“Rowdy” Roddy Piper famously said: “Just when they think they have the answers, I change the questions.”

California employers can relate to this feeling of uncertainty, given a recent trend of California appellate decisions that have upended established legal “answers” regarding certain employment law issues. Following last year’s decision by the California Supreme Court in Dynamex to adopt a new “ABC test” to determine employment status under the Wage Order, and the Court of Appeal’s decision in AMN Healthcare that cast doubt 33 on years of established authority regarding non-solicitation of employee provisions, the Court of Appeal in Ward v. Tilly’s, Inc. recently adopted a new standard for reporting time pay. Because disputes over reporting time pay may lead to putative class action claims, this decision is particularly important for California employers.

California is one of a few states requiring employers to pay a certain minimum amount to nonexempt employees as “reporting time” (also referred to as “show-up pay”) if the employee reports to work but does not actually work the expected number of hours. Specifically, each of California’s Industrial Welfare Commission wage orders requires employers to pay employees “reporting time pay” for each workday “an employee is required to report for work and does report, but is not put to work or is furnished less than half said employee’s usual or scheduled day’s work.”

In Ward v. Tilly’s, a divided Court of Appeal has expanded the “reporting time” obligation to situations where employees are required to contact their employer two hours before on-call shifts—even though they never actually physically report to work.

In a 2-1 decision, the majority summarized its interpretation as follows:

If an employer directs employees to present themselves for work by physically appearing at the workplace at the shift’s start, then the reporting time requirement is triggered by the employee’s appearance at the job site. But if the employer directs employees to present themselves for work by logging on to a computer remotely, or by appearing at a client’s job site, or by setting out on a trucking route, then the employee ‘reports for work’ by doing those things. And if, as plaintiff alleges in this case, the employer directs employees to present themselves for work by telephoning the store two hours prior to the start of a shift, then the reporting time requirement is triggered by the telephonic contact.

Like many retailers, the defendant in the case scheduled its retail employees for both regular and on-call shifts. Plaintiff alleged (and accepted as true, for purposes of the ruling on demurrer), employees are assigned on-call shifts, but they are not told until they call in two hours before their shifts start whether they should actually come in to work. If they are told to come in, they are paid for the shifts; if not, they do not receive any compensation for having been “on call.” The plaintiff contended that when on-call employees contact the employer two hours before on-call shifts, they are “reporting to work” within the meaning of the Wage Order, and thus are entitled to reporting time pay if they are not told to come in. The employer argued, consistent with the intent of the Wage Order at the time it was adopted, that employees “report to work” only by physically appearing at the work site at the start of a scheduled shift, and thus that employees who call in and are told not to come to work are not owed reporting time pay.

The Court of Appeal acknowledged it was undisputed that, at the time the Industrial Welfare Commission adopted the reporting time obligation, the phrase “report for work” meant physically showing up at the worksite. Nevertheless, the majority concluded that “had the IWC confronted the issue, it would have determined, as we do, that the telephonic call-in requirements alleged in the operative complaint trigger reporting time pay.” (emphasis added). In the majority’s view, unpaid on-call shifts are “enormously beneficial to employers,” while “impos[ing] tremendous costs on employees.” For instance, the majority stated that “at the time employees are required to call in to find out whether they will be required to work on-call shifts, they cannot do things that are incompatible with making a phone call, such as sleeping, watching a moving, taking a class, or being in an area without cell phone service.”

Notably, the majority specifically expressed no opinion as to whether its interpretation of the Wage Order applies prospectively only, or retroactively as well.

In the 2-1 split, the dissenting justice remarked that the legislative history of the phrase “report to work” reflects the IWC’s intent that an employee must physically appear at the workplace in order to qualify for reporting time pay. The dissenting justice also observed that the fundamental task in interpreting Wage Orders to ascertain the drafter’s intent, not to draw up interpretations that promote the court’s view of good policy. It is the Legislature’s responsibility to enact any necessary legislation to address any hardship to employees who are required to call their employers to discovery if they must report for work. The dissenting justice outlined numerous policy considerations involved and stated it was the role of the Legislature to give notice to all interested parties, learn the social costs and benefits of various alternatives, and engineer compromises acceptable to all. He also noted that the California Legislature has repeatedly considered predictable scheduling legislation, and that the City of San Francisco has actually enacted predictable scheduling legislation. This deference to the Legislature, however, was contained in the dissent, not the controlling majority opinion.

Finally, the dissenting justice noted that the majority’s interpretation should be prospective only, particularly because the Wage Order’s language has been on the books for more than 70 years and neither the Division of Labor Standards Enforcement nor the Division of Industrial Welfare Enforcement has ever filed any charge or initiated any action against an employer for an “on-call” policy.

Key Takeaways

• If your business uses an on-call or contingent scheduling practice, particularly one that directs employees to “present themselves for work” by telephoning or logging on to a computer at a particular time prior to the start of a shift, consider whether alternative scheduling options are available (e.g. setting defined schedules or providing at least 24 hours’ notice of schedule changes). If avoiding a situation akin to that in this case is not commercially practicable, contact your Baker McKenzie employment lawyer to discuss other options.
• Continue to monitor this evolving area of California law. The Ninth Circuit Court of Appeals recently heard oral arguments in a case that addresses the same issue, Herrera v. Zumiez, Inc., No. 18-15135, and may reach a different result than the California Court of Appeal, or may certify the question to the California Supreme Court. Further, it is possible that Tilly’s may seek review by the California Supreme Court. We also expect further litigation over whether the Court of Appeal’s interpretation has a retroactive application.
• On-call and contingent scheduling are hot topics in wage and hour law. Some cities (e.g. San Francisco, New York and Seattle) have adopted legislation aimed at curbing unpredictable scheduling practices for certain types of nonexempt employees, particularly those in the retail and food service industries. Not only is it important to be aware of state-imposed reporting pay obligations, but also any local regulations bearing on predictive schedules.

Contact your Baker McKenzie employment lawyer for preemptive strategies to mitigate potential reporting time liability.