April, 2007

Hello!

MJMS, Inc. is settling into our new offices in Arizona and slowly expanding our influence into the Arizona business community. Things are heating up in Arizona - we had our first 100-degree day on Saturday, but "it's a dry heat."

Two major legal updates that you must know about are taking effect in each of our major markets ... Arizona and California. This month's newsletter provides you with details of both legal changes.

First is the Arizona Smoke Free Act:

Beginning May 1, 2007 all places of employment, with a few exemptions must be smoke free. Also beginning May 1, 2007, smoking will no longer be allowed in most indoor public places including (but not limited to):

• Restaurants, bars, gaming facilities such as bingo halls, billiard or pool halls, bowling centers , public buildings, grocery stores or any food service establishment.

 x

• Lobbies, elevators, restrooms, reception areas, hallways and any other common-use areas in public and private buildings, condominiums and other multiple-unit residential facilities

  x

• Indoor sports arenas, gymnasiums and auditoriums

x

• Health care facilities, hospitals, health care clinics, doctor's offices and child day care facilities.

x

• Common areas in hotels and motels, and no less than 50% of hotel or motel sleeping quarters rented to guests.

x

• Any place of employment not exempted. (See exemptions)

x

• Entryways – The 15 Foot Rule - According to the draft exempt rules, the proprietor shall not permit smoking within 15 feet of the establishments' entrances, windows or ventilation systems unless defined differently by a local law.

Local units of government may enact ordinances that are more restrictive than the Smoke-Free Arizona Act. Local ordinances, if more stringent, will remain in effect after the implementation of the Smoke-Free Arizona Act.

While the goal of the Smoke-Free Arizona Act is to protect Arizona's citizens from the dangers of secondhand smoke, there are some specific public spaces where smoking will be allowed.

• Private residences (except when used as a licensed child care, adult day care, or health care facility).

x

• Hotel and motel rooms designated as smoking rooms (no more than fifty percent of rooms rented to guests in a hotel or motel are so designated).

x

• Retail tobacco store (physically separated and independently ventilated so that smoke from retail tobacco stores does not infiltrate non-smoking areas)

x

• Veterans and fraternal clubs when they are not open to the general public

x

• Smoking when associated with religious ceremony practiced pursuant to the American Indian Religious Freedom Act of 1978.

x

• Outdoor patios so long as tobacco smoke does not enter areas where smoking is prohibited through entrances, windows, ventilation systems, or other means.

x

• Theatrical performance upon a stage or in the course of a film production or television production if the smoking is part of the performance of production.

x

• Tribes are Sovereign Nations, and are exempt from the Smoke-Free Arizona Act.

What You Need to do to Comply with the Law

• Remove all ashtrays.

x

• Post "No Smoking" signs or decals at every entrance of your establishment.

x

• Inform your employees about the new policy.

x

• Prohibit anyone from smoking inside place of business. This includes employees, vendors and customers.

For more information, contact …
x
Arizona Smoke-Free Program
Office of Environmental Health
Arizona Department of Health Services
150 N. 18th Ave, Suite 430
Phoenix, AZ 85007-3247

1-877-AZSTOPS
1-877-297-8677

Now on to our second law affecting California ....

The California Supreme Court Has Spoken:
The Required Additional Hour of Pay for Missed Rest or Meal Periods
Is A Wage, Not A Penalty

In a stunning 7-0 decision that will have immediate and far-reaching consequences for all private-sector California employers, the California Supreme Court has held that the "additional hour of pay" required by California Labor Code for meal and rest break violations, is a wage, not a penalty. Murphy v. Kenneth Cole Productions Inc., No. S140308 (Cal. Apr. 16, 2007).

This additional hour of pay is, therefore, subject to a three-year statute of limitations, and potentially a four-year statute of limitations for plaintiffs who allege their employer's practice of not allowing meal and rest breaks amounts to "unfair competition" under California Business and Professions Code. Moreover, because this payment is a wage, employers have duty to pay it with other earned wages, or risk penalties for failure to do so.

The California Labor Code and relevant California regulations require employers to provide their non-exempt employees with a ten minute paid rest break for every four hours worked and a thirty minute unpaid meal break if they work more than five hours.

Under California Labor Code, if an employer fails to provide the mandated meal or rest period, it "shall pay the employee one additional hour of pay at the employee's regular rate of compensation" for every day in which a violation occurs.

Typically, meal and rest period violation cases are filed as class actions. The plaintiffs in those actions commonly allege that they and all other non-exempt co-workers in related jobs were regularly unable to take their meal and rest breaks. Thus, each employee is entitled to an additional hour of pay under section 226.7 for each violation – making it very easy to establish a class for purposes of bringing a collective lawsuit.

Until this week's Kenneth Cole decision, however, the battleground over damages associated with such missed meal and rest periods was uncertain. Employee plaintiffs argued that the Legislature intended this additional hour of pay to be a wage and not a penalty, because statutory wage claims are subject to a three-year statute of limitation, whereas penalties are subject to a one-year statute of limitation.

The statute of limitations governs how far back into the past a plaintiff is able to go to recover for violations of the meal and rest period law. Plaintiffs would further argue that the employer's practices constituted "unfair competition" in violation of California Business and Professions Code section 17200, extending the limitations period to four years. In response, employers had countered that the additional hour of pay under section 226.7 was intended by the Legislature to be a penalty, not a wage, with a number of California Courts of Appeal in agreement.

This wage vs. penalty debate often became the pivotal question driving this type of wage and hour litigation. Given the number of claimants involved in a typical suit, tripling or quadrupling the statutory limitations period has the potential to exponentially increase an employer's exposure.

The Kenneth Cole decision, and its unanimous opinion that the additional hour of pay is a wage, not a penalty, settles this question, and in doing so ups the legal stakes significantly, thus increasing the incentive to sue employers for these regulatory violations.

What does this decision mean for you?

First and foremost, wage and hour class actions are not going away. This decision will have a dramatic impact on the value ascribed to these cases, affecting everything from settlement strategies to proactive compliance measures.

Now more than ever, employers must be especially vigilant on the meal and rest break issue and must take immediate steps to ensure not only that they are in compliance with the law but also that mechanisms are in place to address the increased risks.

• Supervisors must be properly trained on how to enforce timely and adequate breaks and how to properly and safely discipline employees who show a pattern of disregard.

x

• Employers must also ensure that employees are properly recording their meal breaks on their time records, as required by law.

x

• Whether or not the Court intended this outcome,employers must make taking the entire half-hour for lunch a mandate that is enforced through clear, thorough accountability standards.

x

• Furthermore, the need to monitor rest breaks – never before an issue – may now become a practical necessity.

The Kenneth Cole decision is of particular concern to employers who have "in the field" operations. Without the benefit of direct and regular oversight from a supervisor, ensuring employee compliance with the meal and rest requirements becomes a very difficult task. Reliance on field operations is unavoidable, and training of front-line supervisors on how to administer meal and rest compliance measures, including regular review of time records, is more important than ever.

Apart from broadening the relevant time period to three or even four years, the Court's ruling that the additional hour of pay is a wage has other important consequences.

For example, by defining the payments as wages under California law, these payments must be timely paid as earned, i.e., on regular paydays.

Furthermore, because they are wages, if all payments are not made by the time an employee terminates employment, California's waiting time penalty will begin to accrue, entitling a former employee to up to 30 days of his or her daily wage (equal to approximately six weeks of pay) in addition to the missing additional hour payments.

Looking Forward

Nearly all employers will need to make significant changes to their meal and rest break practices and policies. Each and every modification to your existing practices will be heavily scrutinized in the wake of this decision, and your legal counsel should be closely involved in this transition process.

Supervisors must be trained to reinforce taking complete meal and rest breaks in a timely manner and also how and when to discipline non-compliant employees. Furthermore, employers and their human resources professionals must immediately discuss where to assign "ownership" of meal and rest break compliance going forward.

Ensuring compliance will require regular (daily) time card and payroll reviews for all employees. Employers who do not already have a "self-penalization" system in place for missed meal and rest breaks should discuss with their legal counsel the cost, feasibility and practicality of implementing one.

Although not required under the California Labor Code, meal and rest break penalties should be tracked as a separate wage item on pay stubs if possible for ease of future identification in case of legal challenge. New backup documentation must be created and maintained which summarizes meal and rest violations and penalties paid per employee per day. Such documentation should be acknowledged and signed by employees on a weekly basis or upon receipt of their pay check.

Handbooks must be updated and/or supplemented to include detailed discussions about meal and rest policies and disciplinary consequences. Employees should acknowledge and sign such updated or supplemented handbooks.

Finally, where applicable, employers who do not currently make use of "meal period waivers" should discuss their utility with legal counsel.

Looking Back

Employers should seriously consider conducting a four-year compliance audit and potential liability assessment. This will require a detailed look at your time and payroll systems to assess meal and rest break gaps and assign dollar values to your potential exposure.

If nothing else, such an audit will allow you to get out in front of any documentary shortfalls your enterprise may currently have. The more complete your records are the more efficient and valuable this audit will be. Contact your legal counsel to discuss methods for gathering the data, questions of confidentiality, and any atypical or alternative work scheduling structures you have in place.

If you would like assistance with positioning your organization to deal with the ramifications of this important decision, please contact:

Kirstin E. Muller, a partner with the employment law firm of Curiale Dellaverson Hirschfeld & Kraemer, LLP, practicing exclusively on behalf of employers' interests, at (310) 255-1800

ABOUT MJMS, INC.

President and Principal Consultant: Margaret Jacoby, PHR

Margaret Jacoby has more than 25 years of Human Resources and professional management experience in a variety of industries. She has designed human resources infrastructure and implemented systems to ensure compliance with state and federal employment laws. She has directed high quality human resources functions for small and emerging businesses, and served as an external consultant to a wide range of diverse organizations, including non-profits.
 
Her work has included: 

• Conducting H.R. Needs Assessments
• Drafting employee handbooks and policy manuals
• Conducting job analysis and developing position descriptions
• Conducting on-site compliance audits
• Counseling management on progressive discipline
  
• Drafting and review of employee disciplinary actions
• Providing mediation in employee/employee conflict
  
• Training employees/supervisors/managers in the implementation of human resources systems and policies such as Sexual Harassment
• Conducting workshops for business owners on H.R. compliance issues.

 
Ms. Jacoby has earned the nationally-recognized certification of Professional in Human Resources (PHR) from the HR Certification Institute, Society for Human Resource Management (SHRM).
 
Ms. Jacoby's professional affiliations include:

• Professionals in Human Resources Association (PIHRA)
• Society for Human Resource Management (SHRM)
• National Association of Women Business Owners, Los Angeles
  (NAWBO-LA)
• California Chamber of Commerce
• Long Beach Community Business Network (LBCBN)
• Institute for Management Consultants (IMC)
• Los Angeles Area Chamber of Commerce