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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California Employers’ Risks of PAGA Exposure

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If you’re a California employer, you may have heard people refer to “PAGA” and wondered what it’s all about.  PAGA is a legal device that employees can use to address Labor Code violations in a novel way, in which employee representatives are allowed to act as if they are government enforcement agents.

The California Labor and Workforce Development Agency (CLWDA) has authority to collect civil penalties against employers for Labor Code violations.  Seems simple enough.  But in an effort to relieve an agency with limited resources of the nearly impossible task of pursuing every possible Labor Code violation committed by employers, the California legislature passed the Private Attorney General Act of 2004 (“PAGA”).  PAGA grants aggrieved employees the right to bring a civil action and pursue civil penalties against their employers for Labor Code violations, acting on behalf of the State of California as if they were the CLWDA.  If the aggrieved employees prevail against the employer, the employees can collect 25% of the fines that the state of California would have collected if it had brought the action.

Penalties available for Labor Code violations can be steep – for some violations, the state of California can recover fines of $100 for an initial violation to $200 for subsequent violations, per aggrieved employee, per pay period.  These penalties can add up to serious money, especially if the aggrieved employee was with the company for some time.  But what makes PAGA particularly dangerous for employers is the ability of employees to bring a representative action (similar to a class action), in which they can pursue these penalties for violations of the Labor Code on behalf of not only themselves, but also all others similarly situated.  Under this scheme, an aggrieved employee can bring an action to pursue penalties on behalf of an entire class of current and former employees, thereby multiplying the penalties for which an employer can be on the hook and ballooning the risk of exposure.  That risk is further amplified because PAGA also permits plaintiff employment attorneys to recover their fees if their claim is successful.

There is an upward trend in use of PAGA against California employers.  A July 2017 California Supreme Court decision, Williams v. Superior Court, exacerbated the problem for employers:  The California Supreme Court decided that plaintiff employment attorneys can obtain from employer defendants the names and contact information of potentially affected current and former employees throughout the entire state of California.  This means the PAGA plaintiffs can initiate an action and then pursue discovery of all possible affected employees and former employees throughout California, which can greatly expand the pool of potential claimants and ratchet up the exposure risk for employers.

Employers in California need to be attuned to Labor Code requirements and careful in their manner of dealing with employees, so that they avoid exposure to PAGA liability to the extent possible.  Conkle, Kremer & Engel attorneys are familiar with the latest developments in employment liability and able to assist employers avoid trouble before it starts, or respond and defend themselves if problems have arisen.

 

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