Must California Employers Pay for Every Second Worked?

Starbucks worker claims federal ‘de-minimis’ rule doesn’t apply to California law

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Employees that close retail establishments often clock out before they finish their last tasks, such as setting the alarm and locking the door. The California Supreme Court has been asked if employers are violating the state labor code if they do not capture this time and compensate workers for it.

Under federal law, courts have called this time "de minimis"—a trivial amount of time that is difficult to track. Thus, employers aren't generally likely to get in legal trouble if they don't include this time in workers' paychecks.

"For many years the de-minimis doctrine has been an established defense to off-the-clock wage claims under federal law," said Seth Neulight, an attorney with Nixon Peabody in San Francisco. "Employers commonly assert this defense in class actions alleging a failure to pay employees minimum and overtime wages for small amounts of time spent off-the-clock on tasks [that] are administratively difficult to track."

The question before the California Supreme Court is important because—up until now—many employers have been operating under an assumption that workers can't sue for time spent shutting down their place of business, said Grant Alexander, an attorney with Alston & Bird in Los Angeles.

"If the court were to rule in favor of [the plaintiff] and eliminate the application of the de-minimis rule currently applied under the Fair Labor Standards Act [FLSA], it would vastly change the landscape for how employers track time and manage hourly employees," he said. 

Background

In Troester v. Starbucks, a former shift supervisor at the coffee chain claimed that he and other workers who performed store closing tasks were required to clock out on the company's computer system before submitting sales and inventory data to headquarters, activating the alarm and locking up for the night. Under a Starbucks safety policy, the plaintiff also walked his co-workers to their cars, according to the complaint.

Assuming all this time was compensable, it added up to 12 hours and 50 minutes over a 17-month period, or nearly $103 at the applicable $8.00-an-hour minimum wage at the time.

A federal district court found that the time was de minimis and granted summary judgment for Starbucks. The plaintiff appealed the decision to the 9th U.S. Circuit Court of Appeals, arguing that the de-minimis rule didn't apply under the California Labor Code.

[SHRM members-only toolkit: Complying with California Wage Payment and Hours of Work Laws]

Since the answer is critical to the lawsuit, the federal appeals court certified a question to the state high court: Does the federal FLSA's de-minimis doctrine apply to claims for unpaid wages under the California Labor Code?

Oral Arguments

The California Supreme Court heard oral arguments in the case on May 1. The justices seemed to have two lines of questioning, according to M.C. Sungaila, an attorney with Haynes and Boone in Orange County.

First, the justices focused on how employers can effectively track all time worked. The plaintiff's attorney argued that standards should change because there is better technology to track compensable time. Justice Goodwin H. Liu asked if there's an app for that.

For employers though, having to track work hours down to seconds could result in a lot of extra expenses—particularly for small businesses. Businesses would have the front-end expense of rolling out a program to track the time, and then if there are potential violations to the labor code, the business may face significant penalties and legal fees, Sungaila said.

This leads to the second line of questioning, which focused on costs and fees. The plaintiff's attorney told the justices that this case is about properly paying employees for all the time that they work. Counsel for Starbucks, however, argued that it is about penalties and fees. An employee could recover a small amount of wages that weren't captured, but a plaintiffs' attorney in a class action could recover a substantial amount of legal fees.

If the justices side with the plaintiff, it could greatly expand the number of California wage and hour class actions that are filed, Sungaila said. "Also, how granular will we get in terms of time? Are we going to get down to seconds?" The justices seemed to be grappling with this question and may ultimately provide a roadmap for employers.

A ruling in favor of the plaintiff would be an impetus for employers to re-examine their procedures for employee time-keeping, as well as preshift and post-shift activities, Neulight noted.

"It is essential for employers to understand the potential liabilities that might arise from future wage and hour claims and take steps to minimize their risk," Alexander said.

 

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