision (Labor Code �226.7) and replace and recast the
provision as follows:
I. States than an employer must not require an employee to
work during a meal or rest period as required by statute or
an applicable order of the Industrial Welfare Commission
(IWC);
II. Provides that if an employer fails to provide an
Hearing Date: May 11, 2011 SB 389
Consultant: Gideon L. Baum Page 2
Senate Committee on Labor and Industrial Relations
employee with a meal or rest period, the employer must pay
the employee one additional hour of pay at the employee's
regular rate of compensation for each workday that a meal
or rest period was not provided; and
III. Provides that the payment of one additional hour of pay
shall constitute compliance with the requirement to provide
a meal or rest period and must be the exclusive remedy for
the failure to provide a meal or rest period.
This bill would also exclude meal period violations from being
included as a misdemeanor .
This bill would include the provisions listed above as a being
eligible for a PAGA action.
This bill would contains an urgency clause, declaring that in
order to address California's current unemployment situation,
reduce employment-related lawsuits, and allow businesses to
return more people to work, this act must take effect
immediately.
COMMENTS
1. Legislative Background - Murphy v. Kenneth Cole and the
Premium Wage Penalty:
In 1999, AB 60 (Knox) became law, which included the
codification of the Industrial Welfare Commission (IWC) Wage
Order requirement that all employers provide a meal period for
their employees. Prior to AB 60, meal periods had been
required by the regulatory IWC Wage Orders, but, with the
exception of a few industries, were not statutorily required.
The following year, AB 2509 (Steinberg) created the monetary
punishment for employers who do not provide a meal period for
their employees.
In 2002, the Department of Labor Standards Enforcement (DLSE)
enforcement manual interpreted the requirement of the employer
to provide a meal period as a responsibility that falls
directly on the employer to ensure that the employee takes a
Hearing Date: May 11, 2011 SB 389
Consultant: Gideon L. Baum Page 3
Senate Committee on Labor and Industrial Relations
meal period, much as it is the employer's responsibility to
ensure that his or her employee is paid the minimum wage. At
the same time, the DLSE viewed the additional hour of pay
required for failing to provide a meal period as wages, rather
than a penalty, allowing the statute of limitations to run for
three years instead of one.
However, in 2004 the Division of Labor Standards Enforcement
(DLSE) sought to promulgate regulations that, among other
things, changed the monetary punishment for failing to provide
a meal period to a penalty, rather than a premium wage, which
would have changed the statute of limitations to one year,
rather than three for an uncollected wage, but the regulations
were not put into action. These regulations were withdrawn in
2005, and the DLSE decided to not move forward with further
meal period regulations in 2006.
However, in 2005 the Labor Commissioner issued a Precedent
Decision, Hartwig v. Orchard Commercial, Inc., which again set
the monetary penalty to a penalty. The issue was litigated
before the California Supreme Court in Murphy v. Kenneth Cole
Productions, Inc., and in a 2007 decision, the California
Supreme Court found that the monetary punishment was a premium
wage, and therefore overturned the Labor Commissioner's
Precedent Decision, setting the statute of limitations to
three years.
2. Brinker, Providing Meal Periods, and Ongoing Litigation:
On July 22, 2008, the California Court of Appeal in Brinker
Restaurant Corporation v. Superior Court of San Diego County
(Hohnbaum) (2008) interpreted existing law and the IWC Wage
Order meal period provisions as a requirement for employers to
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.
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). The Supreme Court's grant of review supersedes the
Court of Appeal's decision. The Supreme Court is expected to
Hearing Date: May 11, 2011 SB 389
Consultant: Gideon L. Baum Page 4
Senate Committee on Labor and Industrial Relations
confirm, among other things, whether the meal period laws and
regulations impose upon employers a responsibility to ensure
that employees actually take the meal period or rather, that
the employer's obligations is simply to make that meal period
available to the employee and afford the employee the
opportunity to take the meal period.
While SB 389 does not directly address the issues raised in
the Brinker decision, it is impacted by the case. If the
Supreme Court were to uphold the Court of Appeal's
interpretation of meal period law, it is probable that the
issues the Proponents raise surrounding compliance would
dissipate significantly, as making a meal period "available"
is a far lower level of obligation and responsibility than the
provision of the minimum wage.
3. The Four Questions of SB 389:
SB 389 is a significant departure from previous meal period
legislation that the Committee has historically heard. This
departure and the issues raised will be described below as the
Four Questions of SB 389:
1) Why is SB 389 Different From Prior Meal Period
Legislation?
SB 389 is different from prior meal period legislation is
two key ways: one, it does not directly address the issues
of "providing" a meal period. Second, by continuing to
reference the additional hour as "pay", one of the core
issues decided in Kenneth Cole stands: the notion that the
additional hour of pay for failing to provide a meal period
is a wage.
2) All other wage penalties involve multiple penalties.
Why does SB 389 limit the scope of penalties for meal
period violations?
SB 389 treats the premium wage for meal period violations
far differently than traditional wages. For example, in
the case of an overtime violation, there are several issues
at stake: the non-payment of the overtime wages, as well as
Hearing Date: May 11, 2011 SB 389
Consultant: Gideon L. Baum Page 5
Senate Committee on Labor and Industrial Relations
civil penalties (Labor Code �558), penalties for failing to
pay wages on time (Labor Code �210), penalties for
providing a false pay record (Labor Code �226.3), as well
as penalties for failing to provide overtime wages in a
timely manner in the event of a voluntary or involuntary
termination (Labor Code �203).
Under SB 389, however, only the additional hour of wages
may be accessed for meal period violations. SB 389 treats
the premium wags as such despite the fact that the
violations discussed above almost certainly occurred as
well. However, by referencing the additional hour of
premium wages as the exclusive remedy, SB 389 disallows the
consideration of those other penalties.
The proponents of this bill believe that the existing
statutes instructing compliance are not clear. They state
that there have been recent settlements where an additional
hour of wages was paid as per Labor Code �226.7, but still
were sued. Unfortunately, the proponents were unable to
document these settlements, which make a discussion on the
alleged shortcoming of statute difficult to explore.
3) All other wage violations are treated as misdemeanors.
Why does SB 389 exclude meal period violations from being
considered misdemeanors?
Currently, if an employer is found to be in violation of
the Labor Code's provisions on the failure to pay wages in
a timely manner, that employer is guilty of a misdemeanor
(Labor Code �� 215 and 553). That includes the provision
of a meal period. SB 389, however, excludes the failure to
provide a meal period from being considered a misdemeanor.
The impact of this change is two-fold. First, it removes
the failure to provide a meal period from the reach of the
unfair competition laws (Business and Professions Code
��17200-17209). This will prevent the Attorney General or a
district attorney, as well as an impacted corporation or
person who has suffered injury, from seeking damages due to
the unfair competition of a business failing to provide
meal periods. This would have the potential to serve the
Hearing Date: May 11, 2011 SB 389
Consultant: Gideon L. Baum Page 6
Senate Committee on Labor and Industrial Relations
noted reason for the urgency of the measure, which is in
part to limit employment-related lawsuits.
The second impact is to prevent the failure to provide a
meal period to be treated as a criminal offense. While
unlikely, it would prevent the Attorney General or a
district attorney to pursue a criminal prosecution for an
employer failing to provide a meal period. The most likely
arena where this would come up would be as an additional
charge in the event of a prosecution of an employer for
willfully failing to pay wages generally.
4) All other wage violations seek to strike a balance
between compliance and consequences for lack of compliance.
Why does SB 389 depart from that balance?
As was discussed above, SB 389 would create a new and
unique enforcement structure for the premium wages due when
a meal period violation occurs. Currently, the Labor Code
strikes a balance between compliance and consequences when
it comes to wage violations. The best example of this is
the compliance and consequences in place for overtime wages
and the minimum wage.
For employers, compliance with the minimum wage is,
generally speaking, a straight-forward matter. The
employer has control of when the employees are present and
the hours they work. The employer then simply must
multiply the hours worked by the relevant minimum wage
rate, make the appropriate deductions, and then transmit
payment in a timely manner. Compliance, therefore, is
relatively simple to achieve and document.
Failure to comply, therefore, involves significant
consequences. As was discussed above, such a failure would
constitute a misdemeanor and carry a series of penalties.
Employers who willfully fail to pay the minimum wage may
also be required to pay as much as double what he or she
would have received had the employee been appropriately
paid his or her wages.
Similarly, failure to pay overtime carries significant
Hearing Date: May 11, 2011 SB 389
Consultant: Gideon L. Baum Page 7
Senate Committee on Labor and Industrial Relations
consequences. However, there are additional provisions in
the Labor Code on how to comply with overtime requirements,
as the payment of overtime requires a higher level of
attention and detail to the particulars of the work days
and hours. As such, the Labor Code makes explicit that
payment of overtime wages in the next pay period, with
appropriate documentation, constitutes compliance with the
law (Labor Code �204(b)).
In Murphy v. Kenneth Cole, the court draws comparisons
between the provision of meal periods and the provision of
the minimum wage, as did the Division of Labor Standards
Enforcement (DLSE). However, even if one were to put
forward that in certain industries compliance with meal
period law poses challenges, the existing Labor Code
precedent is for providing explicit guidance on how to
comply, rather than foreclose avenues for enforcement after
a failure to comply is discovered. The Committee may wish
to consider if deviating from this precedent when
addressing meal period violations is appropriate.
4. Proponent Arguments :
Proponents note that since the Supreme Court decision in
Murphy v. Kenneth Cole, which found that the one hour pay for
a missed meal period or rest period as a wage, the amount of
lawsuits regarding this issue has significantly risen.
Specifically, proponents believe that suits are going on even
if the employee has already been compensated with one hour of
pay by the employer for the missed meal or rest period, as
well as be hit with an Unfair Competition Claim. Proponents
believe that SB 389 will bring a balance on meal periods for
both employers and employees by bringing employers relief from
lawsuits and ensuring that employees are compensated for time
worked.
5. Opponent Arguments :
Opponents believe that SB 389 fundamentally undermines the
right to a meal period for California workers. Opponents
reiterate that the payment of an additional hour of wages will
free an employer from the responsibility to provide a meal
Hearing Date: May 11, 2011 SB 389
Consultant: Gideon L. Baum Page 8
Senate Committee on Labor and Industrial Relations
period, and opponents note that this bill creates incentives
to break the law, rather than pay the additional hour of wages
or simply provide a meal period. Proponents also argue that
excluding claims from Unfair Competition Laws and other wages
penalties does not serve the cause of justice for aggrieved
workers, and may only increase the amount of litigation in the
system. Opponents also note that SB 389 may impact ongoing
litigation on the provision of meal periods.
6. Prior Legislation :
AB 569 (Emmerson), Statutes of 2010, Chapter 662, excludes
from meal period law employees in the construction industry,
commercial drivers, and utility workers if they were covered
by a collective bargaining agreement with specified
provisions.
SB X8 70 (Dutton) of 2010 would have extend the time in which
an employee can take a meal period, redefine the employer's
responsibility for providing his or her employees a meal
period, codify and expand qualifying circumstances for on-duty
meal period agreements, remove the ability of employees to
revoke on-duty meal period agreements, and decrease the
statute of limitations for failing to provide a meal period.
SB 8X 70 was held in this Committee.
SB 1192 (Margett) of 2008 sought to allow the employer to
satisfy the requirement to provide a meal period if the meal
period is available to an employee, as well as change the
punishment for an employer failing to provide a meal from a
premium wage to a penalty. The initial hearing for SB 1192
was cancelled at the author's request.
AB 1711 (Levine) of 2007 would have allowed an employee to
complete his or her meal period before the conclusion of the
6th hour or work. The initial hearing for AB 1711 was
cancelled by the author.
AB 2509 (Steinberg) Statutes of 2000, Chapter 876, created the
wage premium penalty for an employer who fails to provide a
meal period.
Hearing Date: May 11, 2011 SB 389
Consultant: Gideon L. Baum Page 9
Senate Committee on Labor and Industrial Relations
AB 60 (Knox) Statutes of 1999, Chapter 134 codified the meal
period for all California employees.
SUPPORT
Associated Builders and Contractors of California
Associated General Contractors of California
California Association for Health Services at Home
California Chamber of Commerce
California Farm Bureau Federation
California Hospital Association
California Independent Grocers Association
California Manufacturers & Technology Association
California Restaurant Association
California Retailers Association
Loma Linda Chamber of Commerce
Montclair Chamber of Commerce
San Bernardino Area Chamber of Commerce
Upland Chamber of Commerce
OPPOSITION
American Federation of State, County and Municipal Employees,
AFL-CIO
California Employment Law Association (CELA)
California Labor Federation, AFL-CIO
California Nurses Association
California Rural Legal Assistance Fund
Consumer Attorneys of California (CAOC)
National Lawyers Guild Labor & Employment Committee
Worksafe, Inc.
Hearing Date: May 11, 2011 SB 389
Consultant: Gideon L. Baum Page 10
Senate Committee on Labor and Industrial Relations