Minimum Pay Laws in California Explained
Employees working in California are entitled to a minimum amount of pay that employers must provide regardless of the number of hours worked. While few workers earn only the minimum wage, the purpose of the law is to protect employees from low wages, ensure living wages, and discourage a competitive race to the bottom in wages. The minimum wage law is one part of California’s comprehensive wage and hour laws.
The minimum wage law has changed significantly over time. Even though there are different minimum wage rates based on the applicable "city or county," California law specifies the "minimum wage of at least $10.50 per hour" effective January 1, 2016. As improvements to the economy continue and California legislators respond by raising the minimum wage, you can be sure that the rules will change again.
The idea of a minimum pay rule is not new. It ensures that if an employee is asked to report to work , the employer must pay him or her at least a minimum amount for that day of work. It also requires employers to pay that minimum amount on days employees are sent home early to prevent underpayment of wages and abuse of the schedule.
On slow business days where a business could expect only some employees to work or perhaps not run the business at all, the rule helps ensure everyone is afforded the opportunities to work enough hours. It gives employers the ability to plan, giving advance notice to employees, as well as the ability to send home employees once they have worked the minimum required number of hours.
The days and shifts that trigger minimum payments and the amount of money that constitutes the minimum was also changed during the legislative upheaval that followed the economic collapse. The typical approach in California has been to pay for a minimum amount of work when the employer calls the employee to work. Subject to exceptions when employees are covered by a collective bargaining agreement, employers are required to pay a minimum of two hours of work.
The 2-Hour Minimum Pay Rule After COVID
The 2-Hour Minimum Pay Rule is a California state law requirement that an employee be paid for a minimum of two hours of work during each shift. This means that if scheduled to work a two-hour shift, an employee must be paid for at least two hours, regardless of whether they actually perform the work or perform no work at all. In other words, you cannot schedule an employee for less than two hours, and if the employee works less than two hours on a particular day (e.g., the employee is sent home early), the employee is entitled to be paid for two hours of work.
Importantly, the 2-hour rule applies only to non-exempt employees, not exempt employees. (There are also some exceptions to the 2-hour rule that apply to specific industries, such as the motion picture industry or unionized employers).
The two-hour minimum pay rule is typically applied in the following situations:
The 2-Hour Rule does not apply to:
- Employees who report to work but are provided no work and are not paid at least two hours.
- Employees who provide on-site repairs or services.
- Employees ordered to report to work or who voluntarily report to work and who are pain for only part of the day for legally authorized reasons (e.g. jury duty, military leave, illness).
- Employees who perform work for a period of time of less than two hours to supplement their main employment. Under this exception, the 2-hour rule does not apply if the employee is called to work on an irregular or nonrecurring basis for emergency, short duration work unrelated to his or her primary work.
Legal Basis for the 2-Hour Rule
At the core of the 2-hour minimum pay rule is a section of the California Code of Regulations: Division of Labor Standards Enforcement ("DLSE 9 C.C.R."). Specifically, subsection 5 deems it to constitute "sufficient cause for concerted action by … [the] Industrial Welfare Commission" to allow an employer to require an employee to take a lunch period without receiving compensation, or to require an employee to work during a rest period with or without pay. This subsection has been interpreted to mean that employers cannot deprive employees of rest period or require employees to work during breaks, and still only pay those employees for an increment of time as small as 10 minutes. (See DLSE 9 C.C.R. § 579). It also provides a statutory basis for judgments entered against employers who did not pay meal and rest period wages with interest at the rate of 30% per annum. (See DLSE 9 C.C.R. § 1194).
The 2-hour minimum pay rule has been confirmed by the California Supreme Court in Suastez v. Plastic Dress-Up Co., Inc., 31 Cal.3d 774, 775 (1982). In Suastez, the plaintiff worked as a janitor. Without consulting the plaintiff, the defendant corporation, his employer, purchased and implemented a time clock that required all employees to clock in and clock out at the end and beginning of each break, lunch, and the end of the day. This time clock was connected to a computer which printed out weekly time records for payroll. The court found "no valid reason" for such a policy and held that the employees should receive pay for 10 minutes of overtime that they took at work and for 75 minutes of the plaintiff’s and other employees’ break periods for when they had been clocked in. Further, the court held that the plaintiffs were also entitled to recover wages for the time before and after their shifts while they were required to work without compensation. The crux of the court’s decision was that the plaintiffs, whether they wanted to or not, were being compelled to work when they were on company premises and therefore constituted compensable workweeks pursuant to California law.
Employer Responsibilities and Best Practices
Employers are obligated under the California wage orders to pay all non-exempt employees for at least two hours of work when they report to work but are not given any work or sent home. California Wage Orders 1-8 at §8. Although there are exceptions to the requirement, such as the Authority to Call Rules, employers are frequently surprised by the application of the Rule once the employment audits begin. Additionally, employers have been sued on the Rule under the Private Attorney General Act ("PAGA") and for alleged civil penalties. Fortunately, the Rule is easy to comply with when you know it exists.
Best Practices:
• Training: Ensure that everyone knows of the Rule and the Authority to Call Rules, and understands the difference in purpose and application. All supervisors, payroll personnel, and managers should be trained on the difference and the existence of the Rule and the Exceptions.
• Job Posting: The Rule is required to be posted at the workplace. Employers should make the posting conspicuous despite placement in the wage orders.
• Training Upon Hiring: Although there is no specific hiring language, or "safe harbor" language approved by the state, we recommend providing a copy of the Rule to employees upon hire, or having them acknowledge receipt of the Rule.
• Audit Your Records: Keep accurate time records, including the times that employees are called in and sent home. If you are required to pay a minimum of two hours, determine if there were exceptions applicable to the obligation, and if they do not apply evaluate if there is a free standing policy to dispense with the obligation in place. Although we have seen claims for 8-12 minutes in some cases, the risks are heightened if the same claims are made upon multiple employees with seemingly the same deficiencies.
• Audit Your Documents: If you are subject to PAGA and have paid out a significant amount under the Rule, assess whether you have given an explanation of the type of payment plan implemented to avoid such a payment obligation. There have been lawsuits alleging that employers fail to properly disclose their policies for on-call and call-in reporting as they were implemented. If you have, perform an audit of the records to mitigate exposure.
Effects on Employees and Common Scenarios
The 2-hour minimum pay rule (cal. Code Regs. tit. 8, § 11070 subd. (5)) can apply in a number of ways depending on the specific circumstances. Scenario 1: Employees are paid a set salary for a set workweek. If the employee works less than two hours in the workday, then they must be paid for two hours, however, if they work more than two hours in the workday, they do not have to be paid for a full four hours for that day. Scenario 2: Employees are called in for a brief shift (less than two hours) to attend a non-compulsory meeting, four hour shift, or other workday. In this scenario, they must be paid for at least two hours but no more than four hours, unless the employee is a union member and the union and the employer agree to a different amount of guaranteed time (cal. Code Regs. tit. 8 , § 11070 subd. (5)(A) & (B)). Scenario 3: Employees are on call and required to respond to workplace calls on their day off. Due to the requirement to respond to calls on their day off, the 2-hour minimum pay rule is also applicable in this scenario (cal. Code Regs. tit. 8, § 11070 subd. (5)(C)). Scenario 4: An employee suffers a workplace injury and is sent to receive medical care. The employee must be paid for a minimum of two hours and all time actually spent at the clinic or hospital if the time exceeds the two-hour minimum (cal. Code Regs. tit. 8, § 11070 subd. (5)(D)). Scenario 5: An employee attends a non-mandatory training class. Again, under this scenario, the employee must be paid for a minimum of two hours and all time actually spent in the class if the time exceeds the two-hour minimum (factorialdesign.com v. bbsystems.com).
How Employers Should Deal with Violations
Remedying a violation of the California 2-hour minimum pay rule starts with objective fact finding; including resolving what hour an employee actually worked and any secondary violations, such as unpaid overtime. Objective evidence about duties performed is crucial to calculate unpaid wages. For example, if employees are not clocking in, video footage may be used to determine what employees were doing in the time period in question.
Next, employers should look into general damages. If an employee is due a payment, ESPLAWN advises employers not to make employees wait for payment. California law requires an employer to pay a timely payment to an employee who makes a claim for unpaid wages, even if the payment is less than $500, usually within 72 hours. The timing of payments is more flexible if desired payments are more than $500; the company can be expected to pay the employee within 14 days of the claim if the employer has rigorous documentation and logic for contesting the claim’s validity. While California Labor Code § 218.6 provides small claims court jurisdiction for disputes involving less than $10,000, disputes between $10,000 and $150,000 are also permitted. Additionally, if an employer wins damages in a small claims lawsuit for payment of $1,000 or less, the employer is effectively barred from facing the same claim for 180 days.
Changes and Industry Response
Recently, Governor Newsom signed a bill into law that gives the Division of Labor Standards Enforcement (DLSE) more authority to enforce the two-hour minimum pay rule. The new legislation requires employers to be proactive, creating and maintaining records of when an employee reports to work. LP attorneys have previously advised that this would be the first step in defending a two-hour minimum wage claim. In recent decisions, the Labor Commissioner has not required prima facie evidence in its favor on this issue and has issued citations based on payroll records. There has been a push for clearer standards during stakeholder meetings. However, the new law does not follow that recommendation and answers the question of what "to work" means. It provides: . . . "In this subdivision, the "employee’s reporting time" means the time the employee is required to be available to work, and "reporting time pay" means compensation for one-half the employee’s usual or scheduled day’s work, but in no event for less than two (2) hours and no more than four (4) hours. Labor experts and trade organizations have begun publishing opinions and offering advice to their constituents about this change. The California Chamber of Commerce has written that "the new standards are significantly stricter than the current requirements and will have significant costs, particularly for food facilities, in which it is common for employees to report to work, only to find out there is no need to work." The California Restaurant Association responded with statements from their members. "The two-hour minimum pay rule was created to protect employees and their livelihoods, especially those employees who are simply following company or manager direction," said Joe Manzare, director of human resources for Togo’s, a fast-casual chain. "This new rule appears to be inappropriate and unfair because it is not limited to those required to come to work," he added.
The Future of Minimum Pay Rules
Although the legislature is likely to be focused on how to raise wages akin to the Fight for $15 movement, the future impact on minimum pay for travel time and other expenses may also impose a burden on employers if the legislature or the courts get their way. Such potential changes likely will further complicate complex calculations of pay and reimbursement for time spent traveling to a client’s site outside the office.
At the end of 2017, the legislature passed Assembly Bill (AB) 168, amending the Labor Code, to require that "an employer, upon reasonable request, shall provide the pay scale for an open position to an applicant for employment." That law became effective on Jan. 1, 2018. The minimum pay to be disclosed for the position provides an indication of what the legislature thinks minimum pay should be. And, since this law clearly applies to any "open position," the legislature’s intent indicates that it will apply to most jobs, not just ones that seek an increase in pay. As a result, businesses should expect that the minimum pay floor for most occupations will continue to rise .
In addition, section 2778 of the Labor Code was added in 2017 to require a content-neutral compensation discussion with an employee on request and/or to disclose wage information of one employee to another employee who requests it. AB 168 created a presumption of retaliation if an employer denied the request and prohibited employers from retaliating against applicants who brought suit under this code section. This section is now effective as of Jan. 1, 2018. Thus, California could be the first state to mandate that employers disclose wage information to employees. This section further increases the likelihood that pay rates will continue to rise, which will likely have a corresponding impact on employers’ travel expense reimbursements.
Finally, both legislation that would prohibit non-competes and legislation that would require employers to reimburse relocation expenses have been discussed in prior sessions. A public policy that limits employers’ ability to restrict their employees’ wage levels must have some type of balance. However, we can expect continued attempts by the legislature to create further substantive restrictions on how employers may set pay. Such trends in labor legislation will certainly pay a role in future changes related to pay for travel time.