California Employers: Do You Know When Your Furlough is a Discharge?

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To employers, it may seem like California regulates nearly everything about employment relations. Yet, surprisingly, statutes and courts in California never answered the question of when a temporary layoff becomes a “discharge” of furloughed employees. That is, until the Ninth Circuit Court of Appeals did so recently in Hartstein v. Hyatt Corporation, 82 F.4th 825. The implications of this new ruling for California employers and employees are considerable.

Under the new ruling, any temporary layoff or furlough of employees without a specific return-to-work date within the employees’ regular pay period is considered a “discharge” under California Labor Code Section 201. That in turn triggers an immediate obligation for employers to pay all laid off employees all of the wages they have earned, including any pay owed for accrued vacation or Paid Time Off (“PTO”). Failure to pay in full all accrued wages, vacation and PTO when due runs the risk of substantial “waiting time penalties” under Labor Code Section 203. That can be a huge burden and risk for employers, as the Hartstein case demonstrated.

Hartstein arose during the beginning of the COVID-19 pandemic, when many businesses were forced to greatly reduce or cease business operations without knowing when they would be able to reopen. In March 2020 Hyatt, like many employers, furloughed thousands of employees and was unable to provide any specific return-to-work date. Hyatt advised employees that vacation and PTO would not accrue during the temporary layoff, and Hyatt offered to pay any accrued vacation to employees upon request. A month later, in June 2020, Hyatt sent a letter advising employees that the temporary layoff had become permanent and employees would be paid their accrued vacation and PTO as required by Labor Code Section § 201 when a “discharge” occurs.

Hyatt employee Karen Hartstein filed a class-action and Private Attorneys General Act (PAGA) lawsuit, arguing that a “discharge” had occurred with the indefinite temporary layoff in March 2020, and not when employees were permanently laid off in June 2020. The key question was whether a temporary layoff, lacking a specified return date, constituted a “discharge” under Labor Code Section 201, which had no definition of “discharge.” No previous published case had addressed the issue.

The Ninth Circuit turned to the California Division of Labor Standards Enforcement (DLSE) for guidance in its previously-issued Opinion and its Policies and Interpretations Manual. DLSE had indicated that, when an employee is laid off without a specified return date within the regular pay period, the employer must immediately give the employee a final paycheck that includes vested vacation pay. DLSE reasoned that this interpretation best aligned with the statute’s purpose of protecting workers and ensuring prompt payment of earned wages.

The Ninth Circuit characterized Hyatt’s actions as “understandable given the uncertainty during the early period of the pandemic,” but remanded the case to the trial court to determine whether Hyatt’s failure to issue full final paychecks in March 2020 constituted a “willful” violation, which would expose Hyatt to waiting time penalties. That question remains open and will be watched closely by employment lawyers.

Hartstein v. Hyatt provides new guidance to California employers who may need to implement open-ended furloughs or temporary shutdowns. This decision has made clear that California employers who furlough or temporarily lay off employees without specifying a return-to-work date within the same pay period should immediately issue final paychecks that include each employee’s vested and unused vacation or PTO.

Hartstein v. Hyatt demonstrates again that employment law in California is constantly evolving, and outcomes may not be as predictable as employers would hope. California employers facing such issues are well-advised to consult with qualified employment counsel to stay up-to-date on these and other important employment issues. Conkle, Kremer & Engel’s attorneys can help advise employers in navigating these complex and evolving issues.

 

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The Conkle Firm Successfully Defends Employee Wage and Hour Claim

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If you’re a California employer, how well do you keep track of your employees’ meal and rest periods?  California law requires that employees be provided at least a ten-minute rest period every four hours, and a 30-minute meal period after five hours.  Non-exempt employees who work more than eight hours in a day, and more than 40 hours in a week, must be paid overtime.  Employers are required to maintain accurate records of employees’ timesheets and pay.  It sounds simple, but the devil is in the details.  If you have employees, it is important to put policies in place to ensure that all employees are taking their breaks and being paid for any overtime work.

If an employee believes he or she was deprived of meal and rest periods or not paid for overtime hours worked, the employee can file a complaint with the California Labor Commissioner.  The Labor Commissioner’s Office, also known as the Division of Labor Standards Enforcement (DLSE), is the forum for adjudication of such claims.  Often, this kind of complaint is filed after an employee is terminated.  Employers should realize that, regardless of the reasons for termination, in a wage and hour claim the deck is stacked against them from the start – it is the employer’s burden to show that the employee took breaks and was properly paid.

CK&E attorneys routinely advise clients about navigating California’s complex employer workplace requirements, and advocate for clients in disputes before the California Labor Commissioner and California state and federal courts.

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