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Significant Changes in California Wage and Hour Laws

December 31, 2000

The year 2000 brought with it a number of important changes to California wage and hour laws, the most significant of which are summarized below.

California Once Again Requires Payment of Daily Overtime

Prior to 1998, California law required employers in most industries to pay overtime to nonexempt employees for hours worked in excess of 8 hours a day. Then, effective January 1, 1998, daily overtime was eliminated for manufacturing, mechanical, technical and professional, hotels, restaurants and hospitals (public housekeeping), retail, wholesale and sales (mercantile) and transportation industries and occupations. Consequently, consistent with federal law, overtime pay was required only for hours worked in excess of 40 hours a week. A mere two years later, however, with the signing by Governor Gray Davis of the Eight-Hour-Day Restoration and Workplace Flexibility Act of 1999, daily overtime pay was reinstated in California effective January 1, 2000. Accordingly, California employers in the industries listed above are once again required to pay nonexempt workers 1.5 times their regular hourly rate for hours worked in excess of 8 hours a day, and double their regular hourly rate for any hours worked in exces

Some Software Workers May Now be Classified as Exempt From Overtime Requirements

In response to concerns raised by high-tech employers regarding the high cost of overtime pay for software designers (many of whom work long hours to complete projects under strict deadlines), the California Labor Code was amended effective September 19, 2000, to create a new exemption from overtime requirements applicable to highly paid software workers. Cal. Labor Code § 515.5. The exemption applies to computer software analysts, programmers and engineers who are hourly paid and whose hourly rate is at least $41. This minimum hourly rate will be adjusted annually.

Three requirements must be met for the exemption to apply. First, the employee must be "primarily engaged in work that is intellectual or creative and that requires the exercise of discretion and independent judgment." Second, the employee must be "highly skilled and . . . proficient in the theoretical and practical application of highly specialized information to computer systems analysis, programming and software engineering." Third, the employee must engage in specific job duties: systems analysis consulting, designing, developing, documenting, analyzing, creating, testing or modifying computer systems or programs, or designing software or hardware for computer operating systems. Job titles are not dispositive.

There is a long list of exceptions to the newly-created California overtime exemption, which includes:

trainees and employees in entry level positions;
employees who do not have the skill and expertise needed to work independently and without close supervision;
employees who operate, manufacture, repair or maintain computer hardware and related equipment;
engineers, drafters, machinists and other professionals who are not computer system analysts or programmers;
employees who write material, such as box labels, product descriptions, promotional material and instructions or who write content material for customers for web sites or CD-ROMs;
employees who create imagery for the motion picture, television or theatrical industries; and
employees directly employed by the State or any county, city, town or municipality.

Definition of Exempt Employees Now Similar to Federal Standards

Under the California Labor Code, an employee who works more than eight (8) hours a day or forty (40) hours a week is entitled to overtime pay, unless that employee is exempt from the overtime requirements. Cal. Labor Code § 515.

California's Industrial Welfare Commission ("IWC") issued new wage and hour guidelines effective October 1, 2000, defining which employees are exempt from overtime pay. Interim Wage Order-2000. These guidelines, which essentially track federal law, provide for three traditional exemptions (executive, administrative and professional), each of which requires that the employee be (i) paid a monthly salary that is at least two times the minimum wage for full-time employment, and (ii) primarily engaged in exempt work. As described above, California law now also provides for a fourth exemption from overtime pay requirements, applicable to certain hourly-paid software professionals who are paid at least $41 per hour.

Special Rules for Establishing Alternative Workweek Schedules

IWC authorizes an employer and employee to establish a workweek different from the standard 8 hours per day, 5 days per week, without incurring daily overtime. Establishment of such an alternative workweek requires a written agreement proposed by the employer and approved by secret ballot by two-thirds of the employees in the affected work unit.

New IWC regulations mandate a host of specific procedures to be followed in conducting the secret ballot election (e.g., when and where the election must take place, its timing, what must be contained in the disclosure about the proposed alternative workweek, and the need to report the results to the Division of Labor Statistics and Research). The regulations also prohibit employers from intimidating or coercing employees to vote one way or the other, although employers are permitted to express their views on the adoption of the proposed alternative workweek. Section 5, Interim Wage Order-2000.

New Penalty for Failure to Provide Meal Breaks

In accordance with newly promulgated guidelines, if an employer fails to provide its employees with meal breaks as required by California law, the employees are entitled to one hour of pay at the regular rate for each missed meal break. Section 9, Interim Wage Order-2000.

Specifically, if an employee works more than five hours, he or she must be given at least a 30 minute meal break, during which time the employee is relieved of all work duties. If the employee is not relieved of all duties while on break, the meal time must be counted as time worked. In addition, an "on duty" lunch is permitted only if work demands so require and there is a written agreement between the employer and the employee, (which the employee may revoke, in writing, at any time). If an employee works no more than 6 hours a day, the meal period may be waived by consent of the employer and employee.

If an employee works more than ten hours in a day, the employee is entitled to a second meal break of at least 30 minutes. If the employee works no more than 12 hours, the second meal break may be waived by consent of the employer and the employee, provided the first meal period was not waived.