Navigating Recent Changes to California Wage and Hour Laws

The recent changes to California’s wage and hour laws have significant implications for employers operating within the state. While the reforms are aimed at providing clearer guidelines for employers, there are still complex issues that HR professionals and employment lawyers must address. Key updates that affect your organization and what you can do to stay compliant are provided below.

Private Attorney General Act (PAGA) Reform

For two decades, PAGA has been a vehicle for plaintiffs acting as a “Private Attorney General” to collect penalties for Labor Code violations previously only recoverable by the state. Before the recent reform, PAGA lawsuits often resulted in compounded penalties for effectively the same infraction. For example, an employer might owe an employee $15 for a missed meal break, but the employee could claim additional PAGA penalties for the associated regular rate, wage statement, and waiting time violations. Thus, PAGA claims added substantially to the already-high stakes of wage and hour class actions.

PAGA reform has clarified and reduced some of these penalties. Key highlights include:

• Elimination of Compounding Penalties: Employers are no longer subject to the compounding of most penalties for a single violation.
• Cure Mechanism: There are more instances where employers can remedy violations upon receiving a PAGA letter and reduce penalties.
• Clarification of Penalties: The statute now limits penalties to one year, addressing concerns over “continuing violations” claims.
• Good Faith Defense: On May 6, 2024, the California Supreme Court, in Naranjo v. Spectrum Security Services Inc., clarified that an employer is not liable for statutory penalties for inaccurate wage statements when it had a good faith and reasonable belief that the issued statements were accurate.

Employers Should Remain Wary About Costly Wage and Hour Class Actions

Though the PAGA reforms reduced some penalties, the reform did not include changes to the underlying wage and hour violations. Employers must remain up to date in their compliance with California’s stringent wage and hour requirements. Employers should consult with their counsel on methods to mitigate risks associated with wage and hour claims.

We review a few hot button issues here:

1. Timekeeping Practices for Non-Exempt Employees

Timekeeping remains a hot topic, particularly with regard to policies on rounding and de minimis claims. California law does not allow employers to use the de minimis defense for timekeeping violations, unlike federal law. This means even small violations, like missing a couple of minutes of pay, can lead to penalties.

• Rounding Policy: In Camp v. Home Depot, the California Court of Appeal cast doubt on an employer’s usage of neutral time rounding policies (e.g., rounding to the nearest 15 minutes) where employees’ time was tracked by a digital timekeeping system (e.g., Kronos). The California Supreme Court is set to hear this case, and most pundits expect that the court will hold that neutral time rounding policies are not compliant with the California labor code. To mitigate risk, employers should ensure that their payroll systems do not use rounding policies that could result in missed wages.
• Meal Breaks: Donahue v. AMN Services clarified that even if an employee misses only a minute of the required 30-minute meal break, the employer is liable for a meal break premium. This could result in hefty penalties for employers who are rounding meal break times. It is essential to ensure that meal breaks are fully compliant and recorded accurately.

2. Cell Phone and Internet Usage for Work

The frequency and importance of personal phone and internet use has become acute in the post-pandemic era where remote work and digital tools are prevalent. Employers may be unknowingly violating wage and hour laws if they require employees to use their personal phones for work tasks, such as checking schedules or responding to emails outside of normal working hours. Employers need to have a clear reimbursement and/or stipend policy for employees who use their personal phones or internet for work purposes. This is especially important for employers who do not provide company-issued devices but require employees to perform work-related tasks on personal devices.

3. Compliance Across States

National employers must acknowledge the differences among California state law, the Federal Labor Standards Act (FLSA), and other states’ laws. For example, the FLSA likely permits neutral time rounding policies and the de minimus defense. Depending on where your employees are located, you may consider enacting state-specific employment policies.